US embassy cable - 05ALMATY1973

UNCLAS SECTION 01 OF 02 ALMATY 001973 
 
SIPDIS 
 
DEPARTMENT FOR EUR/CACEN (JMUDGE, MO'MARA), EB/TPP/BTA/EWH 
(ELUFTMAN) 
DEFENSE FOR USDP/CTR 
ENERGY FOR LCOBURN, KTHOMPSON 
TREASURY FOR CENTRAL ASIA DESK OFFICER MGAERTNER 
COMMERCE FOR CENTRAL ASIA DESK OFFICER DSTARKS 
TASHKENT FOR EPUTNAM 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECONOMIC 
SUBJECT: KAZAKHSTAN'S SCENTIFIC SPENDING SPREE 
 
 
1. (SBU) Summary: Kazakhstan has quintupled science- and 
technology-related spending in its most recent budget.  The 
decision is in keeping with the GOK's long-stated goal of 
diversification of its economy and reduced dependence on oil 
revenues.  The Industrial-Innovative Development Strategy 
for 2003-2015 identifies high-tech and science-intensive 
industries as promising areas for the creation of export 
opportunities for products with high value added.  The 
amounts to be invested in technology are striking, including 
$340 million in 2005-2007 to establish a national space 
program.  However, while the government touts its dedication 
to developing a knowledge-based, diversified economy, it 
also grouses that its investments have not yet paid off. 
With implementation of the national innovation strategy 
already somewhat behind schedule, it is unlikely that the 
GOK will be able to implement so many new programs 
effectively.  End Summary. 
 
Spending Spree Officially Underway 
---------------------------------- 
 
2. (U) The GOK channels funds into science-intensive 
industries and projects in several ways.  Funds from the 
state budget are directly applied, as in the case of the 
space program; in other cases a state enterprise is 
responsible, and in still other cases a government-run 
venture fund becomes an equity partner with a private 
enterprise to execute an "innovative" project. 
 
3. (U) The 2005 budget includes significant increases in 
science- and technology-related spending over 2004.  Our 
analysis of the two budgets reveals a quintupling - from 
roughly $60 million in 2004 to over $330 million in 2005. 
The spending increases include new programs, as well as a 
broad-based plus-up to all aspects of the state innovation 
structure, including salaries. 
 
4. (U) The GOK budget includes several substantial line 
items supporting scientific enterprises and technological 
innovation in Kazakhstani industry.  The single largest 
expenditure appears to be $340 million through 2007 ($113 
million in 2005) for the national space company "KazCosmos." 
Additionally, the republic plans to spend $189 million from 
2005-2007 to build a "national innovation system."  This 
spending is in addition to the capitalization of the 
Innovation and Investment Funds, endowed with $66 and $150 
million respectively in May 2003.  Another substantial line 
item is the $50 million appropriated for the planned 
"Baiterek" rocket facility in Baikonur, plans for which 
include using MiG-31 aircraft to deploy small satellites. 
 
5. (SBU) Anecdotally and through press reports, post has 
learned of several other expensive science-based startup 
projects with full or partial state financing.  They include 
a nuclear medicine center in a proposed technology park in 
the formerly closed city of Kurchatov, estimated to cost $60 
million, to be built with some British assistance; and a 
particle accelerator near Astana.  A 2006 groundbreaking is 
planned for a second nuclear medicine facility with a 
similar price tag in Alatau, site of the research reactor 
that the USG is helping the GOK convert to LEU fuel.  The 
particle accelerator is intended to support prospective 
manufacturing of nuclear filters, although the details of 
the project are not known.  GOK contacts have also informed 
us that a biotechnology park, previously intended for 
Stepnogorsk, will be created in Astana; the cost is likely 
to rival that of the nuclear technologies park. 
 
Results Still Off in the Future 
------------------------------- 
 
6. (U) Although the Government continually touts the 
Industrial-Innovative Development Strategy as the 
intellectual backbone of its diversification drive, its 
appraisal of the strategy's success to date is less 
positive.  Prime Minister Akhmetov lamented in mid-April 
that "not a single serious invention" has resulted from 
Kazakhstani research in the last several years.  He blames 
the absence of promising inventions on the lack of a state- 
organized system for shepherding innovations through the 
development process. 
 
7. (SBU) The delay in implementing the GOK's "technopark" 
strategy may have been at the forefront of the Prime 
Minister's thoughts. The GOK has been working to establish 
technoparks as incubators for high-tech and high-value 
industries since at least 2003.  By late 2003 the GOK had 
chosen the locations, identified the fields each park would 
concentrate on, and reportedly begun negotiating memoranda 
of cooperation with foreign companies.  In the intervening 
eighteen months, however, little has happened.  When post 
asked to visit a technopark site near Karaganda, we were 
told that it is not yet worthwhile to visit any of the sites 
because their operations are only in preliminary stages. 
 
8. (SBU) Additionally, several knowledgeable post contacts 
have expressed doubts that many of the more ambitious 
initiatives, such as the space program, can be achieved due 
to the lack of personnel with the latest training.  The GOK 
is attempting to address this issue through its "Bolashak" 
exchange program, which has been expanded to allow 3,000 
students to study abroad each year.  The GOK has stated that 
it is looking to increase markedly the number of science and 
engineering majors served by the program. 
 
Comment 
------- 
 
9. (SBU) The current state of play in the field of 
Kazakhstan's innovation policy leads to the question of why 
so much is being budgeted for high-technology ventures 
before the country has the personnel and infrastructure to 
implement them.  The short answer is because the GOK has the 
money.  The GOK's very favorable financial position affords 
the country the opportunity to pursue multiple avenues of 
business creation and enhancement of national 
competitiveness.  There is also the subtext of WTO 
accession, and a perception that the country has a limited 
time in which to provide support to industries that will 
still be in their infancy when Kazakhstan fully joins the 
global trading system.  Some in the government also point to 
President Nazarbayev's desire to increase Kazakhstan's 
prestige and international profile.  Whatever the reason, 
the government would likely get more for its money in the 
long run if its projects were more focused and tempered with 
more realism. 
 
ASQUINO