Toward 2030: Can Uzbekistan Transform Growth into Real Jobs and Global Access?

Uzbekistan’s economic transformation, closely analyzed by institutions such as the World Bank, the Ministry of Economy and Finance of Uzbekistan, and the Competition Promotion and Consumer Protection Committee, is at a pivotal crossroads. Since launching a wide-ranging reform agenda in 2017, the country has seen notable gains in growth and macroeconomic resilience. However, these reforms have not yet delivered their full promise. The recent report reveals that the growth model remains heavily investment-driven, lacks productivity gains, and is not generating sufficient employment or global competitiveness. To achieve upper-middle-income status by 2030, Uzbekistan needs to address critical constraints in infrastructure, market regulation, and trade integration.

An Overreliance on Capital, Not Innovation

Uzbekistan’s average annual per capita value-added growth reached 4.2 percent between 2010 and 2022, strong by regional standards, yet still short of what is needed to meet its ambitious targets. What makes this growth concerning is its origin: nearly all of it comes from capital deepening. Investment rates have climbed to 38 percent of GDP, particularly in machinery and construction, but returns are beginning to diminish. The capital-output ratio rose from 1.9 to 2.5 over the last decade, while the incremental capital-output ratio also increased, signaling reduced efficiency. Public spending on research and development remains almost negligible at 0.04 percent of GDP. The dominance of state-led investments and SOEs limits the private sector’s ability to allocate capital effectively, stifling productivity and innovation. Without a strong contribution from total factor productivity (TFP), the sustainability of this growth is increasingly in question.

Job Creation Lags Behind Population Growth

Perhaps the most pressing concern is that economic growth has not led to job creation. Employment growth has averaged only 0.5 percent annually since 2017, significantly trailing behind population and labor force growth. In 2022, the employment rate among those aged 15 and over stood at 53.6 percent, with an even lower rate of 37.3 percent for women. Female labor force participation is limited primarily by social norms and caregiving responsibilities. Most jobs created have been in low-skilled service sectors like retail, hospitality, and administration. Meanwhile, the more productive and innovation-intensive "global innovator services" such as finance, ICT, and professional services account for only a small fraction of total employment. The poor quality of education further undermines human capital. Results from the 2022 PISA assessment revealed that 80 percent of students failed to meet minimum proficiency in core subjects. When adjusted for learning quality, the expected years of schooling fall to around 9.1 for girls and 9.2 for boys. These deficits restrict the economy’s long-term productivity and global competitiveness.

Outdated Infrastructure Weakens Market Integration

Uzbekistan’s physical infrastructure is another drag on productivity and market integration. The country faces widespread electricity shortages, with nearly 40 percent of its infrastructure obsolete and annual transmission losses more than twice those of peer countries. Subsidized tariffs further deter private investment and strain the public budget. According to a spatial equilibrium model developed by World Bank economists, better allocation of infrastructure spending, even within existing budget limits, could raise welfare by up to 40 percent and improve regional productivity. The road network remains particularly underdeveloped, with over 60 percent of roads outside Tashkent unpaved. Rail investments remain concentrated on international corridors, neglecting the domestic market. Reprioritizing transport investments, especially in underserved western and eastern regions, would reduce trade costs, improve specialization, and promote regional trade.

State Dominance Limits Private Sector Dynamism

Uzbekistan’s economic structure is still skewed by an overwhelming state presence. The country has more than 2,000 centrally-held SOEs whose revenues account for 32 percent of GDP. Worryingly, four out of five of these firms operate in sectors where private enterprise could thrive, such as manufacturing, services, and real estate. These SOEs benefit from subsidized loans, preferential procurement, and regulatory exemptions. Despite legal reforms, including a new privatization law and commitments made under the WTO accession process, implementation has been slow and uneven. Business support programs, 175 launched between 2020 and 2022, suffer from poor targeting and lack of transparency. Many firms receive aid they do not need, while others in greater need are excluded. Meanwhile, competition enforcement remains weak. The competition authority lacks full operational autonomy and has limited investigative tools to combat market abuses.

Global Integration: A Promise Still Unrealized

Despite a sharp rise in trade openness, Uzbekistan’s trade-to-GDP ratio more than doubled from 2017 to 2022, the country remains under-integrated in global markets. Exports are still concentrated in low-value commodities, and only 6 percent of firms engage in exporting. Service exports, though rising, account for just 15 percent of GDP. High tariffs, burdensome customs procedures, and restrictive service trade regulations continue to constrain competitiveness. Uzbekistan is also among the top 20 most expensive countries with which to trade, owing to outdated logistics and customs inefficiencies. WTO accession, pending since 1994, could be a game-changer. If successful, it could raise GDP by 10 percent and reduce poverty by 1.6 percent. Further liberalization of service trade could deliver an additional 9 percent GDP increase and lift over 300,000 people out of poverty. The government has taken steps toward this goal, including removing exclusive rights for several large SOEs and reforming energy tariffs, but more comprehensive and timely action is needed.

While Uzbekistan has made significant progress on its economic reform agenda, the momentum must not stall. To transition from a state-led, investment-heavy model to a sustainable, productivity-driven one, the country must accelerate privatization, enforce competitive neutrality, invest smartly in infrastructure, and deepen its integration into global markets. Only by addressing these fundamental challenges can Uzbekistan realize its vision of a dynamic, inclusive, and globally connected economy by the end of this decade.