1. Setting the scene
Digitalisation presents an opportunity for Uzbekistan to continue and complement its reforms to enlarge the private sector and render the economy more competitive. While the government recognises these benefits, digital uptake and skills are low. Addressing the lack of digital competencies is a significant barrier for Uzbekistan to enjoy the opportunities offered by digitalisation.
Since 2019, the government of Uzbekistan has launched commendable efforts to support the economy’s digital transformation. These initiatives fit within the wider range of reforms undertaken since 2017 and serve to increase the resilience of the economy. While the country has made significant progress in terms of internet access, quality and affordability, the digital uptake among firms remains low. In particular, the lack of digital skills is a limiting factor affecting the digital transformation of firms. This is due to gaps in the institutional framework to support the digital uptake among SMEs, a lack of awareness among firms regarding the benefits offered by their digital transformation, and limited digital skills among employees and employers. This peer-review note sets short-, medium-, and long-term policy recommendations for each of these dimensions.
Continued reforms have supported strong economic growth, even during the pandemic
Uzbekistan achieved considerable progress in transforming its economy and society since it set off on a path of wide-ranging reforms in 2017, enjoying continued high economic growth in the ensuing years (Figure 1.1). Associated measures addressed market inefficiencies and SME competitiveness, price liberalisation, the removal of regulations on businesses and trade, and increased transparency (OECD, 2022[1]) (World Bank, 2022[2]). Uzbekistan weathered the COVID-19 pandemic relatively well (OECD, 2022[1]), as improvements to the legal and operational environment for businesses have increased the contribution of the private sector to gross domestic product (GDP), reduced barriers to trade, and enhanced foreign direct investment (FDI) (World Bank, 2022[3]). It was one of the few countries across the world to avoid recession in 2020, even if growth was lower than previous years. 2021 showed a strong rebound, with a growth rate of 6.1% (IMF, 2022[4]). Despite risks to growth with the fallout from Russia’s invasion of Ukraine, growth in 2022 is expected to reach 5.3% in 2022 (World Bank, 2022[5]).
Source: (IMF, 2022[4])
However, the private sector remains underdeveloped
The pandemic has exacerbated structural weaknesses in relation to Uzbekistan’s reliance on revenues from commodities and the persistently large presence of the state in the economy. Despite recent reforms to diversify production, exports and employment, and a broader industrial base than those of its Central Asian neighbours, Uzbekistan remains dependent on natural resource exports and therefore vulnerable to external supply and demand shocks and volatile prices. Primary sources, gold and low value-added goods, such as energy, oil and chemical products, and metals represented about 65% of total exports in 2020, and 56% in 2021 (The State Committee of the Republic of Uzbekistan on Statistics, 2022[6]). Gold alone accounted for 34.5% of good exports in 2016 to 2020. Despite recent reforms (Lex-UZ, 2021[7]), small and medium enterprises (SMEs) remain below potential within the economy. The comparative advantage areas are dominated by state-owned enterprises (SOEs), which are shielded from private-sector competition. The state directs investments to SOEs in high-growth but less highly job-creating activities. As a result, Uzbekistan’s rate of new firm creation is among the lowest compared with regional and income-level peers, SMEs remain disproportionately small, and unemployment is relatively high (World Bank, 2022[2]).
The same holds true for SME exports: although the government has been implementing reforms to foster exports, the internationalisation opportunities of Uzbek SMEs are not fully realised (OECD, 2021[8]). As a consequence, SMEs remain restrained in their growth potential. Institutional barriers, regulatory compliance, limited financial skills, low digitalisation, constrained access to finance, and insufficient human capital prevent them from becoming more productive and competitive (World Bank, 2022[2]). This impedes SMEs’ ability to create diversified and higher value-added jobs, such as in the ICT sector, where employees earn, on average, 64-83% more than the average nominal accrued wages in the country (The State Committee of the Republic of Uzbekistan on Statistics, 2022[9]). SMEs have also been the hardest hit by the pandemic and remain vulnerable in the recovery phase; their share in GDP dropped from 56.0% in 2019 to 54.9% in 2021, and their shares in total exports and imports from 27.0% to 22.3% and 61.6% to 48.7%, respectively (The State Committee of the Republic of Uzbekistan on Statistics, 2022[10]).
