In the global economy, structural transformation is no longer a straight line. Countries no longer move step by step from agriculture to industry and then to services. More often, they get stuck between raw materials and services. The reason is not technology. It is not productivity either. The key reason is the structure of production factors. This pattern is typical for middle-income economies. Kazakhstan is exactly at this point.
The main fact is clear. In the global economy, success comes not from declared diversification, but from the right balance of capital and labor. When this balance is missing, manufacturing shrinks, and the growth of services cannot replace a strong production base.
Structural transformation is often described as a natural process. First raw materials. Then factories. Then services. This story sounds simple and logical. But real experience over recent decades looks very different. Many countries never reach a stable industrial phase. They jump directly from raw materials to services. On paper, GDP grows. The share of services increases. But the production base never forms. Or it slowly erodes. This is the trap.
The reason for this trap is not a lack of technology. It is not low productivity. Global data show something else. Structural change depends on how production factors are distributed. Capital. Skilled labor. Unskilled labor. When these factors move away from manufacturing, countries get stuck.
Middle-income countries are especially vulnerable. They can no longer rely on cheap labor. But they also lack strong and stable technological advantages. In this situation, innovation does not decide. Structure does. If capital and skilled labor leave manufacturing, the industrial phase becomes shorter or disappears entirely. The economy grows through services. But this growth is fragile.
Kazakhstan fits this pattern closely. The country has a strong raw-materials sector. It generates capital. It creates income. It attracts investment. But this capital does not always flow into manufacturing. At the same time, the service sector is expanding fast. Trade. Finance. Intermediation. Administrative services. These sectors attract skilled labor. Manufacturing is left in the middle. On one side, there is raw materials with high capital intensity. On the other, services with fast returns. In between, manufacturing lacks both capital and labor.
Global experience shows that this structure leads to early deindustrialization. Manufacturing shrinks not because it is inefficient, but because production factors move elsewhere. This is the key point that is often missed.
In this framework, productivity plays a secondary role. It shows the outcome, but not the cause. Industries can lose share even when productivity is stable. Or they can expand despite weak efficiency. The decisive factor remains capital and how it is allocated.
Structural transformation is not about which sectors grow faster. It is about which sectors receive production factors. When capital concentrates in raw materials and labor concentrates in services, manufacturing contracts. This happens even if technology does not deteriorate.
This mechanism is clearly visible at the global level. In many middle-income countries, the share of manufacturing declined without a sharp drop in productivity. The reason was factor reallocation. Capital searched for faster returns. Skilled labor moved to sectors with higher income and lower risk. Manufacturing lost support.
It is important to understand that service-sector growth does not always replace manufacturing. Services often have weaker multiplier effects. They build fewer value chains. They create a weaker export base. They can support employment, but not always stable income. Without manufacturing, an economy becomes more sensitive to external shocks.
This is especially risky for countries where raw materials remain dominant. In this structure, the economy depends on two extremes: raw materials and services. A gap appears between them.
Kazakhstan faces exactly this risk. Raw materials generate income. Services absorb labor. But manufacturing cannot find enough capital and skilled workers to expand. This problem is not unique. But it requires an accurate diagnosis.
Global data show that successful structural transformation happens when capital and skilled labor move together into manufacturing. Not necessarily into high-tech sectors. Often into medium-technology industries. This is where stable growth is built.
When this does not happen, economies skip the industrial phase. Formally, they become “post-industrial.” In reality, they become fragile.
Another important factor is speed. Factor shifts happen faster than institutional reforms. Capital can change direction within a few years. Labor within one generation. Industrial policy usually reacts too late. As a result, decisions are made after the structure has already changed.
This explains why attempts to “bring manufacturing back” often fail. Industries do not return when factors have already moved elsewhere. Capital avoids uncertainty. Labor avoids risk. When services and raw materials offer more predictable returns, manufacturing loses.
Structural transformation is not about declarations. It is about relative incentives. Where capital is cheaper. Where labor income is higher. Where risks are lower. That is where factors go.
In this sense, industrialization without working on factor structure is doomed. Technology does not replace capital. Education does not replace investment. Strategies do not replace incentives.
Factor structure affects not only growth, but also resilience. Economies with a strong manufacturing base absorb external shocks more easily. They have more anchors. More value chains. More room to adapt. Economies stuck between raw materials and services are weaker.
Global experience shows that it is possible to escape this trap. But the focus must change. From sectors to factors.
This means giving priority to capital in manufacturing. Not in theory, but in real allocation. It means keeping skilled labor in production. Not with slogans, but with conditions. It means narrowing the gap between raw materials and processing. Not through administration, but through incentives.
Structural transformation is not a goal. It is a process. And it always starts with factors.
Kazakhstan risks getting stuck between raw materials and services not because of technology and not because of productivity. The main reason is the structure of production factors. If capital and labor continue to leave manufacturing, the industrial phase will keep shrinking. Even if GDP grows. Even if digitalization advances. Even if innovation programs exist.
Structural transformation does not start with strategies. It starts with factors.
Alen Serik, expert of the portal EconomyKZ.org
