Sustainable Socio-Economic Development in Uzbekistan Updates
New priorities for reforming the economy of Uzbekistan. Uzbekistan is one of the few countries in the world with a fast-growing economy. Over the last decade, the Republic's GDP growth rate has been steadily exceeding the average rate for the group of leading CIS countries (Russia, Kazakhstan, Belarus) and several countries of the Central Asian region (Kyrgyzstan, Tajikistan). Even during the pandemic crisis of 2020, when these countries recorded a decline in the economy (with the exception of Tajikistan), Uzbekistan managed to maintain positive economic growth
The reform process, which began in 2017, was aimed at activating new factors of economic growth - improving the investment climate, expanding export potential, intensifying foreign trade, strengthening macroeconomic stability. Significant milestones in this path were the liberalization of the foreign exchange market, visa simplification, the transition to a flat income tax scale of 12%, reducing a number of administrative costs of doing business, opening branches of some famous foreign universities of Korea, Russia and the United States. With the participation of foreign experts in 2017 alone, 18 free economic zones and 77 small industrial zones, as well as 10 technoparks were established in the country, which contributed to the accelerated development of the regions of the republic.
In the sphere of foreign economic policy, the list of products banned for export was significantly limited, the requirement for mandatory sale of foreign currency earnings was abolished, import customs duty rates were significantly reduced, procedures for the preparation and implementation of export contracts were simplified, additional conditions for the export of fresh fruit and vegetables were created.
Corruption poses a serious threat to the successful reform of the economies of the developing countries. Realizing the need for qualitative changes in the economy and the creation of a favorable environment for business, the government has sharply intensified the fight against corruption over the past three years. Already in 2017, the Law of the Republic of Uzbekistan "On Combating Corruption" was adopted. The next step in this direction was the Roadmap for the implementation of measures to reduce the share of the shadow economy. Its initial stages became universal introduction of digital technologies and marking in branches and sectors of economy, 211 kinds of state services were rendered through a single portal of state services, since January 1, 2021 70 of 266 kinds of licenses and 35 of 140 licenses were cancelled, time for registration of 14 kinds of licensing activity and permission documents was reduced by almost twice, the procedure for obtaining 115 licenses and permission documents is simplified, the volume of non-cash payments in economy was increased, large-scale propaganda work on intolerant attitude to all kinds of corruption was organized.
Liberalization of the economy, proclaimed as the most important priority of the new leadership of the country, is impossible without a profound modernization of the system of economic management. Its main priorities - reducing the scale of direct government regulation through the transition to the principles of indicative planning, forecasting and economic programming, reducing spending on the state apparatus, optimizing the structure of public administration, improving the efficiency of functioning.
In this connection, the economic management system has undergone significant changes. The National Project Management Agency was created to increase the level of consistency in the process of economic reforms and to introduce modern information management systems. In accordance with the presidential decree in 2019, the Ministry of Investment and Foreign Trade, responsible for implementing a unified state investment policy, coordinating the attraction of foreign investment, cooperation with international financial institutions and foreign government financial organizations, as well as the formation and coordination of a unified state policy in the field of foreign trade, international economic cooperation, was formed.
To improve the level of coordination of projects and programs, their conformity with the national interests, the state authorities have adopted the "Strategy of actions in the five priority areas of development of the Republic of Uzbekistan in 2017-2021", approved by the Decree of the President of the Republic of Uzbekistan of February 7, 2017.
High risks for macroeconomic stability are also carries a significant level of capital intensity of economic growth. While in 2000-2005 each sum of investment (in the current year and in two preceding years with weights of 0.7, 0.2 and 0.1, respectively) exceeded 7 sum of GDP (in 2010 prices), by 2010 this indicator went down to 4 sum. The rapid growth of investments in 2018-2020 has further reduced the return on capital (to 3.4 soums in 2018 and 2.5 soums in 2020, a preliminary estimate). Thus, the return on investment has fallen almost three (3) times since the early 2000s.
