A couple of weeks ago I was in Astana, Kazakhstan, an oil- and gas-rich country that has made significant economic and social progress since gaining independence from the Soviet Union in 1991. I made my first visit to Kazakhstan in 1993 and I can personally vouch for the highly visible signs of progress.
On my recent visit I met with academics and officials from the Nazarbayev University, and one issue we discussed was the need to diversify the national economy to reduce dependence on natural resources such as oil and gas. In what sounded very similar to messaging coming from several Middle East oil-producing nations and other commodity-rich nations like Australia and Canada, the time frame to deliver economic diversification is shortening. A sense of urgency is emerging for these commodity-rich nations in line with the longer term outlook for lower commodity prices and a slowdown in demand as renewable sources gain steam.
John Baffes, senior economist and lead author of Commodities Markets Outlook, said in a January 2016 news release from the World Bank: “Low prices for oil and commodities are likely to be with us for some time. While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain.” Countries such as Kazakhstan face significant reductions in national income, and something has to change to ensure the gains of the past 25 years are sustained and a new platform for growth is established. If there was ever an appropriate time for the metaphor “the burning platform,” then this must surely be it.
On the other side of this equation is the transformation occurring in the commodity-consuming countries of the world. The highly industrialized nations are experiencing a digital revolution which is impacting most industries and governments simultaneously. The rapid social and economic changes arising from digital disruption are leading to questions about the future of work. As jobs are destroyed or moved to lower-cost producing nations, what new jobs will be created and will there be enough work to go around?
For countries like Kazakhstan looking to diversify their economies, the broader question in this scenario is: what types of industries and therefore what types of jobs should they be looking to create? For emerging economies, the standard approach has been to emulate what has been regarded as successful strategies for growth in the industrialized world – in particular the creation of value-adding, service-based industries. But in a world where the fundamentals of industries and the work that is performed are challenged and transformed before our very eyes, then what is replicable and what is the ideal target state to aim for? Better still is to ask, what new innovative industry business models can be developed?
The digital transformation occurring around the globe is reducing barriers for enterprises and governments, allowing them to operate a range of business activities in a transnational manner. Capital and labor can shift at seemingly lightning speed to places with lower production costs and/or higher capability and skills. We see the negative consequences of this activity through revenue and profit shifting from higher to lower taxing nations. But where is the upside for those nations that need to diversify their economies away from commodities where prices and demand are falling?
As the global playing field is leveled by the digital revolution, we need to explore what defines a smart nation that can survive and thrive. We hear a lot said about smart cities, but the issue is much broader and affects the very nation states that define us. For a country like Kazakhstan to diversify its economy away from hydrocarbons to an economy that can thrive in the digital world will require an intensive effort across all sectors of society. It is no longer as simple as selecting a single strategic industry to excel, such as financial services.
There are no easy or obvious answers, as many countries seek a competitive advantage. Innovative policymaking will be required. Smart countries will emerge by creating opportunities across a diverse range of industries, as no one can predict what the next winner will be. This will require a diverse and broadly skilled workforce, supported by investment strategies that can be leveraged for innovation and with investment in digital infrastructure
In short, the chief characteristic of a smart nation will be taking steps towards preparing its citizens for the new types of work to be performed in the digital economy industries. This is why many countries are putting so much emphasis on lifting investment and focusing on STEM (science, technology, engineering, and mathematics) education to better prepare people for the digital world. Societies will still need people to learn the classics and the social sciences, but even within these disciplines there is a growing need to have an understanding of STEM and digital-related disciplines.
Returning to my recent visit to Kazakhstan, it was exciting to see a commitment to this type of education as an ingredient for developing a smart nation. The Nazarbayev University, as relatively young institution, is working towards creating the next wave of digitally enabled leaders, in partnership with some of the world’s leading universities and research institutions. While the future of work is yet to be fully defined within industrialized and emerging nations, the approach Nazarbayev University is taking feels like the right one. Strengthening the workforce by investing in the development of STEM skills and leveraging global expertise is one clear way to prepare for the new world of work. Only time will tell, and I expect the people of Kazakhstan will look towards the graduates of the Nazarbayev University to make a valuable contribution towards creating the new jobs of the future and diversifying the economy away from hydrocarbon dependency.