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Faced with tenuous supply chains, Uzbekistan bids for regional connectivity

Faced with tenuous supply chains, Uzbekistan bids for regional connectivity
Photo: IsDB

Supply chain shocks have proven one of the most challenging economic consequences of the COVID-19 pandemic, especially for landlocked countries which have limited modes of connection to global markets.

On the final day of the IsDB Group’s 2021 Annual Meetings, a high-level panel was held to examine strategies to increase regional connectivity among the group’s 57 member countries, particularly those which are land locked.

Obid Khakimov, Director of the Center for Economic Research and Reforms (CERR), a leading Uzbek think tank, outlined the significance of this issue for Uzbekistan. Tashkent, the Uzbek capital, hosted this year’s annual meetings.

Khakimov explained that the Central Asian region comprises a market with a population of 75.3 million people and total GDP of about $300 billion. The region is also experiencing rapid growth despite the global slowdown, with growth rates of between 5 and 7 percent.

Uzbekistan has been spearheading multilateral diplomacy in the region in part to boost regional trade through connectivity and industrial cooperation. Between 2016 and 2019, the trade turnover of the Republic of Uzbekistan with Central Asian countries more than doubled from $2.5 billion to $5.2 billion. Looking to the composition of Uzbek trade overall, the share of regional trade increased from 10.2 percent to 12.4 percent of the total.

Even at existing levels of demand, there remains untapped potential for Uzbekistan to boost trade with its neighbors. Khakimov relayed that untapped trade could be worth more than $600 million, of which food products account for $350 million, light industrial goods for $90 million, chemical products for $80 million, and metallurgical products for $48 million.  

Given such potential all Central Asian countries are interested in establishing a fully-fledged free trade zone and that steps are being taken to harmonize trade policies and reduce trade barriers.  At the beginning of the year, Uzbekistan has canceled excise taxes on the import of goods, which were previously applied to 85 product categories.

But trade depends on transport and logistics infrastructure. Here, further development is needed. Today, Uzbekistan uses nine main international transport corridors in the field of rail transport. Of these, six run through Kazakhstan.

Kazakhstan is a key partner in Uzbekistan’s connectivity drive. Construction of the Central Asia International Center for Trade and Economic Cooperation has begun on the Uzbek-Kazakh border. The center will become an industrial, trade and logistics hub, comprised of joint ventures by Kazakh and Uzbek enterprises.

Local and foreign investors are increasingly eyeing the potential to contribute to regional connectivity and profit from increased regional trade flows. Over the past five years, there has been significant growth in investment in Uzbekistan. Since 2017, total investment as a percentage of GDP has grown from 24.4 percent to 38.6 percent. The share of foreign investment in total investment increased from 26.8 percent to 45.7 percent.

Khakimov concluded his speech by noting that Uzbekistan has not been deterred from its ambitions for regional trade by the pandemic. On the contrary, the economic shock of the pandemic has made clear that economic resilience will depend on better connectivity and greater reliance on regional trade.