Digital Transformation of Kazakhstan

Contents

• IT companies in Kazakhstan
• Digitalization in the Oil and Gas Industry
• Digitalization in mining and metallurgical complex
• Fintech and Banking sector
• Retail and e-commerce
• Construction industry
• Digitalization of Agricultural sector
• Digitalization of Government services
• Conclusion

Kazakhstan's economy is the largest in Central Asia. Kazakhstan is rich in mineral resources: the country ranks 12th in the world in oil reserves, 14th in gas reserves; Kazakhstan has 30 % of world reserves of chrome ore and 25 % of manganese ore; there are large reserves of tungsten and molybdenum. The vast territory of the country — Kazakhstan occupies the 9th place in the world by area — provides opportunities to create a strong agro-industrial complex. However, in our time, having a strong resource base alone is not enough for competitiveness on the international level in the economy.

In 2017, the President of Kazakhstan adopted a decree approving the State program "Digital Kazakhstan", which envisaged the digital transformation of key sectors of the economy, the development of ICT infrastructure, e-government and the creation of an environment for technological entrepreneurship. As a result, in 2022, Kazakhstan was among the 30 most digitally developed countries in the world, and nowadays Kazakhstan continues its digital reforms. By 2022, 92.9% of the population had access to the Internet, and the gap in Internet access between rural and urban residents was reduced to 4%. In the world rankings, Kazakhstan ranks 51st in the ICT Development Index and 58th in the Network Readiness Index.

Source: https://www.undp.org/kazakhstan/stories/digitalisation-sustainable-development-and-social-well-being....

Let's take a closer look at the sphere of IT services in Kazakhstan, how the digital transformation is taking place in key sectors of the economy and what technologies and specialists are in demand by industry leaders.

IT companies in Kazakhstan

The volume of services provided in Kazakhstan in programming, consulting and other related services at the end of 2022 was 772 billion tenge (about $ 1.67 billion at an average exchange rate of dollar to tenge in 2022), which is 19.5% more than in 2021. The industry continues to grow: IT companies earned 23.4% more in the first quarter of 2023 than in the corresponding period of 2022. The largest economic and IT centers are Astana and Almaty: companies from these cities produce 41.5% and 49% of IT services respectively. The number of companies engaged in software development and IT consulting services for the last 4 years has increased by 2.7 times.

Software development accounts for more than half of ICT services. The largest taxpayer among software companies registered in Kazakhstan is the international company EPAM, while other major players work mainly for the domestic market: digital transformation of industry, fintech, quasi-public sector, digitalization of state and municipal services. In recent years, there has been an influx of IT businesses and specialists from Belarus, Russia and Ukraine, caused by the geopolitical instability of the regions. Due to the high demand for digitalization in the economy, both Kazakh and foreign IT specialists remain in demand in the labor market.

An important step in the development of the IT sector in Kazakhstan was the opening of AstanaHub Technopark in 2018, offering tax benefits to IT businesses and creating conditions for the development of startups. Today there are more than 1,100 companies among the residents of the technopark. According to data by the middle of 2022, the total income of the participants of the technopark since the launch of Astana Hub was 383 billion tenge, and the export volume of IT-services was 123.3 billion tenge. Since 2018, over 15,000 individuals have participated in educational IT programs at Astana Hub, which is particularly important in the face of a shortage of skilled professionals in the digitalization sphere. An important aspect of Astana Hub's activities is aimed at stimulating the development of technology entrepreneurship. More than 2,000 people have already graduated from Astana Hub's acceleration and incubation programs.

Ekaterina Khritonenkova, Director of Regional Partner Department in Russia and CIS countries of Astra Group:

- Today our solutions will be of interest to any company that wants to switch to affordable and reliable software with constant updates and quality technical support.

Initially we had one flagship product - the secure operating system Astra Linux. But we always realized that the OS was not enough for the stable and secure work of the organization. That is why we were constantly working on the expansion of our portfolio of solutions. Some of them were developed directly by our specialists; in some cases, we acquired a development company and integrated the finished software into our ecosystem.

