The purpose of the OECD private sector survey of Uzbekistan, conducted by the OECD in 2022, was to collect new firm-level insights into the ongoing reform process to support the business climate in the country. The survey provides additional input for the OECD and the Government to consider when reflecting on the effectiveness and direction of the reform process. This chapter introduces the survey, its methodology, and a number of high-level observations that emerged from the process.
Insights on the Business Climate in Uzbekistan
3. Survey methodology and findings overview
Abstract
3.1. Introduction
This chapter introduces the business climate assessment survey for Uzbekistan and outlines some general observations that emerged from the survey. Section 3.2 outlines the methodology of the survey and details how it was administered, with further details available in Annex A to this report, while section 3.3 details the business demography of the sample firms. Section 3.4 then provides additional information on firm perceptions of the current economic trends in Uzbekistan, the impact of COVID-19 and Russia’s war of aggression in Ukraine on the business climate in Uzbekistan, and the perceived strengths and limitations of policy interventions to support them during these periods of disruption.
3.2. Survey methodology and administration
The survey was a small but focused survey of 52 firms active in Uzbekistan, with the majority being wholly or partly owned by entities based in the EU. The survey presented an opportunity to gather bottom-up, firm-level perceptions on issues relating to the business climate and private-sector development in Uzbekistan.
The survey was developed by the OECD and administered via an online survey of foreign businesses and their representatives in Chambers of Commerce (CCs) and Embassies. The consultation of primarily European businesses was designed to identify issues of particular importance to international firms in Uzbekistan, the attraction of which remains a priority for the government. Throughout this report, analysis of survey responses, unless otherwise indicated, is based on the responses of both the 52 individual firms and the two organisational respondents.
Characteristics of surveyed firms
The 52 firms that took part in the survey were highly varied in terms of their characteristics (Figure 3.1 ) Micro, small and medium-sized enterprises (SMEs) were dominant (73%), with this category distributed relatively evenly between micro- (27%), small- (25%), and medium-sized enterprises (21%). Large companies, i.e., those with over 250 employees, accounted for the remaining 27% of survey respondents.
Most firms were relatively new to Uzbekistan. Some 52% of respondents had only been active in Uzbekistan for 0-5 years, perhaps indicative of an improved perception of the country’s business climate within the European business community following the reform process begun in 2017. The length of time that firms had been active in Uzbekistan for the other respondents was relatively evenly distributed across 6-10 years (8%), 11-15 years (12%), 16-20 years (12%) and over 21 years (17%).
The ownership and legal structure of the respondents was also varied. The ownership of a large plurality of the surveyed firms (42%) was 100% based in the EU, while another 12% had majority EU ownership. The ownership of the remaining firms was either 100% Uzbek (17%), or from a different jurisdiction or combinations thereof (27%). France accounted for the single largest share of respondents (14, or 25%), followed by Italy (7/12%) and the United Kingdom (6/12%). A large plurality of firms had LLC status (46%), with the remaining firms having a range of different legal statuses, including JSCs (13%) or representative offices (16%).
The respondents represented a diverse range of sectors, and were relatively evenly spread among them. Engineering and construction marginally accounted for the largest single share (8%) of firms, followed by manufacturing (6%), mining, oil and gas extraction (6%), electricity and energy production (6%), machinery (5%) and agriculture (5%). A significant proportion of respondents (36%) belonged to ‘other’ sectors.
Figure 3.1. Demographics of respondent firms
Note: As a percent of the total number of firms.
Source: EU-OECD Business Climate Assessment Survey in Uzbekistan (2022)
3.3. High level observations on economic performance in Uzbekistan and recent policy support
Firms remained committed to Uzbekistan despite external disruptions
A majority of respondents (70%) rated the health of the national economy as satisfactory, with 15% of respondents rating it as weak or and the same number as strong. There was greater positivity from respondents when asked to assess the performance of the sector in which they were active or the performance of their own firm (25% and 29% respectively).
Despite uncertainties at both the regional and global level, European firms remained relatively positive regarding expectations of their own performance. A significant share (44%) reported that they expected an increase in profits for 2022, with 37% reporting that they expected firm performance to remain stable. Only 8% of respondents anticipated decreased profits for 2022, and only 4% reported an expectation for trade turnover (domestic and international) to fall for the year. In contrast, some 25% of respondents expected international trade turnover to increase, and a further 31% expected domestic trade turnover to increase – perhaps reflecting an increase in domestic demand due to a rapid expansion of credit.
