Uzbekistan is best known in history as a transit point on the Silk Road, for nearly 1,000 years, the Silk Road grew from a simple trading route into a place that captured the world’s imagination. Early openness to trade allowed cities to flourish. Leading scientists, craftsmen, poets, and musicians called this land their home where cities flourished innovation followed. Uzbekistan is a major producer and exporter of cotton, Uzbekistan is also a big producer of gold, with the largest open-pit gold mine in the world. The country has substantial deposits of silver, strategic minerals, gas, and oil.
Uzbekistan has been undergoing a period of economic and structural reforms since 2016. A series of reforms have gained international recognition, these reforms will help support an inclusive transition to a private-sector-led economy by strengthening market institutions and ensuring all citizens take part in the benefits of economic growth. Uzbekistan is now changing its growth equation and aspiring once again to become a place of integration and innovation.
The economy of Uzbekistan was formerly associated with a Soviet-style command economy, with a slow transformation to a market economy. In addition to Uzbekistan’s ancient history, more recent history also offers important lessons. Along with many Commonwealth of Independent States or CIS economies, Uzbekistan’s economy declined during the first years of transition. Facing a multitude of economic challenges upon acquiring independence, the government adopted an evolutionary reform strategy, with an emphasis on state control, reduction of imports and self-sufficiency in energy.
However, the gradualist reform strategy has involved postponing significant macroeconomic and structural reforms. The state in the hands of the bureaucracy has remained a dominant influence in the economy. Corruption permeates the society and grows more rampant over time.
The economy of Uzbekistan requires fundamental, systematic, and continuous changes, as well as the replacement of the whole structure of public institutions. The primary objective of economic policy reforms in Uzbekistan is to establish an atmosphere conducive to the regular operation of effective market processes. The government of Uzbekistan to ensure efficient transformation of national economy into a more developed and robust economy which supports inclusive and sustainable development in the long–term.
Since 2016 and the new president Shavkat Mirziyoyev coming to his position, there have been significant economic reforms in Uzbekistan. The country liberalised the currency in 2017, allowing freer flows of foreign currency and allowing the import and export of goods, and the path to foreign investment. 2019 tax reforms also allowed company consolidation, tax simplification and the professionalisation of the Private sector. The Government is also committed to privatisation of State Owned Enterprises (SOEs), with the domestic IPO of UzAuto predicted in 2022.
The country has seen rapid economic and social reform, aimed at boosting growth and transforming Uzbekistan into a true, modern market economy. International Financial Institutions, including EBRD, Asian Development Bank and the World Bank are actively engaging in supporting Uzbekistan’s successful reform process and have rapidly increased their presence in the country.
Uzbekistan improved marginally in the 2020 Ease of Doing Business ranking by the World Bank. The largest corporations involved in Uzbekistan’s energy sector are the China National Petroleum Corporation (CNPC), Petronas, the Korea National Oil Corporation, Gazprom, Lukoil, and Uzbekneftegas.
The Uzbekistan Economic Forum run by the Ministry of Finance of the Republic of Uzbekistan, brings together IFIs, businesses, government officials and other stakeholders on an annual basis. The first iteration was in Tashkent, and the Uzbekistan Economic Forum II took place in Samarkand. In December 2022, the Uzbek Government received a loan from the World Bank of almost US$1bn to “implement strategic reforms”.
As of December 16, 2022, the World Bank’s country program in Uzbekistan comprised 27 projects. They are being implemented by the Government with the support of the World Bank across a range of critical areas, including poverty reduction, support for entrepreneurship, macroeconomic reforms, agriculture, water resource management, clean water supply, sanitation, energy, transport, health, education, social protection, urban and rural infrastructure, national innovation, tax administration, statistical and financial systems, and more.
Uzbekistan has made impressive development gains since 2016 by relentlessly pursuing the path of market-oriented reforms, and planed to achieve its ambitious goal of reaching upper-middle-income status by 2030. Uzbekistan has an impressive record of market-oriented reforms. Over the past five years, it has eased foreign exchange and trade restrictions, liberalized prices, and improved the business environment. An overhaul of the tax code has made the budget more transparent and oriented to the needs of vulnerable groups. Inflation targeting and new fiscal rules will help keep consumer prices and public debt in check. Thanks to continuous market reform efforts, Uzbekistan has become much more resilient to external shocks.
