6. Skills and infrastructure for private sector digitalisation

6.1. Survey observations and overview

The digital transformation is having a profound impact on Uzbekistan’s private sector. Many of the consequences of digitalisation are well-known, shared, and analysed, and the OECD continues to do extensive work on how best to take advantage of the opportunities of digitalisation whilst mitigating the socio-economic risks the digital transition can pose. Digitalisation can offer new opportunities for firm organisation and production, as well as how crucial government services are administered, while the ever-increasing value of data as an economic input is pushing the frontiers of innovation in both public and private sectors. At the same time, as the contribution of digital technologies and services continues to increase its share of value added in both manufacturing and services, who has the skills and capacities to take advantage of digitalisation will have significant implications for the inclusivity of economic growth.

Enabling the private sector – and society more broadly – to make the most of the opportunities offered by the digital transformation requires a range of different policy interventions. For one, firms can only digitise their activities – for example, through the adoption of IT solutions, be they simple or advanced, to improve productivity – if the basic digital and connectivity infrastructure is in place. This means having access to high-quality internet, fixed and cellular; access to ICT equipment and software; and the availability of more complex forms of digital infrastructure, such as cloud computing. It also means having access to the skills and knowledge necessary to apply digital technologies and to derive new insights and innovations from them. Finally, it means having access to the capital necessary to invest in the above, and a regulatory environment that fosters digitalisation rather than constraints it.

As in all economies, the challenges facing policymakers in fostering the digital transformation involve a combination of internationally shared barriers mapped onto local conditions. In Uzbekistan, this is particularly true for challenges around digital skills, access to finance, and competition in key network sectors. The government has declared its ambition to drive the digital transformation of the country’s economy, with its strategic objectives codified in the Digital Uzbekistan 2030 project, which places a particular focus on the digitalisation of the public administration, education, healthcare and agriculture (Box 6.1).

These localised challenges were identified by respondents to the BCA survey, many of whom underscored their enthusiasm for digital opportunities in Uzbekistan but also their frustration at how underdeveloped framework conditions prevented them from making the most of these opportunities. Respondents to the survey reported a high level of optimism for the opportunities presented by digitalisation, as well as generally high level of digitalisation within their firms. Some 80% of respondents considered digitalisation to present opportunities for their business activities in Uzbekistan (37% significant opportunities, 43% some opportunities).

All respondents to the BCA reported that at least 50% of their business operations had been digitised, while 41% of respondents reported that around 75% of operations were digitised. Whilst the sample is small, these figures nevertheless suggest a relatively high level of digital penetration in the European business community in Uzbekistan, though it would be necessary to compare with the domestic business community with a larger sample size to determine whether such levels were representative throughout the country.

It was notable that a significant majority of respondents reported that they used advanced tools. This included 79% of respondents who used customer relationship manager software (CRM) or some form of data analytics, which suggests a relatively high level of digital maturity of European firms operating in Uzbekistan. The rate of firms using cloud-based data solutions (52%) and digital communications (54%) further underscores the notable digitalisation of the surveyed firms.

However, as with the green transition, the key barrier to the further adoption and use of digital technologies by the surveyed firms appears to be primarily infrastructure related. An overwhelming majority (83%) of respondents underscored the importance of improving internet speed and quality for digitalisation, whilst another 43% emphasised the need to improve data security infrastructure. Other issues related to the need to develop online payment systems (33%), improve the digital skills and qualifications of the labour force (30%), and to improve the quality of the regulatory framework for online commerce (30%).

The purpose of this short chapter is to expand upon two areas identified in the BCA survey as problematic for the digitalisation of the private sector in Uzbekistan. The first concerns the digital and connectivity infrastructure available to firms. The OECD Going Digital Toolkit gives a framework for assessing the degree of digital transformation in both member and non-member economies, and this section combines some of the commonly used indicators of digitalisation with other data, such as investment in digital and intangible capital, to give an overview of the extent of digitalisation in Uzbekistan. The second section picks up another key barrier for private sector digitalisation – skills. This section draws on work conducted by the OECD Eurasia Competitiveness Programme on digital skills in Uzbekistan and presents some of the key findings from this work.