As calculations show, maintaining capital productivity at the level of 2.5 soums of GDP/1 soums of investment will aggravate the macroeconomic situation. Maintaining economic growth even at the level of 3-4% per year in 2021-2025 in conditions of low capital productivity will require the volume of investment (40-41% of GDP), significantly higher than the threshold value (21-23% of GDP). In this case the dynamics of external debt will intensify and may reach 45-50% already in the coming years with a growing impact on the growth of the state budget deficit due to increasing interest payments on debt servicing, increasing the risks of accelerating depreciation of the national currency and limiting the possibility of taking large-scale measures to combat poverty.
The high rates of depreciation of the national currency in relation to the growth of the economy and the population had a negative impact on the position of the republic in the international ratings on the criterion of the level of development. While back in 2015-2016 the GDP per capita exceeded ,000. GDP per capita exceeded ,000, in 2018 it fell to ,532, and has remained at a low level for the last two years (,725 and ,763 in 2020, preliminary estimate). This situation jeopardizes the achievement of the often proclaimed goal of taking the country out of the 40 poorest countries of the world and into the group of countries with an above-average level of development (with GDP per capita above about ,000) in the context of high population growth rates and increasing risks and barriers to development (climatic, pandemic, conjunctural, etc.).
There is a need for a critical review of established principles and approaches to economic reform - the dominance in economic policy of standard recommendations of international organizations on mass privatization and accelerated liberalization of the economy as the main factors to improve its competitiveness and solve social problems, the use of the GDP indicator as the main criterion of success, etc. There is a need for a transition to a new economic model, focused primarily on domestic sources of development, resource saving, increasing the contribution of economic growth in solving social problems, including the fight against poverty and the shadow economy, reducing the burden on natural capital, the revision of criteria for the success of economic reform.
New industrialization, economic diversification and expansion of sustainable employment in the industrial sectors of the economy. Beginning in the second half of 2016, Uzbekistan's industrial policy was focused on strategic objectives for the development of the industrial sector of the economy, related to accelerating the modernization and diversification of industries and ensuring the rapid development of high-tech manufacturing enterprises, primarily those producing finished products with high added value based on the deep processing of local raw materials.
The level of competitiveness increased significantly in the production of textile products and clothing, an industry with great potential for the creation of new sustainable jobs. Thus, at the end of the difficult year of 2020, the export of textiles and textile products increased most noticeably compared to the previous year (by 118.1%). At the same time, the share of industry products in total exports increased over the year from 9.3% to 12.7%, and the share of finished products with high added value in total industry exports reached 32.4% against 16.1% in 2016.
At the same time, the low share of medium- and high-tech products in industrial output, including production of devices and equipment required for resource saving, and the ambiguous dynamics of this indicator (Fig. 2) raises the question of accelerating the development of this sector, developing our own technologies with international cooperation, such as breakthrough technologies in RES and pharmaceuticals, to borrowing and adapting foreign developments, including technologies of deep processing of raw materials with a complete cycle (creating materials with new materials and technologies for the production of energy resources).
The new industrial policy should be aimed at in-depth processing of raw materials and digitalization of industries and enterprises, transition to a new technological mode with a focus on the introduction of less energy-intensive "green technologies", formation of resource-saving technological platforms for the development of basic industries, taking into account the expected increase in the effectiveness of the implementation of industry development programs and strategic directions of the "green" economy.
Uzbekistan is an active participant in the implementation of international agreements in the field of prevention and adaptation to adverse climate change (Paris Agreement 2015, Aral Sea agreements, etc.). In 2019, Uzbekistan continued intensive reforms of legislation and strategic frameworks, including in the field of the environment. A number of long-term strategic documents were adopted this year, such as the Environmental Protection Concept until 2030, the Strategy for the Transition to a Green Economy for 2019-2030, the Strategy for Solid Waste Management for 2019-2028, and the Strategy for Biodiversity Conservation for 2019-2028.
Labour market. The labour market of the republic is one of the most important factors of economic growth. Its distinctive feature is the high proportion of young people. The population between the ages of 18 and 39 make up 59% of the total employed population. This category of the employed is concentrated mainly in the service sector (financial sector, health care, social services, trade), which suffered most significantly during the quarantine restrictions (the share of the sector in the GDP structure is more than 35%).
A significant flow of labour migration is also a feature of the current state of the labour market in Uzbekistan. The number of labour migrants is about 2.5 million people or about 19% of the total number of those employed in the economy. In case of mass return of labour migrants, it will complicate the already tense situation in the labour markets.