In total, the Astra Group's portfolio currently includes 15 products that cover most issues related to building a complete IT infrastructure for an organization in any country.

Digitalization in the oil and gas industry

Over the past 30 years, Kazakhstan has increased oil production 3.5 times, and by production in 2021 it ranked 13th in the world (2% of global production). In the overall export structure of Kazakhstan for the year 2021, oil constitutes 51.5% of all goods, while gas accounts for 3.8%. More than 80% of the oil produced in Kazakhstan is shipped for export, and the national budget of Kazakhstan is replenished by 30-50% by the oil and gas industry. Oil and gas pipelines are mainly used to transport products. The largest oil producers are foreign companies: Tengizchevroil LLP (USA, Russia), North Caspian Operating Company B.V. (Netherlands, UK, USA, France, Italy, China, Japan), and Karachaganak Petroleum Operating B.V. (UK). Over the last 10 years, the average share of oil and gas in the gross inflow of foreign investments into Kazakhstan has been about 33%. The national company KazMunayGas is the leader of Kazakhstan's gas industry with full integration at all stages of the value-added chain.

Digitalization in the oil and gas industry is aimed not only at optimizing processes, but also at ensuring safety and improving operational efficiency. The oil and gas industry is in greater demand:

• Internet of Things: Used to monitor and control various production processes and collect data from various sensors and equipment in real-time.

• Big Data: Big data analysis can help companies make more informed decisions based on actual data, thereby improving efficiency and reducing costs.

• Artificial Intelligence (Artificial Intelligence): Used in exploration and remote management of oil production facilities, resulting in reduced costs and improved process efficiency.

• Machine Learning is used to improve the speed and accuracy of processing information streams coming from the field and enables integration and analysis of heterogeneous data, which helps improve operational performance

• Digital Twin is a virtual replica of physical assets used to model and optimize production processes and help reduce downtime, lower capital and operating costs, and improve the efficiency of companies' capital assets.

Digitalization in the mining and metallurgical complex

The mining industry of the Republic of Kazakhstan is one of the most competitive industries in the country. Today, the mining industry is at the beginning of the digitalization path, but the application of digital technologies in some enterprises already allows significant effects at all stages of value creation. For the digital transformation of MMC, the main stop factor remains the lack of digital competencies within the companies: namely the organizational, technological and cultural transformation, so that the entire organization, including production employees and technologists, has a data-driven approach and self-service analytics tools.

Source: https://invest.gov.kz/doing-business-here/regulated-sectors/mmc/

The main trends in the digitalization of MMC in Kazakhstan:

• The use of artificial intelligence and the industrial Internet of Things as tools for the economic sustainability of enterprises;

• The trend for import substitution in terms of technology and IT suppliers;

• The deficit of qualified personnel: Digital transformation requires a large number of specialists with a deep understanding of mining and information technologies at the same time. There are no such specialists now, they need to be trained;

• State support for digital transformation: a national project "Mining Industry 4.0" was launched to unite IT, mining and training of specialists in universities.

Fintech and the banking sector

Source:Fintech in Kazakhstan Research by RISE, MOST and Fintech Consult, 2023

The fintech market in Kazakhstan is one of the fastest growing in the country and the largest in Central Asia. The latest research conducted by RISE Research, MOST Holding and Fintech Consult confirms that the fintech market in Kazakhstan follows global trends and is transforming towards digitalization and increasing accessibility of financial services. Banks are actively cooperating with digital companies and forming ecosystems, and services are becoming personalized and capable of solving a wide range of tasks, including both financial and non-financial ones. At the same time, the number of fintech startups in the local market continues to grow, indicating the rapid development of the industry and its prospects.

