For nearly thirty years, Kazakhstan has been trying to become a manufacturing economy. During that time, the country launched major government programs, created development institutions, financed hundreds of projects, and invested significant resources into industrial development. Yet decades later, Kazakhstan remains an economy that is still much better at extracting resources than producing goods. That is no longer the interesting part of the story. The more important question is different. Why, despite so many programs, factories, and support measures, has industry failed to become a true driver of economic transformation?
Discussions about industrialization usually begin with numbers. How many factories were built? How much investment was attracted? How many jobs were created? These indicators look good in reports and presentations. But there is a huge difference between the number of factories and the quality of an economy. This is where the line between industrial policy and real industrial development begins.
For years, Kazakhstan measured success by the number of new industrial projects. The more factories opened, the more successful the policy seemed. Yet global experience shows that a factory alone guarantees very little. A plant can operate for decades, produce goods, and employ people, while still failing to become a source of long-term growth. The reason is simple. Countries do not become rich because they produce more products. They become rich because they create more value, technology, and knowledge inside those products.
That is why two factories that look almost identical from the outside can have completely different effects on the economy. One factory helps develop local suppliers, builds new skills, and keeps more value inside the country. The other simply assembles imported components. In official statistics, both belong to manufacturing. For the economy, however, the difference is enormous. This issue is especially important for Kazakhstan because discussions about industrialization still focus heavily on the number of factories being built. Much less attention is paid to what actually happens inside those factories.
In reality, Kazakhstan’s challenge has never been a lack of industrial projects. Over the years, dozens of industrial programs were launched. Special institutions were created. Subsidies were allocated. Incentives were offered. Investment projects received financing. Yet industry never became the force that could reshape the structure of the economy. In many cases, the problem was not a lack of investment or a small domestic market. The deeper issue was how industrial development itself was understood.
For a long time, the dominant view was that every project had to be efficient from the very beginning. Risks had to be minimized before launch. Companies were expected to become competitive almost immediately. That approach sounds reasonable. But the history of major manufacturing economies tells a different story.
China, for example, spent years prioritizing scale. Production expanded faster than domestic demand. Some capacity looked excessive. Mistakes happened. But they were accepted as part of the learning process. Temporary inefficiency was treated as the cost of building industrial experience and production capacity. Kazakhstan chose a different path. Policymakers tried to avoid excess capacity, risk, and temporary inefficiency. As a result, growth was often constrained before it reached the scale needed to create a self-sustaining industrial ecosystem. Yet scale alone is not the final goal. If scale were enough, industrial policy would simply be a matter of building more factories.
Reality is far more complex. Factories do not make countries rich. Productivity does. That difference may sound academic, but it is what separates economies that continue growing from those that struggle to move forward.
Two factories may produce the same product. They may employ the same number of workers and generate similar output. But one creates substantial value inside the country, while the other remains an assembly platform dependent on imported components. The result is that both look similar on paper, but their impact on national prosperity is very different. This is why many countries spend decades trapped somewhere between industrialization and technological dependence. Manufacturing exists. Factories operate. But productivity grows slowly, and value creation remains limited.
For Kazakhstan, this question has become increasingly important as the government continues to strengthen industrial policy. Support programs are expanding. Financing is increasing. New tools are being introduced. Yet one fundamental question remains: is this support actually changing the structure of the economy?
Experience suggests that the answer is often no. In many cases, government support helps companies reduce risks and cover costs. This creates stability in the short term. But it does not necessarily encourage businesses to adopt new technologies, improve efficiency, or search for new markets. As a result, the economy begins adapting to support rather than adapting to competition.
This creates an important paradox. The state becomes more active. More money enters the system. More projects receive funding. Yet the internal logic of the economy remains largely unchanged.
Growth in support starts replacing growth in productivity. Another challenge appears here. Governments and businesses deal with mistakes very differently. A private company can shut down a failed project and accept the loss. Governments often find that much harder to do. Political commitments, administrative decisions, and the desire to protect previous investments can keep projects alive long after their expected benefits have faded.
For a relatively small economy, the consequences are even more visible. Mistakes do not disappear into a larger system. They affect the entire economy. Every major project absorbs a meaningful share of available resources. That makes the cost of poor decisions much higher.
There is also the issue of where support is directed. In many cases, assistance flows toward existing players and established sectors. This reduces uncertainty and makes it easier to demonstrate quick results. But it can also slow the emergence of new industries. The economy continues revolving around existing centers of activity. Competition weakens. New companies find it harder to grow.
All of this highlights a gap between stated goals and actual policy tools. The goals are ambitious. Diversification. Higher productivity. Technological development. Greater competitiveness. The tools often remain the same. Direct subsidies. Incentives. Support for selected industries and companies. The result is a contradiction. Structural change requires businesses to behave differently. Yet many policy tools are designed primarily to preserve the existing structure.
Kazakhstan has now reached a point where the conversation about industrialization is entering a new phase. The key challenge is no longer how many factories should be built. The more important question is how existing industries can create more value inside the country. How deeply local production can develop. How quickly skills can grow. How effectively technology and knowledge can be used.
That is why the future success of industrial policy will not be measured by the number of new facilities. It will be measured by how much additional value the economy can generate from every investment, every hour of work, and every piece of new knowledge.
The central paradox is remarkably simple. Building a factory is much easier than building a manufacturing economy. A factory can be opened within a few years. A network of suppliers, technologies, skills, and innovation takes decades to develop.
That difference will shape Kazakhstan’s future. The main question today is no longer the same one policymakers asked twenty years ago. The issue is not how many more factories need to be built. The issue is whether industrial policy can move from a focus on physical projects to a focus on productivity. Because in the end, countries do not become wealthy because of the number of factories they have. They become wealthy because of the knowledge, technology, and value created inside those factories and retained within the economy.
Ruslan Sultanov, economist, President of the “PharmMedIndustry Kazakhstan” Association, specifically for www.economyKZ.org
