Transport and infrastructure play an important role in Uzbekistan’s economy. Implementation of the open economic policy requires the penetration of new markets. Uzbekistan aims to diversify its exports. Besides traditional markets such as Central Asia and Russia, the country increases its supplies to China, the countries of Europe, and Turkey. The following Figures 1-2 demonstrate shares of the country’s trade partners in its total exports and imports. According to the data from Figure 1, China remains a key export partner for Uzbekistan’s products. Its share in the country’s total exports was 12% in 2019 but decreased to 10% in 2020 due to the COVID-19 pandemic. Russia’s market is also one of the key destinations for Uzbek products. Russia’s share in 2019 equaled 14% and decreased to 9% in 2020. Turkey’s share in 2019 amounted to 8%, while in 2020 it reduced to 7%. Uzbekistan remains an important supplier to the markets of Central Asian countries. In 2020, Kazakhstan’s share amounted to 6%, while in the previous year it was equal to 9%. Kyrgyzstan’s share in Uzbekistan total exports is demonstrating steady growth, increasing from 2% in 2017 to 5% in 2020. Afghanistan’s share changed from 3% in 2019 to 4% in 2020. Therefore, Uzbekistan diversifies its exports and the number of countries for its products is increasing.
Figure 1. Share of countries in Uzbekistan’s exports
Source: The Author’s calculations based on the International Trade Centre (2021) data.
Figure 2 also shows that Uzbekistan imports from different sources. In 2020, a share of China in Uzbekistan’s total imports was the highest and amounted to 22%, followed by Russia (20%) and Kazakhstan (10%). The remaining important import partners include South Korea, Turkey, and Germany, the shares of which in 2020 varied from 3% to 10%.
Figure 2. Share of countries in Uzbekistan’s imports
Source: The Author’s calculations based on the International Trade Centre (2021) data.
In 2020, the volume of international transportation of goods of Uzbekistan amounted to 47.1 million tons, of which 13.3 and 24.7 million tons were exports and imports, respectively. The indicators of exports and imports correspondingly increased by 17.2% and 3.1%. The volume of transit transportation equaled 9.1 million tons, increasing by 15.3%. Rail and road transport are the two leading transport modes for trade. Rail transportation is less costly for longer distances, while road transport has advantages for shorter-distance traffic due to its flexibility. In 2018, the railway attracted 66% of export cargo volume, 85% of import cargo volume, and 92% of transit cargo volume. Although the railway remains key for transporting traded goods, the share of road transport increased steadily during 2015–2018, particularly for export cargo [CAREC, 2021].
These trade flows require the sustainability of transport corridors. Therefore, Uzbekistan reconsidered its transport strategy and implemented several important reforms. Firstly, the country created the Ministry of Transport by the Decree of the President dated February 1, 2019. The Ministry is a government body for the development and implementation of a unified state policy in the development of road, rail, air, river transport, metro, and road facilities. Secondly, Uzbekistan develops new transport and transit corridors and a network of logistics centers as part of the implementation of the “Comprehensive program for improving transport infrastructure and diversifying foreign trade routes for the transportation of goods for 2018-2022”. Finally, the country developed a draft “Strategy for the development of the transport system of the Republic of Uzbekistan until 2035”, which envisages the creation of conditions for the growth of volumes and quality of passenger and freight traffic. This strategy remains a key document, which determines important directions for the future of transport and the country’s international policy. It shows that Uzbekistan intends to develop its transport infrastructure and to participate almost in all regional initiatives driven by individual countries and international financial institutions [Juraev, 2021].
Over the past decade, the government of Uzbekistan has made substantial progress in improving international corridors. Its main investment priorities up to 2030 include reconstruction and construction of another 8.000 kilometre (km) of internationally important public roads and developing new international corridors. The country plans to develop north, northwest, south, southwest, and east corridors, which will allow Uzbekistan to access the markets of the Eurasian Economic Union countries, the European countries, Iran, Turkey, Afghanistan, Pakistan, India, and China [World Bank, 2020]. As China remains a top trade partner of Uzbekistan, the country’s leaders want to connect to China via the future China-Kyrgyzstan-Uzbekistan railroad, which will provide faster and cheaper transportation of goods. Currently, Uzbekistan is connected to China by railroad through Kazakhstan’s Khorgos via Almaty. According to Uzbek officials, that route is 20% more expensive compared to the existing option via Kyrgyzstan, even though midway cargo needs to be moved by trucks [Hashimova, 2020]. Simultaneously, Uzbekistan maintained an interest in the railroad that runs through Iran and boosted efforts to complete a trans-Afghan railroad to Pakistan. The three countries signed a road map on the construction of the Mazar-i-Sharif-Kabul-Peshawar railroad that aims to connect Uzbekistan with Pakistani ports via Afghanistan, construction of which will be started in September 2021 [Hashimova, 2021].
