President Nazarbayev’s Annual Address to the Nation

“Third Modernization of Kazakhstan: global competitiveness”

Dear people of Kazakhstan!

On the threshold of a new era, I’m addressing the people of Kazakhstan.

The country has honorably passed its 25-year phase of development. We are proud of our country. Celebrating the 25th anniversary of independence, we marked the achievements and accomplishments of Kazakhstan. They are all widely known and appreciated by the world community.

Kazakhstan has become a non-permanent member of the UN Security Council since the beginning of 2017.

This year, Astana will hold international exhibition “EXPO-2017.” We are the first among the CIS and Central Asian countries to host such an important global event.

The Universiade-2017 sporting competition started in Almaty, with the participation of more than 2,000 athletes and delegates from 57 countries.

All of this was accomplished due to a correct political path and the high authority of Kazakhstan in the international arena.

Kazakhstan plans to enter the top 30 developed countries in the world by 2050. We are steadily pursuing this ambition.

In the context of growing competition and lack of stability in the world, the relevance of the Strategy-2050, which I proposed in 2012, is increasing. We were able to anticipate the upcoming difficulties in a timely manner.

Due to the economic policy “Nurly Zhol” and the National Plan “100 concrete steps,” we are successfully passing an initial stage of a complex global transformation. In 2014-2016 only, we allocated an additional 1.7 trillion tenges to support the economy. This boosted economic growth, supported businesses, and helped to create more than 200,000 new jobs.

These initiatives enabled the growth of the gross domestic product by 1% in 2016. This is particularly important in the current difficult settings.

The global circumstances are rapidly changing. This is the new global reality, and we must accept it.

Dear fellow citizens!

Only those people, who will manage to get ahead of the future and to meet the challenges without hesitation instead of just standing there and waiting, will be the winners.

We are in the midst of the fourth industrial revolution.

The widespread digitalization of the economy will lead to the disappearance of entire industries and the creation of fundamentally new ones. Great changes are taking place before our eyes – this is both a historic challenge and an opportunity for our nation.

Today I am setting the objective of ensuring the implementation of Kazakhstan’s third modernization. It is necessary to create a new model of economic growth that will ensure the country’s global competitiveness.

Many countries are currently trying to tackle the same problem. I am sure that the formulas for the transition to the new growth model will be different. We must proceed from our strengths and not lose the potential that we created altogether during the 25 years of our independence.

We all remember the first modernization of Kazakhstan. We remember how we started our way a quarter century ago on the ruins of the Soviet Union. At that time, our generation created a new state, which did not exist on the world map.

We accomplished the transition from a planned to a market economy. It is crucial for me that at that time, we kept the country from the turmoil of civil war and economic collapse. Kazakhstan came out of that period with minimal losses and maximum gains.

The second modernization began with the adoption of the Strategy-2030 and the creation of new capital Astana. Its results are undeniable. We overcame economic underdevelopment, and now we are among the 50 most competitive economies in the world.

Two successful modernizations gave us invaluable experience. Now we need to boldly step forward and start the third modernization.

This modernization is not a plan to fight the current global challenges, but a reliable bridge to the future, to meet the objectives of the Strategy-2050. It will be based on the National Plan “100 concrete steps.”

I see its five main priorities. They are designed to ensure that economic growth is above the world average and that Kazakhstan is among the 30 leading countries.

The first priority is the accelerated technological modernization of the economy.

We need to cultivate new industries, which are created with the use of digital technologies. This is an important and complex task.

It is necessary to develop in our country such promising sectors as 3D-printing, online commerce, mobile banking, and digital services, including in the healthcare and education sectors, among others. This industry has already changed the structure of the economies of developed countries and gave a new quality to traditional industries.

In this regard, I am instructing the government to develop and adopt a separate program “Digital Kazakhstan.”

It is necessary to adapt our legislation to the new realities.

It is also important to ensure the development of communications, and a universal access to a fiber-optic infrastructure. The development of the digital industry will provide impetus to all the other sectors. Therefore, the government should keep the question of IT development under special control.

Innovation and its rapid introduction into production are important conditions for the formation of new industries.

I am instructing the government to establish International Research Center for tech startups on the basis of one of the EXPO-2017 facilities. It should become a platform for attracting entrepreneurs and investors from around the world. This requires appropriate infrastructure and an enabling environment, including tax incentives, simplified visa regime and labor conditions.