Digitalisation can support diversification and resilience
Digital technologies represent an opportunity for firms of all sizes to increase productivity and competitiveness, lower prices and provide better-quality goods and services. However, their adoption and integration into business processes require firms to undergo a deep transformation, involving major cultural changes. The digital transition can be particularly challenging for SMEs, as they are often unaware of the benefits digitalisation can bring and their resources, both financial and human, are limited compared to those of larger firms.
Technology uptake requires a mind-set and skills that many SMEs lack, in both OECD and Partner countries. In particular, the evidence suggests that business uptake of digital tools is associated with employees’ ICT skills (Box 1.1). However, SMEs in general experience digital knowledge gaps, with lower digital literacy levels in the workforce. Acquisition and basic usage of digital technology are the first steps of digital adoption, which also demand strategic decisions for effectively integrating the technology within the business model and processes (OECD, 2021[11]).
Digital skills are lacking among adults in many OECD countries, as on average 26% of them do not possess any digital skills at all. Fostering those skills from the beginning of formal education and following through with lifelong learning opportunities can play a vital role in preparing societies for the digital transformation. Importantly, addressing gender gaps in so-called “STEM” studies (science, technology, engineering and mathematics) would also help, as women account for less than 20% of entrants into tertiary-level computer science programmes in OECD countries.
To design policies that bridge the digital divide and prepare for the digital transformation, policy makers should understand which types of skills help people get the most out of digital technologies, enable their diffusion and increase their impact on productivity. In this regard, four main categories emerge:
foundation skills such as literacy and numeracy, enabling the development and acquisition of higher order cognitive skills needed for the digital economy, which help individuals navigate through an environment of fast and ever-changing technologies, as well as increasingly long working lives;
generic digital skills for all workers, related to the use of digital technologies for professional purposes such as accessing information online or using software;
advanced digital skills for digital specialists (e.g., skills needed for the production of IT products and services such as programming, developing applications, managing networks); and
complementary skills to work in a digitalised environment, including cognitive skills, interpersonal skills (information processing, self-direction, problem solving, communication), as well as managerial and organisational skills.
Source: (OECD, 2021[12])
Since Uzbekistan is a double-landlocked country, digitalisation offers particularly important opportunities to overcome geographic challenges. In 2020, the country adopted a comprehensive National Digital Strategy (NDS), which recognises the benefits of digitalisation and the ways it could support other long-term development priorities. The COVID-19 pandemic provided a new impetus for the digitalisation of both the state and the economy. Uzbekistan had the second-highest share of firms reporting that they started or increased their use of digital platforms (51.2%) among 79 economies analysed in 2021 (Figure 1.2) (World Bank, 2022[2]).The share of monthly sales using digital platforms – already above the regional average – further increased (Figure 1.2). Uzbekistan can build upon the digital solutions already implemented before, and expanded during, the pandemic to build a coherent approach to digitalisation which supports all other reform dimensions. Russia’s invasion of Ukraine led hundreds of thousands of Russians and Belarusians to leave their home countries (EUAA, 2022[13]). Many of those who left are active in IT, frequently looking for Russian-speaking host countries. This has provided an opportunity for Uzbekistan to benefit from their expertise and catalyse knowledge transfer. To attract IT specialists, the government recently introduced a relocation programme providing attractive benefits, including a 3-year IT visa and both financial and non-financial incentives (IT-VISA, 2022[14]).
Note: Panel A - Question asked was “Has this establishment started using or increased the use of internet, online social media, specialised apps, or digital platforms in response to COVID-19 outbreak?” No micro firms included. Agricultural data is available only for the Kyrgyz Republic (August), Tajikistan (August), and Türkiye (June) in addition to Uzbekistan (September) .
Panel B - Question asked was “What is the share of sales of this establishment using external digital platforms, apps, or own website during the last 30 days?” No micro firms included. Agricultural data removed from graph due to limited availability: only Türkiye (June, 4.67%) and Uzbekistan (September, 67.22%) have data for 2021.
