Component 2: SME Linkages in Competitive Sectors

Objective of Component 2 and subcomponent 2.2.

The objective of the Component 2 is to establish a coherent framework to facilitate linkages and the integration of SMEs in existing and new competitive sectors.

Component 2 of the project SME Linkages in Competitive Sectors includes subcomponent 2.2. – Competitive Sectors;


The purpose and objectives of the Subcomponent 2.2.

  • Objective of the subcomponent 2.2 Competitive Sectors is to support the development of higher value-added production and increased competitiveness of SMEs in non-extractive sectors.
  • This subcomponent will focus on increasing market linkages for SMEs in Kazakhstani sectors that are not yet globally competitive, but which have potential for market-based growth.
  • The Project will develop a world-class cluster development team that is able to implement best practices, and will result in increased global competitiveness of selected clusters. Later the capacity built and experience gained could be applied to other clusters.
  • To achieve this, the Project will increase the institutional capacity of Kazakhstan Industry Development Institute (hereinafter -KIDI) under the Ministry of Investment and development of the Republic of Kazakhstan, reorganized to the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan in accordance with the Decree # 806 of the President of the Republic of Kazakhstan dated December 26, 2018, to implement its cluster development program under the State Program for Industrial-Innovation Development of Kazakhstan 2015-2019 (hereinafter - SPIID).
  • This subcomponent of the Project will finance the following:
    • train and equip the team of specialists at the Kazakhstan Industry Development Institute (KIDI) that will implement the cluster development program;
    • provide KIDI with modern analytical and technical tools for fostering industry-specific competitiveness;
    • build the capacity of other government officials and private sector representatives that will participate in the program;
    • support the implementation of the cluster program in six clusters across the regions , over the Project duration.
  • The selection of regions and clusters will be informed by market-based analysis and consultation with the public and private sectors, and will draw on work done under the Kazakhstan Competitiveness and Economic Diversification Technical Assistance (KCED TA).
  • The competitive industry and cluster development approach to be applied through this Component will first look into the value chain of each industry at the local and regional level.
  • The results and outcome will provide bases for correct understanding of the entire value chain, opportunities in end markets, the role of SMEs and large enterprises, and opportunities and binding constraints for enhanced competitiveness.
  • The Component will help the Government of the RK (central, regional, and local levels), private sector, and other relevant institutions (universities, research centers, etc.) working together to design and implement action plans that will increase cluster competitiveness.
  • The public-private dialogue and intra-government coordination will not simply serve as a means, by which to disseminate analytical findings, but rather to ensure genuine engagement of all parties throughout the process.
  • The design of the cluster competitiveness action plans will be informed by a number of technical and analytical tools that will expose and highlight potential opportunities.
  • Solutions will be market-based and leverage Kazakhstan’s comparative advantages (or potential to develop comparative and competitive advantages).
  • Mechanisms to introduce evidence-based industrial policy will be implemented – this will enable the Government to use industry action plans monitoring and evaluation results to inform the design of Government programs.
  • The cluster development program will be housed in the Kazakhstan Industry Development Institute (KIDI), mandated to develop and oversee the implementation of the cluster program under the SPIID.
  • KIDI will appoint a team of professionals with technical expertise in competitive industries and cluster development and experience in arranging productive cooperation and dialogue between all process participants. This team will be empowered to convene varied stakeholders and offer possible decisions to the managing agency during the implementation of the cluster program.

