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Production of electric vehicles, new plant and access to export markets — development of Kazakhstan's mechanical engineering in a new reality

Monday, 23 November 2020, 23:16:44

During the first years of independence, Kazakhstan embarked on a course of general industrialization. The manufacturing industry was a special direction of development, which will later become the main driver of the country's production growth. During the years of industrialization, thousands of new modern high-tech industries were created, which ensured the release of hundreds of types of new products and contributed to the creation of thousands of jobs. Mechanical engineering is an integral part of the industrialization of the economy and the most important branch of the state. The industry ensures the stability of the agro-industrial complex, energy and metallurgical sectors, transport and other key industries, which largely determines the material intensity of the economy, labor productivity and economic security of the country. Over the years of the implementation of the industrialization program, the volume of production in the machine-building industry has increased almost 3 times and exceeded the mark of 1 trillion tenge. Primeminister.kz reviews the machine-building industry developed in the new reality.

Mechanical engineering as one of main sectors of Kazakhstan’s economy

In Kazakhstan, the mechanical engineering industry is the main focus of the state program of industrial and innovative development. Within the first stage of the country's industrialization, mechanical engineering was identified as one of the priority areas.

During the development of the second stage of industrialization, various sectoral programs were combined under the Unified State Program to overcome fragmentation, thereby largely reformulating the goals in industrial policy.

The second five-year plan included system-wide measures of industrial development in the financial sector, human resources, infrastructure, technology and innovation, internationalization, small and medium-sized businesses, and industrial regulation. In addition, targeted support measures were identified, involving support in 14 manufacturing sectors. In this connection, the development of the entire manufacturing industry was brought under a single program and conditions, without division into individual sectoral programs.

Now Kazakhstan is looking towards new technological solutions and the introduction of advanced world experience in the development of not only the economy, but also the manufacturing industry.

Since 2000, the volume of production of mechanical engineering in Kazakhstan has increased 24 times. In 10-15 years, the industry has moved from the production of components and spare parts to the production of final products: diesel locomotives, electric locomotives, passenger and freight cars, trucks and cars, buses, combine harvesters, pumping equipment, elevators and other high-tech products. New types of products have appeared: locomotives, transformers, communication equipment, optical devices, production of electronic parts, production of electric lighting equipment, etc.

Today, all categories of vehicles are produced in Kazakhstan.

Over the past 10 years, the volume of production in the industry has grown 4 times, investments — 2.5 times, the volume of exports increased almost 3 times and amounted to $1.1 billion.

The annual production volume in 2019 amounted to almost 1.5 trillion tenge and the industry has become on a par with the largest manufacturing industry — metallurgy.

It should be noted that it is the manufacturing industry that has one of the greatest effects among sectors of the economy in terms of budget efficiency. Over the years of industrialization, taxes from enterprises in the sector have grown almost 3 times, cumulatively exceeding 9 trillion tenge. And in the manufacturing industry, the volume of mechanical engineering products exceeds all sectors, with the exception of metallurgy.

In addition, the industry has a high multiplier effect, being a complex diversified segment of the industry, it also favorably affects the rest of the economy as a whole, contributes to the growth of competitiveness and the complication of the economy, technological progress and an overall increase in the quality of life of the population.

How is mechanical engineering developing in the new reality?

Despite the current situation with coronavirus infection in the world and its impact on the economies of countries, in the first nine months of 2020, Kazakhstan's mechanical engineering has shown positive dynamics. Production volume increased by 32.7% compared to the same period in 2019 and amounted to 1,183.5 billion tenge. In general, there is a positive trend in the sectors, with the exception of mining engineering with a slight decrease of 11%.

“Despite the pandemic crisis, domestic machine builders practically did not stop production. At the end of 9 months of 2020, the growth in production in real terms of the domestic engineering industry amounted to 17%, in monetary terms, 1.2 trillion tenge. Over the past 10 years of industrialization in mechanical engineering, the volume of production has quadrupled, investments — 2.5 times, the volume of exports has grown 3 times,’’ said Meiram Pshembayev, chair of the board of the Union of Mechanical Engineers of Kazakhstan.

