Government support of innovation efficiency in enterprises in the republic of Kazakhstan

Purpose – is to determine the connection between the innovative activity of enterprises in Kazakhstan with resources and state support.

Methodology – in this paper was used the method of statistical and system analysis, methods of theoretical comparison and generalization.

Originality/value – In article were disclosed features of impact of legislative support on innovative activity of the enterprise.

Findings – conducted research revealed that the manufacturing industry has the necessary potential for the development of innovative activity of enterprises. State support for innovation in Kazakhstan has a direct impact on its development. 

The current position of innovation activity is one of the important indicators of the development of society and economy of any state. Different experiences of developed countries show that success in obtaining sustainable economic growth can be achieved through knowledge, science and technological progress.

It is become obvious that in competitive world, countries, which provide favorable conditions for the development of innovative activities, have more benefits. The innovative activity of organizations is one of the main conditions for the formation of competitive strategic perspective. At the same time, the competitiveness of organizations is directly related to the innovation of their activities. In order to succeed and produce competitive products now and in the future period, organizations need to create and master new innovative products and technologies. Therefore due to technical, organizational and managerial innovations, organizations can create and retain key competencies such as knowledge, skills that determine their competitive advantages.

In economic literature, there is no single approach to the definition of the concept "innovation". Historically, the formation of theoretical foundations for the study of innovations began in the early XX century, one of the founders of which was the Austrian economist Joseph Schumpeter [1]. He wrote about innovative processes as new combinations that are formed as a result of the reorganization of production through the use of new technology, the emergence of new raw materials, the introduction of new products, the emergence of new markets [2]. Then more different approaches appeared to the definition of the term "innovation" as the process of creating a new product or method; introduction of researched results; factor of transformation; application of new knowledge; modification of certain production processes.

The importance of appliance, introduction and generation of innovations in the modern world is unconditional. This is can be confirmed in a survey conducted by PwC among 246 CEOs working around the world. According to this survey 64% of CEO claim that innovation and operational efficiency are equally important for the success of the company and 11% agree that innovation has a greater impact on the successful operation of the company. According to the Global Innovation Economy Survey conducted in 2015, the main areas where innovation is generated in the world are healthcare, information technology and telecommunications [3]. Switzerland, whose main innovation sphere is pharmaceuticals, holds the first place for 6 consecutive years among other countries. Kazakhstan stands on 75th position and the most innovative area, according to the official statistics, is manufacturing industry.

One of the key conditions for increasing innovation activity in any country is the effectiveness of state regulation. The range of its instruments is quite wide, and in order to achieve maximum effect, countries use different sets of regulators. The emphasis on certain mechanisms depends on a number of factors: the level of economic development, the model of state structure, traditions, socio-cultural preferences, geopolitical and external economic conditions, etc.

The purpose of this article is to determine the connection between the innovative activity of enterprises in Kazakhstan with state support, using statistical data and international experience. Based on aspect-oriented approach were highlighted problems of legislative support for the innovative activity of the enterprise and the pattern of development and dissemination of innovation activities at enterprises. This article reveals two hypotheses where the problem of innovation activity will be studied. First hypothesis is expected to reveal the way manufacturing industry is connected with innovation activity and main reasons to improve this sector. Second hypothesis will help us to understand and observe the impact of government support in innovation activity in Kazakhstan. Author through exploration of two hypotheses expects to determine the path for encouraging enterprises to innovate and instruments that can be used in support of such activity.

Hypotheses.

1. Manufacturing industry is one of the priority areas for the development of innovative activity in Kazakhstan.

The driving force of innovative activity of enterprises is the availability of potential financial resources for the creation and implementation of innovations, structural units, material and technical base, qualified personnel and other resources. However there are classical problems related to the provision of resources for the innovation process such as lack of personnel, finances, production capacities, information resources and marketing channels.

