In 2016, Uzbekistan marked 25 years of independence from the Soviet Union and also saw a major transition in presidential leadership that brought about a period of sweeping change and reform, including a transition from a planned to a market economy. Located in Central Asia, Uzbekistan’s economy is heavily reliant on agricultural and natural resources, but significant efforts recently have been made to modernise, liberalise trade and investment, and support growth of innovative, high potential growth sectors.

As part of that shift, USAID is investing heavily in the region to strengthen businesses and the enabling environments for small businesses across new sectors through several projects, one of which was recently awarded to Palladium. The five-year, US$17.7 million Business Support Project (BSP) Project kicked off on 1 October 2023 to enhance sustainable and inclusive economic growth across the country.

“Uzbekistan’s political and economic liberalisation is exciting and palpable,” says Palladium’s Sarah Wall, Project Director. “The pace of economic reforms is impressive, and the market is becoming more dynamic with young talent entering the workforce and government ministries.”

“BSP is a flagship program as Uzbekistan’s first non-agriculture private sector engagement USAID project. We are ready to take a new market-led approach that will work with and through the entire local business ecosystem to bring Uzbekistan’s private sector into the economy of the future,” she explains.

While the country’s economy is largely driven by natural gas and mining, the project has potential to set the emerging sectors of ICT and the green economy on a path to generate sweeping economic growth and inclusive jobs, while revitalising the country’s current economic drivers of tourism and textiles. “The scope of the project is ambitious,” Wall explains.

“It requires technical expertise and strong public and private networks for key sectors both within Uzbekistan and in the United States, but we will leverage our extensive experience in the region and globally to guide the project.”

Strengthening Small Businesses

Drawing on Palladium’s experience implementing the U.S. government-funded Central Asia Future Growth Initiative activity, the team will strengthen the competitiveness of small businesses by de-risking investment and nurturing business-to-business relationships.

Wall adds that though the project will support more traditional industries such as tourism and textiles, the focus will be on digitising, globalising, and ‘greening’ these businesses and sectors to link them to higher-value markets.
BSP will work with public and private partners to strengthen and amplify investments into ICT innovation, business process outsourcing, and digital infrastructure to help Uzbekistan meet its ambitious goal of US$1B in ICT exports by 2028. Much of this work will be guided by both the Government of Uzbekistan’s Strategy for Transition to a Green Economy and Digital Uzbekistan 2030.

These strategies include measures to address country’s current environmental and economic challenges to achieve green, resilient, and inclusive development, and flagged five priority areas for development, including digital infrastructure, e-Government, digital economy, the national IT sector, and IT education.

Beyond providing support to the ICT sector and the development of the green economy, the project will engage with banks and other financial institutions to develop new loan products that increase private sector investment and access to finance for small businesses.

“At the end of five years, we would like to see a thriving, supported small business ecosystem, with evolved and improved business advisory services, better access to finance and investment, and a streamlined and efficient regulatory framework that enables small businesses to grow and prosper,” explains Milo Stevanovich, BSP Chief of Party. “If businesses can integrate more technological solutions and operate in a greener, more modern, and efficient way, emerging industries will gain traction, grow the economy, and increase employment. Everyone wins.”

Geopolitical Context

Uzbekistan has always played an important role for U.S. geopolitical interests in the region, and this has only increased following Russia’s war in Ukraine. As a significant import/export market for Uzbekistan, as well as a major remittance source, Russia’s ongoing war in Ukraine and the resulting global sanctions against Russia have tremendously impacted the private sector in Uzbekistan and the region.

Uzbekistan’s exports, particularly in textiles, are projected to shrink as a result. However, this can also be an opportunity for BSP to support partners to mitigate these effects (including by improving products and diversifying). Spillovers from trade disruptions, higher fuel and food prices, and tighter global financial conditions are likely to continue through much of the lifespan of the project.

Despite the potential difficulties ahead, the project has an opportunity to build out sectors which have not yet had the proper support to grow and flourish, playing an integral role in modernising and creating a more sustainable economy in a critical geopolitical region of the world.

For more information, contact info@thepalladiumgroup.com.