About 123 thousand people work at 3 thousand (63 large, 100 medium and 2848 small) enterprises of the industry. Thanks to the joint efforts of the state and business, the industry has successfully introduced 128 projects worth about 367 billion tenge and created about 16 thousand jobs. Labor productivity increased from $9.2 thousand (2009) to $15.5 thousand (2019).

At the same time, one job created in mechanical engineering has a multiplier effect, creating up to 7-8 workers in related industries.

“It is mechanical engineering that is intended to become a source of recovery in the post-pandemic period,” Pshembayev emphasized.

At the same time, the head of the Union of Mechanical Engineers noted the importance of supporting inventive people and companies that find opportunities to work, despite the difficulties. In the world of automation, digitalization and the growing trend of remote work from anywhere in the world, the introduction and use of new disruptive technologies will play a key role in competition.

“In essence, the high-tech economy and mechanical engineering are identical concepts. In this regard, the policy of the top leadership of our country to support and develop the domestic machine building fully correlates with the latest trends in the world industry,’’ said Pshembayev.

In addition, the range and geography of exported products has been expanded. Machine-building enterprises export batteries, vehicles, thermos cars, various oil and gas equipment, drilling rigs to such countries as: Russia, China, Azerbaijan, Tajikistan, the United Arab Emirates, Turkmenistan, etc.

The production of new types of machine-building products — locomotives, freight and passenger wagons, railway wheels and axles, turnouts, new types of batteries, pumps and other oil and gas equipment. For example, Asia Trafo JSC, the largest plant for the production of transformer equipment in Central Asia, has mastered the production of transformers for voltages up to 500 MVA, which were not previously produced in the region.

What is the impact of Roadmap for Development of Mechanical Engineering until 2024?

According to the Chairman of the Board of the Union of Mechanical Engineers, the development of the industry was facilitated by the implementation of the activities of the Roadmap for the Development of Mechanical Engineering for 2019-2024.

“In this document, for the first time, such institutional measures as the development of the Law of the Republic of Kazakhstan ‘On Industrial Policy’ and the creation of the Industry Development Fund are identified. As of today, the Industry Development Fund has been created, developed and submitted for public discussion,” Pshembayev said.

The roadmap provides for the effective development of machine-building enterprises. Measures such as the introduction of tax preferences in exchange for reciprocal obligations, the development of the Law "On Industrial Policy" and the creation of the Industrial Development Fund will give an impetus for further more intensive development of mechanical engineering.

The Roadmap also provides for a comprehensive package of support measures, including providing raw materials to domestic enterprises, increasing the share of local content in purchases, improving technical regulation measures, and introducing economic incentive mechanisms.

The highest growth dynamics among the engineering industries is demonstrated by the automotive industry. Production is actively developing in the sectors of electrical engineering, agricultural, railway, mining and oil and gas engineering.

According to the results of the ministry's work within the framework of the Roadmap, the successful implementation of many of the tasks is already visible. In total, 50 out of 57 events have been completed, the rest are being performed.

The measures are being implemented in the following directions:

  • deepening localization by tightening counter-obligations of manufacturers;
  • creation of foundries for the production of blanks;
  • improving the system of government procurement of engineering products by developing a system of long-term "off-take" contracts;
  • provision of preferential conditions for subsidizing farmers when purchasing domestic agricultural machinery;
  • increasing funding for the program of concessional lending and leasing of engineering products;
  • increasing the share of costs reimbursed by the state when promoting the export of finished goods by 80%.

Why is automotive industry the driver of engineering sector in Kazakhstan?

The history of the domestic auto industry dates back to 2003, when the first NIVA car was produced. Then the production volumes totaled only a few thousand units (peak in 2010 - 4 thousand units). The product line was represented only by VAZ cars. The main part of the country's car market was occupied by imports.

A key development stage with specific commitments for enterprises began with the signing of the first agreements on the industrial assembly of motor vehicles in 2010. But, as experience has shown, the agreements adopted on the development of the industry were ineffective, the share of sold domestic cars was only 26% in 2016. New methods of stimulation were required.

In this regard, the Government has taken measures to stimulate the industry, such as VAT preferences, the introduction of a utilization tax, the development of a program of concessional lending and leasing, and measures to support the export of products. A promotional cooperation program was launched.

A large transnational investor, SMS-JAC Motors, a strategic partner of SaryarkaAvtoProm LLP, was involved in the development of the industry. All this became possible thanks to new approaches to the development of the industry, the introduction of incentive programs.

