The service sector is a vital element of structural transformation in Uzbekistan.

The new World Bank report “At Your Service?: The Growth Potential of Services in Uzbekistan” assesses this potential.

The Services Sector: A Central Element of Uzbekistan’s Structural Transformation

The services sector, which currently accounts for more than half of all jobs in Uzbekistan, is a key driver of structural transformation since the country gained independence in 1991. The share of employment in the services sector has increased from 37 to 50 percent between 1991 and 2022, effectively offsetting nearly all the decline in the share of employment in agriculture.

However, much of this growth is concentrated in low-skilled consumer services, such as retail and hospitality, which generally have low productivity. Social services, such as healthcare and education, have expanded primarily due to increased government spending.

In Uzbekistan, global knowledge-intensive services, such as information and communication technology (ICT), professional services (e.g., consulting, legal, architectural, and engineering services), and financial services, are twice as productive as manufacturing but account for less than 5 percent of all jobs in the services sector. Moreover, the links between the services sector and the rest of the economy, especially with the manufacturing sector, remain weak.

The growth potential of the private sector in the services sector can be realized by strengthening connections between the services sector and other sectors, increasing the share of global knowledge-intensive services, and enhancing the productivity of low-skilled consumer services.

Policy Agenda: Connectivity, Competitiveness, and Capabilities (3C)

Uzbekistan can leverage the services sector to ensure additional growth and job creation by focusing on three key policy areas: connectivity, competitiveness, and capabilities (3C).

Compared to global benchmarks, Uzbekistan ranks below average in connectivity (based on the logistics performance index and the share of the population using the internet) and capabilities (based on the share of people with basic ICT skills and the enrollment rate in higher education), while it falls in the bottom third in competitiveness (based on restrictions on trade in services).

As a landlocked country with limited access to seas, Uzbekistan needs to improve both physical and digital connectivity to enhance market access. In terms of physical connectivity, Uzbekistan ranks 88th out of 139 countries in the World Bank's 2023 Logistics Performance Index. Regarding digital connectivity, access to high-speed mobile internet, such as 4G/LTE, remains limited, with only 40 percent of the population making digital payments.

In terms of competitiveness, most services in Uzbekistan are heavily restricted according to the World Bank and WTO’s International Trade in Services Restrictions Index. The country remains closed to cross-border delivery of several professional services.

Meanwhile, “data localization” laws significantly limit the cross-border delivery of ICT services. Additionally, state-owned enterprises, which dominate many service sectors such as telecommunications and transportation, create further challenges for market competition.

Regarding capabilities, Uzbekistan's focus on developing technical education and English language training helps build a relevant skills base. However, these efforts can be expanded. Access to higher education remains low.

In 2022, the enrollment rate in higher education in Uzbekistan was 31.5 percent, which is less than half the average rate for Europe and Central Asia, standing at 80 percent. Furthermore, the share of the population with basic ICT skills remains below 10 percent.

Nonetheless, the recently established IT Park in Tashkent, which offers world-class internet connectivity, duty-free access to imported ICT equipment and software, a digital IT university, and work visas for IT specialists and startup founders, demonstrates how policy actions can foster progress in connectivity, competitiveness, and capabilities.

Regulatory Reforms in the Services Sector Could Lead to Significant Economic Growth

The ambitious reform program launched by the government in 2017 has accelerated Uzbekistan's path toward becoming a higher-income market economy. However, attention must be given to stimulating the services sector to sustain this transformation.

Regulatory reforms that liberalize the services sector could further boost economic growth. If restrictions on trade in services were reduced to a level that halved the gap between Uzbekistan and the best-performing countries, it is estimated that the country’s real GDP could grow by 9 percent, while real wages could increase by an average of 8 percent. This could lead to a significant reduction in poverty levels.

Uzbekistan's ongoing efforts to join the World Trade Organization (WTO) open opportunities for liberalizing the services sector and creating new sources of growth. These reforms would enhance competition in Uzbekistan's services sector and address key issues related to physical and digital connectivity. Furthermore, they would attract more foreign investment, technology, and expertise, which will be crucial for the country’s transition to global knowledge-intensive services.

Policies aimed at improving connectivity, competitiveness, and capabilities can help the government of Uzbekistan leverage the services sector as a key driver of economic growth. This, in turn, will play an essential role in achieving the goals of the country’s strategic development plan “Uzbekistan 2030.”