  • Paragraph 2. Development of the Approach, Regions and Clusters Prioritization

  • The Project will develop and establish a comprehensive approach focused on facilitating the development of competitive industries (subsectors) and SME growth within them. This approach will incorporate international best practices that are tailored to Kazakhstan.
  • During the first six months of the implementation, the Project will help KIDI finalize the plans for implementing its cluster development program, based on international good practices.
  • This will include:
    • identifying the appropriate institutional structure and linkages with other government and non-government institutions (including but not limited to MID, Ministry of Education and Science, NCE, and other private sector associations, regional and local governments, research institutes);
    • refining the technical approach to cluster development, based on work done to date by KIDI and the World Bank team (under the WB technical assistance).
  • In addition to KIDI as the main implementing entity, the institutional structure will include a high-level authority that can make policy decisions and convene stakeholders to resolve any issues that arise in the implementation of the cluster development.
  • The technical approach will apply international best practices tailored to the Kazakhstan context. It will incorporate the following principles, which have been found to be keys to success of competitive industries initiatives around the world, including Malaysia, Singapore, Chile, Brazil, the European Union, and Spain. Successful competitive industries and cluster initiatives:
    • Are based on sound understanding of the value chain and comparative advantages;
    • Are based on sound understanding of competitive forces in end markets;
    • Include deep engagement with the private sector, multiple levels of government, and other relevant institutions;
    • Allow private sector “champions” to emerge naturally;
    • Have strong monitoring and evaluation with private sector input;
    • Include flexibility to change and correct the approach as market conditions evolve;
    • Are housed in government entities that have a clear mandate to implement these programs, and have a direct link to policy-making decisions.

    Paragraph 3. Institutional Strengthening to Apply the Approach

  • The Project will build institutional capacity to apply the approach developed in §2of this Chapter through complex 5-year capacity-building and institutional strengthening program for KIDI. This will include training, tools, methodologies, and documentation for all of the aspects required to implement the approach, including:
    • industry prioritization and analysis (including, but not limited to value chain analysis, market segmentation and trend analysis, and business enabling environment analysis;
    • public-private dialogue;
    • monitoring and evaluation tools for evidence-based industrial policy (evidence-based);
    • strengthening of the institutional structure;
    • management information systems and other IT tools to support implementation;
    • institutional structures for coordination and policy-making, and associated communications strategies;
    • capacity building for training and workshops for other participants and stakeholders of public and private sectors.
  • For the implementation of this subcomponent an international consultant may be hired, whose team has global expertise in cluster development, and who will coordinate all capacity building and deliver hands-on implementation assistance throughout the Project.
  • Senior technical manager will report to PIU against the results obtained. The detailed description of accountability to the KIDI management and functions will be specified in the Terms of Reference developed by KIDI with the input from PIU. The Terms of Reference are subject to WB approval.

  • Paragraph 4. Support to Implementation of the Competitive Industries Approach

  • The cluster development approach will be applied to the regions of the Republic of Kazakhstan.
  • The Project will provide support to KIDI and other institutions involved in implementing the approach in these clusters. It is envisioned that the approach will be implemented through a multi-step process such as the one illustrated in Figure2 below.

  • Figure 2 Illustration of the Proposed Competitive Industries Approach
  • The support to be provided during implementation includes:
    • full-time, on-the-job mentoring;
    • access to specific international expertise, including experts in the analytical methodologies listed in §3 Institutional Strengthening to Apply the Approach above and experts in the industries of focus who understand market trends and the competitive environment for Kazakhstani products;
    • funding for the cost of travel and workshops to develop the cluster competitiveness action plans and oversee and monitor their implementation;
    • provide manuals, guidelines, and IT tools that will support the implementation of the approach in at least six clusters of focus.
  • During the implementation, the Project will provide capacity building support to all stakeholders involved in implementing the approach. This work will be done at the industry level and service sector focusing on the regional development, SME growth and job creation.
  • All subcomponent activities will be performed with the ongoing Project technical assistance through involving highly qualified consultants having the international cluster development experience.
  • It is planned to establish a team at KIDI to implement the cluster development program, including cluster policy facilitators.
  • The staff is expected to be within the KIDI’s staff size, and to be funded from its internal sources. The team will report to the Deputy Chairman of KIDI.
  • PIU will support the team in the activities provided for in this Component. The KIDI team will also be responsible for the entire implementation process as a Project partner participant.
  • Terms of Reference for consultants engaged in the Project will be developed by the KIDI team. Such Terms of Reference are subject to WB approval. KIDI representatives will also sit on evaluation committees for all services procured for them if necessary. KIDI representatives will also be included in the PIC.
  • The KIDI’s participation in implementing the activities in this Task will be described in detail in the Methodology for the Implementation of Cluster Policy developed by KIDI and the World Bank.
  • The project will finance the consultants providing training and implementation support to KIDI and the operating expenses for the cluster development program.
  • FaLang translation system by Faboba