We also need to develop our scientific and innovative potential on the basis of our universities, the Nazarbayev University and “Alatau” Research Center.

The second complex task is to give impetus to the development of traditional industries in parallel with the creation of new industries.

This includes production sector, agriculture, transport and logistics, construction and other sectors.

First, it is important to significantly increase productivity.

The main factor here should be the widespread introduction of elements of the fourth industrial revolution. These elements include automation, robotics, artificial intelligence, exchange of “big data” and others.

I am instructing the government and the businesses to develop a package of measures for technological re-equipment of traditional industries until 2025.

Second, we need to continue industrialization with emphasis on the development of competitive export industries in priority sectors.

The government is already tasked with doubling the non-oil exports by 2025.

To activate the work in this direction, it is necessary to concentrate the tools of development and promotion of export in the same department. It is necessary to provide support to the exporters based on the principle of “single window,” including those in the regions.

I am instructing the government to create a council for the export policy. It should include representatives of the business community.

The government together with governors and businesses need to develop a unified export strategy by September 1, 2017.

Kazakhstan needs to keep the lead in attracting foreign investment. International financial center “Astana” should play an important role in attracting financial resources in the economy of the country.

We should be integrated into global chains of production and distribution of goods and services. This should be done primarily by attracting multinational companies.

It is necessary to effectively implement a joint investment program with China to establish production facilities in Kazakhstan. We have reached agreements with the Chinese side. Objects have been marked. We need to work specifically.

It will be modern production with the creation of about 20,000 new jobs for Kazakhstan. As of today, we have started implementation of six projects, and two projects have already been launched. One of them is a factory for large-assembly of hybrid and all-electric vehicles JAC.

I am instructing to study the issue of further development of the production of electric vehicles with export orientation, by providing the necessary infrastructure.

In general, Kazakhstan should have its own investment strategy. The government needs to prepare it before September 1 of the current year.

It is necessary to ensure the protection and promotion of national economic interests in the framework of international cooperation. This applies primarily to the work within the EEU, SCO, and interfacing with the Economic Belt of the Silk Road. This requires rebuilding and strengthening the work of economic diplomacy.

Third, mining, metallurgical, and oil sectors of the economy should retain its strategic importance to sustain economic growth.

In the context of the slowing global demand, it is necessary to enter new markets and expand the supply geography. We should pay special attention to expanding the mineral resource base. It is necessary to conduct active exploration.

Further development of these industries should be strictly linked to the deepening of complex processing of raw materials.

I am instructing to ensure the adoption of a new code on mineral resources and making the necessary amendments to the tax legislation by the end of the year.

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Fourth, the agricultural sector has become the new driver of the economy.

Agriculture has a promising future in Kazakhstan. In many aspects, we can be one of the world’s largest manufacturers of agricultural exports, especially in the production of organic food. Brand “Made in Kazakhstan” should become the gold standard of such products.

At the same time, we must become the so-called “bread basket” in the production of grain for the entire Eurasian continent. We need to shift from primary production to the production of high-quality processed goods. Only then will we be able to compete in international markets.

In this regard, I am instructing the government and governors to do the following:

First, it is necessary to reconsider the principles of allocation of subsidies and to gradually move to production insurance;

Secondly, in the next 5 years it is necessary to create all conditions for uniting more than 500,000 households and small farms into co-ops;

Thirdly, it is necessary to increase the processing level of production, create effective storage, transportation and distribution of goods;

Fourthly, it is necessary to increase the level of productivity and reduce production costs;

Fifth, we must improve the efficiency of land use. Within 5 years, it is necessary to increase the area of irrigated land by 40%, thereby to increase to 2 million hectares;

Sixth, it is necessary to increase investment in agricultural research, which will be in demand in the production.

I am instructing to provide an increase of food export by 40% by 2021 through the diversification of agricultural production.

These tasks should be implemented within the framework of the new state program of agricultural development.

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Fifth, the development of the new Eurasian logistics infrastructure is an important priority.

Substantial funds have already been invested. Now it is time for them to pay off.

I am instructing the Government to provide an increase in the annual volume of transit by 2020:

– Sevenfold increase for goods carried by containers – up to 2 million containers;

– Fourfold increase for passenger transportation by air carriers – up to 1.6 million passengers.

