Online Consultation for the Preparation of the Uzbekistan … · 2019. 11. 12. · Uzbekistan Systematic Country Diagnostic Input to the Country Partnership Framework 2015-2019 August

Online Consultation for the Preparation of the Uzbekistan Systematic Country Diagnostic

Input to the Country Partnership Framework 2015-2019

August 2015

Presentation Outline

2

1. Preamble

2. Salient features of Uzbekistan’s development

3. The sustainability challenge

4. Selected policy questions (for discussion)

5. Next steps

Preamble

The Systematic Country Diagnostic (SCD)– Designed to be the main analytical input into the Country Partnership Framework (CPF),

which outlines the World Bank Group’s (WBG) medium term engagement strategy in a

country

– Is an analysis produced by WBG teams, benefitting from consultation with government and

stakeholders

– Lays out country opportunities and challenges to:

Eradicating extreme poverty AND/OR

Boosting “shared prosperity” by promoting income growth for those at the bottom 40%

of the income distribution.

Each SCD is adjusted to country circumstances

Main analytical questions for Uzbekistan’s SCD include:– What are challenges to maintaining high GDP growth?

– What are challenges to creating more jobs?

– What are challenges to creating more good jobs?

– What are challenges to improving economic well-being?

– What are challenges to sustaining economic, environmental and social outcomes?

3

Preamble

4

Purpose of consultation:

To solicit feedback on the initial findings and analytical questions of

the SCD, and in particular:

The validity / accuracy of the emerging conclusions;

Any additional considerations, whose omission would affect the

likelihood / pace of progress on poverty reduction or increases in

shared prosperity

Some specific questions readers may wish to comment on can be

found on slides 20, 28, and 30-34. Comments on other parts of the

presentation are of course welcome.


5

1. Preamble




5. Next steps

Salient features: endowments

Uzbekistan has much going for it!

In addition Uzbekistan has significant mineral wealth -Natural resources rents are estimated to be 20% of

GDP (Source: World Bank – World Development Indicators)

But there are also challenges:– While Uzbekistan borders all other countries in CA, it is ‘double-landlocked’

– Uzbekistan is highly dependent on water originating in neighboring countries6

A central/strategic position in the region and large

domestic market

A young, growing, relatively well-educated

population

For Central Asia, country populations are in millions. For adjacent countries,

populations figures refer only to populations of regions or districts adjacent to

Central Asia.

Sources: WB World Development Indicators

Source: WB calculations using UN, World Population Prospects,

2012

Salient features: economic performance

Overall, Uzbekistan has done extremely well over the past decade

7

4.2 4.0 4.2

7.77.0 7.3

9.5 9.4

8.1 8.5 8.3 8.2 8.0 8.1

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

20012002200320042005200620072008200920102011201220132014

Uzbekistan OECD ECA

It has achieved high and sustained growth With some economic diversification

Source: Uzbekistan Ministry of National Economy / WDI Source: UN COMTRADE, mirror statistics

GDP Growth

POLICY QUESTION: Can the current GDP growth rates be sustained as: (1) external environment has changed, (2) diversification has come in low-tech products with limited integration in global value chains, and sustainability is questionable.

Salient features: relative poverty

- 100 200 300 400

Bottom 40

Top 60

Bottom 40

Top 60

20

08

20

13

Income by source in 2008 and 2013(in 2008 UZ soum)

Wage income Non-wage earnings

Social transfers Property income

8

Source: Government estimates, GOU

According to official estimates, poverty has been

reduced…

…and shared prosperity has been maintained

27.526.5

27.226.1 25.8

24.923.6

21.8

19.5

17.7

16.015.0

10

12

14

16

18

20

22

24

26

28

30

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Official Poverty Rate, in % of population

Note: Real monthly income per capita in 2008 constant UZ soum

Source: Household Budget Survey, Government of Uzbekistan

High growth has translated into improved welfare outcomes

• ANALYTICAL QUESTION: While national accounts statistics and poverty

statistics are not verifiable and subject to methodological uncertainty, one

analytical question is if poverty reduction could have been faster given (i)

high economic growth and (ii) relative initial equality.