Traditionally Schumpeter's theory states that small firms embrace dynamic creative potential and are the driving force of innovation through the introduction of radical new products and industry structures [4]. He then concluded that small firms are far less likely to be innovators than large firms [5], which was also supported by recent empirical studies [6]. This is especially noticeable in the chemical and pharmaceutical industries, and in the electrical and electronic equipment industry, where the average size of the plant is much bigger than in other industries, and the development of radical new products predominates, and usually it is multinational enterprises [7].

In modern world one of the key sectors of the national economy is industry, since scientific and technological progress is mainly realized through industrial and new information technologies, and their production and distribution are concentrated in industries and it’s sectors.

The McKinsey Global Institute undertook the research and analysis that helped to understand the role of manufacturing in advanced and developing economies and the choices that companies in different manufacturing industries make about the way they organize and operate. They find out that manufacturing continues do matter a great deal to both developing and advanced economies. According to this research they see that the role of manufacturing in job creation changes as economies mature. Manufacturing industries have helped to drive economic growth and rising living standards for nearly three centuries and continue to do so in developing economies. Therefore improvement of manufacturing sector can be characterized as one of the determinative steps in development, raising incomes and providing the machinery, tools, and materials to build modern infrastructure and housing. For instance India, which has leapfrogged into the global services trade with its information technology and business process outsourcing industries, continues to build up its manufacturing sector to raise living standards-aiming to raise the share of manufacturing in its economy from 16 percent today to 25 percent by 2022 [8]. Other example is Thailand where government supports opportunities for incremental and radical innovative firms, especially in manufacturing, providing technical and financial support for innovative projects [9]. In this country manufacturing industry represents concentration of main production of the most technologically sophisticated and high-tech products with high added value [10].

In Kazakhstan, according to official statistics, one of the most innovative-active industries is manufacturing industry [13]. Thus, the diversity of technological areas is focused on manufacturing enterprises that makes this sector the main source for innovative products, goods and services, but also as main consumer of a wide range of innovative developments.

It should be noted that according to the data of the Association of Mining and Mining and Metallurgical Enterprises, 13% of the world's iron reserves have been discovered in the country [11].

The Association of Mining and Mining and Metallurgical Enterprises reported that in terms of mining, Kazakhstan occupies13th position among other 70 mining countries in the world. [12]. Thus, Kazakhstan has the necessary natural resources for the development of this sector, and according to official statistics in 2014, the enterprises of ferrous metallurgy produced products totaling KZT759.2 bn., and for the period from 2010 to 2014 the growth of the industry was in the amount of about 10% .

The manufacturing sector of the economy of Kazakhstan is in the zone of special attention of foreign investors, over 26% of all investments in the fixed capital of the industry in January-June 2016 are represented by foreign companies. In the first half of 2016, the amount of foreign investment (excluding loans from foreign banks) was increased by 32 bn. tg. in one year, which is 34% of the total increase in investments in the industry [13].

In the reports of the Statistics Committee of the Republic of Kazakhstan on innovation can be traced a positive trend in the manufacturing industry, as investments in innovations in 2013 that recouped themselves in the next two years, and the volume of manufactured and realized innovative products is growing (Figure №1).

Figure №1 – Costs and volume of innovative products produced in the manufacturing industry

Moreover investments in manufacturing industry plays important role because in the context of transition to innovative type of development for the economy in general and enterprises in particular, the problem of investing in the innovation activity of industrial enterprises becomes particularly topical. Prospects for increasing the competitiveness of economic entities depend not only on the quantity, but also on the quality of investment, determined by the innovative activity of economic entities.