86% of Kazakhstan's population are active users of mobile banking, which is why today the country's banks compete by offering a wide range of services through mobile applications. The pioneer in this field was Kaspi: in 2017, the bank developed a mobile application with city maps, messengers, and the ability to transfer money, and in 2021, they added Travel Tech functionality. Following Kaspi, banks such as Halyk, Jusan, and Forte launched their own online stores. The effectiveness of such comprehensive products greatly depends on data, which is why technologies that provide Big Data and AI (Artificial Intelligence) functionalities, as well as Machine Learning for optimal data management schemes, become highly sought after.

Retail and e-commerce

In 2022, retail faced many problems due to the geopolitical situation. The sanctions imposed on Russia also affected neighboring Kazakhstan: logistics chains and infrastructure were disrupted, and the high level of domestic inflation led to a decrease in purchasing power. At the same time, the volume of retail trade increased both financially and physically. Much of this growth is due to the development of e-commerce: in 2022 the population's access to the Internet in Kazakhstan reached 90%, and the share of cashless payments reached 80%.

According to the recent study of PwC Kazakhstan the market of electronic commerce grew by 30% in 2022 and according to forecasts will continue to grow actively.

Today, the e-commerce market is actively growing, mainly driven by marketplaces, and in this regard, Kazakhstan significantly outperforms the global average. In 2022, the share of sales from marketplaces in retail e-commerce in Kazakhstan reached 89%. Another major trend is the transition of large retailers and e-commerce companies to cloud-based solutions. Experts highlight the leading industries in digital transformation: finance, retail, and telecommunications. Currently, cloud consumption in Kazakhstan is ten times lower than in developed markets. Many IT companies are currently focusing on providing businesses with specific value-added services. Essentially, various cloud solutions serve as resources for convenient consumption of Software-as-a-Service (SaaS).

Yuri Zhdanov, Head of International Sales, AXELOT:

"The IT market in Kazakhstan today is rapidly developing. This is facilitated by the changed world logistics, which creates increased loads on the spheres of transportation, distribution, Retail and others. Accordingly, companies are interested in reliable automation tools. Qualitative development of the market is also promoted by the arrival of IT specialists from Russia and Belarus. But there is a shortage of high-quality managers of large IT projects, and against the background of the demand for automation it is increasingly necessary to attract such teams from abroad".

Construction industry

Source: https://stat.gov.kz/en/industries/business-statistics/stat-inno-build/

Kazakhstan is a rapidly developing country undergoing a swift process of urbanization. According to the Central Statistics Agency, the volume of construction in Kazakhstan increased by 18% by the end of March 2023 compared to the same period in 2022. These figures can be attributed to the influx of urban population, increased investments in road infrastructure and energy projects, as well as growth in industrial production. The construction industry in Kazakhstan, like in many other countries, is a foundational sector that influences the development of the entire economy of the country. The construction sector contributes 5.8% to the GDP, ranking fifth among other contributing sectors.

Several state projects aimed at the construction sector have been implemented in Kazakhstan:

• Unified geoportal of infrastructure data (UGID). In 2022, 63.7% of information on engineering networks of the built-up area was digitized, 142,618 records in the “act of commissioning” layer were entered, 1908 users work in the system.

• E-PSD, a unified digital platform for interaction of customers and expert organizations on a “one-stop-shop” principle.

• IS Kazreestr is a system for automated collection, processing, storage and analysis of information in the field of state registration of shares in residential construction. It contains unique numbers of projects, SACC notification (obtaining a construction permit), information about premises, electronic equity participation agreements (auto-verification function and auto-registration of agreements).

• e-QURYLYS is a system to ensure monitoring and transparency of work at all stages of the construction process. Over 25,000 construction projects have already been registered in e-QURYLYS, with 6,230 reports submitted in March 2022 alone.

• e-SHANYRAQ is a system to improve transparency and efficiency of housing and utilities entities. It analyzes the performance of public utilities, meters water and heat metering, records and controls the operation of elevators, monitors the condition of public infrastructure, and compiles a technical passport of the condition of apartment buildings.