• WB estimates that the public sector is at least 40 percent of GDP and 33 percent of employment

• Private sector firms tend to be small, informal and inward looking

• FDI remains limited relative to the size of the economy

Salient features: growth drivers

POLICY CHALENGE: Over the medium run, Uzbekistan will need to identify and

prioritize reforms to gradually increase the private sector's role in:

• Total Factor Productivity (TFP) growth

• Employment creation6

Growth has been driven by capital accumulation, likely coming from

the state sectors

Source: IMF Article IV, 2012 Source: Government of Uzbekistan, National

Statistics

Labor growth and productivity gains are

underutilized with low Total Factor

Productivity growth

The public sector remains very active in

economic activity

Source: Government of Uzbekistan, National Statistics and World Bank

Salient features: changes in employment

10

Uzbekistan’s employment shares have changed as the structure of the

economy has changed


calculations

Increases in both services and industry

shares had made up for a significant drop in

agriculture share in GDP

However the share of employment in industry

has not increased underscoring that industrial

sectors in Uzbekistan are relatively capital

intensive


calculations

POLICY QUESTION: Would be sensible from an economic and social perspective for

Uzbekistan to be investing in more labor intensive industries?

Salient features: income

11

Differences in household welfare derive essentially from variations in labor income

and type of employer

0

1,000

2,000

3,000

4,000

5,000

6,000

0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5 6 7 8 9 10

In U

Z so

m‘0

00

In p

erce

nt

Population Decile

% of households with positive labor income

Average labor income

Labor compensation is the main source of income in all groups but with sharp variations in remuneration

9%4%

11% 12% 9% 9%

25% 33%

31%

37%48%

36%

30% 24%18%

19%

16%

21%

34%36% 36%

31%23%

31%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Lower 20percent

2 3 4 Upper 20percent

Total

Other Collective firms

Individual Private firms, incl. agric

State-owned enterprise, incl. agric State administration

With significantly higher incomes derived from SOE employment

Source: WB Calculations using CALISS Source: WB Calculations using CALISS

ADDITIONAL EVIDENCE: Officially, in 2012–13 unemployment was 4.9 percent of the working age population and in 2014 it was 5.1 percent, not counting labor migrants abroad. According to Russia’s Federal Migration Service, Russia’s economic slowdown in 2014 caused about 200,000 Uzbek migrants to return home. The number of registered Uzbek workers in Russia declined by 7.3 percent in 2014, from 2.5 million in December 2013 to 2.3 million in December 2014. 12

Salient features: jobs

Jobs are not created fast enough and many are not high quality jobs

Labor force growth is outpacing job

creation…

… with widespread informality in the

economy

Source: Uzbek authorities Source: WB calculations using World Bank/GIZ, Uzbekistan Jobs, Skills,

and Migration Survey, 2013.

Informal salaried work by sector (%)

Salient features: jobs (cont.)

13

Labor force participation drops at the bottom of the

distribution

…as well as labor supply

Although unemployment is low, many at the bottom of the income distribution opt

out of the labor market, and work less

43.1

37.5

20

25

30

35

40

45

50

Top 60% Bottom 40%

Mean hours worked (% of employed 15-54/59)

Source: WB Calculations using CALISSSource: WB Calculations using CALISS

Salient features: gender

14

Women make up only 36% of students in tertiary

education, and choose traditional “female” fields of

study:

Share of women among officially employed is only

40%, and they are concentrated in public service,

which is lower paid:

There are distinct gender patterns in labor market access and participation

OBSERVATON: Life expectancy is higher for women than men – 75 vs. 71, while retirement age is lower - 55 vs. 60; thus the likelihood of old age poverty for women is higher. In agriculture, women comprise over 53%, but only 5.5% of farms are headed by women.