Governance and Regulatory reforms – Uzbekistan has been undergoing a period of economic and structural reforms since 2016, the country has signed trade agreements with the European Union and the United Kingdom, has attracting a slew of Western foreign investors and has become a primary example for Central Asian nations in terms of managing political and economic reform. Deregulation, decentralization, and optimization of the role and functions of the government are key elements of any successful economic reforms in Uzbekistan. In order to develop a market economy and improve the competitive environment in the country, state-owned enterprises are being transformed. The necessity of a complete rejection of state support for enterprises that do not meet modern requirements and operate at a loss was emphasized.
Small Business and Private Sector Development – Small businesses and entrepreneurs have played an increasingly important role in sustaining the country’s high rates of economic growth, the driver of the job creation and the expansion of production. Uzbekistan gradually privatize large state-owned enterprises, expand competitiveness and liberalize the pricing of energy. Further expansion of the private sector growth and the development of small and medium enterprises will not only strengthen the economy and increase its international competitiveness but will generate the new jobs that will raise the well-being of the population at large.
Agriculture – Uzbekistan has excellent conditions for the development of agriculture, including land, water, favorable climatic conditions, and skilled human resources. Among the stated goals are: to deepen structural reforms; to ensure food security; to increase exports; to reduce cotton acreage; to invest in modern processing, storage, distribution, and marketing; and to restore the quality of land and mitigate risks arising from environmental changes.
The economic path that Uzbekistan has chosen will depend on strong and honest leadership, the commitment to reform of thousands of officials and private businessmen, and the completeness and accuracy of information available to ordinary citizens about the progress of transformation in their country. Significant shifts have already occurred, and that these have in turn energized both the internal process of change and also stimulated the emergence of a new potential economic transform all Central Asia.
A more open Uzbekistan is a game changer for regional trade. Between 2017 and 2018, as markets opened up, trade in external goods with neighboring countries jumped by approximately 50 percent. More people and companies are coming as well. In 2018, the number of foreign citizens entering Uzbekistan doubled. The announcement of a new “Silk Visa” for Central Asia will mean even more opportunities for cooperation in the years ahead.
Scaling-up quality investments and putting those investments where they can truly help. A critical element to gaining more quality investments is price liberalization. Make sure the investments be channeled to the most competitive and profitable firms, which bring much-needed foreign direct investment (FDI) into the country. Over the long-term, these reforms will translate into higher growth, better wages, and improved living standards.
With a relatively young population of about 37 million, Uzbekistan is the largest consumer market in Central Asia and a major regional agricultural and manufacturing exporter. Thanks to reforms that have brought about more employment opportunities, as well as the prohibition of discrimination and exploitation in the labor law, and the protection of workers’ benefits. Inclusive growth would boost GDP significantly, it would challenge the entire region to further eliminate the economic and legal barriers facing women. in the long-term is better jobs and higher living standards, including for women. Uzbekistan’s female labor force participation rate is just above 50 percent, putting it around the average of other Central Asia nations.
These reforms will build a higher skill workforce and improve companies’ overall performance. Part of the solution is in education and labor market reforms that will close the skills gap. Here, the government is taking promising steps — including creating a national center to assess the quality of education across the country. New plans are underway to improve apprentice programs and build job training centers.
Progress in education, infrastructure, fiscal, and financial policy is only possible when people trust their government. When corruption becomes institutionalized, it poisons the ability of a nation to attract investors and create jobs. The government of Uzbekistan sense the urgency of the problem, One of the first laws enacted in the reform process was the Law on Combatting Corruption. Changes are now being implemented to improve public administration, modernize procurement, and help courts run more efficiently. To increase transparency, the publication of the first citizen’s budget was a significant milestone. So are the efforts to reduce red-tape and collect tax revenue more effectively and even-handedly.
The economic signals from Uzbekistan were positive. Especially noteworthy have been the government’s positive approach to regional economic cooperation, international engagement, the currency reform, and the initiation of internal regulatory reforms. Better connections with neighbors help Uzbekistan’s outer regions prosper. Previously underdeveloped areas can become new regional economic centers that facilitate trade across borders.