Source: (World Bank, 2021[15]) (World Bank, 2022[16])
Private-sector digitalisation can support other dimensions of the reform agenda
Looking to the future, digitalisation can also help address the four major challenges identified by Uzbekistan and the EU to support long-term growth and regional integration (EEAS, 2019[17]). A coherent approach to digitalisation can underpin all its reform dimensions:
Trade policies will require harmonised rules with multilateral trade systems and simplified customs procedures and co-operation. Digitalisation can reduce international trade costs, facilitate the co-ordination of global value chains, diffuse ideas and technologies, and connect a greater number of businesses and consumers.
Digital technologies can pose a challenge due to their fast-paced development, often moving ahead of regulatory frameworks. Continued improvements to the legal environment for business and investment are needed to further simplify and enforce regulatory frameworks, as well as to ease the daily operations of SMEs. E-government and digitalisation of public services help mitigate digital challenges and improve the operating environment of the private sector.
Uzbekistan needs to start transitioning to a greener growth model, mobilising private investment to enhance lower-carbon energy generation, more energy-efficient agricultural and industrial production, and better water and waste management. The digital transition will also contribute to green objectives, with synergies to create a smart, circular economy, for instance.
Across all these dimensions, additional investment into digital infrastructure, interoperable and harmonised IT systems, and digital upskilling programmes will be important.
The government recognises the importance of digitalisation for economic growth
Uzbekistan has been investing heavily in its technology ecosystem in recent years, driving the creation and delivery of IT products and services, internet access, and mobile communications (Kutbitdinov and Ismailov, 2021[18]). The government has simultaneously been working to expand digital access, especially to rural areas: USD 2.5bn in digital infrastructure investment was announced in early 2021 and the share of households with access to the internet had already increased markedly in 2019 (OECD, 2022[1]; The Tashkent Times, 2021[19]). The National Digital Strategy (NDS), “Digital Uzbekistan-2030”, approved by a presidential decree in October 2020 and under the Ministry of Digital Technologies (MDT), aims for the active development of the digital economy, as well as the widespread introduction of modern information and communication technologies (Box 1.2). The plan to implement the strategy for 2020-22 encompassed four overarching tasks centring on the development of e-government, digital industry, digital education, and digital infrastructure development. Priority areas for IT education include digital skills for all population strata, within public administration, and within educational institutions. Further implementation plans will be updated every two years.
Digital Uzbekistan-2030 aims to actively develop Uzbekistan’s digital economy. Special attention is given to public administration, education, healthcare and agriculture. The road map for the implementation of the Digital Uzbekistan 2030 strategy for 2020-2022 incorporates these dimensions, with individual actions, objectives, and targets set out for each of them. From 2023, the NDS will be implemented on the basis of two-year programmes approved by the Cabinet of Ministers.
These programs are based on the results achieved, target indicators, and the development of digital technologies for each preceding and upcoming period. The dimensions to develop during the 2020-2022 period with example initiatives are the:
At the time of writing, the implementation of over half of the 400 priority projects had begun.
Source: OECD analysis, (Lex-UZ, 2020[20])
Digital technologies have spread rapidly in recent years and found new applications in many spheres, including education, communications, industry, and government, though the digital sector’s overall size remains limited. If the share of the digital economy in GDP remains very low, at about 2% in 2020, compared to 3.9% in Kazakhstan and 8% in Korea (though the digital economy is not defined for the latter two), it is an expanding sector with steadily increasing employment since 2016, including a rise of 6% in 2020, when the labour force participation as a whole shrank by 1% (Figure 1.3) (The State Committee of the Republic of Uzbekistan on Statistics, 2022[9]) (Jurayevich and Bulturbayevich, 2020[21]) (The State Committee of the Republic of Uzbekistan on Statistics, 2022[10]). The government has set an ambitious target for the sector, aiming to triple the share of ICT services in GDP by 2023, bringing ICT exports to 300M USD (Lex-UZ, 2020[22]).