The government has adopted several support packages. If at first it was a question of how and when to stop quarantine, now the question is how to distribute the growing economic losses from the impact of crisis phenomena. The principle of state support has evolved from indirect support measures in the form of exemptions and deferrals of taxes and payments to partially direct support in the form of exemptions and write-offs of taxes and payments.
Regulation of labour migration. Uzbekistan, a country with a rapidly growing population, is one of the main suppliers of labour resources to the world labour markets. According to some estimates, 4 to 5 million citizens of the republic work outside the country. Beginning in 2016, the state began to increase its attention and changed its approach to migration in the republic. By 2020, Uzbekistan has created a system for professional and language training of migrants, including 191 centers. In addition, there are 136 institutions for training professions in mahallas. The courses there are designed for 1, 3 or 6 months. The choice of profession is based on demand. Mahalla centers train in sewing, computer literacy, hairdressing and cooking.
It should be noted that migrants working abroad are equated to the self-employed. They have the opportunity to pay social tax, which is 50% of the basic calculation value - 111.5 thousand UZS. It is absolutely voluntary payment, which gives him the opportunity to count this period in the length of service with a pension in the future.
In conclusion, it should be noted that in the search for a new model of economic development the republic has come a long way in a short time, having made significant breakthroughs in various areas of reform and liberalization of the national economy since 2017. Over the past three years, the position of the republic in such international indices as the Doing Business index, the Global Innovation Index, Index of Economic Freedom, The Global Competitiveness Index, Corruption Perception Index, etc.
Relationships with neighbors have been improved and foreign trade with many countries has intensified, helped by the liberalization of the foreign exchange market and the reduction of barriers to foreign trade. These changes have increased exports from .1 billion in 2016 to .4 billion in 2019.
The level of competitiveness in the industries with the highest export potential increased significantly. Thus, according to the results of the difficult year of 2020, the export of textiles and textile products increased most noticeably compared to the previous year (by 118.1%), and the industry's share in total exports increased from 9.3% to 12.7% during the year.
Qualitative changes are also taking place in agriculture. The cluster system is actively developing. Until 2020, 73 cotton-textile clusters were formed in Uzbekistan, and in 2019 their share was 73% of the grown cotton crop. Their average yield was 0.41 tons per hectare higher than that of non-cluster lands.
Chepel S.V., D.Sc. in Economics, chief scientist of the Project
Sadriddinov N.S., Acting Head of the Project
The reform process, which began in 2017, was aimed at activating new factors of economic growth - improving the investment climate, expanding export potential, intensifying foreign trade, strengthening macroeconomic stability. Significant milestones in this path were the liberalization of the foreign exchange market, visa simplification, the transition to a flat income tax scale of 12%, reducing a number of administrative costs of doing business, opening branches of some famous foreign universities of Korea, Russia and the United States. With the participation of foreign experts in 2017 alone, 18 free economic zones and 77 small industrial zones, as well as 10 technoparks were established in the country, which contributed to the accelerated development of the regions of the republic.
In the sphere of foreign economic policy, the list of products banned for export was significantly limited, the requirement for mandatory sale of foreign currency earnings was abolished, import customs duty rates were significantly reduced, procedures for the preparation and implementation of export contracts were simplified, additional conditions for the export of fresh fruit and vegetables were created.
Corruption poses a serious threat to the successful reform of the economies of the developing countries. Realizing the need for qualitative changes in the economy and the creation of a favorable environment for business, the government has sharply intensified the fight against corruption over the past three years. Already in 2017, the Law of the Republic of Uzbekistan "On Combating Corruption" was adopted. The next step in this direction was the Roadmap for the implementation of measures to reduce the share of the shadow economy. Its initial stages became universal introduction of digital technologies and marking in branches and sectors of economy, 211 kinds of state services were rendered through a single portal of state services, since January 1, 2021 70 of 266 kinds of licenses and 35 of 140 licenses were cancelled, time for registration of 14 kinds of licensing activity and permission documents was reduced by almost twice, the procedure for obtaining 115 licenses and permission documents is simplified, the volume of non-cash payments in economy was increased, large-scale propaganda work on intolerant attitude to all kinds of corruption was organized.