This section of the report presents key insights from four sections of the survey. The section covers firm perceptions of government support during the COVID-19 pandemic, of the impact of Russia’s war on Ukraine on the European business community in Uzbekistan, of government measures to mitigate pressures on the business community arising due to war-related disruptions, and of the ongoing reform process in Uzbekistan to support the business climate more broadly. The section does not extensively cover every aspect of the survey, instead focusing on those that are particularly relevant for firms and policymakers. A full breakdown of responses can be found in Annex B.
Firms had a mixed assessment of government measures to support the private sector during the COVID-19 pandemic
The outbreak of COVID-19 created significant challenges for the business community in Uzbekistan, as it did throughout Central Asia and the OECD area. These challenges also created new expectations of government, which was called on to ensure the survival of viable businesses and prevent their unnecessary exit from the market. The design and implementation of policy interventions to this end required a high degree of agility from policymakers, who were required to make quick, effective decisions in a context of heightened temporal and fiscal constraints.
Broadly speaking, the type of interventions from Uzbek authorities to support the business community mirrored those undertaken by OECD members, even if they differed in scale. These interventions were widely discussed in a number of OECD reports throughout the height of the pandemic, and the survey provided an opportunity to gauge how European firms assessed the effectiveness of government policies to stabilise and support the private sector throughout the global pandemic (OECD, 2021[1]) (OECD, 2021[2]).
Figure 3.2. Government’s measures effectiveness against the COVID-19 pandemic according to the respondents
Note: As a percent of the total number of respondents.
Source: EU-OECD Business Climate Assessment Survey on Uzbekistan (2022)
While a significant share of respondents (40%) noted the effectiveness of tax deferrals for businesses and entrepreneurs, it is notable that a similar figure (38%) considered none of the measures listed in the survey to be effective (Figure 3.2).Respondents were not asked to expand upon the reasons for their answers, but that such a relatively high number perceived government measures to be ineffective during the pandemic raises questions regarding the quality of policy design and implementation. At the same time, this was an exceptional period, for the private and public sectors alike, and the heterogeneity of challenges faced by both means it is unlikely that all firms’ needs would have been satisfied. In a period of heightened global uncertainty and disruption, the importance for the Uzbek authorities is to identify what enabled policymakers to make effective interventions in a fast-moving environment, and to ensure that lessons from those periods are taken forward.
Firms report agility in dealing with the disruptions caused by Russia’s war in Ukraine
Russia’s war of aggression in Ukraine delivered another significant shock to the business community in Uzbekistan, both its domestic and international firms. The shocks endured by the local business community were felt via the same channels as in many OECD countries: supply chain disruptions, rising prices for primary and intermediate goods, inflation, and a tightening in the global financial system that has affected international and local borrowing costs. At the same time, these impact channels were mapped over local circumstances that were peculiar to the region: the particularly large importance of Russia as a trading partner and as a route for exports for Central Asian economies, the interconnectedness of Central Asian banking systems with Russia’s, the immediate impact of both low- and high-skilled migrants from Russia, the potential for a stagnant Russian economy to affect remittance levels, and the impact of turmoil in the Russian economy on local exchange rates.
Responses to the survey indicate that supply chain issues, complications arising from Russia’s disconnection from the SWIFT payment system, and rising prices had the most serious impact on the surveyed firms. Some 50% of respondents assessed the impact of supply chain disruptions due to logistical issues to be serious for their operations, with a further 35% claiming that it had some effect on their operations. The impact of supply chain disruptions on shortages was also notable, with 33% claiming supply chain-linked shortages had a serious effect on operations and a further 44% claiming it had some effect on them. In addition, 33% of firms claimed that Russia’s disconnection from the SWIFT payment system had serious affected their business, with another 22% claiming it had some effect on them, testifying to the significant degree of integration of international firms in Central Asia with the Russian economy. However, whilst Russia’s disconnection from the SWIFT system had a serious impact on a third of the respondents, it also had no effect on another third of the firms (35%).
Figure 3.3. Firms’ reactions to Russia’s war and assessment of governmental measures
Note: *Because of no business relations with Russia or Ukraine.
Source: EU-OECD Business Climate Assessment Survey in Uzbekistan (2022)
While the share of respondents claiming that price increases for commodities, energy and other non-commodity inputs was serious for their operations was relatively low (30%, 28% and 20% respectively), a majority of firms nevertheless noted that they had been affected by such increases (52%, 41%, and 61%). In other words, only a minority of firms were unaffected by price increases, with it notable that of the three product groups included in the survey, energy price increases were the least likely to have negatively affected the surveyed firms.