It is necessary to increase revenues from transit traffic by 5.5 times – up to $4 billion a year.

In 2015, I initiated a program of infrastructure development “Nurly Zhol.” Over the past two years, the program has fully paid off.

This year 4,400 kilometers of roads of national importance will be constructed and reconstructed, out of which no less than 600 kilometers will be introduced by the end of the year with the phased introduction of payment.

A full realization of the transport and transit potential of the country requires coordination with the neighboring countries. It is necessary to ensure the freedom of transit of goods, the establishment and modernization of transport corridors. Particular attention should be paid to the management of the transport infrastructure, to the ensuring of the improved service and elimination of administrative barriers.

Due to the increasing volume of traffic on the Trans-Caspian corridor, it is necessary to proceed with the second phase of construction of the Kuryk port.

Sixth, the urbanization processes necessitate the development of the construction sector. It should become a full driver of the domestic economy.

It is important not to forget that by investing in the construction of roads, buildings and other infrastructure, we define the physical and technological appearance of our cities for years to come. It is therefore important to ensure the implementation of the latest technologies in the construction and in the manufacturing of building materials. We have good opportunities to do this.

By my instruction, the implementation of the housing program “Nurly Zher” begins this year. It is aimed at solving the most important task of providing housing for 1.5 million households in the next 15 years.

The program laid down comprehensive measures of housing market development. It includes cheaper bank loans for developers by providing grants through JSC “Damu”. It will also provide for subsidizing mortgage loans through JSC “Kazakhstan Mortgage Company.” Akimats will continue the construction of housing for the depositors of Zhilstroysberbank. Previously allocated funds will be reused for this project on the “revolving” principle.

For the socially vulnerable groups of population the akimats will continue to develop rental housing without the right of redemption. Akims should allocate appropriate land for mass housing.

We will strive to ensure that the construction of individual houses in the cities will be carried out in a single architectural style. To that end, the government will help to develop the necessary infrastructure.

The Government together with the akims should take measures for the development of transport links with the nearest large cities.

The third complex task is the modernization of the labor market.

With the introduction of new technologies in traditional industries certain amount of manpower will be released. However, the creation and development of new industries should become an additional source of real incomes, employment and growth.

I am instructing the Government and akims to create the conditions for a controlled transition of workers in other sectors.

Our large enterprises together with akimats should develop appropriate “road map.” These road maps should include measures for co-investment in retraining laid-off labor and their further employment. We need to support the mobility of labor from labor-surplus regions, as well as from rural to urban areas.

The Government should reform the employment centers and create a single online platform for all job openings and all regional centers.

The second priority is a significant improvement and expansion of the business environment.

One of our strategic goals is to ensure that by 2050 the contribution of small and medium-sized businesses in GDP is at least 50%.

This is an ambitious but achievable goal. To solve the problem at this stage, we need the following.

First, by my instructions, the Government this year launched a program of productive employment and development of mass entrepreneurship.

Now the citizens of Kazakhstan both in the countryside and in the city can get a microloan of up to 16 million tenge for the business.

It is important to expand the geography of micro-loans, actively use tools of insurance and service support for entrepreneurs. These measures should be accompanied by organizing business and financial literacy trainings.

It is necessary to further improve the support tools for mass entrepreneurship. Each region of Kazakhstan has to offer measures for the development of mass entrepreneurship, including family businesses.

As earlier, the number of new jobs will be one of the KPI’s for assessing the effectiveness of the Government and akims’ activities.

Second, the government together with the National Chamber of Entrepreneurs “Atameken” should take measures to reduce all kinds of costs for businesses. This is especially necessary for cost of services in the energy, transport and logistics, as well as utilities.

Processes for public services should be optimized as much as possible. It is necessary to reduce the time and a list of documents, to eliminate duplicate procedures. Thus, they should be fully transferred to an electronic format, without the need for physical presence.

In addition, the existing regulatory burden on business is incompatible with the task of creating a new model of growth.

I am instructing the Government and akims to develop the system measures to deregulate business by the 1st of July.

It is necessary to implement the best standards and practices of developed countries. It is especially important to carry out this work at the regional level.