Liberalization of the economy, proclaimed as the most important priority of the new leadership of the country, is impossible without a profound modernization of the system of economic management. Its main priorities - reducing the scale of direct government regulation through the transition to the principles of indicative planning, forecasting and economic programming, reducing spending on the state apparatus, optimizing the structure of public administration, improving the efficiency of functioning.
In this connection, the economic management system has undergone significant changes. The National Project Management Agency was created to increase the level of consistency in the process of economic reforms and to introduce modern information management systems. In accordance with the presidential decree in 2019, the Ministry of Investment and Foreign Trade, responsible for implementing a unified state investment policy, coordinating the attraction of foreign investment, cooperation with international financial institutions and foreign government financial organizations, as well as the formation and coordination of a unified state policy in the field of foreign trade, international economic cooperation, was formed.
To improve the level of coordination of projects and programs, their conformity with the national interests, the state authorities have adopted the "Strategy of actions in the five priority areas of development of the Republic of Uzbekistan in 2017-2021", approved by the Decree of the President of the Republic of Uzbekistan of February 7, 2017.
High risks for macroeconomic stability are also carries a significant level of capital intensity of economic growth. While in 2000-2005 each sum of investment (in the current year and in two preceding years with weights of 0.7, 0.2 and 0.1, respectively) exceeded 7 sum of GDP (in 2010 prices), by 2010 this indicator went down to 4 sum. The rapid growth of investments in 2018-2020 has further reduced the return on capital (to 3.4 soums in 2018 and 2.5 soums in 2020, a preliminary estimate). Thus, the return on investment has fallen almost three (3) times since the early 2000s.
As calculations show, maintaining capital productivity at the level of 2.5 soums of GDP/1 soums of investment will aggravate the macroeconomic situation. Maintaining economic growth even at the level of 3-4% per year in 2021-2025 in conditions of low capital productivity will require the volume of investment (40-41% of GDP), significantly higher than the threshold value (21-23% of GDP). In this case the dynamics of external debt will intensify and may reach 45-50% already in the coming years with a growing impact on the growth of the state budget deficit due to increasing interest payments on debt servicing, increasing the risks of accelerating depreciation of the national currency and limiting the possibility of taking large-scale measures to combat poverty.
The high rates of depreciation of the national currency in relation to the growth of the economy and the population had a negative impact on the position of the republic in the international ratings on the criterion of the level of development. While back in 2015-2016 the GDP per capita exceeded ,000. GDP per capita exceeded ,000, in 2018 it fell to ,532, and has remained at a low level for the last two years (,725 and ,763 in 2020, preliminary estimate). This situation jeopardizes the achievement of the often proclaimed goal of taking the country out of the 40 poorest countries of the world and into the group of countries with an above-average level of development (with GDP per capita above about ,000) in the context of high population growth rates and increasing risks and barriers to development (climatic, pandemic, conjunctural, etc.).
There is a need for a critical review of established principles and approaches to economic reform - the dominance in economic policy of standard recommendations of international organizations on mass privatization and accelerated liberalization of the economy as the main factors to improve its competitiveness and solve social problems, the use of the GDP indicator as the main criterion of success, etc. There is a need for a transition to a new economic model, focused primarily on domestic sources of development, resource saving, increasing the contribution of economic growth in solving social problems, including the fight against poverty and the shadow economy, reducing the burden on natural capital, the revision of criteria for the success of economic reform.
New industrialization, economic diversification and expansion of sustainable employment in the industrial sectors of the economy. Beginning in the second half of 2016, Uzbekistan's industrial policy was focused on strategic objectives for the development of the industrial sector of the economy, related to accelerating the modernization and diversification of industries and ensuring the rapid development of high-tech manufacturing enterprises, primarily those producing finished products with high added value based on the deep processing of local raw materials.
The level of competitiveness increased significantly in the production of textile products and clothing, an industry with great potential for the creation of new sustainable jobs. Thus, at the end of the difficult year of 2020, the export of textiles and textile products increased most noticeably compared to the previous year (by 118.1%). At the same time, the share of industry products in total exports increased over the year from 9.3% to 12.7%, and the share of finished products with high added value in total industry exports reached 32.4% against 16.1% in 2016.