As for the production of commercial vehicles, global players have begun to be attracted to the country. The first large manufacturer to come to Kazakhstan in 2005 was KamAZ. Then such brands as Daewoo, Hyundai, IVECO, ANKAI and many others opened their production facilities.

As a result, in a short time, an entire industry was created with tens of thousands of jobs, taking into account related industries, which regularly replenishes the budget through tax deductions. The number of automakers has grown, and healthy competition has begun to grow.

Today, all categories of vehicles are produced in Kazakhstan. The country collects 167 car models, including 39 passenger models, 22 world brands.

At the end of 2019, the share of the automotive industry in mechanical engineering of the Republic of Kazakhstan amounted to 26%, over 50 thousand units of equipment were produced, about 2.7 thousand cars were exported.

For two five-year periods, the automotive industry has become one of the drivers of the machine-building industry in Kazakhstan. The transition from a large-scale assembly to a small-item assembly took place. For example, technological operations for welding and painting bodies have been introduced.

At the moment, 60% of the cars sold in the country are produced in Kazakhstan. The average level of localization of the automotive industry is 33%, the maximum for some models is more than 50%.

Since 2010, we have managed to increase production volumes by 12.5 times. The share of the automotive industry in the total volume of mechanical engineering reached 26% against 4% in 2010. The share of the automotive industry in the industry was 1.9%.

In 2019, 50,447 vehicles were produced in the automotive industry for a total of 359.5 billion tenge. Including 44,077 passenger cars were produced, production growth was 46.8%.

The share of Kazakhstani cars in sales increased to 59%, 4 out of 5 best-selling car brands in Kazakhstan are domestically produced.

According to the Association of the Kazakh Auto Business, in 2019, 16,332 Hyundai vehicles (+75.7%), 14,623 were produced. Lada (+ 9.8%) and 5,366 Ravon vehicles (+912%). The top five also included Kia (3,683) and JAC (2,775).

The largest car manufacturer SaryarkaAvtoProm accounts for half of all vehicles produced in the Republic of Kazakhstan. This year, the Kostanay plant has doubled its production to 25,802 cars, trucks and buses for a total of 186,609 million tenge.

What are the prospects for new Hyundai car plant?

On Oct. 15, 2020, the Prime Minister of Kazakhstan Askar Mamin launched the production of Hyundai cars in Almaty. The design capacity of the enterprise at the first stage will be 30 thousand units per year. The total investment exceeds 28 billion tenge. More than 1,000 new jobs have been created, taking into account related industries.

Hyundai Trans Kazakhstan is a subsidiary of Astana Motors. The plant was built from scratch on 25 hectares in the Industrial Zone of Almaty. The area of ​​the enterprise is 34 thousand sq. meters, production capacity at the first stage - 30 thousand units per year, at the second stage — up to 45 thousand units per year. Of the 28 billion tenge invested in the construction of the plant, 30% are own funds of Astana Motors, 70% are loans attracted from the Development Bank of Kazakhstan JSC and the Industrial Development Fund JSC.

The construction of Hyundai Trans Kazakhstan is based on the technologies of the global automotive industry. The installation of equipment at the enterprise was carried out by specialists from South Korea.

For 28 years on the market, Astana Motors has accumulated experience in auto retail and entered a new stage of development — the construction of its own plant for the production of passenger cars with a localization of more than 51% and the prospect of exporting to the CIS countries.

Since April 2020, the Hyundai Trans Kazakhstan plant has been producing Accent, Elantra, Tucson, Sonata, Santa Fe models, in December - the Creta model. On October 15, 2020, workshops for welding and painting of bodies, assembly of cars, painting of plastic parts and a warehouse of components for the production of cars using the small-unit assembly method were launched.

When it reaches its full capacity, Hyundai Trans Kazakhstan will provide jobs for more than 1000 employees, taking into account related industries. Frame stability ratio — 98%. More than 80% of Hyundai Trans Kazakhstan employees have higher and specialized secondary education.

In addition, Astana Motors is planning to build a plant for the production of auto components, such as plastic, glass, seats, components. Thus, the plant for the production of cars in the Industrial Zone of Almaty will serve to form a cluster of the automotive industry. Within the framework of industrial cooperation between Russia and Kazakhstan, auto components will be supplied both for the production of Kazakh products and Russian ones.

