Myth and reality of investment attractiveness of agriculture in Kazakhstan

Purpose – The aim of this paper is to identify investment potential of agriculture, therefore, several indicators were chosen in order to provide regression analysis that influence investment attractiveness of agriculture.

Methodology – comparison analysis, application of correlation model and regression analysis.

Originality / value – of this article is that conducted research proves that investment potential of agriculture in Kazakhstan is real, and it allows forecasting future investment attractiveness of agriculture sector as one of the core industries of economy. Justified investment attractiveness of agriculture through using regression analysis can be taken into consideration as a finding of this article.

Findings – Many policy makers and academics contend that investment can have important positive effects on development effort of receiving country. In addition to the direct capital financing it supplies valuable technology and know-how while fostering linkages with local firms, which can help jumpstart an economy. Overall, investment in agriculture has positive effect not only for this particular sector, at the same time other processing industries of economy can develop. 

Introduction

The increasing vital role of agriculture is mentioned in strategic documents of our country. Therefore, there is no doubt that agriculture is a key sector for economy. As we know, it is fundamental sector and it requires huge investment in order to develop it. Today we can say that agriculture as attractive as other industries. Its attractiveness explained by well-known factors such as population increasing. However, this sector is not as profitable as other industries. At the same time, the entire economic development of the country depends on it. Therefore, it is challenge to attract investment for this sector.

Agriculture has specific feature that implies its direct relation with nature, which exists according to its own ‘law’ (mostly uncontrollable, e.g. weather condition). Agriculture is a risky sector, payback period for investment is also related with big risks and too long. Therefore, it is obvious, that without state intervention attracting investment and its regulation is not possible. There are plenty of questions attract my attention such as why to investment agriculture, who defines financing sources, what makes Kazakhstani agriculture attractive, is there any real agricultural project which is being implemented by foreign investors, what kind of projects can be implemented only under government’s support and how technologies can be applied in this sector. In this research paper, I would like to try conduct research in order to figure out possible answers through analyzing government programs, particularly investing agriculture and what kind of results were achieved. Also, as we know agro-industrial complex comprises agriculture, food industry and food retail. Interrelationship of these sub-branched should be taken into consideration. 

Analysis investment potential of agriculture

Today the result of investment into agriculture is noticeable. Due to investment contribution, government achieved significant result such as integrating small farmers into production cooperatives. There is a law "About agriculture cooperatives" [1]. According to the statistic data (June 1, 2015) there were registered: 1481 agricultural consumer cooperatives, 489 agricultural water consumer cooperatives, 43 agricultural partnerships, 1843 production cooperatives in agro – industrial complex [2]. However, increasing number of agricultural cooperatives has an ambiguous explanation. Therefore, in order to implement new Government program regarding agro-industrial development for 2017-2021 [3] it is necessary analyze previous experiences. Government tends to develop and finance big agricultural production cooperatives because of economic efficiency. The advantage of big enterprises is that they can produce large scale of product in comparison with small farmers. Unfortunately, majority of production cooperatives is unprofitable and number of these cooperatives has decreased (two times last 14 years). Substantial debts, lack of financial resources for production development, insufficient state support are core reasons for being ineffective of cooperatives. Therefore, these facts led them to the bankruptcy of production cooperatives, and they became as a farmers,

LLP and agricultural consumer cooperatives.

In order to reestablish the cooperatives Government started to accelerate the process of establishing cooperatives during 2006-2011, as a result, 300 social–entrepreneurship cooperatives became as a new big enterprises and 9.2 billion tenge was allocated for privileged credit from state budget. Unfortunately, increasing number of enterprises did not solve problem. Problem was integrating producers of agriculture products. 

Instead of this, legal entities joined with individual farmers (or small LLP) by aiming to join properties in order to have sufficient collateral property. Meantime, vast majority of farmers again disbanded. The main reason of this situation is ignoring of basic principles (voluntary membership, transparency in governance and income provision for cooperative members) of cooperatives and absence of initiating from agriculture producers in order to establish cooperatives [4].

Thus, attractive investment to agriculture is not easy due to organizational, economic, political, and social factors. Nevertheless, the amount of investment reached 152 billion tenge in 2016 and it was a record. Another interesting fact is that in 2015 subsiding of agriculture significantly increased by 157 billion tenge, which is two times more than 2013. Regarding allocation of subsidy for agriculture in 2016 defined to finance 176 billion tenge.

