Executive summary
Since embarking on a wide-ranging reform programme in 2017, Uzbekistan has made considerable progress in creating the framework conditions for a competitive private sector. In the first decades of independence, Uzbekistan’s growth was primarily driven by a state-led model of industrialisation, state-owned enterprises predominated in most sectors of the economy, and the role of international trade and the private sector significantly limited. Whilst macroeconomic performance was relatively strong, this development model tended to hamper the reallocation of human and fixed capital needed to drive structural transformation. Since the reform process accelerated in 2017, the government has made considerable efforts to reduce the direct role of the state in the economy and enable the private sector to play a more expansive role in economic development.
The steps taken by the government in recent years are contributing to greater socio-economic resilience and opening up the economy to new investment, technology and ideas. Uzbekistan emerged on a relatively strong footing following the COVID-19 crisis, and as of spring 2023, the impact of Russia’s war has been muted. The resilience of the country in face of these external shocks is testament to the prudent and agile policy response of the authorities, as well as the country’s ability to benefit from higher international prices for key exports such as gold. Rising levels of investment, a resumption of accession talks with the World Trade Organisation, regulatory liberalisation for foreign direct investment (FDI), and reforms across a vast array of policy domains all point to the country moving towards a model of growth that can be more inclusive and resilient.
Uzbekistan nevertheless remains at a relatively early stage of its journey towards an open and competitive market economy, and there remain a number of challenges that continue to inhibit the development of private enterprise. Rather than being the locomotive of economic growth, the government is gradually beginning to refashion its role as an enabler of private sector development and investment, for example, by improving the framework conditions – skills, access to finance, infrastructure, etc. – necessary for entrepreneurship. Rationalising the role of the state in the country’s economy and addressing the competition-related imbalances that its historical role may have created, is a key issue that many of the government’s policy interventions to support private sector development address.
The OECD conducted a private sector survey in Uzbekistan to gauge business sentiment on the government’s ongoing reform process and to help identify opportunities and challenges in the business climate. The survey was small but focussed, targeting foreign firms active in Uzbekistan as well as a number of business and trade organisations. Respondents were asked to highlight reform progress and challenges, to identify policy issues they considered priorities for action, to give their views on the impact of Russia’s war in Ukraine and the COVID pandemic on doing business in Uzbekistan, and to share their thoughts on policies to support the private sector in the context of the digital and green transitions.
Three major priorities emerge from the survey. First, respondents emphasised the importance of making trade across borders simpler, with only a handful of firms saying that there had been significant progress on trade facilitation in the past five years. While recognising the significant efforts the government has made to improve the regulatory environment for firms, respondents also emphasised the importance of complementary pro-competition policies to ensure that firms could enter freely and compete on a level playing field. Finally, while appreciating the opportunities that digitalisation presented in Uzbekistan, firms noted the need for greater investment in connectivity infrastructure and skills development.
A significant share of respondents noted the importance of market opportunities – domestic and regional – as a factor in their decisions to enter Uzbekistan. Firms were positive on a number of areas where government action had made international trade easier, particularly exchange rate liberalisation and the relaxation of currency restrictions. Yet, a significant number of firms noted the persistence of logistical bottlenecks and disruptions that made the practicalities of international trade slow and costly. Some of these disruptions were short-term, related to Russia’s war in Ukraine and the COVID-19 pandemic, but the survey results suggest a general a lack of enthusiasm for the overall speed of trade facilitation reforms.
Ensuring that market-seeking firms are able to trade easily, and that local SMEs are able to integrate into potential new value chains raises the importance of trade facilitation and export promotion. Uzbekistan has long recognised the importance of reforms to support trade facilitation in making it easier for local SMEs to trade internationally and to compete abroad. While the country’s performance in the OECD Trade Facilitation Indicators (TFIs) suggest that Uzbekistan is gradually improving its trade facilitation framework, there remains a significant gap with the OECD average that targeted policy action could help narrow. Additional targeted support to help SMEs access foreign markets and raise their awareness of the demands of these markets could also significantly help internationalise the private sector.
Firms generally considered the business climate in Uzbekistan to be friendly, acknowledging clear progress in most of the indicators on which they were surveyed. Respondents were most positive about efforts to ease business registration and licensing. Many of the issues that emerged as most problematic were related to the establishment of a level playing field between public and private firms, with competition policy and enforcement a particular challenge. On each of the sub-indicators for competition policy, a majority reported that it was weak (institutional framework for competition policy – 52%; concentration control – 54%; measures in place against cartels and concerted practices – 57%; control of market dominance and monopoly practices – 67%).
Additional pro-competition reforms can help enable the private sector to thrive in a liberalising regulatory environment for business and investment. Firms’ concerns over competition issues are in contrast to the positive appraisal of reform progress in other areas, and these concerns come amidst a large number of institutional changes that have been put in place precisely to level the playing field for private business. That firms have yet to feel the benefits of these legal reforms speaks to implementation challenges, the scope of the legal reforms enacted to date, and a complicated range of adjacent reforms (e.g., in land and other factor markets, or corporatisation and privatisation of state assets) that that are required to level playing the field between public and private enterprise.
Respondents were enthusiastic about the business opportunities associated with Uzbekistan’s digital transformation. A significant majority considered digitalisation to present new opportunities for them in the country, and many had already adopted advanced digital tools such as customer relationship management software and cloud-based computing services. Firms were also positive about the government’s efforts to use digitalisation to improve public service delivery. Nevertheless, respondents noted a number of challenges that held back the uptake and use of digital tools at the firm level.
Uzbekistan needs greater investment in connectivity and digital infrastructure, as well as in the skills that firms need to make the most of digital opportunities. While the cost of fixed broadband in Uzbekistan is relatively high, access costs are converging with the OECD average and trending towards the 2% GNI target set out in the Sustainable Development Goals. However, the quality of access is highly variable across the country, while the investment in the information and communication technologies (as a share of total investment) needed to make the most of an expanded connectivity infrastructure remains far below the OECD average. More can also be done to address digital skills needs and to help firms recognise the opportunities digital technologies offer in terms of production and innovation.
Uzbekistan has strong fundamentals for long-term, sustainable growth. The country is populous, entrepreneurial and endowed with natural resources, and it has a government committed to an ambitious reform agenda. Its progress since 2017 has been impressive, but to achieve meaningful structural reform, with the private sector playing an expanded role in economic development, it will need to tackle more challenging issues in the years ahead. For many of the areas highlighted in this report, reform implementation will be more difficult than reform design and will demand creativity, new capacities and political will from the government and public agencies. The green and digital transitions add a further set of considerations for the authorities to confront as they proceed with their reform programme, but they also present enormous opportunities for Uzbekistan should the country be successful in unshackling the private sector from the constraints that have stymied entrepreneurship in the past.