When will Kazakhstan switch to electric vehicles?

Kazakhstan's automotive industry is keeping pace with the global trend associated with the development of environmentally friendly transport. In 2014, the first batch of electric vehicles was produced, and 15 domestically produced electric buses have already been put on the routes.

The production of electric vehicles is one of the most promising areas in the automotive industry around the world. A number of major manufacturers have already announced that they will not produce vehicles with internal combustion engines.

To date, the Kazakhstani plant SaryarkaAvtoProm is ready to launch the serial production of the JAC iEV7s electric vehicle.

The JAC iEV7s electric car has passed certification tests at the NAMI car range in the Russian Federation and received a vehicle type approval certificate from the Customs Union, which allows the car to be put into circulation throughout the EAEU.

In addition, the company has mastered the production of ANKAI and Yutong electric buses, which are already used by the car fleets of the cities of Nur-Sultan, Aktau and Pavlodar.

Also, Hyundai Trans Auto has mastered the production of Golden Dragon electric buses. In Nur-Sultan and Almaty, 2 city 12-meter electric buses with a capacity of up to 130 passengers were tested. There are also other small-scale productions.

In 2021, Kazakhstan plans to produce 1200 units of electric vehicles of various models, including buses, in 2022 this figure will be brought to 2000 units. The machines will be supplied to the domestic market and exported abroad.

The popularity of electric vehicles depends on the conditions created for their use, as well as their cost, which today is higher than the cost of cars with internal combustion engines.

In the Address of the President of the Republic of Kazakhstan dated 2017 "Third Modernization of Kazakhstan: Global Competitiveness", it was instructed to work out the issue of further development of the production of electric vehicles with export orientation, providing for the creation of the necessary infrastructure.

The Ministry of Industry and Infrastructure Development approved the Roadmap for the development of production and the creation of the necessary infrastructure, within the framework of which the possibility of subsidizing part of the cost of an electric vehicle, the movement of electric vehicles on bus lanes, provision of dedicated parking spaces and other measures is being worked out.

Today, owners of electric vehicles are exempt from paying transport tax. And the amount of the utilization fee when registering an electric vehicle is the smallest and amounts to 416,700 tenge.

In addition, one of the activities of the operator of extended obligations of manufacturers (importers) is the creation and development of a network of electric filling stations.

Currently, a pilot project of the EPR Operator for the development of a network of electric filling stations is at the completion stage, as a result of which 48 fuel stations will be installed in Nur-Sultan, 52 in Almaty and 3 along the Nur-Sultan - Borovoe highway. In Aktau there are 4 ultra-fast charging stations with a capacity of 80 kW.

On the territory of the Talan Tower complex in Nur-Sultan, Tesla has provided the installation of six super-fast charging stations for Tesla Supercharger electric vehicles. At the same time, there are a number of gas stations installed by other individuals, and there is also the possibility of charging electric vehicles from a regular outlet.

Within the EEC, coordinated measures are being discussed on how to make electric vehicles an attractive and convenient mode of transport.

By order of the Eurasian Intergovernmental Council, the "Action Plan to Promote the Promotion of Production and Use of Wheeled Vehicles with Electric Engines in the Member States of the Eurasian Economic Union for 2018-2020" was approved. In accordance with the decision of the EEC Council, the customs duty rate for electric vehicles is 0%. The zero rate will be valid until Dec. 31, 2021.

What export markets does Kazakhstan auto industry enter?

Taking into account the small volumes of the domestic Kazakhstani market, long-term planning of domestic machine builders should provide for an increase in export volumes.

Marketing promotion is taking measures to reimburse part of the cost of transporting finished products within the country and certification of products in export markets. This made it possible to facilitate the access of Kazakhstani enterprises to foreign markets.

In turn, domestic enterprises should increase the number of technological operations carried out at enterprises, use local components and materials, and also enter large-scale production. Moreover, the development of an auto component base is planned in Kazakhstan.

As a result of the work done, the export increased 10 times. At the end of 2019, 2,629 vehicles were exported. Cars are exported mainly to the Russian Federation and Uzbekistan. The bulk of overseas sales in 2019 came from JAC (1471), Hyundai (716) and Ravon (442). These brands are ordered by brand distributors in neighboring countries.