It is an evidence that investment attractiveness of agriculture is not myth, but reality. If the goal to attract investment to agriculture is achievable, so let us analyze the dynamic of investment from different perspectives of financing it.

The financing sources of agriculture might be

• Budget expenses
• Domestic investment
• Foreign investment.
• Public private partnership’s

Among these mentioned sources, the role of foreign direct investment (FDI) is an important determinant of economic growth. Countries try to attract capital in order to foster economic development of country. The FDI has positive effect that can be stem for developing countries. These effects include productivity gains, technology transfers, the introduction of new processes, managerial skills, and know-how in the domestic market. As a result positive effects of FDI stimulate economic growth, improve the living standards of people in the receiving country. Numerous studies analyzing the link between FDI and growth have identified growth stimulating effects [5]. 

Table 1 – The dynamic of investment to agriculture during 2006-2015 years 

As we can notice from table all three sources that we consider as investment for agriculture are increasing during given periods, as well as gross output is increasing intensively. The two basic indicators investment in agriculture and bank loans increased significantly. As we can see during given period, the volume of investment for this sector increased 5 times and bank loans increased 4 times.

The aim of this paper is to identify investment potential of agriculture, therefore, several indicators were chosen in order to provide regression analysis that influence investment attractiveness of agriculture. 

Table 2 – Indicators that influence investment attractiveness of agriculture 

Table 3 – Correlation Matrix 

In order to provide analysis of correlation matrix, several factors are taken, such as Х2, Х3, Х4, Х5. Chosen regression models are

• Y, X2 and X4;
• Y, X2 and X5;
• Y, X3 and X5;
• Y, X4 and X5.

The model number four is a statistically significant and economically feasible. This model is

y= – 764571,84+0,029*X4+4,01*X5 (1)

On the basis, of this regression model we can forecast investment attractiveness of agriculture for period 2016-2018. 

Table 3 – Forecasting of investment in agriculture for period 2016-2018 

By forecasting of factors X4 and X5 we increased the investment volume to 5% for 2016, then it shows 42% growth rate in comparison with 2015; for 2017 we increased investment by 3%, growth rate is 12%; and for 2018 we increased investment the same level 3% and predicted growth rate is 11%. Thus, we can conclude that this calculation is relevant today’s situation of our country.

After defining investment attractiveness of agriculture, we would like focus on exactly what kind of sector of agriculture is going to be invested. This issue is also in Government’s agenda. According to the main agriculture documents – State program of agro-industrial complex development for 2017-2021 and 100 steps for realization of five institutional reforms – next actions are core issues for development. 

Conclusion

Thus, Kazakhstani Government has been tackling problem of attracting investment to agriculture. May 2015 was crucial for economy; President identified 100 concrete steps for realization of five institutional reforms. Among those 100 steps, agriculture was also highlighted as a main direction. These steps are 60 and

Thus, first, it is necessary to attract investors for milk production aiming to export up to 50% of produced milk product to the CIS market during 3 This plan can facilitate agricultural cooperatives’ development in rural places. Secondly, meat production and meat processing industries will be core for investment attractiveness. The main purpose in this industry is to export of processed meat product. This concrete action plan enables to build up real vision of investment attractiveness of agriculture in Kazakhstan.

What makes Kazakhstani agriculture attractive?

Several directions can describe perspective of investment potential of agriculture. Foreign and locals investors are interested in business opportunity. It is possible in case of Kazakhstan. Land as resource is core for production. Also beneficial geographical location and market capacity of Chinese and Eurasian Economic Union (EEU).

What kind of investor do we need?

First, we need an investor (it is a company) who has an extensive experience in agriculture and who has a high-level culture in applying new technologies (and no matter whether it is big or small company). Mostly countries from EEU are interested in Kazakhstan because of some significant reasons. There is no economic boundaries, no language barriers; technical specifications are the same [8]. Second, Kazakhstan interested in countries where technology applied in a high level in agriculture. Third, we need investor that will produce high quality product and import them.

Do we have any real investment project? Some examples are given in table. 

Table 4 – Big investment projects 

Many policy makers and academics contend that investment can have important positive effects on development effort of receiving country. In addition to the direct capital financing it supplies valuable technology and know-how while fostering linkages with local firms, which can help jumpstart an economy [9, 10].

Overall, investment in agriculture has positive effect not only for this particular sector, at the same time other processing industries of economy can develop.

References 

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