Developing competitive local suppliers for the oil industry in Kazakhstan: governance, policies, and institutions

The purpose of this study is to explore the economic development processes in mineral economies by focusing on the example of Kazakhstan. Like many oil exporters, Kazakhstan faces a development challenge of an undiversified economic structure and it suffers from the Dutch disease. The literature suggests that there is a way to pursue economic diversification by fostering development of competitive local suppliers serving the oil industry. The goal of this research is to examine this process with the analytical framework evolving around policies, governance and institutions. The interconnection of policies, governance practices and institutions form an enabling environment for the emergence of competitive local suppliers. Based on primary and secondary data, this study finds that such a facilitating environment in Kazakhstan is not yet in place. On the one hand, there are active private and state policies aimed at the creation of entry point for local suppliers of oil and gas machinery and equipment into the supply chains of oil operators. Such policies are crucial in the presence of market and coordination failures. On the other hand, the scaling up effects of these policies stumble upon weak and uncooperative governance practices on the side of both the state and oil operators. The study reveals that there is a need to move to governance practices based on cooperation, deliberation and accountability. Transition to governance arrangements that rely on these principles is constrained by weak institutions at the national level. This is mostly rooted in political institutions lagging behind those in the economic realm. Hence, the dynamics of economic diversification fails to unfold and keeps the country dependent on oil.