6.2. Infrastructure and connectivity gaps must be bridged to advance private sector digitalisation

The rate and depth of digitalisation in Uzbekistan, as in any country, is shaped by a number of important infrastructure-related framework conditions and the diffusion of digital technologies. It is precisely the lack of development of these framework conditions that BCA respondents identified as the major barrier to digitalisation in Uzbekistan. The OECD collects a wide range of data on issues such as broadband diffusion and access, data consumption, enterprise usage and geographical coverage, but non-member countries are not yet included in these statistics, making it difficult to conduct accurate international benchmarking. Nevertheless, using a range of OECD indicators, including the OECD Broadband Portal indicators, this section presents a brief assessment of the development of the supportive infrastructure necessary for digitalisation of Uzbekistan’s private sector.

The cost of fixed broadband in Uzbekistan is relatively high, at 2.1% GNI, slightly above the SDG target of 2%, though significantly lower than in some Central Asian economies, such as Tajikistan, Turkmenistan and Kyrgyzstan (Figure 6.1). The cost of access to the Internet in Uzbekistan is nevertheless converging with the OECD and trending towards to the SDG target. This is a positive sign, one that indicates a relatively low-cost barrier to Internet access, and which in theory should make digital opportunities accessible to a large number of households and firms.

Figure 6.1. Cost of fixed broadband access as percentage of GNI (2021)

Source: (ITU, 2023[1])

Yet whilst the cost of Internet access is relatively low at the national level, the quality of connectivity infrastructure is highly variable across Uzbekistan’s regions. For example, the total length of fibre-optic communication lines at the regional level seems to be more strongly correlated with gross regional output than with population size or density (Figure 6.2).The implication is that the extent of the development of the connectivity infrastructure necessary for the digital transformation is greater in areas of higher economic output, regardless of whether these are more or less populated (Figure 6.2)

Figure 6.2. Regional connectivity infrastructure and economic development (2021)

Note: OECD calculations

Source: (The State Committee of the Republic of Uzbekistan on Statistics, 2023[2]), (The State Committee of the Republic of Uzbekistan on Statistics, 2023[3])

One clear trend in Uzbekistan that has significant implications for the digital transition is underinvestment in ICTs. Investment in ICTs in Uzbekistan amounted to only 1.65% of total GFCF, significantly below the OECD average of 11.4%, and further still behind the leading OECD member Sweden (20%) and the Czech Republic (17%) (Figure 6.3). Relative to the size of the economy, the level is similarly low (equivalent to 0.65% GDP), comparable only to Poland among OECD members (0.78% GDP).

Figure 6.3. Investment in ICTs: Uzbekistan in international context

Note: *The OECD average does not include Chile, Colombia, Costa Rica, Greece, Japan, Korea, New Zealand.

Source: (OECD, 2023[4])

There are factors that may account for the relatively low level of investment in ICTs and digital technologies in Uzbekistan. For example, since the government began to liberalise foreign trade, there has been a significant rise in imports of capital goods, largely driven by public investment, in part due to the need to modernise and replenish the country’s industrial base. This may in part account for the relatively low share of investment in ICTs (and indeed other forms of intangible capital). At the same time, it is imperative that Uzbekistan increases both the relative share and total volume of investment in these assets if its firms and workers are to be able to take advantage of the digital transformation, ensuring that the productivity and output of the country’s nascent private sector does not further diverge from the OECD average. As in other sectors of the economy, competition issues in the telecommunications sector may act as a significant barrier to raising levels of investment in digital and connectivity infrastructure.

6.3. Firms need new skills to succeed in the digital transition

Firms need new skills and capacities to succeed in the digital transition. The ability of private sector firms to make the most of the opportunities presented by the digitalisation transition, and to ensure that they are not left behind by competitors both domestically and internationally, depends on the capacities of firms to use a range of digital technologies, as well as complementary capacities in other areas necessary to identify commercial or organisational use cases for those same technologies too (such as management skills that reflect how digitalisation can affect firm organisation).

