Kazakhstan takes digital route to prove innovation credentials

The sphere of the Nur Alem pavilion stands out at the heart of area developed in the Kazakh capital Nur-Sultan (known as Astana until March 2019) to host the Expo 2017 world fair. Claimed by some to be the world’s largest spherical building, the Nur Alem pavilion offers a glimpse of modernity rarely found elsewhere in the capital city (despite its many architectural landmarks) or in the country as a whole.

During the expo, the sphere hosted the main exhibition dedicated to the future of energy. It was a remarkable endeavour for a country whose economic success since independence has been rooted in its extensive fossil-fuel resources. Once the event was over, the iconic sphere remained as a legacy of the country’s ambitions to look beyond its traditional role as supplier of oil and minerals to the world and become a beacon of innovation for central Asia. Today, it houses a museum that focuses on the future of energy, while the surrounding pavilions are filling up with institutions expected to propel the Kazakh economy into the future, from the Astana International Financial Centre (AIFC) to the IT University and Astana Hub. 

“Data is the new oil,” says Valery Vavilov, CEO of emerging blockchain powerhouse Bitfury, which became a member of the AIFC in 2018 with a mission to explore opportunities in blockchain, cryptocurrencies and data centres. 

Incubating success 

Achieving such a widespread shift is a challenging task in an economy dominated by state-owned companies that operate in traditional sectors such as oil and gas, mining, transport and logistics. Yet an increasing number of tech incubators are emerging as platforms to support an ecosystem of innovation-driven companies needed by the country if it is to diversify its economy. 

“One of the major challenges for entrepreneurial culture here is to be globally minded,” says Pavel Koktyshev, head of government-sponsored IT and start-up incubator Astana Hub. “The structure of the domestic economy is dominated by public or quasi-public companies, which is why the local IT market tends to be more oriented towards business-to-business solutions for large clients. Astana Hub encourages companies to go global rather than spend years battling for contracts with [sovereign wealth fund] SamrukKazyna. Their world has to offer more than SamrukKazyna.”

Since its launch in 2018 in the business park, located just across from the Nur Alem sphere, Astana Hub has registered and supported about 261 start-ups and more than 3000 individual members. Additionally, it has launched 16 R&D centres in partnership with IT powerhouses such as Huawei and Nokia. 

Unleash the gazelles 

“We dream of unicorns, but more realistically we have a goal of launching 10 gazelle companies [start-ups that reach a valuation of more than $100m] in the next few years,” says Mr Koktyshev. The hub officially aims to attract investment in resident start-ups for Tg67bn ($174m) by 2022. 

While Astana Hub was launched with government support, independent and purely private initiatives are springing up across Nur-Sultan, attracted by its human capital. This gained Kazakhstan a place among the top five countries for availability of 'affordable talent', according to research firm Startup Genome. Even foreign names are chipping in, as was the case with Seedspace, a Swiss network of entrepreneurs in emerging markets that launched its 14th entrepreneurship hub worldwide in Nur-Sultan in early 2019.

Private start-up platforms are even more established in Almaty, the country’s traditional business hub, which is believed to account for half of all start-up activity in Kazakhstan through its networks, incubators and accelerator programmes. The city is also home to local emerging e-commerce company Chocofamily, one of the country’s best-known success stories. 

Government support 

While the private sector is leading the way in bringing new talent and ideas to Kazakhstan, the government is working to create a policy and regulatory environment that supports the development of a growing ecosystem of start-ups.  

“We want to create a new economy to improve the lives of citizens,” says Zhanat Zarubekovna, deputy chairwoman of national infocommunications holding company Zerde. “Traditionally we are an oil-based country and we depend on natural resources. The aim of initiatives such as Astana Hub, and the broader Digital Kazakhstan policy, is to foster the development of new sectors.” 

Launched in December 2017, Digital Kazakhstan aims to digitalise the private and public sectors of the country's economy. Local authorities also approved a new venture capital legal framework in October 2018 which paved the way for the establishment of QazTech Ventures and QazAngels, public institutions tasked with shaking up the country’s lacklustre venture and seed capital markets. The AIFC will also contribute by matching the demand of capital by fintech companies with the offer of capital by financial institutions registered in its jurisdiction. 

5G upgrade

Digital Kazakhstan will also promote the upgrade of the country’s digital infrastructure, particularly the adoption of 5G networks. 

“The 5G networks we will develop with our private partners such as Veon, or Kazakh Telecom on the government side, will be creating the possibility of a new digital era. We believe 5G networks will create the environment to invest more and bring in more development in Kazakhstan,” says Mikko Lavanti, vice-president for central and eastern Europe and central Asia at telecom giant Nokia, one of the companies to partner with the Kazakh government in the development of new generation networks.

Innovation-driven companies, combined with the government’s plans to develop 5G networks, will not only fulfil the ambition embodied by the Nur Alem sphere to transcend commodities, but also augment the potential of the same resource-based sectors through productivity and efficiency gains. Kazakhstan’s economy is unlikely to transform in the near future, but the seeds sown in recent years may well bear fruit in the longer term, finally catapulting the economy towards prosperity.