Akims together with the Government need to develop a detailed plan on improving the conditions of doing business in the regions on the basis of the World Bank ranking.

You must start rating regions and cities on the ease of doing business. For the best in the ranking we will establish a special award. We will award the winners once a year on the Industrialization Day.

Third, a new impetus for economic growth should come from reducing the share of state in the economy to 15% of GDP, which is the OECD level.

Previously, we identified a list of about 800 companies for privatization until 2020. Work is underway.

I am instructing the Government to speed up this process and complete the privatization of companies from this list by the end of 2018.

It is also necessary to accelerate the preparation and complete the IPO of our largest companies. Introduction of the Yellow Pages principles allowed reducing the types of activities for the state in the economy by 47% (from 652 to 346).

The next stage is to transfer to the private sector or to terminate all state-owned enterprises and organizations, which do not correspond to these principles. It should be done by 2020. There are several thousands of such enterprises.

We need to stop creating a separate legal entity for each program or task.

It is necessary to ensure the transparency and efficiency of privatization. Also it is necessary to reconsider the role of state holdings.

I am instructing the Government to ensure quality transformation of the “Samruk-Kazyna” holding. It is necessary to conduct a thorough audit and optimization of both managerial and production business processes. As a result, it has to become highly efficient, compact and professional. The quality of management and corporate governance needs to comply with the international standards.

It is necessary to clearly define what the state should keep in which sectors and with what degree of participation.

The state should keep natural monopolies and implementation of strategic projects, including projects that involve participation of TNCs. These projects should give a multiplier effect.

The “Baiterek” and “KazAgro” holdings need to be reorganized as well. They must be operators in the implementation of government development programs. At the same time it is necessary to optimize their functions. All that can be done by the private sector should be privatized.

They should also work with non-state funding sources for program implementation.

Fourth, the expansion of public-private partnership provides great potential for business development. We are talking about transferring a number of government services to the private sector.

We have already attained good results on their involvement in pre-school education. If in the previous 3 years the state built 189 kindergartens with a 40 thousand-place capacity, the private sector opened more than 1,300 kindergartens with a 100 thousand capacity. Most private kindergartens were opened in South Kazakhstan (397), Almaty (221), Kyzylorda (181) regions.

For me the example of PPP in this sector is of fundamental importance. It shows how the government and the private sector can solve one of the most important national problems together, which is to fully cover 3-6 year old children with pre-school education by 2020.

The development of PPPs depends on the specific and professional work of akims.

In order to attract private capital it is necessary to use all possible kinds and forms of PPP: trust management of state property, and other service contracts. Thus it is necessary to simplify and speed up all the negotiation procedures, particularly in relation to smaller projects.

PPP should be the primary mechanism for the development of infrastructure, including in social development.

In order to modernize housing facilities it is necessary to transfer them in trust or concession with possible future privatization. The Government needs to stop going around in a circle. It is necessary to take active measures in this direction.

Fifth, it is important to prevent price and tariff collusion.

I am charging the Government and SPE “Atameken” to hold audit of all legislation to identify regulations that hinder competition.

The third priority is macroeconomic stability.

The key objective here is to restore the incentive role of monetary policy and the involvement of private capital in financing the economy.

First, today the National Bank has an important task to develop the regime of inflation targeting. It is necessary to achieve the phased reduction of inflation to 3-4% in the medium term.

Second, we need to “reset” the financial sector.

I am charging the National Bank to develop a set of measures to improve the health of the banking sector.

It is necessary to accelerate the work on clearing banks’ balance sheets from the “bad loans” and, if necessary, to ensure their capitalization by the shareholders. National Bank needs to expand the rights of the state banks in the operational control. It must move from a formalized approach to a risk-based approach in order to take measures of influence in regard to banks, without waiting for the formal breach on their part.

It is also necessary to strengthen the responsibility of audit companies to ensure transparency of the shareholders and to improve corporate governance in general. All of this should be fixed on the legislative level.

In order to address the lack of financial resources in the economy and high interest rates on loans, I am instructing the National Bank and the Government to take measures to ensure the availability of medium- and long-term funding in tenge.

The National Bank should be responsible not only for inflation but also together with the Government for economic growth.

Third, further development of the stock market is critical.