The survey respondents outlined a number of possible responses to the challenges posed by Russia’s war in Ukraine for Uzbekistan’s business community. A significant plurality of respondents demonstrated agility in meeting these challenges, with 37% claiming that they would change suppliers, 37% responding that they would find new export routes, and 26% claiming that they would find new payment mechanisms (Figure 3.3 a). A relatively small number of firms indicated that the crisis would encourage them to innovate, with 20% responding that they planned to add a new product or service offering. At the same time, 28% of respondents noted their intention to pass price increases onto consumer and reduce margins, which may have implications for their ability to reinvest in “the short-to-medium term”. Only a small number of respondents indicated their intention to scale back their product offerings (15%), and fewer still to stop investment (9%) or pass on 100% of costs increases (9%).
Respondents appeared committed to the Uzbek market, regardless of whether the war were to continue for another six months from the time of the survey. In such a scenario, only 4% reported that they would suspend operations in the country until the situation improved, while 43% reported that they would adjust their operations to developments as they unfolded and another 33% claimed that they would continue with their current course of action regardless of a prolongation of the war (Figure 3.3 b). An additional 9% of respondents claimed that they would expand their activities in the country should the war continue, though it is not clear whether this was because of the war, or whether pre-existing expansion plans had simply not been derailed.
Firms were generally positive on government measures to support the private sector following Russia’s invasion of Ukraine
Interpretation of firms’ assessments of interventions from the Uzbek authorities to support the business sector must be qualified by the fact that, unlike the primarily retrospective assessment of the effectiveness of measures to support firms through the COVID-19 pandemic, the impact channels of Russia’s war in Ukraine on firms in Ukraine are still being defined, and the full effects remain unclear. Addressing the challenges faced by firms in Uzbekistan that have arisen due to Russia’s war will require the government to demonstrate the same agility and creativity as it did during the COVID-19 pandemic, but the policy areas requiring intervention will at times be very different (for example, measures to mitigate disruption in the banking sector, or labour market policies to integrate recent arrivals).
A majority of respondents viewed each all of the surveyed measures taken by the government favourably. The strongest support was for measures to secure trade and financial channels (39% very favourably and 46% somewhat favourably), and for those taken to safeguard macro-economic and financial stability (35% and 50%) (Figure 3.3 c). While these categories are relatively imprecise, and to a certain extent may overlap, they indicate where the perceived needs of European firms’ lay following the disruption to the local business climate due to Russia’s invasion of Ukraine, and of a general positivity from European firms vis-à-vis the policy direction of the authorities. Firms also positively assessed government measures that were oriented towards social and labour market issues, such as ensuring food protection, supporting vulnerable households, and facilitating the reintegration into the domestic labour market of returning migrants.
Some 67% of respondents considered that the measures implemented by the government to alleviate pressures on the business sector arising from the war were sufficient, while the remaining 33% of respondents suggested an additional range of tax, governance and trade policies for consideration by the authorities. It is difficult to say, however, whether many of the suggested policies are in response to particular challenges faced due to Russia’s invasion of Ukraine or respond to broader concerns about the business climate and framework conditions for firms. For example, while issues such as regulatory transparency and non-discriminatory enforcement may be particularly difficult for firms to manage during periods of uncertainty, they are not confined to such periods, but are instead manifestations of long-standing issues in the business climate. Indeed, these issues have been much discussed in OECD work on the business climate in Uzbekistan and Central Asia more broadly, notably in 2021 report (OECD, 2021[1]).
Calls from certain respondents to increase access to non-Russian goods reflect the importance of the Russian market for Uzbek firms, both in terms of finished and intermediate goods. The inability of firms to use Russian suppliers, whether due to sanctions or other logistical difficulties, invariably has an effect on Uzbek firms, but it is not necessarily a weakness of the local business climate so long as firms do not face policy barriers to sourcing inputs from other markets. It does, however, reflect the importance of questions such as infrastructure and trade facilitation as enablers of the local private sector. At the same time, respondents’ calls for the elimination of grey imports does suggest inconsistent implementation of customs procedures which could unfairly affect European firms in the country.
References
[2] OECD (2021), Beyond COVID-19: Prospects for Economic Recovery in Central Asia, OECD Publishing, Paris, https://www.oecd.org/eurasia/Beyond_COVID%2019_Central%20Asia.pdf.
[1] OECD (2021), Improving the Legal Environment for Business and Investment in Central Asia, OECD Publishing, Paris, https://www.oecd.org/eurasia/Improving-LEB-CA-ENG%2020%20April.pdf.