Analytical overview: Uzbekistan’s strategic focus on industrial development

Uzbekistan, despite the increasing global risks of instability, demonstrates fairly stable economic growth dynamics. Average annual growth rates ranged from 5.4% in 2018 to 6.0% in 2023 and overall, during this period, GDP increased by 1.3 times. One of the key factors of economic growth was the successful implementation of policies aimed at consistently increasing industrial potential. 

In the process of modernizing technical and technological re-equipment of production capacities, government policy was aimed at accelerating the diversification of industrial production, ensuring the prompt development of high-tech manufacturing industries. 

One of the areas of structural transformation of the industrial sector during the new phase of reforms outlined in the Development Strategy for 2022-2026, was stimulating the production of products with higher added value to achieve the target of increasing the share of industry in the GDP structure. 

These tasks required additional measures to attract investments, use the potential for localization of production, introduce modern cluster forms of production organization, and consistently liberalize basic industries.

As a result of the taken measures, industrial production increased almost 1.5 times compared to the 2017 level with positive growth rates achieved in all key industries, which strengthened the role of the industrial sector in the country’s economy. The share of industry in GDP increased during this period from 21.1% to 26.1%. 

The major dynamics of structural shifts were demonstrated by the manufacturing industry, which acted as a driver of industrial growth. The output of manufacturing products, the share of which in the industrial structure increased to 84.4%, grew more than 1.6 times during this period.

The accelerated dynamics of the development of manufacturing industries was formed under the influence of incentive measures to diversify production, contributing to an increase in the output of products with higher added value. The share of medium- and high-tech industries increased from 52.7% to 64.4%, which indicates the achieved qualitative shifts in the development of industry.

There was a growth trend in demand both on the domestic and foreign markets for many types of products. Particularly high growth was noted in the production of mechanical engineering products – 2.5 times, pharmaceutical products – 1.9 times, textiles and clothing – 1.7 times, food products – 1.4 times, building materials – 1.5 times, chemical products – 1.16 times, etc. A significant contribution to industrial growth was made by the metallurgical industry, the development of which was focused on the in-depth processing of raw materials and the development of higher value-added products.

As a result of the industrial policy, the dynamics of export growth was supported. The total volume of exports increased by 1.9 times compared to the level of 2017 and amounted to 24.4 billion dollars. Against the background of the growth of non-ferrous metal exports, the mechanical engineering and textile industries made a large contribution to the growth. The volume of mechanical engineering exports increased by 3.7 times, textile products – by 2.6 times. 

From the point of view of assessing the structural proportions of industrial development, then for the period 2018-2023 an increase in the aggregate indicator of added value and a positive change in the structure of its production were ensured – and this main achievement was achieved due to the positive results of the measures taken and the prioritization of structural transformations taking into account the specifics of each industry.

Thus, if the extractive and raw materials industries faced the task of increasing the level of processing of extracted raw materials in order to develop products of medium processing stages for further use in other industries, then its solution made it possible to solve the problems of expanding localizing production and developing new types of products of higher processing stages for manufacturing industries. 

At the same time, the cross-cutting priority in the industrial sector was the task of reducing production costs, that is, resource conservation, which was solved with the help of such mechanisms as optimization of current costs due to energy conservation and acceleration of technical re-equipment of leading enterprises.

As a result, positive integration of the production potential of all industries was achieved with an increasing role of the manufacturing and processing sectors and a trend towards improving the quality indicators of industrial growth. 

Meanwhile, in the context of accelerating further economic reforms and achieving the goal of doubling the volume of the economy by 2030, updated strategic development guidelines were adopted for all sectors of the economy. This became a logical continuation of the strategic actions implemented earlier. At the same time, special priority and tasks for involving new growth reserves were designated for the industrial sector. 

The main task of the upcoming period is to increase the share of industry in the GDP structure to 32-35% by 2030 due to further increase in technological shifts in production, a radical increase in efficiency indicators and growth in labor productivity.

Industrial policy will be focused on the implementation of three priority areas:

– further increase in the efficiency of using the raw material base, which determines an accelerated transition to three- and four-stage raw material processing cycles according to the scheme: basic raw materials ↔️ primary processing (semi-finished products) ↔️ materials with a higher level of readiness for intermediate consumption ↔️ finished products for final consumption; the growth driver will be the metallurgical industry, which has reserves to increase the production of high-income products – copper by 3.5 times, gold – 1.5 times, silver – 3 times, uranium – 3 times;

– increasing the volume of added value due to technological shifts and the introduction of advanced forms of production organization; the drivers of growth will be the electrical engineering industry and the chemical complex, which have good prospects for organizing localizing structures for the creation of production of household appliances and electronic devices, and the creation of large chemical-polymer clusters;

– involvement of new sources of growth through more complete use of production potential in the regions; growth drivers in the regions will be the textile industry (with increasing the level of yarn processing to 100% and establishing new production facilities for the production of 400 thousand tons of artificial and mixed fiber to meet the demand for high-quality fabric); the building materials industry (with the potential to double production volumes and expand the production of new types of energy-saving building materials); the leather and footwear industry (there is potential for added value growth of at least 5 times, taking into account the attraction of prestigious brands).

The guidelines for sectoral development are based on global trends in the development of commodity markets, which allow us to conclude that maintaining high rates of industrial growth is possible only on the basis of structural and technological shifts. These prerequisites are consistent with the transition of Uzbekistan’s industry to a development model based on increasing the efficiency of resource use, introducing new advanced technologies, which in the medium-term perspective as the most important factors of industrial growth.

At the same time, the process of promoting the export potential of domestic producers must be accompanied by import substitution measures and incentive mechanisms for enterprises focused on the domestic market. This will require a subtle and balanced industrial policy that should take into account the structure of industry and inter-industry balances of production and consumption.

For the effective implementation of the priorities of structural and technological transformations of industry, it will be necessary to create a list of the most effective investment projects. Criteria for the effectiveness of the implementation of industry projects and assessments of the multiplier effects of their implementation (minimization of production costs and maximization of profit volumes) should be developed, which is especially important in the context of the transition to a resource-saving model of economic growth in the context of the “green” transition.

Reorientation of industrial policy priorities will require more effective support for the manufacturing sector by improving investment policy, creating conditions for expanding the investment potential of enterprises. An important role will also play measures to further improve the current tax policy, providing for the almost complete elimination of ineffective tax incentives, optimization of the preferential lending system for new industries, as well as for existing enterprises. In general, the scale of the adopted Strategy “Uzbekistan-2030” is clearly manifested in the priority tasks of industrial sector development. The solution of these tasks is interconnected with the areas of improving macroeconomic policy, developing infrastructure facilities, increasing the share of the private sector, creating a competitive environment for manufacturers, introducing digital technologies, etc.

It should be noted, that the strategic initiatives of the government of Uzbekistan provide not only for the creation of conditions for building national value chains with an emphasis on expanding domestic production of components, parts and equipment, but also form a long-term mechanism for Uzbekistan to join a number of countries with above-average incomes with successful achievement of sustainable development goals.

Of course, industrial policy measures can be adjusted depending on specific circumstances and the emergence of new geopolitical risks, but measures to improve the level of training of scientific, engineering and working personnel for the industrial development of the country will be relevant at all stages of further industrial reform.   

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Source: Elvira Bikeeva, project manager at Institute for Macroeconomic and Regional Studies and Malika Saparmukhametova, leading specialist at Institute for Macroeconomic and Regional Studies