The ability of a manufacturing SME in Uzbekistan to innovate in how they organise themselves or how they produce depends on their ability to derive new data and insights from those data using digital tools. It is for this reason that, in a study on the impact of various policy interventions and framework conditions on the diffusion of digital technologies in the EU, the OECD found that the intervention with the greatest single impact was upgrading technical and managerial skills of firms(Figure 6.4). At the same time, firms must have the internal capacities and knowledge to recognise the value in using digital tools for their business, and to have the skills necessary to recognise opportunities where digitalisation would be of use to them.

Figure 6.4. Impact of selected policy interventions on improving productivity

Note: Effect on multifactor productivity of the average EU firm of closing half of the gap with best-performing EU countries in a range of structural and policy areas, after 3 years

Source: (OECD, 2019[5])

The type of skills that the workforce needs to make the most of the digital transition are manifold. In certain cases, new types of jobs and the changing nature of existing ones require job holders to have a mix of technical and high-level cognitive skills, for example, database management skills and related data analytical skills. In some professions, proficiency in coding languages such as Python and Java, or knowledge of and experience with machine learning, data science and visualisation techniques in others. These are advanced skills, ones which are not widely held even in OECD countries (1% of the population), but they are nevertheless important for Uzbekistan and other transition economies if they are not to be left behind by new forms of value creation, drivers of productivity, and innovation (OECD, 2022[6]). At the same time, more ‘basic’ skills, such as a familiarity with widely used software or experience with social media platforms are increasingly important to a wide range of industries, beyond the traditional confines of the ‘ICT’ sector. Whilst there are of course sector- and industry-specific digital skills needs, the whole-of-economy significance of digitalisation requires an inclusive approach to digital skills development.

While it is clear that digitalisation offers significant opportunities for innovation and productivity growth for Uzbekistan’s SMEs, the uneven diffusion of infrastructure and skills risks aggravating productivity gaps between firms due to difficulties in financing digital technologies and the related intangible capital necessary to use them effectively. Access to finance challenges are long-standing barriers to firm growth in Uzbekistan, but the banking sector’s stringent collateral requirements are particularly difficult for SMEs in the digital context, where much of the investment is in intangible capital (skills, software and other forms of intellectual property). Ensuring broad access to the skills and capacities necessary to make the most of digitalisation is therefore also important for inclusion, be it at the industrial level (i.e., between firms and industries with more or less investment capacity), regional level (i.e., between SMEs in Tashkent and major industrial hubs and more rural areas of the country), or socio-economic level (i.e., gendered differences in terms of access to digital skills).

The level of digital skills in Uzbekistan is significantly behind the OECD average, as well as trailing the level observed in neighbouring Kazakhstan (Figure 6.5). Worryingly, this is true across the basic, standard, and advanced skills categories, suggesting that the labour force in Uzbekistan remains underequipped to use even the more basic of digital technologies and to recognise potential applications for them in their own businesses, or indeed in the context of a start-up or innovation. Raising the general level of digital skills should be a priority for the government in its pursuit of private sector competitiveness. Efforts should be made to begin digital skills training early in the education system, ensuring that new labour market entrants are equipped with the skills they need to succeed, as well as mitigating the development of skills-related bottlenecks in the labour market as digital technologies continue to change how firms work and produce.

Figure 6.5. Overview of digital skills: Uzbekistan, Kazakhstan and OECD average

Note: As a percentage of the population. *Data was not available for Australia, Canada, Costa Rica, Israel, New Zealand, United States. Data for Uzbekistan is from 2018-2020, data for Kazakhstan is from 2019-2020. Observations for OECD countries go from 2013 to 2020.