At the same time, the low share of medium- and high-tech products in industrial output, including production of devices and equipment required for resource saving, and the ambiguous dynamics of this indicator (Fig. 2) raises the question of accelerating the development of this sector, developing our own technologies with international cooperation, such as breakthrough technologies in RES and pharmaceuticals, to borrowing and adapting foreign developments, including technologies of deep processing of raw materials with a complete cycle (creating materials with new materials and technologies for the production of energy resources).
The new industrial policy should be aimed at in-depth processing of raw materials and digitalization of industries and enterprises, transition to a new technological mode with a focus on the introduction of less energy-intensive "green technologies", formation of resource-saving technological platforms for the development of basic industries, taking into account the expected increase in the effectiveness of the implementation of industry development programs and strategic directions of the "green" economy.
Uzbekistan is an active participant in the implementation of international agreements in the field of prevention and adaptation to adverse climate change (Paris Agreement 2015, Aral Sea agreements, etc.). In 2019, Uzbekistan continued intensive reforms of legislation and strategic frameworks, including in the field of the environment. A number of long-term strategic documents were adopted this year, such as the Environmental Protection Concept until 2030, the Strategy for the Transition to a Green Economy for 2019-2030, the Strategy for Solid Waste Management for 2019-2028, and the Strategy for Biodiversity Conservation for 2019-2028.
Labour market. The labour market of the republic is one of the most important factors of economic growth. Its distinctive feature is the high proportion of young people. The population between the ages of 18 and 39 make up 59% of the total employed population. This category of the employed is concentrated mainly in the service sector (financial sector, health care, social services, trade), which suffered most significantly during the quarantine restrictions (the share of the sector in the GDP structure is more than 35%).
A significant flow of labour migration is also a feature of the current state of the labour market in Uzbekistan. The number of labour migrants is about 2.5 million people or about 19% of the total number of those employed in the economy. In case of mass return of labour migrants, it will complicate the already tense situation in the labour markets.
The government has adopted several support packages. If at first it was a question of how and when to stop quarantine, now the question is how to distribute the growing economic losses from the impact of crisis phenomena. The principle of state support has evolved from indirect support measures in the form of exemptions and deferrals of taxes and payments to partially direct support in the form of exemptions and write-offs of taxes and payments.
Regulation of labour migration. Uzbekistan, a country with a rapidly growing population, is one of the main suppliers of labour resources to the world labour markets. According to some estimates, 4 to 5 million citizens of the republic work outside the country. Beginning in 2016, the state began to increase its attention and changed its approach to migration in the republic. By 2020, Uzbekistan has created a system for professional and language training of migrants, including 191 centers. In addition, there are 136 institutions for training professions in mahallas. The courses there are designed for 1, 3 or 6 months. The choice of profession is based on demand. Mahalla centers train in sewing, computer literacy, hairdressing and cooking.
It should be noted that migrants working abroad are equated to the self-employed. They have the opportunity to pay social tax, which is 50% of the basic calculation value - 111.5 thousand UZS. It is absolutely voluntary payment, which gives him the opportunity to count this period in the length of service with a pension in the future.
In conclusion, it should be noted that in the search for a new model of economic development the republic has come a long way in a short time, having made significant breakthroughs in various areas of reform and liberalization of the national economy since 2017. Over the past three years, the position of the republic in such international indices as the Doing Business index, the Global Innovation Index, Index of Economic Freedom, The Global Competitiveness Index, Corruption Perception Index, etc.
Relationships with neighbors have been improved and foreign trade with many countries has intensified, helped by the liberalization of the foreign exchange market and the reduction of barriers to foreign trade. These changes have increased exports from .1 billion in 2016 to .4 billion in 2019.
The level of competitiveness in the industries with the highest export potential increased significantly. Thus, according to the results of the difficult year of 2020, the export of textiles and textile products increased most noticeably compared to the previous year (by 118.1%), and the industry's share in total exports increased from 9.3% to 12.7% during the year.
Qualitative changes are also taking place in agriculture. The cluster system is actively developing. Until 2020, 73 cotton-textile clusters were formed in Uzbekistan, and in 2019 their share was 73% of the grown cotton crop. Their average yield was 0.41 tons per hectare higher than that of non-cluster lands.
Chepel S.V., D.Sc. in Economics, chief scientist of the Project
Sadriddinov N.S., Acting Head of the Project