A DIGITAL REVOLUTION
The Investor Uzbekistan 2023 I Industry & ICT I Analysis
“UZBEKISTAN HAS A COMPETITIVE ADVANTAGE DUE TO HIGH DEMAND FOR ITS PRODUCTS IN THE NEIGHBORING COUNTRIES. THE COUNTRY HAS ESTABLISHED TRADE AGREEMENTS WITH ALL ITS NEIGHBORING NATIONS, WHICH HAS POSITIVELY IMPACTED ITS ECONOMY.”
Uzbekistan, a country located in Central Asia, has been undergoing major economic and political reforms in recent years. One of the key priorities of the government has been the modernization of the manufacturing and industrial sector, which has been identified as a crucial driver of economic growth and job creation. To achieve this, the government has been actively seeking foreign direct investment (FDI) to bring in new technologies, expertise and capital into the country.
FDI is seen as a critical component for modernization, as it can provide access to capital, technology, and international markets. The government of Uzbekistan has been taking steps to make the country more attractive to foreign investors by implementing a range of policy reforms aimed at creating a more business-friendly environment. This includes the establishment of free economic zones, simplification of business registration and licensing procedures, and the introduction of tax incentives. To meet the needs of manufacturers, we are opening new copper mines, copper production companies.
The electrical industry is one of the fastest-growing segments of the global economy, with an estimated volume of almost U$1.2 trillion. The state of Uzbekistan has created favorable conditions for foreign investors, including a 50% reduction in the tax burden. According to international studies, countries that have a convenient geographical location and lead in research and development costs as a percentage of GDP have the most developed production of industrial goods and services with high added value. Uzbekistan is also prioritizing the development of this industry and has set ambitious goals for its growth. Today, more than 900 companies operate in this industry, 400 of which are affiliated with the Association “Uzeltehsanoat”.
Uzbekistan has a competitive advantage due to high demand for its products in the neighboring countries. The country has established trade agreements with all its neighboring nations, which has positively impacted its economy. Moreover, Uzbekistan offers a very competitive pricing policy, and the government provides state support to the industries. Despite these advantages, there are certain aspects that require attention, such as the need to increase the number of qualified specialists in the manufacturing and industrial sector. To address this issue, private companies are investing in the education and training of their employees.
The importance of FDI for the modernization of Uzbekistan's manufacturing and industrial sector can be seen through several success stories. One of the most notable is the partnership between General Motors and Uzbekistan's state-owned Uzavtosanoat company. In 2008, General Motors acquired a 25% stake in Uzavtosanoat, and together they established a joint venture to produce Chevrolet vehicles in Uzbekistan. This joint venture has led to the establishment of a modern automobile manufacturing plant in the country, which has created thousands of jobs and contributed significantly to the growth of Uzbekistan's economy.
Another example of successful FDI in Uzbekistan is the partnership between Samsung and the government. In 2018, Samsung signed an agreement with the Uzbek government to invest U$1.7 billion in a new smartphone factory in the country. This project is expected to create thousands of jobs and boost Uzbekistan's export revenues. The success of this project has highlighted the potential of FDI to transform Uzbekistan's manufacturing and industrial sector, particularly in the high-tech and electronics industries.
In addition to attracting foreign investors, the government of Uzbekistan has also been working to modernize and upgrade existing manufacturing facilities in the country. According to experts, the home appliances industry in Uzbekistan is one of the fastest-growing segments of the national economy. By 2022, the industry may experience a five-fold growth when compared to 2017 figures. The volume of home appliances production in the country increased 3.7 times from 2017 to 2021, reaching U$1.2 billion and is expected to reach more than U$2 billion in 2023.
Artel is one of the main drivers of the home appliances industry in Uzbekistan. A good balance between price and quality is a key factor for those consumers who choose Artel. In Kazakhstan, the share in the washing machine market has risen to 80.2%, in Kyrgyzstan to 30%, and in Tajikistan to 42%. The company has manufacturing facilities in 5 regions and employ around 10,000 people across the country. In 2016, Artel has opened a state-of-the-art R&D Center in Tashkent.
IMPORTANCE OF THE ICT SECTOR
Information and communication technology (ICT) plays a crucial role in the development of a country. It is a catalyst for economic growth and social progress, as it drives innovation, productivity, and efficiency. The importance of ICT in today's world cannot be overstated, as it has revolutionized the way we live, work, and interact with each other. Uzbekistan, like many other countries, recognizes the significance of ICT and has made significant efforts to develop this sector in the country.
As the world grapples with an evolving ‘new normal’, digital technology remains pivotal. The COVID-19 pandemic has demonstrated that digitalization can drastically improve services and expand opportunities. Integrating digital technologies in trade, finance, and agriculture, for example, can create new jobs, including for women and young people.
