THE PROGRESS AND CHALLENGES FOR CREATING GENUINE COMPETITIVE ENVIRONMENT IN UZBEKISTAN

New Uzbekistan

Uzbekistan is still living transition period to shift from centrally planned economy legacy to a full-fledged market economy.

Since late 2016, new leadership of the country has pursued an unflinching willingness to remove old paradigms in order to create New Uzbekistan.

In the economic sector, these reforms primarily comprise the flexibility of the exchange rate, a comprehensive tax reform and the liberalization of foreign trade. Uzbekistan’s economy is transforming from a closed, state-centred economic model to an open market economy.

These efforts have been bringing impressive progress, which was acknowledged by international community. Before COVID-19 pandemic, Uzbek economy has advanced significantly.

This can be seen by:

the strong growth of foreign trade, which increased from USD 24B in 2016 to almost USD 42B in 2019;  

bettering in the Doing Business Index, where Uzbekistan jumped from rank 87 in 2016 to rank 69 in 2020;

stronger foreign direct investment policy (FDI). According to the World Bank, FDI increased from 2% of GDP in 2016 to almost 4% of GDP in 2019.

The competition law and policy are subject to continuously transforming legislative and institutional changes reflecting Uzbekistan’s efforts to tackle economic challenges.

These challenges include, promotion of small and medium enterprises, gradual reduction of state intervention to economy, decreasing the extent and impact of state owned companies to the competition in the markets, reduction of Red Tape and lowering the regulatory burden on private sector.

In 2020, Uzbekistan leadership announced a new, large-scale 5-year national Strategy and Roadmap to enhance competition in the commodity and financial markets in order to address structural problems inhibiting economic development. Key objective of the Strategy is fostering economic development, innovations, increasing inflow of investments and new jobs, as well as increasing welfare of consumers through ensuring “level playing field” to all market players.

The Strategy actions include such areas as creation of the system of “smart” antitrust regulation and transition to preventive system of competition protection, develop effective tools of regulation of digital markets, implement new tools of market analysis, and decrease level of state price regulation.

Roadmap envisages diminishing domination of SOEs in such key sectors as automobile industry, steel manufacturing industry, telecoms, chemical, banking and oil and gas sectors.

Following the irreversible will to decrease of the extent of State intervention in economy so called Yellow pages rule principle implemented, according which, it’s prohibited to establish SOE if at least 5 private sector entities have already functioning on the relevant market,

Additionally, to extend soft power, mandatory introduction of competition compliance tools to state enterprises and public bodies to early prevention of competition law violations.

Country’s leadership made strong commitment towards creation more enabling environment for SMEs by granting access them Public Procurement through prohibition to participate in procurement procedures for entities affiliated with SOEs, moreover, to ensure level playing field under the State Aid Control all individual privileges and tax benefits, distorting competition, will be revised and cancelled.

Strategy has ambitious goals and indicators such as reducing the number of monopolies by at least 40%, eliminating distortive legal norms by at least 30%, growth in a number of market players by 25%, reducing the share of state intervention by 40 % of GDP, reducing state aid share by 10 % of GDP.

Shaping True Competition

As in many of its former Soviet peers, the low intensity of Uzbekistan’s domestic competition was among the major challenges for decades. Although the government has tried, in the past, to make economic diversification and intensification of domestic competition a priority, these efforts have been at odds with the reality of a gradually increasing role of the state.

The situation has been changing drastically since last 4 years due to irreversible reforms on the way to the market economy, which led
to a significant improvement in the competitive environment.

As a result, the number of operating businesses nearly doubled
(Diagram 1), the amount of enterprises with dominant position reduced significantly (Diagram 2), the concentration ratio was decreased substantially over a four-year period between 2017 and 2020.

Diagram 1. The number of operating business entities.

Diagram 2. The number of enterprises with dominant position

The measures taken have lead to creation of healthy competition in the of many food markets (soft drinks, juices, bread, bakery, meat and dairy, confectionery, etc.), as well as some non-food products (furniture, carpet and carpet products, medical masks, sandwich panels, chipboard products, textiles, etc.). Dominance of large entities construction materials, coal briquettes, lint and cotton cleaning industry waste, cable and wire products, money transfers, testing and certification, industrial safety expertise services markets has been vanished.

From price controls to creating market incentives

Over a decade, there was a very hard price regulation, which covered more than 130 various products and services. Since 2017, by gradual introducing market mechanisms and boosting commodity exchange trading the number of regulated prices decreased 4 times.

The commodity exchange trade volume has grown significantly since 2016 for 3,5 times and has reached more than USD 5 billion and ensuring participation of 35K SMEs.

Regulation of infrastructural monopolies

Non-discriminatory access to the infrastructure of monopolies is key factor of ensuring the activity of SMEs and gradual competition development. Deep structural reforms have been leading to more competitive environment in such sectors as electricity generation, where former single supplier Uzbekenergo company has been restructured into three-pillar energy generating, transmission and supplying system has been created and further steps have been taken to shape wholesale electricity market in near
4-5 years as several alternative generating facilities, including “green energy” continuously creating on basis of PPP. The same was initiated in gas supplying sector.

In the air transportation sector ‘Open Sky’ regime was introduced
in 9 airports of 11, the flagship dominant air carrier was divided to Airport company and full-fledged carrier.

In telecom sector, an enabling environment for virtual mobile operators has been created, sharp growth in number of e-payment systems from 1 in 2014 to 15 in 2020.

Consequently, abovementioned measures assisted to reduce the number of natural monopolies from 151 to 134 over the four-year period between 2017 and 2020 (Diagram 3).

Diagram 3. The number of natural monopolies