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Every day, countless trucks traverse the U.S. highways. What is less known is businesses in Uzbekistan that play a central role in facilitating their travels. From a logistics center in Samarkand, more than 6,000 miles away, Uzbekistani workers track the movement of trucks in the U.S. in real-time, assisting drivers in choosing the best routes and planning rest stops. The rise of digital technologies has made this type of services trade possible in ways that were unimaginable just a few years ago. This example highlights how Uzbekistan’s services sector can fuel growth and economic transformation in a country of more than 37 million people and an average rate of GDP growth over 5 percent annually since 2017. At Your Service? : The Promise of Services-led Growth in Uzbekistan, a new World Bank report, assesses this potential.
The services sector has been central to Uzbekistan’s structural transformation
The services sector, which now accounts for more than half of all jobs in Uzbekistan, has been a key driver of structural transformation since the country gained independence in 1991. The share of employment in services grew from 37 percent to 50 percent between 1991 and 2022, effectively offsetting almost the entire decline in the agriculture sector’s share of employment.
However, much of this growth has been concentrated in low-skilled consumer services, such as retail and hospitality, which tend to be less productive. Social services, such as health and education, have expanded, largely due to increased government spending. In Uzbekistan, knowledge-intensive global innovator services—such as ICT, professional services, such as consulting, legal, architecture, and engineering services, and finance—are twice as productive as manufacturing but account for less than 5 percent of all services jobs. Furthermore, the linkages between the services sector and the broader economy, especially with the manufacturing sector, remain weak.
The potential for private sector-led growth in the services sector can be realized by strengthening linkages between the services sector and other sectors, increasing the share of global innovator services, and boosting the productivity of low-skilled consumer services.
A policy agenda: connectivity, contestability and capabilities (3Cs)
Uzbekistan can leverage the services sector to deliver more growth and jobs by focusing on three key policy areas: connectivity, contestability, and capabilities (3Cs). Compared to a global sample of countries, Uzbekistan ranks below average for connectivity (measured by the Logistics Performance Index score and the share of individuals using the internet) and capabilities (measured by the share of individuals with standard ICT skills and tertiary school enrollment rates), and it falls within the bottom third for contestability (measured by restrictions on services trade) (see chart).
As a double land-locked country, Uzbekistan should improve both physical and digital connectivity to enhance market access. In terms of physical connectivity, Uzbekistan is ranked 88th out of 139 economies globally in the World Bank’s 2023 Logistics Performance Index. In terms of digital connectivity, access to high-speed mobile internet, such as 4G/LTE, is still limited, and only 40 percent of individuals make or receive digital payments.
In terms of contestability, most services in Uzbekistan are heavily restricted according to the internationally comparable World Bank-WTO Services Trade Restrictiveness Index (STRI). Notably, the country remains completely closed to the cross-border delivery of several professional services. Meanwhile, ‘data localization’ laws significantly restrict the cross-border delivery of ICT services. Additionally, state-owned enterprises dominating in many services sectors, such as telecommunications and transportation, poses further challenges to market competition.
In terms of capabilities, Uzbekistan’s focus on advancing technical education and on fostering English language skills is helping to build a relevant skill base. However, these efforts could be expanded. The access to the tertiary education remains low. In 2022, tertiary enrolment rates in Uzbekistan stood at 31.5 percent, less than half the Europe and Central Asia average of 80 percent. Furthermore, the share of the population with basic ICT skills remains below 10 percent.
Nevertheless, the recently established IT Park in Tashkent—featuring world-class internet connectivity, duty-free access to imported ICT hardware and software, a digital IT university, and work visas for IT specialists and start-up founders—demonstrates how policy action can drive progress can across the dimensions of connectivity, contestability and capabilities.
Regulatory reforms in the services sector can drive significant economic gains
An ambition reform program that the Government launched in 2017 has propelled Uzbekistan’s journey toward becoming a higher-income, market-based economy. However, a focus on enabling services is essential to sustain this transition.
Regulatory reforms that liberalize the services sector can further boost economic growth. If restrictions on services trade were reduced to the point where the gap between Uzbekistan and the best performers is halved, estimates suggest that the country’s real GDP could expand by as much as 9 percent and real wages, on average, could increase by 8 percent. This could lead to much lower poverty.
Uzbekistan’s ongoing pursuit of accession to the World Trade Organization (WTO) is an opportunity for the liberalization of its services sector and new sources of growth. The reforms would enhance competition within Uzbekistan’s service economy and address key barriers to both physical and digital connectivity. Additionally, this move will attract greater foreign capital, technologies, and expertise—elements crucial for the country’s shift towards global innovator services.
Policies that improve connectivity, contestability, and capabilities can drive the Government of Uzbekistan’s efforts to harness the services sector as a key engine of economic growth. This, in turn, will play a vital role in realizing the goals of the country’s “Uzbekistan 2030” development strategy.
Source: blogs.worldbank.org