At present, a certain regulatory and legal framework has been formed aimed at stimulating innovation in the manufacturing industry. The "State program of industrial-innovative development of the Republic of Kazakhstan for 2015-2019" was approved. Priority directions and main objectives of the program were defined within the framework of this program [14]. It is necessary to stimulate diversification and increase competitiveness of manufacturing industry. However, despite the efforts made the pace of innovation in the manufacturing industry remains extremely insufficient for achievement the indicators outlined in the Strategy in order to make this sector a driving force of innovative development of the country's economy. It is become obvious that enterprises additional aid or motivation for adapting and implementation innovations. Author suggests that such role can play government reflecting its authority in legislative acts as mechanism for managing innovation, which leads us to the second hypothesis

2. State support as necessary condition for innovative activity on enterprises

Since the independence of the Republic of Kazakhstan for the first time on the legislative level, the need for innovative development was reflected in the Resolution of the President of the Republic of Kazakhstan of July 15, 1992 No. 854 "On additional measures to provide organizational and legal support for economic reform"

The resolution was emphasized the need to develop the concept of science and technology policy of the republic, providing it with the orientation of science in an innovative way, to stimulate the development and implementation of technological and scientific and technological innovation in the sphere of material production [15].

In the State Program for the Support and Development of Entrepreneurship in the Republic of Kazakhstan for 1994-1996, one of the priority areas for the development of private entrepreneurship included innovative activities, namely the organization and development of high technology industries; creation of small innovative enterprises, regional centers of innovation and technological assistance, innovative business centers; creation of business centers, educational centers, research and technology parks; introduction of resource-saving technology, technologies for the use of secondary raw materials and waste [16].

The next step was taken with the approval of the innovation development program, where the innovation activity was disclosed, as it promotes the development of new economic and territorial entities (technology parks, business incubators, regional innovation funds, venture firms), the transformation of interconnections between previously created economic entities, development of management technologies. It is mentioned in the document that innovative processes have an impact not only on production, but also on virtually all aspects of public life. As a result, the structure of consumption of material and non-material goods is being improved, new spheres of people's livelihoods are being created. In this low were disclosed such basic concepts as the state innovation policy, innovation activity, innovation, and others. The law defines the subjects and objects of innovation and forms of state support [17].

It should be noted that with the introduction of the law on innovative activity since 2002 till 2006 there has been an increase of innovative activity in the enterprises (Figure 2), which was also contributed by the Republic of Kazakhstan presidential decree of 17 May 2003 "On the Strategy of Industrial and Innovation Development of Kazakhstan for 2003-2015 year ", where the main goal was sustainable development of the country.

Figure № 2 – Level of innovation activity in Kazakhstan [13]

Noteworthy is the decline in innovation activity in 2006-2009. During this period legislative acts aimed at supporting innovation activity were prolonged and according to statistics the number of employees who carried out research and development work in these years decreased noticeably from 19563 up to 15793 people [13]. The situation was changed with the Decree of the President of the Republic of Kazakhstan dated by March

19, 2010 about the launch of the State Program on Forced Industrial and Innovative Development of the Republic of Kazakhstan for 2010-2014. The impact from this program can be seen when innovation activity at enterprises increased sharply from 4.3% to 5.7% in 2011.

Also trough Decree of the President of the Republic of Kazakhstan dated by June 4, 2013 was approved the Concept of Innovative Development of the Republic of Kazakhstan until 2020, which, according to official statistics, influenced the growth of innovative activity of enterprises. This trend was supported by the current state program of industrial and innovative development of the Republic of Kazakhstan for 2015-2019 adopted by the decree of the President of the Republic of Kazakhstan on August 1, 2014. As a result of ongoing reforms the share of innovation-active enterprises has increased from 4% to 7.6%, the cost of enterprises for technological innovations has increased threefold (from 113.5 to 326 billion tenge), so and the volume of innovative products (from 111.5 to 379 billion tenge) [18].

The main goal of the state program of industrial and innovative development of the Republic of Kazakhstan is to ensure diversification and increase competitiveness of Kazakhstan's economy in the long-term period with the strengthening of its social efficiency. This goal can be achieved through the process of the implementation of large investment projects, stimulation of small and medium-sized businesses. At the same time, the main tool for monitoring and managing the entire process is the development of the Industrialization Map, which allows tracking the stages of the implementation of industrial projects.

