Liberalizing Uzbekistan’s Economy: The Role of Services in Driving Future Prosperity

The World Bank’s report highlights Uzbekistan's potential for services-led economic growth through reforms in contestability, connectivity, and capabilities (3Cs). Liberalizing the services sector could significantly boost GDP, wages, and productivity, driving inclusive development and global integration.

The World Bank’s in-depth report highlights the transformative potential of the service sector as a cornerstone for Uzbekistan’s economic evolution. The research emphasizes the importance of reforms targeting contestability, connectivity, and capabilities coined as the "3Cs" to enable this transition. These reforms, the World Bank asserts, are essential to shifting Uzbekistan’s economy away from dependence on resource extraction and toward a dynamic and diversified service sector, which has shown remarkable growth in its contribution to GDP and employment. However, despite its potential, the sector faces significant challenges, including limited competition, excessive state ownership, and regulatory barriers that inhibit innovation and integration into global markets.

A Sector Lagging Behind Global Standards

The services sector in Uzbekistan, though vital, lags behind international benchmarks in several key areas. Substantial inefficiencies exist in transportation, telecommunications, and logistics due to monopolistic practices and state dominance. For instance, Uztelecom’s control of the international gateway in telecommunications limits market competition and stifles innovation in digital services. Similarly, state-owned enterprises in transportation and logistics often crowd out private sector participants, reducing the sector’s overall efficiency. These restrictions undermine not only the growth of services but also the broader economic benefits they could provide by improving productivity across all industries.

The study underscores that unlocking the full potential of Uzbekistan’s services sector requires robust liberalization efforts. The report’s Computable General Equilibrium (CGE) model quantifies the potential economic benefits of such reforms. Partial liberalization is projected to increase GDP and real incomes by 8–9%, while complete liberalization could potentially double these gains. Beyond GDP growth, these reforms could have significant social impacts, such as raising wages for skilled and unskilled workers alike, thereby reducing income disparities and improving overall economic well-being.

Building the Foundation for Transformation

To realize the promise of the services sector, the report outlines a strategic roadmap focusing on three critical areas. First, improving contestability by dismantling monopolies and encouraging private-sector participation is essential. This includes opening up markets currently dominated by state-owned enterprises and creating a level playing field for all participants. Second, enhancing physical and digital connectivity is a priority. Investments in broadband infrastructure, for example, are critical to developing the digital economy, while reforms in logistics and warehousing could significantly improve supply chain efficiencies. Finally, strengthening human capital through educational reforms and workforce training is vital to equipping Uzbekistan’s labor force with the skills required for a competitive services economy.

The researchers emphasize that Uzbekistan’s accession to the World Trade Organization (WTO) presents a unique opportunity to accelerate these reforms. Aligning domestic policies with international trade standards would enable the country to attract foreign investment and integrate more effectively into global markets. This is particularly relevant for high-skill and data-intensive services, which require a supportive regulatory environment and robust international connectivity.

Unlocking the Potential of Tourism and Retail

In addition to high-skill services, the report explores the untapped potential of low-skilled service industries like tourism and retail. These sectors hold significant promise for driving economic diversification and creating jobs, particularly in rural areas. However, realizing this potential requires targeted reforms to address existing barriers. For example, restrictive land ownership regulations currently limit the growth of tourism infrastructure. By addressing these challenges and leveraging digital technologies to enhance competitiveness, Uzbekistan could significantly expand its tourism and retail sectors, transforming them into engines of economic growth.

The study also highlights the role of digital tools in improving productivity and efficiency across low-skilled service sectors. Technologies such as e-commerce platforms, digital payment systems, and online marketing tools can enable small and medium enterprises (SMEs) in retail and tourism to reach wider markets and operate more efficiently. These advancements would not only boost economic output but also contribute to the formalization of these sectors, enhancing their long-term sustainability.

The Role of Global Innovator Services

High-value sectors like finance and ICT are identified as critical drivers of export-led growth. The report emphasizes that fostering these industries requires a combination of regulatory reforms, targeted investments, and capacity building. For instance, creating a favorable business environment for ICT firms and promoting the development of fintech solutions could help Uzbekistan position itself as a regional leader in these fields. The researchers recommend policies to attract foreign investment and support local entrepreneurship in these high-value sectors, which are essential for driving innovation and competitiveness.

Ultimately, the World Bank concludes that a comprehensive and well-sequenced approach to implementing the 3Cs framework is essential to maximizing the economic impact of the services sector. The government’s "Uzbekistan 2030" strategy aligns closely with these recommendations, incorporating provisions for enhancing infrastructure, fostering private-sector participation, and modernizing the education system. By pursuing these reforms, Uzbekistan can transition into a service-led growth model, driving inclusive development, creating new opportunities for its citizens, and strengthening its economic resilience.

The report provides a clear roadmap for policymakers, emphasizing the need for commitment and coordination to achieve long-term economic prosperity. By embracing liberalization, fostering competition, and investing in human capital, Uzbekistan can unlock the full potential of its services sector and secure a sustainable future of growth and development.