KAZAKHSTAN'S SCENTIFIC SPENDING SPREE

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
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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