Source: ADB (2014) Uzbekistan Country Gender Assessment, Gender and Development, Central and West Asia, Asian Development Bank

Source:State Committee of the Republic of Uzbekistan on Statistics (2014) Annual Statistical Compendium, Tashkent

0 10 20 30 40 50 60

Communications, construction,transportation

Agriculture

Economics and law

Healthcare and physical training

Education and culture

Share of Women in Tertiary Education by area

0 10 20 30 40 50 60 70 80

Construction

Transports and Communicatoins

Housing and Public Utilities

Industry

Financial Service

Health and Social Security

Education

Share of Female Labour Force by Sector

Salient features: communal infrastructure

15

Source: HBS, GOU (2013)

Some gaps in the provision of communal infrastructures services, but more gaps for

rural than for urban residents

0

20

40

60

80

100

CentralHeating

Natural gas Electricity Hot WaterSupply

Cold watersupply in

and outside

Sewerage(drainage)

system

Access to Services in Urban Areas(in % of population in decile)

Bottom 10% II III IV V VI VII VIII IX Top 10%

0

10

20

30

40

50

60

70

80

90

100

CentralHeating

Natural gas Electricity Hot WaterSupply

Cold watersupply in

and outside

Sewerage(drainage)

system

Access to Services in Rural Areas, in % of population in decile

Bottom 10% II III IV V VI VII VIII IX Top 10%

OBSERVATIONS: (1) Higher income doesn’t not ensure access to basic infrastructure services

(2) Rural access to water and sewerage systems are much lower than in urban areas

(3) Also, access does not ensure regular availability of supply nor quality of services

(4) Water losses are estimated at 42%, and only about 33% of user connections are metered

Source: HBS, GOU (2013)

Salient features: energy efficiency

Uzbekistan has low energy efficiency owing to demand and supply side

inefficiencies and lack of investment. Current polices are likely to result in energy

shortages in the future

Efficiency of electricity usage remains low as measured by GDP per unit of energy

16

Source: World Development

Indicators, 2012 World Bank.

GDP per unit of energy use (constant

2005 PPP $ per kg of oil equivalent)

EVIDENCE: Uzbekistan lost US$2 billion in 2011 or 4.5% of GDP due to energy inefficiency, while 40% of available generation capacity will reach the end of service life by 2017. Additionally, despite rising domestic prices, energy tariffs remain below long-run supply costs.

Salient features: transport and logistics

Transport: poor condition of roads and railways and a lack of logistics affects

“connectivity”, trade flows and thus economic growth

17

Source: Data reported by Uzbekistan Railway, 2012.

Freight Transport Market Share

117

86

39

36

30

27

0 50 100 150

Uzbekistan

Kazakhstan

Chile

Bulgaria

Poland

Turkey

Logistics Performance Index 2012 Country Rankings

Source: World Bank, LPI 2012.

Mode of transport has shifted from rail to roads creating significant rehabilitation backlogs

Rehabilitation backlogs lead to a significant trade barriers, with low logistics quality and a transport network that is not integrated

Salient features: business environment

18

Uzbekistan has recently made progress in

the DB ranking, but some of the DB

indicators need to improve especially if

Uzbekistan were to capitalize on

geographic location

Compared to other countries

Uzbekistan’s poor overall DB ranking

points to the difficulties that the private

sector faces in operating

While business regulations have improved in recent years, Uzbekistan continues to lag in time and cost to comply with basic regulations

Source: WBG Doing Business Indicators 2015Source: WBG Doing Business Indicators 2015

Salient features: macroeconomic and financial policies

19

23.2 23.2 23.4 24.224.3

24.2

17.318.7 22.6 23.8

24.4 25.4 26.7

15.2 16.418.5 19.4 19.6

21.223.3

31.2 1 0.7 0.5 0.4 0.4

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2013* 2014*

Capital adequacy ratio Monetization ratio (M2/GDP)

Loans/GDP ratio NPLs/Total loans ratio

Source: Government of Uzbekistan Source: Government of Uzbekistan

Prudent fiscal management has allowed debt levels to decrease and

bodes well for the economic management of the country..

