By Peter Margetts,managing partner,Room Seven Capital Partners.*
Unlike most emerging markets, Uzbekistan is blessed with a highly diversified economy. Food production is a significant economic driver. The country is a top-10 global grower of cotton. It produces more than 150,000 tons of copper per year. Perhaps most importantly, industry is significant: Uzbekistan makes stuff! The country also mines a great deal of gold, which acts as a shock absorber for the economy in times of global disruption. Finally, sectors that rely on the country’s substantial population of 36 million such as retail, consumer and telecoms are significant economic drivers.
Can IT services and other industries – including renewable energy and tourism – emerge as new growth sectors? Can they become significant contributors to GDP, making the Uzbek economy even more balanced and sustainable?
In recent years, the four biggest contributors to economic growth have been services, construction, industry and agriculture, according to the IMF.
Of note, hydrocarbons are not a growth industry in Uzbekistan. The two largest economies in the Central Asia and Caucasus region – Kazakhstan and Azerbaijan – are dominated by their energy industries. In Kazakhstan, oil and gas accounts for about 35% of GDP and 70% of revenues, according to Ernst & Young. In Azerbaijan, the situation is even more stark: oil and gas revenues account for 48% of GDP and more than 90% of exports.
Uzbekistan, by contrast, is a net importer of oil. Gas production is significant, but is actually declining. So much so that this year Uzbekistan began importing gas from Russia.
Several sectors have the potential to emerge as new growth drivers for the Uzbek economy. Renewable energy is on the verge of taking off: Uzbekistan’s portfolio of renewable projects includes 5.6 GW of utility-scale solar and 3.1 GW of wind power at various stages of development. A few short years from now, renewables will replace the energy lost from declining gas production and represent a significant contribution to GDP.
Tourism is another sector that is in the midst of rapid growth. The government expects about 7 million tourists will visit Uzbekistan this year, generating close to $2 billion in economic impact. The tourism boom is being driven by removal of visa requirements for citizens of nearly 100 countries, a smart public relations campaign backed by the government and of course the draw of our historic Silk Road sites in Samarkand, Bukhara and elsewhere.
Finally, IT outsourcing and business process outsourcing is emerging as a new source of growth for the Uzbek economy. The country will generate about $300 million in IT and BPO exports this year, with a target of reaching $5 billion by the end of the decade, government officials announced at ICT Week in October. The sector has been supported by a robust set of subsidies and incentives that are set to stay in place for years to come.
Uzbekistan’s diversified economy is set to become even more balanced and sustainable thanks to expansion of renewable energy, tourism and IT services.
Photo: IT Park in Tashkent, a major driver of the expansion of Uzbekistan’s IT outsourcing industry.
*Besides beingmanaging partner of Room Seven, a London-headquartered global investment firm, Peter Margetts is the founder of Uzbekistan Business Consultants, an advisory firm specialising in public-private partnerships, exports and foreign direct investment.
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