Expanding the service sector in the regions

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The service sector is experiencing a steady growth trend in the contemporary world. Countries with economies centred around services are regarded as more developed than those with industrial or agricultural economies. In advanced countries, services account for more than half of the GDP and more than 80% of skilled workers and highly qualified personnel work in this sector. The service sector contributes to the economy's social orientation and enhances the population's quality of life.

The sector in Uzbekistan has emerged as a crucial contributor to the country's economic development. In 2022, the market's primary services were trade, transport, and financial services, contributing 24.8%, 22.7%, and 22.5%, respectively. Furthermore, the information and communications sector constituted 6.4%, while education, accommodation, and food accounted for 4.3% and 3.2%, respectively. Currently, finance, transport, trade, tourism, education, medicine, and communications sectors contribute to 85% of the total volume of services.

This year, Uzbekistan's economy will have a share of services that reaches 43.5%. However, the President has noted that the country needs to utilize its total capacity to develop the service sector. Significant opportunities should be realized in the sectors such as finance, transport, tourism, education, medicine, and information technology.

Financial services

The financial services sector has shown significant growth in recent years. As a result of the implementation of reforms, the volume of financial services has increased five times in 6 years and amounted to $6.5 billion.

The proportion of financial services in the overall volume of services has risen from 18.1% in 2017 to 22.5% in 2022. In the first 11 months of this year, the growth rate was 20.2%, and the share in the total volume of financial services reached 23%.

The growth of this sector is closely linked to business development and increased financing. The main objective of the newly established Business Development Bank and the Entrepreneurship Development Company is to support entrepreneurs' new business initiatives further. The created bank received $381 million. In contrast, the formed Company received $121.4 million to expand the volume of business financing. Next year, the volume of financial services is expected to increase by 30% to $11.3 billion based on these investments.

As many surveys indicate, financing is still the major obstacle to business development for young entrepreneurs without significant assets. Loans of up to $4,000 will be granted without collateral to those who have initiated their small business and possess a positive credit history under the new program. Additionally, those interested in expanding their business activities within the scope of the Family Entrepreneurship program may receive loans up to $8,000 without providing any collateral.

Additionally, in Uzbekistan, there are 2.4 million people considered self-employed. These people are just entering the business sphere with their new ideas. Entrepreneurs in this category can leave the shadow economy and receive funding for their business ideas by paying a simplified social security tax of $27.5.

President Mirziyoyev announced that measures will encourage 2 million individuals to participate in business activities by 2024. Moreover, the President mentioned ongoing efforts to place Eurobonds worth $500 million in the market. This move is expected to significantly boost the financial services sector and thereby contribute towards the country's overall economic growth.

Transport services

Uzbekistan's transport sector has contributed significantly to the country's economic growth in the past six years, with transport services amounting to $6.6 billion.

Transport services currently make up 25% of the total volume of services in the country. This sector has recorded a growth rate of 8.8% in the current year, which is remarkable. The transport industry has been able to cater to the evolving needs of the market while maintaining high standards of efficiency and safety, which has facilitated this steady growth. In 2024, at least 1,200 new buses will be added to the routes, creating 4,000 new jobs.

This will double the bus service to Kazakhstan, Kyrgyzstan, and Tajikistan. Half of the transportation services are provided through road transport.

In 2023, changes were made to the tariffs in the rail transport sector. Some unnecessary benefits were removed. To ensure a 20% growth in this area next year, six high-speed and 30 electric trains will be delivered.

Significant reforms were also carried out in the aviation services market in 2023. The competition showed itself, and six private companies began operating. In addition, since the beginning of the year, 25 new aircraft have been delivered, and 17 new air routes have been opened. Nevertheless, the volume of services in this sector increased by only 7.7%. Therefore, it was instructed to increase the volume of air transportation by 20% in 2024.

Healthcare and education

High-income growth significantly pressures demand for health care and educational services. Over six years, the number of hospitals has increased by 187 or 16% compared to 2017; at the end of 2022, there were 1,322 units. Accordingly, hospital beds increased by 25% from 135.7 thousand in 2017 to 170 thousand in 2022.

But, most importantly, the private sector of medicine and education is developing during the reforms. To fully exploit these industries' potential, as the President indicated, it is enough to provide land in places close to the population where comprehensive services can be provided, and entrepreneurs themselves will do the rest.

IT services

The Uzbekistani government has demonstrated a full recognition of the advantages of digitalization. It has taken steps to foster a favourable business climate for IT companies. This sector's development has further enhanced the productivity and efficiency of other economic sectors, significantly facilitating the provision of government services and the fight against corruption. Over the last six years, $3 billion of investments have been made in this sector. IT services comprise 3-3.5% of Uzbekistan's GDP.

As a result of these investments, the volume of IT services tripled from $647.5 million in 2017 to $1.9 billion in 2022, with an average annual growth rate of 20%. If six years ago, exports of this sector were less than $1 million, in 2023, total exports exceeded more than $300 million. In 2022, the share of the digital economy in Uzbekistan's GDP increased from 1.99% in 2020 to 2.77%.

The President highlighted the importance of increasing the volume of services in this area to $3.3 billion by 2024, with a two-fold increase in exports compared to $300 million in 2023, while ensuring a 30% growth of IT services during the year.

Tourism services

Our country has great tourism potential, which is being consistently implemented. The volume of export of tourist services in 2022 amounted to $1.61 billion. In just six years, the total volume of exports of tourist services amounted to $5.13 billion.

In 2024, Uzbekistan is planning to ensure the traffic of 32 million tourists. Building at least 600 hotels and guest houses is essential to do this.

As foreign experience shows, in countries such as the United Arab Emirates, Egypt, Turkey and Italy, tourists are often attracted by the opportunity to purchase jewellery.

Although there are sufficient conditions for this in our country, over the past two years, only 4 tons ($500 million) of gold have been sold, while the annual jewellery market in Uzbekistan is worth more than $1 billion. In this regard, it was instructed to organize modern jewellery complexes in each region starting next year.

Conclusion

It is essential to highlight the untapped potential of the service sector in Uzbekistan, particularly given the economic trends in other countries. With infrastructure underdevelopment in certain regions, there is a significant opportunity to expand the service sector and promote regional development. Uzbekistan is emphasizing the need to improve regional capacity in the service sector.

Moreover, it is crucial to pay attention to those areas of the service sector that are increasingly in demand globally. This includes IT services, which form the backbone of the digital economy; educational services, which are essential for training competent personnel for the digital economy; and medical services, which are becoming more and more important as life expectancy increases.

To improve the quality of human capital and make life more comfortable for everyone in Uzbekistan, it is essential to ensure that high-quality services are accessible in all makhallas across the country. We understand the importance of these services and will do our best to support their development and accessibility for all.

 

Obid Khakimov,

director of the Center

for Economic Research and Reforms

under the Administration

of the Republic of Uzbekistan