It should be noted that export-oriented industrialization is today an important element of economic development. As part of the continuation of the set course, a program for a new five-year industrialization plan was adopted. One of the main locomotives of the program will be the development of industrial entrepreneurship aimed at expanding the range of exports.

Taking into account the experience of two five-year plans, one of the approaches is to focus on efficient enterprises in the manufacturing sector, focused on saturating the domestic market with high-quality products and exporting. Today, Kazakhstani manufacturers are planning to expand production and product lines, enter new export markets, as well as master the production of spare parts and components.

SaryarkaAvtoprom, in cooperation with the Uzbek auto industry, is implementing a number of significant investment projects, such as the joint production of export-oriented cars Ravon and Chevrolet (DAMAS, LABO, Cobalt, Malibu).

In order to ensure socio-economic growth in the monocity of Saran, it is planned to launch a project for the production of a new type of buses and special equipment Yutong (QazTehna LLP).

On July 30, 2020, an agreement was signed between JSC Allur Group of Companies and PJSC Tatneft on the construction of a tire production plant with a capacity of 3 million tires for passenger cars and 500 thousand tires for commercial vehicles and buses.

In the Kostanay region, together with KAMAZ PJSC, projects are being implemented to build factories for the production of a foundry and gearboxes for the final drives of the driving axles of trucks.

What are the current trends in automotive industry in Kazakhstan?

In recent years, car manufacturers have been looking for strategic partners in order to gain access to new markets, expand their sales network, and obtain new technologies. The main directions of the development of the automotive industry in recent years have become a significant reduction in fuel consumption through the use of new types of fuel, the use of new construction materials, an increase in comfort, a diversification of model ranges both in terms of quality and price criteria, as well as for their intended purpose.

Recently, the growing diversification of model lines has become a feature of the automotive industry.

In the electrical engineering sector, in 2019 alone, 34 million meters of fiber-optic cable was produced in the amount of 5 billion 400 million tenge and 1 billion 220 million meters of other electrical wires and cables for the amount of 40 billion tenge.

In general, the volume of production of electrical engineering for 9 months of 2020 increased by 12% and amounted to 135.6 billion tenge.

Domestic batteries this year will enter a new export market — the United Arab Emirates and Italy. The development of new types of storage batteries, including stationary batteries, is underway.

Internal demand for batteries is currently covered by 65%.

Kaynar-AKB storage batteries are exported to Russia, Belarus, Uzbekistan, Kyrgyzstan, Tajikistan, Germany, China.

The need for transformers is covered by 85%.

With the launch of the 4th transformer plant in Petropavlovsk (Alageum Electric LLP), the production of another 10 thousand transformers per year will be established, which will allow covering the entire line of needs for transformers.

Transformers of the Kentau Transformer Plant are exported to Russia, Kyrgyzstan, Tajikistan, Turkmenistan.

In agricultural engineering, the expansion of the product line began, the production of various types of attachments and equipment for agricultural needs was launched. The production of tractors and combines has grown.

For 9 months of 2020, agricultural machinery was produced in the amount of 27.5 billion tenge, an increase of 56%, including thanks to the production of 1,064 tractors and 480 combines.

The main players in the sector are such enterprises as Agromashholding (production of Esil grain harvesters and Lovol tractors), SemAZ and Kompozit Group Kazakhstan (production of Belarus brand tractors), Kostanai Tractor Plant (assembly of Kirovets tractors), Kazakhstan Agro-Innovation Corporation (production of Belarus tractors, Buhler, harvesters AKROS, TORUM, seeding complexes AMITI and other equipment), as well as the company Don Mar (reapers and seeding complexes).

In addition, the state is taking measures to stimulate production, including the exemption of the sale of agricultural machinery from value added tax. A program was also launched to sell domestic tractors and combines on lease, for which about 26 billion tenge has been allocated since 2018.

In mining engineering, the following new types of products were mastered (full-revolving machines, self-propelled drilling rigs, mine cars, crushing and grinding equipment), as well as the production of spare parts for machinery and equipment for mining (Maker LLP).