Privatization should give impetus to its development. It is necessary to place “Samruk-Kazyna” on equities fund, as I said earlier. It is necessary to further increase the opportunities for people to invest their savings primarily in various types of stocks.

At the end of 2016 we completed the action on legalization. More than 140 thousand citizens of our country attended it. Total of 5.7 trillion tenge were legalized, including 4.1 trillion tenge in the form of money.

The task of the Government is to ensure that the economy benefits from these funds, including through the privatization. At the same time we also need to consider problems of subsidizing private bond issues of Kazakhstan’s enterprises.

I am instructing the Government together with the National Bank to take measures aimed at enhancing the domestic stock market.

Another key challenge is to bring the fiscal policy to the new economic realities.

First, it is necessary to drastically improve the efficiency of budget spending.

In 2017, we provided national development programs with all the necessary resources. We need to check the effectiveness of the use of these funds by ministries and departments.

It should start with the Ministries of Labor and Social Welfare, Health, Education and Science, which account for over 40% of the national budget. They must report to me upon completion.

We should reallocate funds from ineffective programs toward programs, aimed at fulfilling the tasks of the Third modernization. In addition, it is necessary to simplify the budgetary procedures to ensure that the funds reach the real economy in a faster and more efficient way.

We need to continue the policy of fiscal decentralization. In previous years, we transferred a large number of functions and powers from the central to the local level. Now we need to back this up with sufficient financial autonomy. At the same time, it is important to avoid the concentration of spending authority at the regional level. It is necessary to pass them on to the district and village levels. Governors must be in charge of the issues of regional and local importance, and the government must focus on national issues.

Second, it is necessary to treat the National Fund resources in a more efficient manner.

The amount of the guaranteed transfer from the National Fund must be gradually reduced to KZT 2 trillion by 2020.

Tax policy should focus on encouraging business to come out of “the shadow” and expanding the tax base in the non-primary sector of the economy. It is important to optimize the existing tax incentives. It is necessary to reconsider the special tax regimes on the eve of the universal tax declaration.

Tax administration mechanisms need to be improved. First of all, it concerns the levying of VAT.

Third, the government must devise a system of monitoring and control of the external and internal loans in the quasi-public sector and bring order there.

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Fourth priority is improving the quality of human capital.

First of all, we need to change the role of the education system. Our task is to make education a central link in the new model of economic growth. Learning programs should focus on the development of critical thinking abilities and independent research skills.

In addition, we need to pay more attention to developing IT knowledge, financial literacy and formation of youth patriotism. It is necessary to reduce the gap in the quality of education between urban and rural schools.

I instruct the government to submit relevant proposals.

With regards to the issue of a gradual transition to the trilingual education.

The Kazakh language will retain its dominant position. Special attention will be paid to its further development. At the same time, English is the language of new technologies, new industries, and the new economy. Currently, 90% of information in the world is created in English. Its volume increases two-fold every two years. Kazakhstan will not reach its national progress without mastering English.

Starting from 2019, some subjects will be taught in English in the 10th-11th grades. It is necessary to consider this issue carefully and take reasonable actions in this matter.

The levels of schools and teachers in urban and rural areas differ greatly. Shortage of qualified teachers is a topical problem. Therefore, considering all these aspects, it is necessary to introduce the English language gradually.

I am instructing to submit relevant proposals.

Upon my initiative, this year will witness the beginning of the implementation of a project “Free vocational education for all.”

First of all, free education should cover unemployed and self-employed young people and people of working age who do not have professional education. It is necessary to give impetus to the development of vocational education system in order to train new specialists within the designated economy.

To this end, we need to upgrade professional standards in accordance with labor market requirements and best international experience in the workplace training.

Alongside, special attention will be paid to the quality of higher education system. It is necessary to strengthen the control and requirements toward the staff of higher education facilities, their level of logistical and educational programs.

Second, the healthcare system must change, along with the educational system.

Starting from July 1 of this year, a system of compulsory social health insurance will take effect, which is based on the joint responsibility of the state, employers and citizens. The effectiveness of this system is proven by world practice.

Participants in the medical insurance system will benefit from a wide range of medical services. The state will support participation from socially vulnerable groups.

The government needs to ensure the required informatization of healthcare. Private health institutions should be provided with equal terms and conditions in the compulsory social health insurance system in order to promote competition.