Construction companies themselves use a wide range of software, which is used for various purposes - platforms for data collection and analytics, software for design, various metrology equipment, communication systems. As in other industries, major players in the construction market seek to create marketplaces and ecosystems that allow them to solve complex problems within a single platform. For example, the BI Group construction holding company's user platform includes services for buying apartments online, a repair planner, a construction marketplace, cleaning, food delivery, and a smart home.

Igor Yergunov, Director of 1 C Practice, Odyssey Consulting Group:

«In recent years, the global cable industry has faced increased global competition, rapid technological change and geopolitical instability. In light of these factors, increased efficiency, innovation and the ability to adapt quickly to changing market conditions are required. Particular attention should be paid to tracking trends, rapidly digitalizing business processes and adapting the product range to new market demands».

Digitalization of the Agricultural sector

To implement a long-term strategy for the development of agriculture in Kazakhstan, the Ministry of Agriculture has developed a specialized program called E-APK, which includes strategic objectives. The main goal of the E-APK program is to introduce effective and affordable digitalization tools in agriculture to increase productivity by 2.5 times by 2022 compared to 2017 levels. The strategy also provides for an increase in exports of processed agricultural products and digitalization of business processes in the provision of public services for the agricultural sector.

The main technologies being implemented in the digitalization of agriculture in Kazakhstan are GPS navigation for agricultural machinery, parallel driving, automation of weighing operations, electronic field maps, and the use of drones. Similar to other sectors, the use of digital twins and Internet of Things (IoT) technology is gaining popularity in the agricultural sector. Large agroholdings in Kazakhstan are currently making attempts to build machine learning (ML) models and implement artificial intelligence (AI) to optimize decision-making systems.

Digitalization of Government services

Source: https://egov.kz/cms/en/digital-kazakhstan

The government of Kazakhstan has been working to digitize its services since 2008. Currently, the level of online government services has reached 93%, with plans to bring it to 100% by 2025. Kazakhstan ranked 28th in the 2022 UN e-government rating with the highest EGDI (e-government development index) values among the CIS countries. The digitalization of the banking sector and the openness of Kazakhstan's public services to integration with banks, not only in terms of financial transactions in favor of the state, also contributed to the promotion of digital services. For example, Halyk Bank's application allows its clients to register their residence registration.

In 2022, a total of 58.2 billion tenge was allocated for the management of information and communication infrastructure within the framework of the formation and development of state electronic information resources and systems. The development of public services is facilitated not only by synergy with the banking sector but also by the high internet and mobile coverage across the country. Currently, Kazakhstan has 6,406 populated areas, of which 4,974 (77%) are connected to broadband mobile internet. 2,928 populated areas are connected to the 4G network, while 2,046 are served by 3G technology. By 2027, a planned 75% coverage of 5G network is expected in each city of national significance and the capital, as well as 60% 5G coverage in regional centers.

Conclusion

It is difficult to fully assess the effectiveness of the implementation of the program “Digital Kazakhstan”, despite the large investments in digitalization, due to the lack of approaches to measure the digital economy. Nevertheless, according to a number of studies and international ratings mentioned in the review, certain initiatives have a good effect and have a positive effect on the economy of Kazakhstan as a whole.

One of the factors that allowed Kazakhstan to introduce changes quite systematically in various directions was the existence of the so-called quasi-state sector: the shareholder of a large share of large industrial enterprises is ultimately the state, so the launch of the digital national program could not be ignored. Although, digitalization is most intense where it produces fast financial results: in the banking and retail sectors.

An additional impetus for digitalization in Kazakhstan and around the world was the COVID-19 pandemic. With the minimization of direct human contact, new standards of business automation and remote access to services have emerged, with a positive impact on the economy thereafter.

By 2025 the government of Kazakhstan has ambitious plans to enter the top 20 in the UN Index of e-government development, the top 50 in the B2C (Business to Consumers) e-commerce index and the top 40 countries on the Information and Communications Technology Development Index.