But a cumbersome exchange rate system and a small financial sector

have large adverse effects on private initiative

Source: Government of Uzbekistan Source: Government of Uzbekistan

Salient features of Uzbekistan’s development

20

This section has shown

1. High economic growth 2. High savings and investment3. Some economic diversification4. Falling poverty

But concerns over:

1. The sustainability of the growth model

2. A deficit of good jobs created3. Some inequities in access to jobs

and services (across income and location)

This section raised some questions

1. With relatively high savings in Uzbekistan, why are not more jobs created?

2. What policies have prompted high capital intensity?

3. Is high capital intensity relatively more specific to some sectors or regions?

4. What is driving the rising wages?5. Are wage increases relatively

more specific to some sectors or regions?


21

1. Preamble




5. Next steps

The sustainability challenge

Natural resources have played a key role in driving economic growth

However utilization and efficiency rates suggest that these trends are

unsustainable

Water intensity and efficiency in agriculture

Energy intensity and efficiency on demand and supply sides

Ultimately those likely to be impacted the most are the poor: they are proportionately

more dependent on natural resources for their livelihoods (e.g. agriculture).

22

The sustainability challenge: net wealth

Uzbekistan is losing wealth (future income) under its current growth model

Adjusted Net Savings (ANS) is negative - after accounting for natural resource degradation and

depletion factors such as energy

Main drivers of natural resource dependence:• Population growth, increasing

affluence• Finite natural resources under

pressure• Water• Fossil and renewable energy• Land/ Forests• Biodiversity

• Climate change

23

-20

-10

0

10

20

30

40

50

% o

f G

NI,

20

10

Source: World Development Indicators, 2014, World Bank.

The sustainability challenge: water

Water: inefficient use is placing pressure on existing stocks that could be

allocated to higher value production or consumption

Only 10% of all land is arable and irrigating this land uses 90% of total water withdrawals

Irrigation efficiencies in certain areas are as low as 30%

Institutional issues: prices are not set at cost recovery levels, water infrastructure is degrading,

and thus service delivery is poor

A cubic meter of water used to irrigate grapes in Fergana generates 625 UZS, compared to 169

UZS for cotton; a cubic meter of water in Samarkand used to grow apples generates UZS 1,829,

compared to 169 UZS for wheat

24

Price (‘000 UZS)

per ton

Water (m3)

footprint per ton

UZS per m3

of water

Fergana grapes 1,500 2,400 625

Fergana cotton 750 4,426 169

Samarkand apples 1,500 820 1,829

Samarkand wheat 350 2,068 169

Water footprint and value generated for sample crops

Source: Larson, D., D. Khidirov & I. Ramniceanu, 2015. "Uzbekistan: Strengthening the Horticulture Value

Chain," World Bank Other Operational Studies 21495, World Bank.

The sustainability challenge: water (2)

In the longer–term, Syr Darya and Amu Darya river flows may decrease by 25-50%

by 2050.

More winter precipitation, higher variability as a result of climate change

Irrigation rates will have to increase to compensate for this loss

Projected increase in mean and maximum irrigation rates to compensate for losses of agricultural crop yield

associated with evaporation increases in the Amu Darya and Syr Darya river basins

Source: Uzbekistan’s Second National Communication, 2008.

25

The sustainability challenge: agriculture

Land available for agriculture is limited as is the potential for increasing irrigated land

Exceptional agro-climatic conditions

and strong support for productive

technologies are the foundation of a

strong and growing agricultural

sector in Uzbekistan, but farmers

need greater flexibility in making full

use of limited land and water

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Wheat Cotton Potatoes Vegetables Melons Fruits and berries Feed crops

Source: State Committee on Statistics, Uzbekistan.

