Trade and Foreign Direct Investment in Uzbekistan

The roles of international trade and FDI have become increasingly important in a globalized world. Uzbekistan is well behind in exploiting benefits from trade and FDI: since 1995, Uzbekistan’s share of total trade in gross domestic product has been the lowest of all Central Asian countries. The country has little engagement with regional and international groups, and is not a member of the Eurasian Economic Union or the World Trade Organization (WTO), but could increase its engagement. Greater integration is also possible through the gas pipelines from Turkmenistan to the People’s Republic of China, Kazakhstan, and the Russian Federation, including via the Belt and Road Initiative. The weighted average import tariff rate is still high in Uzbekistan compared with the average rates for Kazakhstan, the Kyrgyz Republic, and Tajikistan. The highest import tariff protection is for footwear, leather, apparel, and textile manufacturing, even though parts of these industries are among the country’s main exports. In addition, Uzbekistan attracts the least FDI inflows among Central Asian economies, and such flows have declined substantially in recent years. Moreover, the inflows are confined mainly to the extractive sector rather than flowing into a broad range of industries. Gradual trade liberalization will inevitably be associated with accession to the WTO, when the government completes that process. Further regional trade cooperation also would increase trade flows and result in more and better jobs and improved productivity growth. Opening up to regional and global trade requires more than just reducing high levels of import tariffs, however. Nontariff trade barriers may be even more of an issue, including cumbersome domestic regulations. Improving the business climate by deregulation would generate a more dynamic business environment, which would allow faster firm growth, attract more FDI, and generate more high-quality jobs. A single public-private or private agency could help promote export opportunities for domestic enterprises and attract investors by providing research on new market opportunities, measuring export capacities, and assisting with all regulatory aspects of establishing a new enterprise in Uzbekistan. Greater investments in transport infrastructure, human capital development, and research and innovation would increase the Uzbek economy’s competitiveness and diversity.status: publishe