One_pager_Uzbekistan Auto Industry: Sources of Growth Outside the Sec r11_automobile industry in uzbekistan_eng_2

Macroeconomic policy Public finance Monetary policy Institutional reforms Industry Human development Statistics Healthcare Education Welfare improvement ICT4D Investment economy Governance Energy Trade Knowledge-based Real sector of economy Urbanization Environment Issue # 11 (June 2013) The Uzbekistan Auto Industry: Sources of Growth Outside the Sector Uzbekistan is pursuing an active industrial policy designed to provide sustainable, high rates of economic growth and a shift of focus from the production of raw materials to finished products with higher added value. The industrial policy involves the selection of priority sectors whose development can generate not only a direct effect by increasing production and creating jobs but also a multiplier effect. The latter is derived from the fact that the sector’s products are used by other sectors or that the sector increases demand for the products of other sectors. In other words, priority should be given to the sectors that are capable of creating and extending the multiplier effects to the whole economy. Based on these criteria, the priority sectors in Uzbekistan are electric power, the chemical and petrochemical industries, oil refining, machine building and metalworking, the auto industry, transport services, oil production, nonferrous metallurgy and construction. These industries are in the right- hand yellow quadrant above and to the right of the medians (Fig. 1) 1 . The sectors must become the primary reference points for industrial policy and the drivers of sustainable economic growth of at least 8% per year. Now it is important to determine how most effectively to stimulate the development of the selected priority industries as drivers. It is worth noting here that each priority sector has its own locomotives, its own engines, that maximize their development. The calculations done during the study helped to identify these locomotives for each priority sector. They may be seen in the right-hand yellow quadrant in the diagrams of Fig. 2. According to the results, the driving sectors for virtually all of the key sectors are the chemical industry, machine building and the auto industry (Fig. 2), whose multiplier effects stand out in comparison to the other sectors. Out of these three sectors, however, the auto industry is best suited for the role of “engine” of the priority sectors. This conclusion is derived from the following factors: 1. Despite the fact that each of these sectors has goods in which Uzbekistan has a comparative advantage 2 , among all these goods automobiles have the greatest technological sophistication (Fig. 3). The high degree of technological sophistication means that, all other factors being equal, this industry makes a bigger contribution to the processes of structural transformation than others do. 2. The share of automobiles in total exports is also significantly greater than the share of goods from the chemical or machine building industry in which Uzbekistan has a comparative advantage (Fig. 3). Having established its own niche in export markets, the industry is forming a market inside the country for other sectors that can manufacture components and materials for auto production. Accordingly, the industry’s growth generates growth in the markets for industrial goods within the country. Therefore automaking could become an effective driver of growth for the key sectors: oil refining, the chemical industry, the energy industry, machine building and metalworking, construction, the transport sector and nonferrous metallurgy. The strategic importance of the auto industry is based not so much on direct as on indirect multiplier effects 3 that promote economic growth and structural reforms. The fact that the auto industry’s influence on the development of other sectors in foreign countries is much greater than in Uzbekistan shows that the appropriate potential exists for this purpose. The potential increase in the auto industry’s effect on the development of the priority sectors is indicated by the arrows in Fig. 2. For example, the demand multiplier for machine building goods may increase more than tenfold; in oil refining, fivefold; in the chemical industry, more than threefold; Figure 1. The priority role of the auto industry is based on the benefits that the sector generates for the economy 5 Median Key sectors 4 The diagram shows values for the demand multiplier and the supply multiplier for all sectors of the economy. The farther right sectors are on the graphic, the more demand they create for goods in other sectors. The higher the sectors are in the graphic, the greater the supply they generate for other sectors. Through their influence on demand and supply, the key sectors have a major impact on production growth in other sectors of the economy. The sectors that are highest and farthest to the right are priority sectors – drivers of the country’s economic development. In the diagram key industries (top-priority sectors) are highlighted in red and are in the right-hand yellow quadrant Machine building Transport services 3 Chemical industry Electric-power industry 2 Auto industry Oil refining Oil production Construction Nonferrous metallurgy 1 Median 0 0 Center for Economic Research 5, 1 st blind alley, Usmon Nosir str. Tashkent 100070, Uzbekistan Tel: +99871 150-02-02, 281-45-56/57/58/59; Fax: +99871 281-45-48 www.cer.uz 1 Demand multiplier 2 3 The Center for Economic Research is jointly supported by the United Nations Development Programme (UNDP) and the Government of Uzbekistan The views and opinions expressed in this material do not necessarily reflect the official positions of the Center for Economic Research or the United Nations Development Programme. UNDP Country Office in Uzbekistan 4, Taras Shevchenko str. Tashkent 100029, Uzbekistan Tel: +99871 120-34-50, 120-61-67; Fax: +99871 120-34-85 www.undp.uz