The sustainability challenge: agriculture (2)

Land leases requiring cotton and wheat production quotas keep much of the land locked in old production patterns, even though fruit and vegetable crops are more profitable in some areas

Cabbage Tomato Onion CottonMelon

(PF)Melon

(DF)

Fergano totals

Revenue 6,750 7,700 8,800 2,625 7,200 8,000

Operating Expenses 4,411 4,529 4,864 2,582 4,590 2,389

Gross margin 2,339 3,171 3,936 43 2,610 5,611

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

tho

usa

nd

so

ms

pe

r h

ect

are

Fergana: revenue, operating expenses and gross margins

Source: Larson, D., D. Khidirov & I. Ramniceanu, 2015. "Uzbekistan:

Strengthening the Horticulture Value Chain," World Bank Other Operational

Studies 21495, World Bank.

The International community and CSOs have raised concerns about the practice of using forced and child labor for cotton harvesting. The World Bank, in consultation with the government and development partners, has adopted a multi-pronged approach to address child and forced labor issues in Uzbekistan. These include (i) pursuing continuous country dialogue and collaboration with international/multilateral agencies and donors to address these issues; (ii) performing sector analytic work and policy dialogue to promote diversification away from cotton and mechanization of cotton harvesting; (iii) strengthening project-level mitigation measures and binding provisions, including implementing a Third Party Monitoring (TPM) and Feedback Mechanism(FBM) to help address child and forced labor issues in connection with the project activities or within the project area; and (iv) promoting crop diversification and intensification, and supporting agricultural mechanization through a number of investment operations. This comprehensive effort to address the issue of child and forced labor in cotton harvesting has received wide support and endorsement from development partners and community based organizations.

The sustainability challenge

28

This section has shown

1. Water, agriculture and land use are at threshold levels of use.

2. Energy provision and use inefficiencies are extremely costly to the economy

3. Uzbekistan is poorly connected internally and externally

This section raised some questions

1. How could agricultural diversification reduce the burden on scare water resources?

2. What investments would be needed to improve energy efficiency?

3. How could connective infrastructure improve (i) service delivery (ii) trade (iii) labor mobility?


29

1. Preamble

2. Salient features of Uzbekistan’s development:

growth, employment, inclusion



5. Next steps

Selected policy questions

Given the diagnostic above, what policies and/or investments would yield the highest returns in terms of:

(i) Employment creation and productivity growth?

(ii) Opportunities for those at the bottom of the income distribution economic?

(iii) Social and environmental sustainability?

The SCD Analysis proposes the following areas of focus:

Sectoral Policies

• Incentivize firm growth and hiring through reforms to tax and monetary policies

• Promote agricultural diversification and modernization

• Invest in connective infrastructure and public goods

• Develop skills and human capital

Cross-cutting Areas

• Continuing focus on improving the investment climate and promoting e-governance

• Make the foreign exchange and access to cash certain

• Gender inclusion

• Efficient use of natural resources

30

Selected policy questions (2)

Improve the investment climate and nurture private sector development

Despite improvements on the regulatory side, incentives remain skewed against greater private sector participation and formalization.

A policy reform agenda would entail:

1. Promoting ‘healthy competition”

1. Further regulatory reforms with focus on implementation and investor protection

2. Changes to tax policy to incentivize firm growth and formal hiring

3. SOE reform (governance improvements and/or gradual divesture)

2. Removing barriers to trade and technology transfers

1. Lowering tariffs and non-tariff barriers, including foreign exchange restrictions

3. Improving the potential for the financial sector to allocate resources optimally

1. Gradually removing directed credit

2. Making the access to cash certain

3. Further promoting SME access to finance (including alternatives to banks)

4. Further improving the financial infrastructure (change the secured transactions system accordingly to the best practice and built the credit bureau with reputable international vendor)

4. Increase state provision of public goods

1. Building and maintaining key public infrastructure

2. Support knowledge absorption and innovation

31


Promote agricultural diversification and modernization

Agricultural development remains critical to the growth / employment agenda, but the potential of Uzbekistan’s agriculture is under-exploited… with specific issues regarding labor deployment.

