Uzbekistan is undergoing a significant transformation in its economic landscape, particularly in the small and medium-sized enterprise (SME) sector. Under President Shavkat Mirziyoyev, the country has embraced a series of bold reforms aimed at liberalizing the economy and fostering private sector growth. SMEs have become the backbone of this new economic agenda, serving as vital drivers of innovation, employment, and GDP growth. As the country positions itself for greater integration into the global market, including its pursuit of World Trade Organization (WTO) membership, the role of SMEs has never been more crucial.
The Role of SMEs in Uzbekistan’s Economy
SMEs play a central role in the Uzbek economy, accounting for 99% of all registered businesses. They contribute significantly to various sectors, including agriculture, construction, services, and manufacturing. In 2023, SMEs accounted for 51.2% of the country’s GDP, with their influence most pronounced in agriculture (95.6%) and construction (77%), underscoring their integral role in the country’s industrial and economic development. The sector has also been a major job creator, employing nearly two-thirds of the workforce.
Since 2017, Uzbekistan has introduced numerous initiatives aimed at creating a favorable environment for small businesses and encouraging entrepreneurship among diverse population groups. These efforts have resulted in a substantial increase in the number of registered SMEs, with over 40,000 new small enterprises established in 2023 alone, bringing the total to 490,000. Medium-sized enterprises have also seen growth, increasing from 8,000 to 10,000.
However, this growth has not come without challenges. The complexity of the bureaucratic system and the high tax burden historically created obstacles for entrepreneurs. To address these issues, the Uzbek government has launched comprehensive administrative and tax reforms aimed at making the business environment more attractive and less cumbersome. This includes the establishment of a targeted support system tailored to different enterprise sizes, as well as the introduction of new legislation that simplifies processes for business registration, credit access, and tax compliance.
Key Reforms and Institutional Support
To support the SME sector, the government of Uzbekistan has made significant strides in improving the legal and regulatory framework governing entrepreneurship. A crucial development in this regard is the drafting of the Entrepreneurial Code, which consolidates nine existing laws, two draft laws, and over ten subordinate acts. The code aims to streamline business operations, reduce administrative burdens, and improve regulatory transparency for SMEs. It also incorporates new concepts like social entrepreneurship, designed to promote businesses that benefit socially vulnerable groups, including people with disabilities.
The role of the Business Ombudsman has been expanded to ensure greater oversight of state agencies and provide a direct channel for businesses to report issues related to inspections or regulatory compliance. The Ombudsman monitors the compliance of 39 government bodies that collectively execute 147 control functions across 20 types of inspections. By creating a more predictable and transparent regulatory environment, the government is helping foster a culture of entrepreneurship.
The WTO Accession and Global Market Integration
Uzbekistan’s ongoing efforts to gain WTO membership represent a pivotal moment for the country’s economic future. Joining the WTO would mark a significant step in opening the domestic market to international trade, while also subjecting Uzbekistan’s trade policies to global norms. For SMEs, this could provide both opportunities and challenges.
On one hand, WTO membership could expose local enterprises to heightened competition from foreign firms, potentially threatening the survival of those unable to compete at a global level. However, it also offers substantial benefits. By reducing import tariffs and expanding access to international markets, SMEs could gain access to cheaper raw materials and equipment, thereby enhancing their competitiveness. Additionally, Uzbek businesses would have the chance to reach new markets, particularly in Europe and Asia, which could help boost exports.
In fact, Uzbekistan has already made significant progress in increasing its export capacity. Over the past four years, the number of enterprises involved in export activities has grown from 45,000 to 72,000, and the range of export products has expanded from 1,500 to 3,000. This increase is largely due to government initiatives aimed at supporting SMEs in expanding their reach to 164 countries. Notably, the share of processed goods in total exports has grown from 50% to 65%, reflecting the increasing sophistication of Uzbekistan’s industrial base.
Targeted Support for SMEs
Recognizing the diverse needs of businesses, the Uzbek government has developed a targeted support system that categorizes enterprises based on size, applying different tax, credit, and financial assistance regimes to each. This system operates in 60 districts across five regions, providing SMEs with tailored support that reflects their specific challenges and opportunities.
One of the government’s key strategies is to engage entrepreneurs in the policy-making process, allowing them to help identify areas that require improvement. According to official reports, seven key areas have been prioritized: access to financial resources, tax system improvements, land use accessibility, infrastructure development, export support, transport and logistics, and simplified business procedures.
These focus areas are seen as essential to improving the business climate, particularly for SMEs. Enhancing access to finance is a priority, as many entrepreneurs struggle to secure funding for new ventures or expansion projects. The government has introduced new mechanisms to provide micro-loans and has streamlined the process for obtaining credit, helping to reduce barriers to entry for small businesses.
Economic Zones and Venture Capital
Free economic zones (FEZs) have become an important tool in Uzbekistan’s efforts to promote SME development. These zones offer tax incentives, infrastructure support, and other benefits to businesses that set up operations in strategically designated areas. By 2023, Uzbekistan had established over 20 such zones, each aimed at promoting industrial development, innovation, and export-driven growth.
Another critical area of development is the creation of a venture capital market, designed to provide start-ups and SMEs with the funding necessary for innovation and growth. As Uzbekistan seeks to diversify its economy beyond traditional sectors like agriculture and mining, the government has emphasized the importance of supporting tech start-ups and small businesses involved in high-value-added industries. Venture capital is seen as a key driver of innovation, particularly in industries like IT, renewable energy, and advanced manufacturing.
Looking Ahead: Challenges and Opportunities
While Uzbekistan has made significant progress in fostering the SME sector, challenges remain. Bureaucratic red tape, while reduced, still presents a hurdle for many entrepreneurs. Additionally, competition from foreign firms, particularly after potential WTO accession, could put pressure on local businesses to modernize and innovate at a faster pace. However, the government’s proactive approach to reform and its commitment to creating a more competitive and open economy provide a solid foundation for continued growth.
As the country continues its path toward economic liberalization and global integration, SMEs will remain a vital component of Uzbekistan’s growth story. With sustained government support, targeted reforms, and greater access to international markets, SMEs are poised to play an even larger role in shaping Uzbekistan’s economic future. By leveraging its strategic position at the heart of Central Asia and its commitment to reform, Uzbekistan has the potential to become a regional hub for entrepreneurship, innovation, and trade.