Uzbekistan’s ambition to rebuild the center of Asia is reflected in its efforts to improve the country’s backward transportation system and infrastructure. Uzbekistan has worked out feasible plans that would bring major transport corridors through its territory as well, including an important route from Kashgar through the Ferghana Valley to Afghanistan, Turkmenistan, the Caspian, and Europe. Chinese Belt and Road cooperation also Initiative show a similar main corridor leading south of the Caspian Sea, passing through Uzbekistan, Turkmenistan, Iran and Turkey.
The success of Central Asia and the success of Uzbekistan are deeply interconnected, an openness to trade will lead to flourishing industries. New roads was being built; a railway is being completed that will soon connect China, Kazakhstan, Turkmenistan, and Uzbekistan; energy networks are springing to life. Electricity connections were restored between Tajikistan and Uzbekistan.
Proposed steps to reduce customs duties and excise taxes will reduce the high cost of doing business with Uzbekistan and hence better position Uzbekistan to benefit from improved Eurasian connectivity. However, much more is needed in order to switch from a one-sided emphasis on border controls to one that is based on prudent risk management. Specific measures that will have to be instituted include regular risk assessments, the introduction of single windows and green channels for rapid bordercrossing, and the removal of petty red tape and regulation. Such changes are entirely compatible with the protection of national security, and will facilitate all forms of international trade, whether by rail, road or air.
The BRI cooperation
China is expanding and deepening BRI cooperation in Uzbekistan. Uzbekistan signing BRI infrastructure related contracts worth US$16 billion with China in 2022. By using the BRI, Uzbekistan is diversifying its infrastructure network and reducing delivery times to the country by approximately 15%. With the BRI and cooperation program 2022-2026, Uzbekistan can increase export routes and the increase the volumes of Chinese tourists.
China by using the BRI, seeks to expand transportation and logistics infrastructure, trade links, prosperity, new opportunity for stability and growth, investment, technology and new markets, exports, industries, industrial promotion, green and digital economy, reducing electricity shortage, and increasing exchanges.
In the China-Central Asia-West Asia BRI Corridor, two of the BRI routes pass through Uzbekistan, which will connect the country to China and Iran faster than the previous, Soviet-era alternatives. Route 3 is the Kazakhstan, Uzbekistan (Tashkent, Samarkand, Navi), and Turkmenistan Corridor, while Route 4 is the Kyrgyzstan, Uzbekistan (Andijan, Pap, Tashkent, Samarkand, Navi) and Turkmenistan-Iran Corridor.
Additionally, all four corridors of the “China-Central Asia” gas pipeline pass through Uzbekistan. Apart from the 25-year bilateral contract for the sale of natural gas, a fifth route to transfer gas from Turkmenistan to Uzbekistan is also being considered.
Companies such as Power China entered the Uzbekistan market in 1999. Bilateral agreements for the implementation of more than 150 joint projects are either to be implemented in the future or are ongoing. China’s BRI has invested in Uzbekistan in sectors such as industries, raw materials, energy, infrastructure, telecommunications, advanced technology, construction of thermal power plants and upgrading of hydroelectric power plants, development of digital and fiber optic infrastructure, and 5G.
Chinese companies under the BRI are also active in the sectors such as renewable energy resources, and mining of Uzbekistan, especially in the cement sector and numerous factory projects, special economic zones, free trade zones, industrial parks (SEZs), building materials, chemical and chemical industry companies, agriculture and logistics, and textiles.
The BRI also presents more opportunities for Uzbekistan. China plans to increase trade with the five Central Asian countries to US$70 billion by 2030. The Belt and Road Initiative in Uzbekistan is being seen overall as an important contribution to reaching the national GDP goal of US$100 billion in GDP, doubling exports to more than US$30 billion dollars by 2030, and diversifying the economy. In this regard, many in Uzbekistan and China hope that the construction of the China-Kyrgyzstan-Uzbekistan (CKU) railway will create more important business and economic opportunities, and will shorten access to the Persian Gulf, the Caucasus, Turkey, the Middle- East, and Southern Europe.