In addition, Uzbekistan has made significant progress with respect to internet access, quality and affordability: 2G or higher coverage already reached 98% of the population in 2015, while recent improvements to the mobile network mean that 90% of the population had access to 3G (54.9% had access to 4G) in 2020, compared to 47% in 2015 (ITU, 2021[23]). Internet access also became cheaper, as prepaid mobile tariffs decreased from 3.94% of monthly Gross National Income (GNI) per capita in 2017 to 1.84% in 2021, while fixed broadband costs declined from 3.04% to 2.13% during the same period1. Nevertheless, gaps in internet speed, bandwidth, and user costs continue to constrain growth in many sectors (World Bank, 2022[2]). Uzbekistan still needs to make significant progress if the government is to achieve its stated goals, including high-quality and inexpensive internet and mobile communications, and to reduce the digital divide between cities and villages in particular.
Source: (The State Committee of the Republic of Uzbekistan on Statistics, 2022[24])
Even so, the digital uptake of the private sector remains slow, in particular in relation to digital skills
Uzbek SMEs seem to lag behind larger firms in their adoption of digital technologies: adoption remains to a large extent confined to basic services. Only 26% of formal private firms in Uzbekistan reported that they have their own websites, compared to a Europe and Central Asia average of 63% (World Bank, 2022[2]). This suggests that the private sector has been unable to harness the opportunities arising from increased digitalisation to raise demand and productivity. This trend seems to be largely correlated with persistently low levels of digital skills in the population, with only 20% of the population having basic ICT skills, and 7% standard ICT skills in 20182. This compared to 43% and 32%, respectively, in OECD countries (in 2015) and 24.3% and 27.5% in Kazakhstan (in 2020) (ITU, 2021[23]). The relatively low level of digital literacy in Uzbekistan suggests that businesses are not necessarily aware of the most suitable digital tools and skills required for their activity. Yet World Bank data indicate that the adoption of existing knowledge embedded in foreign technology is higher in Uzbekistan than the average for the Europe and Central Asia region: 20.8% of private manufacturers report using licensed foreign technology against 16.5% for the region on average (World Bank, 2022[2]). With the right incentives and training in place, there is a potential for further technology adoption by Uzbek firms.
Source: (UNECE, 2018[25])
Improved awareness and provision of digital skills to businesses can support the digital transformation of firms
This OECD peer-review aims to support the government in fostering the private sector’s digital transformation in an inclusive manner, with a specific focus on the provision of digital skills. The focus on digital skills responds to a request from Uzbekistan’s government, as they seem to be particularly lacking among Uzbek firms, and augmenting them will enable job creation and the absorption of a fast-growing labour force. Compared with its CIS peers, Uzbekistan achieves the lowest score when it comes to firms’ ICT usage and skills (Dutta and Lanvin, 2019[26]). In addition, data show that Uzbek firms invest less in skill development than their regional peers: only 17% of Uzbek firms offered formal training to their employees, against 33% in the Europe and Central Asia region in 2019 (World Bank, 2019[27]). This figure dropped to 13% for small firms in Uzbekistan. Smaller firms in particular struggle to train and retain existing employees and managers or attract new ones (OECD, 2021[28]), showing the need to focus on both digital upskilling and smaller and medium-sized firms specifically. In addition, an inclusive digital transformation also requires attention to the issue of gender equality, as Uzbek women and girls are disadvantaged at home when financial choices are made about access to the internet, digital literacy and skills-improvement programmes (USAID, 2022[29]), and IT and tech are stereotyped as areas of interest to men.
Three main dimensions related to upskilling are examined in the analysis: (i) the institutional framework in place to support the digital uptake of firms, (ii) firms’ awareness of business support services for digital skills, and (iii) the development of the digital skills toolbox offer for firms. In collaboration with the government, the private sector, and other international organisations, this report identifies barriers to progress on these dimensions and further areas for reform (see below) and offers policy recommendations to address gaps in firms’ digital literacy and usage. Dialogue between the OECD, the Government of Uzbekistan, the private sector, and international partners was held through working group meetings and consultations, during which recommendations were supplemented by relevant case studies from OECD and Partner countries. This report and its recommendations will be peer reviewed in the OECD Eurasia Competitiveness Roundtable, following which they will be revised for final publication.