A diversification / modernization agenda would entail:

1. Improving water use efficiency / irrigation

1. Policies

2. Technologies

3. Infrastructures / Investments

2. Leveraging technological innovation for raising productivity

3. Promoting diversification into horticulture and livestock

4. Developing agro-industrial value chains

1. Infrastructure development (storage, irrigation, transport)

2. Investment promotion (loans, direct, mobilization of other investors)

3. Technical assistance (training, safety standards, environmental and social ecosystems protection)

32


Invest in connective infrastructure and public goods

Investments in key infrastructure and connectivity would support growth, inclusion and sustainability.

Strategic investments could focus on:

1. Productive infrastructure

Key priority areas include:

1. Critical power and district heating infrastructure

2. Irrigation infrastructure

2. Connective infrastructure


1. Trade facilitation infrastructure

2. Road and rail networks

3. ICT

33


Develop skills and human capital

While Uzbekistan is doing well already there is scope to focus more on those most vulnerable: (i) the youth and women still unable to make the most of labor market opportunities (ii) those left behind of the growth process.

A promotion / inclusion agenda would entail:

1. Building human capital and skills


1. Expanding access to quality ECD

2. Modernizing curricula

3. Improving access to post-secondary education

2. Improving safety nets and social protection


1. Active labor market programs with focus on discouraged workers and women

2. A gradual move to poverty targeted welfare programs

34


35

1. Preamble

2. Salient features of Uzbekistan’s development:

growth, employment, inclusion



5. Next steps

Next steps

1. Online consultation till end August 2015

2. Preparation of SCD report in September 2015

3. Preparation of Country Partnership Framework

October 2015

36

ANNEXES

37

Salient features: jobs –drilldown (cont.)

38

Though unobserved, variations in access could also be compounded by differences in the quality of education received

Welfare also appears to be determined and perpetuated by differences in

access to post secondary education

In percent of household HEADS per decile What activities are 16-22 year olds doing?

15

10

11

12

9

57

52

47

46

34

20

21

30

18

26

1

3

4

7

7

6

14

9

16

22

0.0 20.0 40.0 60.0 80.0 100.0 120.0

Bottom 10%

2

3

4

Top 60

Basic and below General Secondary Secondary special

Secondary technical Higher education

41

48

40

37

31

33

15

18

1

1

19

20

27

16

26

25

0% 20% 40% 60% 80% 100%

Bottom 40

Top 60

Bottom 40

Top 60

Mal

eFe

mal

e

In school Working Fulltime homemaker Inactive

Household welfare is strongly correlated

with post-secondary education …

as is the likelihood of children staying in

school longer

Source: WB Calculations using CALISS Source: WB Calculations using CALISS

Constraints

Salient features: internal connectivity

ICT: e-services has significant potential, but is mostly limited to urban areas

Government e-service initiatives are addressing the transparency of public services

and reducing transaction costs

However only about 30% of population uses the Internet, and broadband use (only

4%) is limited to key cities; affordability is also poor (1 Mbps internet = 2 x annual

income, 2011)

39

100%

68%

50%39%

33%26%

20% 16%

4% 3% 0% 0%

Sou

th K

orea

Eston

ia

Arm

enia

Ru

ssia

Geo

rgia

Mo

ldo

va

Kazakh

stan

Aze

rbaijan

Uzb

ekistan

Kyrgyzstan

Tajikistan

Turkm

enistan

Broadband subscription

(% of households, 2012)

1Republic of Korea

5USA

27Russia

38Kazakhstan

91Uzbekistan

96Azerbaijan

99Kyrgyz Republic

e-Government Ranking

(UN e-Government index, 2012)

Source: ITU, 2012Source: UNDESA, 2012

Documents

Online Consultation for the Preparation of the Uzbekistan … · 2019. 11. 12. · Uzbekistan Systematic Country Diagnostic Input to the Country Partnership Framework 2015-2019 August