The key enterprises of the mining machine building are the Almaty Heavy Machine Building Plant, the Karaganda Foundry and Mechanical Plant, Kaztsinkmash, Kurylysmet, the Karaganda Machine Building Plant named after I. Parkhomenko, Kaz Carbon.

For 9 months of 2020, products were produced for 15.6 billion tenge.

In the oil and gas engineering industry, major world players were attracted, such as the German leader in the production of valves — Boehmer Valves, the leading Canadian manufacturer of full-compact screw pumping systems — Kudu Industries.

New types of products have been mastered, such as valves, power plants, equipment for filtering gases, pumping equipment, etc.

The volume of production in January-September 2020 amounted to 45.5 billion tenge.

Supporting engineering industry

As part of measures aimed at increasing labor productivity, QazIndustry JSC reimburses costs in the amount of 40% for 4 incentive measures to improve technological processes and increase the efficiency of production organization.

Development Bank of Kazakhstan JSC is the country's leading operator in the assessment and structuring of large infrastructure and industrial projects for the private sector and the Government of the Republic of Kazakhstan. In addition, it is a specialized state development institution that provides timely and sufficient funding for projects in the field of industry and infrastructure.

JSC Entrepreneurship Development Fund Damu provides support in the form of lending, subsidies and loan guarantees.

Within the framework of the Roadmap for Mechanical Engineering for 2019-2024, the task was set to provide the industry with qualified human resources. The issue of improving the system of dual education is being worked out in terms of establishing conditions for joint financing of costs during industrial practice: 70% state / educational institution, 30% employer.

Also, the ALE Union of Mechanical Engineers of Kazakhstan within the framework of the Project for the Development of Labor Skills and Stimulation of Jobs, implemented by the Ministry of Labor and Social Protection of the Population of the Republic of Kazakhstan with the technical and financial support of the World Bank, is working under the concluded contracts for the development of two sectoral qualifications frameworks and 46 Professional Standards (PS) in the field of Mechanical Engineering and Metalworking.

What is needed for sustainable growth of mechanical engineering in the country?

First of all, we need to consolidate the actions of government agencies, development institutions, public associations, financial organizations, private and state-owned enterprises.

The main points of growth should be focused on the modernization of existing fixed assets by attracting investments, as well as launching new projects.

Consequently, more volumetric financing of the industry is needed through concessional loans, investments of both public and private funds for the renewal and modernization of fixed assets.

Human resources are one of the main and important factors of production. In the process of analysis, it turned out that, despite the presence of a sufficiently large number of working specialists, there is still a need for high-quality personnel, which is associated, first of all, with the development and modernization of existing enterprises, the emergence of new industries and a new technological order, demographic changes, etc.

Among the factors of increasing the competitiveness of Kazakhstan's mechanical engineering, the development of human capital is one of the important and at the same time problematic. Currently, the industry is going through a difficult period of development: gradually recovering from the crisis, adapting to work in modern market conditions and restoring the intellectual potential lost in the years after gaining independence.

In general, the growth of the economy of Kazakhstan should be accompanied by the outstripping growth of mechanical engineering, which will increase the degree of automation and mechanization at industrial enterprises and increase labor productivity in all sectors of the republic's economy. This can be achieved only if there is a sufficient pool of modern and highly qualified personnel, which are a factor in the success of the long-term development of the industry and the economy as a whole.

In the future, Kazakhstan is capable of producing completely new cars, assembling new types of cars, including the latest innovative developments.

In addition, the qualifications of the workforce should be developed. According to official statistics, the most attractive sectors of the economy in terms of wages are the financial sector and mining. Today, the most trained personnel in the engineering industry of Kazakhstan are from 40-45 to 65 years old.

In addition, it is necessary to create a close educational process between production and the educational center in the development of the labor market. There is a need for professional educational institutions in the development of human resources for the modernization of the country's economy. As a result of the fact that many educational institutions do not adjust their work in accordance with the plans of enterprises in the real sector, it becomes necessary to strengthen work on this issue.

So, for organizations of secondary specialized and vocational education, there is the importance of social partnership with enterprises of industries. Close cooperation and planning of the training program, which has much in common with what is required for production, will improve the quality of vocational education and training in specialties and professions in demand on the labor market.

One of the key roles in this direction will be played by the industry qualification framework and professional standards in mechanical engineering, developed and constantly updated by the business, to which educational standards will be adapted.


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