Barrier 1: The institutional and policy framework could be more supportive of SMEs’ digital uptake
Smaller firms tend to be more reliant on the broader business environment and the quality of public services than their larger counterparts. They are disproportionately affected by frequent policy changes and gaps in the implementation of reforms (OECD, 2021[30]), while they also tend to be less aware of support programmes that they could access at low or no cost to support their digital transformation. Governments therefore have a central role to play to ensure the adequacy of policy implementation, co-ordinate actors in the digital ecosystem, and facilitate firms’ access to a reliable network of certified digital support services (OECD, 2021[12]; OECD, 2021[11]). Over recent years, Uzbekistan’s policies have promoted an inclusive digital transformation by ensuring that the framework conditions are in place. Framework conditions involve a range of priorities, chief among which are upgrading digital skills by enhancing initial education and training systems (Figure 1.5). However, despite its importance, digital upskilling of the private sector is not a fully integrated part of Uzbekistan’s National Digital Strategy. There are no objectives or targets in place to upskill within the private sector at large or within specific industries crucial to economic growth. Digital skills initiatives for the population at large and for the public administration do exist, but they are not co-ordinated in a structured manner, nor do they involve all relevant stakeholders. This reduces awareness of existing services, limits uptake of tools, increases inefficiencies through duplication of efforts, and reduces upskilling effectiveness as geographic and sectoral target groups are left out.
Barrier 2: Uzbek SMEs lack knowledge of the opportunities offered by the digital transformation
Smaller firms in Uzbekistan lack information, remain mostly unaware of the benefits of digitalisation, and lack the digital skills to grow their business. SMEs typically face greater difficulties in attracting and retaining skilled employees. They tend to lack the capacity and networks to identify and access talent, and offer fewer training opportunities due to constrained internal resources to organise such initiatives. Smaller firms are often unaware that enhanced digital skills can provide productivity boosts and act as a way to upskill and retain employees. The government – usually through SME agencies or Chambers of Commerce – can support firms in acquiring the relevant digital skills through the provision of dedicated trainings and digital self-assessment tools, ensuring the quality of both, and raising awareness of the opportunities provided by digitalisation (OECD, 2021[12]) (OECD, 2021[28]). Although Uzbekistan has made efforts to digitalise its economy, policy attention and measures have not addressed the specific needs of the private sector. The country is behind regional peers on digital skills (ITU, 2021[23]). Firms seem unaware of the potential benefits offered by digitalisation, making it difficult to exploit existing upskilling initiatives or conduct and take trainings themselves. Managers and entrepreneurs often lack the skills to understand the digital maturity of their businesses, nor do they possess the means to pursue digitalisation opportunities.
Barrier 3: Uzbek SMEs lack digital and complementary skills
ICT use and knowledge benefits both employees and firms, though digital skills shortages reduce the overall benefits of digitalisation. Firms experiencing shortages tend to be less profitable and lack resources to hire scarce skilled workers (Sorbe et al., 2019[32]). In contrast, employees tend to benefit from higher wages when using ICT skills (OECD, 2015[33]), and upgrading skills offers among the highest returns in terms of firm productivity (OECD, 2019[31]). It is vital for individual firms and the economy at large that employees are sufficiently skilled in digital and complementary competencies, though evidence points to Uzbek firms underinvesting in such training. The Digital Uzbekistan 2030 strategy sets objectives to upgrade the level of digital infrastructure and public sector skills by 2030. Digital infrastructure is improving, but a rural-urban divide exists, which aggravates digital inequality within the country. On skills, the strategy plans for the provision of targeted trainings on digital topics to young people and civil servants. E-government helps individuals and firms digitalise by compelling public administration to move online, though not all services are available and not everyone knows how to use them. Firms receive only limited incentives to digitalise unless they incorporate and become IT Park residents. The advantages bestowed by this residency, such as tax benefits and training opportunities, put smaller firms and sole proprietors who are not members or outside the IT sector at a disadvantage. The trainings offered by the government online target all SMEs, though their breadth and depth may be insufficient to deliver the necessary skills improvements, coming from a relatively low base (ITU, 2021[23]) (USAID, 2022[29]).
Source: (ITU, 2021[23])
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Notes
← 1. The UN Broadband Commission for Sustainable Development’s affordability target for entry-level broadband services is less than 2% of monthly GNI per capita (Broadband Commission, 2018[34])
← 2. According to the ITU, basic skills are relatively simple tasks such as moving a file or folder, or sending an e-mail with an attachment, while standard skills include working with spreadsheets, creating electronic presentations or installing and configuring software.