Source: (ITU, 2023[1])

The difference in digital skills levels in Uzbekistan and peer countries is particularly stark in the areas which one might associate as productivity-enhancing. where the person uses their digital knowledge to create new knowledge and insights from data, or to innovate and improve communications (WEF, 2020[7]) (OECD, 2021[8]). For example, Uzbekistan significantly lags Kazakhstan, which is close to the OECD average, in using an arithmetic formula in a spreadsheet, creating an electronic presentation, connecting new electronic devices, or downloading and configuring software (Figure 6.6) In part, this may also reflect the slow structural transformation of Uzbekistan, with many more people working in sectors and industries where the use of digital tools is generally lower (such as agriculture), but it nevertheless highlights the potential for significant skills-related labour shortages and bottlenecks as the economy continues to move towards higher-value adding activities where the advantages and effects of digitalisation are more obvious and prevalent. Greater data availability on digital skills and digital diffusion in the business community, for example in terms of firm size and industry, would allow for more targeted policy interventions should they be necessary.

Figure 6.6. Breakdown of digital skills: Uzbekistan, Kazakhstan and the OECD average (2019)

Note: As a percentage of the population. *Data was not available for Australia, Canada, Costa Rica, Israel, New Zealand, United States. Data for Uzbekistan is from 2018-2020, data for Kazakhstan is from 2019-2020. Observations for OECD countries go from 2013 to 2020.

Source: (ITU, 2023[1])

One characteristic of the digital skills landscape in Uzbekistan, as in Kazakhstan, is that the digital skills gap appears to be relatively ungendered. The gap between men and women in basic, standard and advanced skills significantly higher in the OECD than it is in Uzbekistan and Kazakhstan (Figure 6.7. )Given the generally low level of digital skills in Uzbekistan, the relatively narrow gender gap may be more representative of the broader availability of these skills rather than a positive trend in their development, with interviews for a 2023 peer review of digital skills in Uzbekistan noting that access to digital skills development is more limited for women. It is important to note that a country’s historically important industries can create path dependencies in skills availability and development that can either enable or inhibit the private sector’s digital – and green – transition (OECD, 2022[9]). If, for example, in a certain economy there has been a historically high importance of a given sector or industry where gender gaps are present, then it may follow that the starting point from which to develop digital skills may be uneven (e.g., if an industry in which digitalisation has clear potential to increase productivity and innovation, such as manufacturing, has had a historically significant gender gap in terms of employment or productivity, then there may be structural barriers to overcome to ensure that the development of digital skills is truly inclusive).

Figure 6.7. Gender differences in the digital skills gap: Uzbekistan, Kazakhstan and the OECD average (2019, in percentage points)

Note: As a percentage of the population. OECD estimations based on ITU data. Data was not available for Australia, Canada, Costa Rica, Israel, New Zealand, United States. Data for Uzbekistan is from 2018-2020, data for Kazakhstan is from 2019-2020. Observations for OECD countries go from 2013 to 2020.

Source: (ITU, 2023[1])

Addressing skills related challenges for the digital transition of the private sector in Uzbekistan was the focus of a recent peer review note by the OECD Eurasia Competitiveness Programme. It is notable that the focus of the note was chosen by the government of Uzbekistan, reflecting the importance placed by the authorities on the issue of digital skills in the country. The request also reflects a challenging reality in the country, that for all the enthusiasm expressed for digital opportunities through the BCA survey, uptake of digital technologies remains low (Portulans Institute, 2020[10]).

Smaller firms in Uzbekistan tend to be less aware of the digital skills support programmes available to them on a limited or zero cost basis. Governments generally play a coordinating role in managing the different actors and institutions involved in the digital transition, and part of that includes ensuring that the target of specific policies, in this case firms, are aware of the opportunities available to them. In Uzbekistan, despite there being a strong political commitment to supporting private sector digitalisation, as codified through the government’s National Digital Strategy, there is a lack of clear policies to support digital upskilling in the private sector as well as a lack of awareness raising and outreach concerning those policies that do exist.

There is a general lack of awareness among Uzbekistan’s private sector concerning the opportunities in the digital transition. This is particularly true for the country’s smaller firms, which are often unaware both of the opportunities presented by digitalisation as well as the skills necessary to make the most of such opportunities. This is a particular challenge for Uzbekistan, whose geographical connectivity penalty means that it is imperative that domestic firms close the productivity gap with international firms if they are to be competitive abroad, something that is a long-standing policy objective of the government.