Recognizing this, the Central Asia Regional Economic Cooperation (CAREC) Program prepared a strategy to promote digitalization in its member countries. The CAREC Digital Strategy 2030 lays out a systematic approach to scale digital technology in the region to drive economic growth and human development. It provides a framework to build the necessary foundations that will enable digital solutions across the region. Nearly two million people are born in Central Asia every year. In 2022, around 939,000 people were born in Uzbekistan, 400,000 in Kazakhstan, 305,000 in Tajikistan, 181,000 in Kyrgyzstan, and 131,000 in Turkmenistan. Central Asia’s population is among the youngest in the world, with a young age distribution of approximately 60%, far higher than the global average.
ICT IN UZBEKISTAN
The history of ICT in Uzbekistan dates back to the Soviet era when the country was a part of the Soviet Union. During this period, the development of ICT in Uzbekistan was mainly focused on military and security applications. After gaining independence in 1991, Uzbekistan began to develop its own ICT industry. The government recognized the potential of ICT for economic development and initiated various programs to develop the sector. One of the most significant steps taken by the Uzbekistan government to develop the ICT sector was the establishment of the National Information and Communication Agency (NICA) in 1992. NICA was tasked with the responsibility of regulating the ICT sector in the country and developing policies to promote the use of ICT.
The government also created favorable conditions for foreign investors to invest in the ICT sector by providing tax incentives and other benefits. Today, the ICT sector in Uzbekistan has come a long way. The country has made significant progress in terms of ICT infrastructure, internet penetration, and the development of a skilled workforce. According to the International Telecommunication Union (ITU), Uzbekistan has made significant progress in terms of ICT development, ranking 88th out of 193 countries in the 2020 ICT Development Index.
The government of Uzbekistan has identified the development of the ICT sector as a priority for the country's economic development. The government's strategy for the development of the ICT sector is focused on three main areas: infrastructure development, human resource development, and the promotion of innovation and entrepreneurship. In terms of infrastructure development, the government is investing heavily in the expansion of ICT infrastructure throughout the country. This includes the development of fiber-optic networks, the establishment of data centers, and the introduction of 5G technology.
The government has also made significant efforts to improve internet penetration in the country, with the aim of providing universal access to broadband internet by 2030.Human resource development is another key area of focus for the government. The government has introduced various programs to develop a skilled workforce in the ICT sector. This includes the establishment of ICT universities, vocational training programs, and the development of a digital skills curriculum in schools. The government has also encouraged private companies to invest in the education and training of their employees.
The promotion of innovation and entrepreneurship is also a key focus of the government's strategy for the development of the ICT sector. The government has introduced various initiatives to support startups and small and medium-sized enterprises (SMEs) in the ICT sector. This includes the establishment of innovation centers, the provision of seed funding, and the development of a favorable regulatory environment for startups and SMEs.
The government's efforts to develop the ICT sector have attracted significant investment from both domestic and foreign investors. In recent years, there has been a surge in the number of startups and ICT companies in Uzbekistan, particularly in the areas of software development, e-commerce, and fintech. The government's strategy has also resulted in the creation of new jobs and the generation of significant economic growth. In the framework of the ongoing reforms and in the new Development Strategy of Uzbekistan for the coming five years special attention is being paid to digitalization of major spheres and to build a true information society in the country. Uzbekistan prioritized digitalization and development of information-communication technologies (ICT) yet in early 2000s.
Uzbekistan has made significant strides in advancing its information and communication technology (ICT) sector through various programs and initiatives. These include the National Information and Communication System Development 2013-2020, the National Action Strategy on Five Priority Development Areas 2017-2021, the “Digital Uzbekistan – 2030” Strategy, and the latest Development Strategy of New Uzbekistan for 2022-2026 to implement digital transformation in national economy, industry and society in general. With the creation of IT parks in Uzbekistan, the industry's export volume has grown 50 times, reaching U$46 million, and has resulted in the opening of more than 300 new companies, the creation of 8,500 highly paid jobs, and an increase in IT park residents from 147 to 500. Currently more than 11 thousand young people work in IT parks.
The government's ICT development strategy focuses on infrastructure development, human resource development, and the promotion of innovation and entrepreneurship, recognizing the crucial role of the ICT sector in economic development. The “Digital Uzbekistan – 2030” Strategy has already automated over 400 information systems, electronic services, and other software products across various socio-economic areas. The government of Uzbekistan has set ambitious goals to become an upper-middle-income country by 2030. To achieve this, the development of the digital economy has been identified as a key driver, with the aim of increasing its share by at least 2.5 times by 2026. Additionally, the government aims to expand the volume of the software products industry by 5 times and software exports by 10 times, up to U$500 million. The level of digitalization of production and operational processes in the real sector of the economy and the financial and banking sectors is also targeted to reach 70% by 2026.