I am instructing the government and governors to conduct broad awareness-raising activities. It is also necessary to introduce legislation regulating the prices of all drugs.

Third, in the area of social security.

Upon my instruction, starting from July 1, 2017, pensions will increase up to 20% compared to 2016 for 2.1 million retirees.

In addition, starting from July 1, 2018, the basic pension calculation will be based on a new methodology. Its size will depend on the length of participation in the pension system.

All of these measures will result in an increase of the new basic pension by 1.8 times in 2018 compared to 2017.

About 400,000 children are born in the country every year, which is almost twice as high as the number in 1999. We should continue to support this positive trend.

Upon my instruction, the size of lump sum childbirth benefits will increase by 20% starting July 1, 2017.

It is necessary to review the minimum wage. It must correspond with the actual consumer spending of Kazakhstan people. This will allow raising basic pensions for 3 million people starting January 1, 2018, as well as increase benefits for people with disabilities, families that lost breadwinners, targeted assistance and benefits for disabled children.

Starting from January 1, 2018, we need to raise the threshold for providing targeted social assistance from 40 to 50% of the minimum wage and implement its new format. At the same time, those who are able to work should only be supported if they participate in the employment program.

The fifth priority is institutional change, security and the fight against corruption.

First, as part of the Third modernization, the government must ensure work toward the implementation of best practices and OECD recommendations.

Second, we carry out reforms aimed at protecting private property, the rule of law and equality before the law. It is necessary to continue this work.

I am instructing the government, together with the National Chamber of Entrepreneurs “Atameken” and civil society to conduct a review of all legislation in order to strengthen protection of property rights.

It is also necessary to humanize the administrative and criminal law. Administrative fines must be fair and proportionate to the committed infractions.

It is necessary to carry out further work aimed at reducing penalties for offenses in business. It is necessary to decriminalize economic actions with a low degree of public danger.

It is necessary to achieve greater confidence in the judicial system. It is important to eliminate any undue influence on the work of judges.

Third, security is becoming the cornerstone of a strong and capable state.

Recently, the humanity has faced an increase in terrorism. The fight against financing of destructive forces and links with foreign terrorist organizations is key.

It is necessary to work on the prevention of religious extremist propaganda, including on the Internet and social networks. It is necessary to adopt a zero tolerance policy toward any action related to radical manifestations, especially in the realm of religious relations.

Targeted work must be conducted together with theological rehabilitation services for convicted persons in prisons. It is necessary to take additional steps toward spiritual and moral education of the younger generation.

It is necessary to integrate the non-governmental sector and religious associations in these activities.

All these measures must be taken into consideration in the State program on combating religious extremism and terrorism for the years 2017-2020, which is being developed upon my instruction.

The fight against cybercrime is becoming all the more urgent.

I am instructing the government and the National Security Committee to take measures toward creating the “Cybershield of Kazakhstan” system.

Fourth. We have made significant steps toward reducing the level of corruption in the country. At the same time, the main focus is aimed at combating the effects of corruption.

It is necessary to intensify efforts aimed at identifying and eliminating the causes and premises of corruption.

Improvement in the procurement sector is one of the key questions.

I instruct the government to introduce a unified public procurement system based on the principle of centralized services.

It is necessary to radically reconsider the public procurement approach in the quasi-public sector, natural monopolies and subsoil use.

A lot will depend on the active participation of the whole society in the fight against corruption. With the development of social media and other media tools, universal non-acceptance should become a powerful tool in combating corruption.

Dear people of Kazakhstan!

Through this message, I wanted to convey my vision of development trends in the new reality to every citizen.

I am instructing the government to develop a strategic development plan until 2025 for the third modernization of the country named “National Technology Initiative in Kazakhstan.”

We have no other choice but to accept the challenges of our time with dignity and work toward the continued modernization of the country.

I believe that our great nation will take full advantage of this unique historical opportunity.

Dear friends!

Kazakhstan is a young multi-ethnic and dynamically developing country that is confident in its future! We have traversed the 25-year-old path of development. In the next 25 years, we expect even higher frontiers.

Having gained a unique wealth of experience in state-building, we have entered a new stage. I am sure that we will overcome any difficulties ahead of us. Our main strength lies in unity.

We will turn Kazakhstan into an even more prosperous country for our descendants!