Senior lecturer Ilyashova G., Rakhmetova T.

Kazakh national University named after al – Farabi, Kazakhstan

Improving the competitiveness of domestic enterprises in the implementation of the import substitution policy

While import substitution policies might create jobs in the short run, as domestic producers replace foreign producers, economics theory shows that in the end output and growth will be lower than it would otherwise have been. This is because import substitution denies the country the benefits to be gained from specialization and foreign imports. The law of comparative advantage shows how countries will gain from trade. Moreover, protectionism leads to dynamic inefficiency: Domestic producers have no incentive from foreign competitors to reduce costs or improve products. Import substitution can impede growth through poor allocation of resources, and its effect on exchange rates harms export [1].

Analysis of domestic market in the implementation of the import substitution policy and offer optimal ways of improving domestic enterprises

Competitiveness pertains to the ability and performance of a firm, sub-sector or country to sell and supply goods and services in a given market, in relation to the ability and performance of other firms, sub-sectors or countries in the same market [2]. In recent years, the concept of competitiveness has emerged as a new paradigm in economic development. Competitiveness captures the awareness of both the limitations and challenges posed by global competition, at a time when effective government action is constrained by budgetary constraints and the private sector faces significant barriers to competing in domestic and international markets. The Global Competitiveness Report of the World Economic Forum defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country"[3].

Each country in a world market tries to be more competitive and invade larger bar of the “market pie”. There are many policies have been taken by governments to make their economy to prosper. One of them is the policy of import substitution. Import substitution helps domestic enterprises to cope with their financial problems and survive in a tough market conditions. Government strategy that emphasizes replacement of some agricultural or industrial imports to encourage local production for local consumption, rather than producing for export markets. Import substitutes are meant to generate employment, reduce foreign exchange demand, stimulate innovation, and make the country self-reliant in critical areas such as food, defense, and advanced technology [4].

Is it profitable to use the import substitution policy to be become more competitive or just waste of money and time? Can our domestic enterprises go up after gain support? Will they need further support from government even after import substitution policy? To try to answer mentioned questions we must research, firstly, current situation of local market export and import.

Current situation in domestic market of Republic of Kazakhstan: comparing export and import in economy

The economy of Kazakhstan is the largest economy in Central Asia. It possesses enormous oil reserves as well as minerals and metals. It also has considerable agricultural potential with its vast steppe lands accommodating both livestock and grain production, as well as developed space infrastructure, which took over all launches to the International Space Station from the Space Shuttle. The mountains in the south are important for apples and walnuts; both species grow wild there. Kazakhstan's industrial sector rests on the extraction and processing of these natural resources and on a relatively large machine-building sector specializing in construction equipment, tractors, agricultural machinery, and some military items. The breakup of the USSR and the collapse of demand for Kazakhstan's traditional heavy industry products have resulted in a sharp contraction of the economy since 1991, with the steepest annual decline occurring in 1994. In 1995-97 the pace of the government program of economic reform and privatization quickened, resulting in a substantial shifting of assets into the private sector. The December 1996 signing of the Caspian Pipeline Consortium agreement to build a new pipeline from western Kazakhstan's Tengiz Field to the Black Sea increases prospects for substantially larger oil exports in several years. Kazakhstan's economy turned downward in 1998 with a 2.5% decline in GDP growth due to slumping oil prices and the August financial crisis in Russia. A bright spot in 1999 was the recovery of international petroleum prices, which, combined with a well-timed tenge devaluation and a bumper grain harvest, pulled the economy out of recession [5].

World crisis affected on Kazakhstan economy badly as it is directly depended on export of oil and gas, which makes our economy vulnerable.

The balance between export and import goes down. Following charts show Kazakhstan Republics export in USD mln between 2010-2015 yr [6].

Chart 1

Kazakhstan’s export volume (USD mln) between 2010-2015 yr.

According to the chart, the highest export gain was in between 2010-2011. From 2014, export is decreasing. Nowadays, world oil price is not able to reach 40$ for barrel and still sways. Kazakhstan’s strategic plans were counted on oil’s high price, but as facts show we cannot rely on oil exports anymore, but it is still main product of export. Devaluation of tenge affected on import price. Fluctuation of import price is shown in chart 2 [7].

Chart 2

Fluctuation of import price in Kazakhstan (percentage) in 2011-2015

Fluctuation of import price in percentage shows that import price is steadily rising. The highest rise was 104 % in the end of 2014. Now, it fluctuates between 98-102%.

Chart 3

Import volume in 2011-2015 yr.(USD mln) [8]

Devaluation and the fall of oil price negatively influenced on industrial production.

Chart 4

Industrial production (percentage) of Kazakhstan in 2011-2015 [9]

References

1. ANALYSIS OF COMPETITIVENESS OF DOMESTIC ENTERPRISES ON THE GLOBAL MARKET/ http://scindeks-clanci.ceon.rs/data/pdf/2217-8090/2012/2217-80901201001S.pdf

2. ANALYSIS OF COMPETITIVENESS OF DOMESTIC ENTERPRISES https://www.researchgate.net/publication/266285319_ANALYSIS_OF_COMPETITIVENESS_OF_DOMESTIC_ENTERPRISES_ON_THE_GLOBAL_MARKET

3. World Economic Forum, The Global Competitiveness Report 2009–2010 p.3

4. Import substitution/

http://www.businessdictionary.com/definition/import-substitution.html#ixzz4041WBEFt

5. Economy & Business Overview/ https://en.wikipedia.org/wiki/Economy_of_Kazakhstan

6. Trading economics/export/http://ru.tradingeconomics.com/kazakhstan/export

7. Trading economics/import prices/http://ru.tradingeconomics.com/kazakhstan/import-prices

8. Trading economics/imports/http://ru.tradingeconomics.com/kazakhstan/imports

9. Trading economics/industrial-products/http://ru.tradingeconomics.com/kazakhstan/industrial-production