As a result, for 2.5 years of implementation of the Industrialization Program in the country, enormous work was done: 443 new production facilities were opened, thanks to which the structure of the economy began to change qualitatively [19]. Industrialization has created conditions for the growth of basic industries. In addition, labor productivity in the country has noticeably increased: only in the manufacturing industry, this indicator grew by one third.

In Kazakhstan, there are also instruments of state support of innovation activity as tax benefits, including deductions from the taxable base for research and development expenditure of 50% and direct tax on subsoil users at a rate of 1% of the total annual income on research and development work [20].

Another way of support is financing a set of measures for innovative development, ensuring the implementation of scientific, technical, economic and, if necessary, environmental expertise of innovative projects. An equally important direction is the development of venture and project financing. The investment policy of venture funds is aimed at finding and attracting innovative projects in the promising sectors of the economy. Nowadays in Kazakhstan functions 4 venture funds. Project financing of innovative programs is carried out by means of a share of non-controlling participation in them. For example, the National Agency for Technological Development provides innovative grants to individuals and legal entities that are residents of the Republic of Kazakhstan on a no-cost basis, in the case of a selection. Priority areas are advanced technologies, development of alternative energy, robotics, nano and space technologies. According to the official statistics of the Fund, 199 out of 931 applications were approved and the most attractive branch is engineering. Moreover, financial support of innovation activity is one of the most effective forms of assistance to the development of innovative activity, and it should be the main focus of the state structures.

The presence of such large number of support instruments is evidence of the state aim to encourage entrepreneurs. We hope that the use of the tools provided by the business will help to translate into reality innovative ideas, thereby ensuring the growth of our economy. Thus, it becomes obvious that the level of innovative activity of enterprises increases with state support as it carried out on the basis of the following general principles:

• program approach and measurability of goals in the planning and implementation of government support measures;
• priority use of market-based tools and public-private partnership tools to stimulate innovation;
• ensuring the effectiveness of state support for innovation activities for the purposes of socio-economic development of the country and its subjects; 
• the target character of using budgetary funds for state support of innovation activity[21] Conclusion

First hypothesis showed us that manufacturing industry in Kazakhstan has necessary prerequisites for development of innovative activity on enterprises. However a lot of work needs to be done, which, according to statistics, can be confirmed by extremely low growth rates of the innovative activity level of manufacturing enterprises. The positive trends in this industry are investments, as one of essential financial recourses for improvement and implementation upgrades in this sector. Also considering support, government with legislative acts contributes to stimulation innovative activity in companies as entrepreneurs can use benefits and financial aid from introducing innovations.

However current system of support of innovation activities in Kazakhstan is evolving and currently underdeveloped. It is necessary to improve legislative stimulation of innovative activity in the enterprises. Main consumers of state support are large enterprises that are simultaneously the main producers of innovations and innovative products, and these results in a slow and inefficient implementation of innovation policies. Learning from the experience of foreign countries for Kazakhstan it is necessary to strengthen the legal framework, which will give impetus to the development of innovative processes, research and create programs to stimulate innovative entrepreneurship and technology transfer. In the message of the President of the Republic of Kazakhstan, Nazarbayev N.A. dated from January 31, 2017 was noted that it is necessary to adapt the legislation to new realities, and it is an important establish new industries is the support of innovations and their rapid introduction into production. The President Nazarbayev N.A. instructed the Government to create an international technology park IT-startup on the basis of one of the EXPO-2017 facilities, which will become a platform for attracting entrepreneurs and investors from around the world, and the appropriate infrastructure and favorable conditions, including tax breaks, simplified visa and labor regimes, will contribute to this.

Thus, at the present time, instruments for supporting the innovation sphere are accumulating in the Kazakhstan economy, but the mechanism for stimulating innovation activity of industrial enterprises is far from perfect: the issues of applying tax benefits remain unresolved, and the institutional basis for innovative development of the economy has not been completed.

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