Tashkent, Uzbekistan (UzDaily.com) — The World Bank has released a new report on the state of Uzbekistan’s services sector, one of the key drivers of the country’s economic development.

The document analyzes existing barriers and opportunities for further growth in the sector, and proposes reforms aimed at modernizing and liberalizing it. The implementation of these reforms is expected to increase labor productivity, create new jobs, attract investment, and ensure continued economic growth.

The services sector plays an important role in Uzbekistan’s economy, making a significant contribution to GDP growth and providing employment. In 2023, its share in nominal GDP reached 43.9%, which is higher than that of industry (23.5%), agriculture (20.6%), and construction (7.1%).

This sector, which employs more than half of the population, has played a key role in the structural transformation of Uzbekistan’s economy since independence. From 1991 to 2022, the share of those employed in the services sector increased from 37% to 50%, compensating for the decline in employment in agriculture.

Since 2017, market reforms in the country have contributed to steady economic growth, averaging about 5.5% annually. In 2023, GDP grew by 6.3%, largely driven by the development of the services sector. Projections for 2024 predict a 6% GDP growth, which could propel Uzbekistan into the top five fastest-growing economies in the Europe and Central Asia region.

However, the pace of structural transformation has slowed. From 2010 to 2022, the services sector’s contribution to GDP increased by only 3 percentage points, from 41% to 44%, and employment in the sector stabilized at around 50%.

To ensure sustainable economic growth, reforms aimed at expanding the private sector and developing innovative service segments are needed. Such services include information and communication technologies (ICT), professional services (consulting, legal support, architectural design, engineering), and financial services.

The potential of Uzbekistan’s services sector has yet to be fully harnessed to stimulate economic growth and increase employment. In particular, about 60% of workers are employed in low-skilled subsectors, such as retail, hospitality, and transportation. These industries have shown weak labor productivity growth from 2017 to 2022.

Social services, such as healthcare and education, have expanded mainly due to increased government spending. From 2017 to 2022, about 77% of new jobs in the services sector were created in these fields.

Meanwhile, global innovative services that require high qualifications demonstrate labor productivity that is twice as high as that in industry, but they account for only 4% of sector employees. Strengthening the role of the private sector in this area could boost labor productivity and change the employment structure.

To enhance the efficiency of the services sector, the World Bank recommends that Uzbekistan focus on three key objectives: improving connectivity with external markets, enhancing the competitiveness of local companies, and developing workers’ skills.

As a landlocked country, it is important for Uzbekistan to improve both physical and digital connectivity. In 2023, Uzbekistan ranked 88th out of 139 economies in the World Bank’s Logistics Performance Index.

Regarding digital connectivity, the coverage of high-speed mobile internet (4G/LTE) reached 92%, which is below the level needed for complete coverage. Only about 40% of the population uses digital payments, slowing the development of ICT services and digital business.

The World Bank and WTO’s Services Trade Restrictiveness Index shows that Uzbekistan is fully closed to cross-border service provision in 11 out of 31 subsectors, including areas such as architecture, engineering, and accounting.

Additionally, mandatory requirements for the localization of citizens’ personal data significantly restrict the potential for cross-border trade in ICT services. The presence of state monopolies in telecommunications, as well as in air and rail transportation, creates further barriers to market competition and complicates the attraction of private investments.

To improve the skills and competencies situation, access to higher education needs to be expanded. In 2022, the enrollment rate in higher education was 31.5%, which is significantly lower than the average for Europe and Central Asia (80%). Basic ICT skills are possessed by only about 15% of the population.

The World Bank recommends that Uzbekistan implement the following measures:

– Increase investment in the development of physical infrastructure (roads, railways, airports) and digital infrastructure (broadband internet, 4G/LTE networks);

– Improve logistics efficiency by streamlining customs procedures and implementing modern cargo tracking systems;

– Liberalize service markets by reducing the role of state monopolies;

– Remove restrictions on cross-border trade in ICT services by relaxing data localization requirements;

– Expand access to higher education to train qualified specialists;

– Support vocational training, including ICT skills development programs;

– Simplify visa procedures to attract international specialists.

The implementation of these measures is expected to bring significant economic benefits. Full liberalization of services trade could increase real GDP by 17%, and growth in the financial, telecommunications, and insurance sectors could reach 23%, 39%, and 45%, respectively. This would also contribute to the development of industries such as pharmaceuticals (+24%), electronics (+30%), and machine engineering (+23%).

In addition, enhancing the competitiveness of the services sector could lead to a 16% increase in real income levels, raising wages for both skilled and unskilled workers. Accession to the WTO will provide an additional incentive for the liberalization of the services sector, accelerating the inflow of foreign investments and the introduction of advanced technologies.