Westminster University, Tashkent, Uzbekistan
Dear students, dear guests,
It is my great pleasure to be invited by Senator Safayev to speak here today. I couldn’t have picked a better time to visit Uzbekistan. We are witnessing a wide range of inspiring reforms, a new generation of projects and are seeing the new era of regional integration.
Later this week I am speaking at an international Conference in Samarkand on safety, security and sustainable development in Central Asia chaired by the UN Secretary General. There can hardly be a better testimony to the fact that international attention is increasingly focussed on Central Asia as a region of growth and opportunity, and Uzbekistan has a key role to play.
I cannot but think of the exceptional legacy of the Silk Road, which for centuries brought people together in peace across continents, regardless of religion and race, to trade with each other. The spirit of the Silk Road is alive today, 500 years later. The governments and peoples of the region are more than ever focussed on developing economic links with their neighbours as a way of integrating with the global economy and building a firm foundation for the region’s sustainable development.
Why is integration into global economy so important today? Integration is a direct derivative of an open economy. An integrated market economy has policies, institutions and infrastructure to minimise the transaction costs of trade. It also supports competition in product and services markets and provides access to a wider range of financing channels. Furthermore, integration allows countries to opt into institutional arrangements of a high standard, and more generally, acts as a discipline on governance, legal, regulatory and other institutions. Reflecting on all of this, the EBRD has included “integrated” as one of the six transition qualities of a sustainable market economy when updating recently our concept of transition – a key notion of transformation of countries to market basis.
With a population of 32 million, almost one-half of Central Asia’s population, and as the only country in Central Asia which borders all the other countries in the region, Uzbekistan is uniquely placed to become a catalyst for regional integration. We welcome the steps the Uzbek government has taken to ease customs and border clearance procedures, to introduce a single window for custom clearance, to lower documentation requirements, and to allow electronic submission of trade documents. Still, there is a lot to be done.
Further improving the transportation infrastructure, facilitating cross-border trade, closer bilateral relations with neighbours and upgrading logistics services and processes will allow Central Asia to become a more closely integrated region. This will not only enable Central Asia to profit more from transit brought about by such initiatives as the Belt and Road Initiative, but to exploit economies of scale to better integrate into international value chains, overcome the limitations of being a landlocked country and build economic corridors alongside the transportation routes.
The role of foreign investment, and in particular, foreign direct investment, in facilitating cross-border cooperation and integration is hard to overestimate. Foreign direct investment immensely expands the range of available resources – financial ones, but even more important is the transfer of advanced managerial practices, efficient processes, best available technologies and state-of-the-art materials, often available from a foreign producer at a lower cost due to economies of scale and accumulated experience.
Uzbekistan already has a diverse foreign investor base. It has attracted world class investors into manufacturing from Europe, especially from Germany (for instance, Man, Claas, Deutsche Kabel, Knauf and other), the US (GM), Japan (Suzuki), Korea (Daewoo), Turkey (textile sector). According to UNCTAD data, Uzbekistan non-residents owned 9 billion dollars in direct investment assets in Uzbekistan in 2016. While this is not a bad achievement for a lower-middle income country such as Uzbekistan, the corresponding figure for neighbour Kazakhstan is 120 billion dollars.
So what can be done to attract further foreign investment? The liberalisation of the currency regime at the beginning of September is the change which, more than any other, has raised both domestic and international confidence in the reform course. We congratulate Uzbekistan on the decisiveness and effectiveness with which it carried out this complex reform. However, the Strategy of Action, which stresses the importance of foreign and in particular foreign direct investment, including into the regions, calls for more.
What makes a country attractive for FDI? Rule of law and in particular effective and transparent functioning of the judiciary and similar institutions able to protect property rights; fair competition among domestic and foreign companies and among state and private participants in the market; high integrity and control of corruption; low red tape and effective administration; enabling business environment overall; human capital; effective supply chains and supporting infrastructure; market potential and ability to export to neighbouring countries; a robust SME sector supported by effective channels for access to finance – to name a few!
But let us look closer at Uzbekistan. What are the challenges that investors might face in Uzbekistan at the moment? The most recent Doing Business rankings issued just a few days ago commends Uzbekistan on the progress made with the recent reforms, naming it one of the top reformers worldwide. Reforms have seen Uzbekistan climbing dramatically from the 141st place in 2015 to the 87th place in 2016 and 2017 and the 74th place in the most recent report published last week. Particular visible progress has been made in the field of taxes, where Uzbekistan moved in the last year impressive 60 positions to rank 78th, reflecting the introduction of an electronic tax system, and in getting electricity, where Uzbekistan moved up 56 positions to the 27th place.
However, despite these successes, numerous challenges remain. In cross-border trading, protecting minority investors, dealing with construction permits and resolving insolvency Uzbekistan is still lagging behind despite the recent improvements. There is room to improve further, in order to fully realise the potential and the ambition of Uzbekistan’s businesses.
Doing Business rankings are reputable and visible with investors, but they measure a country’s relative position and may not always adequately capture the pace of the reforms and the actual state of the challenges in the individual country. It’s critical to hear the primary recipients of business environment services – businesses. I’d like to share a few observations from the Business Environment and Enterprise Performance Survey (BEEPS) conducted jointly with the World Bank, which consolidates assessment by the businesses of business environment obstacles.
Its most recent round (2013) shows electricity supply, competition from informal sector and access to finance as top three concerns for businesses in Uzbekistan. At the same time, we see that businesses do continue facing other problems such as access to telecoms and transport services, level of skills of workers and issues related to corruption. In our experience, the importance of an effective institutional and administrative environment, including the capability of public institutions servicing the private sector, such as courts or tax administration, cannot be overestimated. We look forward to the next round of the BEEPS being finalised with updated data (work in progress) and how it will reflect the reform progress. Let me refer here again to the Strategy of Action, which demands further improvement of the investment climate as a key area of institutional and structural reforms supporting private sector development.
What is the EBRD’s role in all of this? I am delighted to be in Uzbekistan as the EBRD opens its new Office in Tashkent with the newly-appointed and highly-experienced Head of the resident Office at the helm. Our operations in Uzbekistan are growing fast. There will be the signing of three deals worth well over $120m between the EBRD and Uzbek companies tomorrow. This is a significant milestone in our cooperation and a sign that the international community is indeed willing to support the development of Uzbekistan and Central Asia as a whole. We have a strong pipeline of projects across variety of sectors that we will be working on in the coming year.
Our mandate is to promote transition to sustainable market economies and we do so through our financing projects, through our technical assistance and policy engagement in the areas where we can assist the authorities in their reform efforts. This morning I attended a roundtable on investment climate improvement where participants expressed an overwhelming support for the reforms already undertaken and also the ones needed in future to help Uzbekistan realise its full potential and ambition. We are in touch with our development partners – the UNDP and the World Bank to discuss our cooperation and to offer our expertise in the areas where we have successfully delivered in our countries of operation – from improving corporate governance and practices of individual companies, to reform of public procurement systems, enhancing judiciary and improving dispute resolution, enhancing the governance of state-owned enterprises, supporting competition agencies and enabling public-private partnerships.
The EBRD’s near term objectives in Uzbekistan are to support domestic SMEs, promote trade finance and cross-border cooperation as well as facilitate foreign direct investment and support the Government’s reform efforts, including aimed at improving the investment climate. It is expected that the EBRD Board of Directors will agree a new country strategy for Uzbekistan in 2018, which will set out the Bank’s longer-term strategic priorities. The EBRD will remain a committed partner to Uzbekistan in projects and reforms and we look forward to seeing great results of our joint work together.