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This World Bank report analyzes Uzbekistan's services sector, highlighting the challenges and opportunities for its development and recommends reforms to modernize the sector, boost productivity, create jobs, and attract investment across its subsectors.

The services sector is the country's key driver of growth. In 2023, it contributed 43.9% to GDP, surpassing industry (23.5%), agriculture (20.6%), and construction (7.1%). The sector has played a vital role Uzbekistan's structural transformation since independence, with employment in services having risen from 37% in 1991 to 50% in 2022-offsetting declines in agriculture.

Since 2017, market reforms in Uzbekistan have driven steady economic growth, with an average annual GDP growth rate around 5.5%. However, structural transformation has slowed. Specifically, from 2010 to 2022, the services sector's GDP share increased modestly from 41% to 44%, while employment stabilized at 50%.

To sustain growth, the country should develop knowledge-intensive global innovator services, such as ICT, professional services (e.g., consulting, legal, architecture, engineering), and finance, which are over twice as productive as manufacturing but account for just 4% of all services jobs.

Challenges to Overcome

The services sector faces some key challenges. Around 60% of jobs are in low-skilled areas like retail and transportation, limiting productivity. Meanwhile, global innovator services remain underdeveloped due to barriers in certain areas, including the following:

• Connectivity: Physical and digital connectivity needs improvement. Uzbekistan ranks 88th in the World Bank's 2023 Logistics Performance Index, and 4G/LTE internet coverage (92% in 2023) remains below universal levels. Digital payment usage is also limited, hindering ICT and digital businesses.
• Contestability: The World Bank-World Trade Organization (WTO) Services Trade Restrictiveness Index reveals that Uzbekistan is fully closed to cross-border delivery of services in 11 of 31 subsectors, including professional services. State monopolies dominate telecommunications and transportation, stifling private investment.
• Capabilities: Tertiary education enrolment is only 31.5%, far below the regional average of 80% across Europe and Central Asia. ICT skills are also underdeveloped, with just 15% of the population demonstrating basic competencies.

Recommended Reforms

The World Bank report outlines critical actions to improve performance in various services subsectors:

• Scale up investments in physical and digital infrastructure, including roads, railways, airports, and broadband.
• Improve logistics efficiency through streamlined customs and tracking systems.
• Liberalize markets by reducing state monopolies in telecommunications, air and rail transportation.
• Ease restrictions on cross-border services trade in ICT by relaxing personal data localization requirements.
• Expand tertiary education access and vocational training, such as ICT programs like "One Million Uzbek Coders."
• Attract global talent by easing visa restrictions for hubs like Tashkent's IT Park.

Projected Gains

The report notes that reforms liberalizing the services sector can deliver substantial economic benefits for Uzbekistan:

• Regulatory reforms in services trade could boost Uzbekistan's real GDP by up to 17% with full liberalization.
• Finance, communication, and insurance subsectors can expand by 23%, 39%, and 45% respectively.
• Spillover effects in manufacturing, with pharmaceuticals, electronics, and machinery projected to grow by 24%, 30%, and 23%, respectively.
• Real income gains of up to 16%, benefiting skilled and unskilled workers alike.

Uzbekistan's plans to join the WTO present a unique opportunity to align its services sector with global standards. Reforms implemented during the accession process will enhance connectivity and contestability, attracting investment, fostering innovation, and contributing to sustainable growth, the report adds.

This report was prepared with financial assistance from the Competitiveness for Jobs and Economic Transformation (C-JET) Umbrella Trust Fund, administered by the World Bank and supported by the governments of Austria, Norway, and the United States, as well as the European Commission.