KAZAKHSTAN: TRANSPORT SECTOR NOTE
I.
Main Sector Issues
Because of the very unusual geographic and economic features of Kazakhstan (vast
space, low population density, rich mineral resources hauled over long distances, trade
patterns inherited from the former Soviet Union, key location between Europe and Asia,
etc), the economy of Kazakhstan is among the most freight intensive in the world. On a
per capita basis, it uses transport services much more than the economy of the few
countries to which it can be compared (Canada and Australia) even though those are
considerably more developed.
The Kazakh transport sector made important progress in the mid 1990s. The road
transport sector as well as the road construction industry were rapidly privatized and
competition introduced. A Ministry of Transport with a clear mandate to focus on
policies and regulations was established. Bold reforms were introduced in urban
transport aimed at the competitive supply of services. However, there has also been
much instability in sector policies and in senior staff, and Government strategies have
often not been adequately implemented. As a result, many inefficiencies have remained
and the transport sector is not serving the needs of the economy and the population as
well as it should. Main issues are briefly described below.
On the whole, the asset base, although large in quantity, is of poor quality. The transport
sector has been starved from resources since Independence, so that assets have been
poorly maintained and not replaced as and when necessary. This has produced serious
capacity shortages in some cases. Technologies used in the transport sector are also often
outdated and inefficient resulting in high resource cost and negative environmental
impact.
The legal and regulatory framework in the road and air transport sectors has major
shortcomings with either gaps or overlaps in regulations and inadequate allocation of
responsibilities for enforcement, which has stifled the development of the private sector,
increased costs, and created opportunities for abuse and corruption by enforcement
authorities. This in particular has a negative impact on international trade, including for
countries, such as the Kyrgyz Republic, that need to use Kazakhstan’s transport network
to reach foreign markets.
Institutions are generally weak due mainly to constant changes in senior staff and lack of
systems and procedures adapted to the requirements of a market economy. The road
administration for example has gone through several radical changes over the past five
years and has never been in a position to develop the planning, procurement, and
implementation capability that the new organization of the sector required. Throughout
the transport sector, poor expenditure planning and budgeting capability as well as a
focus on large, visible investments has also led to the implementation of expensive
projects of poor economic justification. The relationships between the State and State-
owned enterprises has never been rationalized leading to either excessive interference or
loose supervision, especially in the case of the railways and the national airline.
Finally, financial policies have often been problematic. Rail passenger tariffs have been
highly cross-subsidized by freight tariffs. Air transport fares have been below actual
costs. The low taxation of gasoline and diesel oil has also made it impossible for the
State to recover the cost of maintaining and rehabilitating the road network.
II.
Government Strategy
The Government strategy in the transport sector has been focused on:

developing the institutional and regulatory framework for the competitive and
private provision of transport services and transport infrastructure, while ensuring
that the State retains for strategic reasons a controlling role in the sector;

modernizing the sector particularly through major investments in key
infrastructure facilities;

developing the role of Kazakhstan as a key transit country between Europe, the
former Soviet Union, and Asia;

ensuring the lowest possible cost of transport as a way to promote domestic and
international trade, and serving the needs of the low income population.
III.
World Bank Support
The Bank financed an early project in urban transport, completed in 1998, which led to
major reforms in urban transport policies, including development of the private sector
and generalization of competitively tendered bus route franchises. Presently, the Bank is
supporting the road and road transport sectors through rehabilitation of the main northsouth road in coordination with the Asian Development Bank and several Arab Funds,
and key developments in road administration, road transport regulations, and road safety.
The Bank has also initiated support for rural transport, an area that is deemed of key
importance for poverty alleviation among the rural population. Other international
funding agencies, especially the Asian Development Bank, the European Bank for
Reconstruction and Development, and the Japanese Bank for International Cooperation,
have also been active in the road, railway, and water transport sectors. A major
constraint to the Bank’s present support to the transport sector is the Government’s recent
policy to limit as much as possible the use of foreign technical assistance financed by the
Bank.
As in other Central Asian countries, the facilitation of international trade and transport is
of key importance for economic growth, but has not made substantial progress despite the
involvement of several donors. Because of its experience in this field in other parts of the
world and its relationship with Kazakhstan’s trade and transit partners, the Bank is well
placed to help address this issue. Support should start with a joint review of issues and
preparation of a strategy together with all those with an interest in trade. It would also
need to be coordinated with related initiatives by neighboring countries and other donors.