The Transport Strategy 2035 defines the Middle Corridor as one of the key priorities of Uzbekistan. According to the Strategy, on the Central Asian section of cargo transportation between China and the European Union, the main competitor of Uzbekistan is Kazakhstan. The document explains that Kazakhstan has advantages, such as common borders with China and Russia, which, in turn, borders the European Union through the Baltic Sea and Belarus. Moreover, Kazakhstan enjoys preferences connected to membership in the Eurasian Economic Union (EAEU), where a single transport and economic space is being formed. Transport control in the EAEU has been moved from the Russian-Kazakh border to the external border of Kazakhstan, which eliminates duplication of control functions and allows Kazakhstan’s trucking companies to carry out all international transportation of goods through the EAEU without restrictions. Finally, there is an interest in China itself as the main cargo-forming center in the use and development of transcontinental transport communications through Kazakhstan and Russia. Therefore, Uzbekistan plans to both cooperate and compete with Kazakhstan for future transportation. It considers several corridors for cooperation with Kazakhstan. Firstly, road and rail routes “Kyrgyzstan – Uzbekistan – Kazakhstan – Russia (Belarus) – EU”, and the use of the potential of the Northern Railway Corridor on the European, Russian and Kazakhstan sites. Secondly, road and rail routes “Kyrgyzstan – Uzbekistan – Kazakhstan – Caspian Sea – Azerbaijan – Georgia – Black Sea region or Georgia – Turkey – EU”. This route coincides with the routes within the Transport Corridor Europe Caucasus Asia (TRACECA) corridor.
Uzbekistan also forecasts a competition with Kazakhstan on the following corridors. Firstly, road and rail corridors “Kyrgyzstan – Uzbekistan – Turkmenistan – Caspian Sea – Azerbaijan – Georgia – Black Sea region or Georgia – Turkey – EU” (TRACECA corridor). Secondly, road and rail corridors “Kyrgyzstan – Uzbekistan – Turkmenistan – Iran – Turkey – EU” [Ministry of Transport of the Republic of Uzbekistan, 2019].
There are several important risks for Uzbekistan to achieve the approved tasks, including poor logistics services and high transport costs. In the 2018 International Logistics Performance Index, Uzbekistan ranked 99th out of 160 countries, which significantly increased trade costs. Moreover, farmers and small and medium enterprises face transport costs of up to 200% of production costs. The Uzbek trucking industry is not competitive in the international market due to its limited and aging fleet. As a result, foreign road carriers carry about 82% of imported and exported goods. Uzbekistan is a signatory to many international conventions and agreements on transport facilitation. It has bilateral road transport agreements with 30 countries. However, some key conventions, though ratified, have been completely ignored [World Bank, 2020].
Therefore, given the importance of the international corridors, Uzbekistan strengthens its positions using transport agreements through regional platforms such as the Commonwealth of Independent States (CIS) and the Shanghai Cooperation Organization (SCO). In 2020, Uzbekistan, as the chairman of the CIS, initiated the adoption of several strategic documents in the transport sector. In particular, the organization adopted the decision of the Council of the CIS Heads of Governments “On priority areas of cooperation of the CIS member states in the transport sector for the period up to 2030”. Another important document was the action plan for the implementation of the Strategy for ensuring transport security in the territories of the CIS member states when carrying out transportation in international traffic for the period of 2020-2025 [Juraev, 2021].
Therefore, to improve its competitiveness, Uzbekistan should focus on the following transport-related issues. Firstly, the country should increase investments in rail and road infrastructure to reduce trade costs. These investments may bring significant benefits to the country’s producers. For instance, according to estimates, infrastructure provision has a significant impact on regional economic performance. In particular, the Tashguzar–Boysun–Kumkurgon railway line in Uzbekistan encouraged an increase of around 2% in the regional gross domestic product growth rate in affected regions. Industry value-added and services value-added approximately increased by 5% and 7%, respectively, while growth in agricultural output amounted to 1% [Yoshino and Abidhadjaev, 2015]. Secondly, Uzbekistan should strengthen international transport cooperation and coordination of transport strategies. Thirdly, it is important to continue economic reforms with a focus on industrialization and development of agricultural sectors with the involvement of the private sector. These reforms should also include support to transport companies to solve the problem of a limited and aging fleet. Therefore, to increase the competitiveness of Uzbekistan, it is important to complement the country’s transport strategy with comprehensive economic reforms and international cooperation.
References:
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Hashimova, Umida (2020). The China-Kyrgyzstan-Uzbekistan Transport Corridor Stretches Further Into China. Retrieved from https://thediplomat.com/2020/06/the-china-kyrgyzstan-uzbekistan-transport-corridor-stretches-further-into-china/. Accessed on 20.07.2021.
Hashimova, Umida (2021). Uzbekistan Pushing to Realize the Trans-Afghan Railroad. Retrieved from https://thediplomat.com/2021/04/uzbekistan-pushing-to-realize-the-trans-afghan-railroad/. Accessed on 20.07.2021.
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Ministry of Transport of the Republic of Uzbekistan (2019). On approval of the Strategy for the development of the transport system of the Republic of Uzbekistan until 2035. Retrieved from https://regulation.gov.uz/uz/d/3867. Accessed on 12.07.2021.
World Bank (2020). Uzbekistan. Building Blocks for Integrated Transport and Logistics Development. Policy Paper. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/34160/Uzbekistan-Building-Blocks-for-Integrated-Transport-and-Logistics-Development-Policy-Paper.pdf?sequence=4&isAllowed=y. Accessed on 22.07.2021.
Yoshino, Naoyuki, and Umid Abidhadjaev (2015). An Impact Evaluation of Investment in Infrastructure: The Case of the Railway Connection in Uzbekistan. Retrieved from https://www.adb.org/sites/default/files/publication/175724/adbi-wp548.pdf. Accessed on 12.07.2021.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.