Uzbekistan: more production, with less environmental impact

Originally published in November, 2022, this article was updated on 1 November, 2023

What is Uzbekistan’s current economic development trajectory?

Since 2017, Uzbekistan has embarked on a series of economic reforms that have yielded significant economic outcomes. Details on the effects of these reforms are contained in the latest edition of AFD’s Macrodev papers entitled “Uzbekistan: Achieving a multidimensional transition”. The country’s macroeconomic fundamentals remain sound and the steady economic momentum has not been greatly affected by the Covid-19 crisis or as of yet, by the conflict in Ukraine.

The years following the country’s independence in 1991, following the break-up of the Soviet Union, were marked by economic hardships. Unlike other former Soviet bloc countries, the country had failed to initiate reforms to spur the development of a market economy, and made scant use of financing from international institutions and investors to foster economic growth. Shavkat Mirziyoyev, who took office as President of the Republic at the end of 2016, has shifted strategy on both counts. Following his re-election a year and a half ago, he has set bold objectives for the coming years, both in terms of poverty reduction and per capita income growth, which he hopes to double by 2030.

Further reading : AFD Group accelerates his support for Uzbekistan

To achieve this, the country will need to see through its transformation. The government is pressing ahead with the transition to a market economy, which is still in its infancy, with a sizeable share of the economy still in the hands of the public sector. President Mirziyoyev recently announced his goal to accelerate the drive towards privatization. 

All of this is taking place amidst vigorous population growth; with a population of 36 million, it’s the most populous country in Central Asia, and it’s growing by 800,000 a year, with rapid urbanization. 

Economic development also comes with increased energy demand. The government is looking to expand the renewable energy share to 25% of the electricity mix by 2030.

Accordingly, heavy investments are being made in the solar, wind and hydroelectric segments, and the 25% target is expected to be met before 2030. The country must also find ways to save on water, which it uses extensively for irrigated agriculture.

Yet it’s falling short of meeting demand, especially as climate change is threatening the large glaciers that form the region’s water reserves. What’s more, neighboring Afghanistan has begun building a large irrigation canal that will draw significant amounts of water from the great Amu Darya River before it flows through western Uzbekistan.

An array of new cooperation projects are being formalized between AFD and Uzbekistan...

Indeed, Rémy Rioux’s visit is an excellent opportunity to highlight the importance of our relations with Uzbekistan and to celebrate the quality of our collaboration, particularly with our partners in the development sector. It also allows us to accelerate our support for the country's transition to sustainable governance, through the signing of a contribution agreement with the European Union, which provides technical assistance and a policy-based loan for the green economy. We will also commit, alongside with the Asian Development Bank, to finance a part of the electricity network’s rehabilitation.

Expertise France, our technical cooperation subsidiary, is now officially part of our Group offer in Uzbekistan, and will be integrated into the intergovernmental agreement that frames our relations with the country.

A number of landmark deals were also signed during the Uzbek president’s visit to Paris in last November, including an AFD €30 million loan to the Uzbek public bank SQB to finance climate-friendly investments.

We also committed to a strategic partnership agreement that formalizes the expectations of Uzbekistan, particularly in terms of projects and support for public policies, and opportunities for AFD to respond to them via a portfolio of projects that we could finance. These projects focus on the country's priorities, namely: energy, water, development of the Aral sea region, to name a few. This agreement reaffirms our willingness to work together, and provides some perspective on our activities in the country until 2025.

How else does AFD operate in the country?

AFD has been operating in Uzbekistan since December 2016 when our intergovernmental agreement was signed. Our work there is mainly two-pronged: project financing and public policy loans. A total of €1.078 million in loans have already been signed in the country, plus more than €44 million in European Union grants, which co-finances most of the operations. We are sponsoring projects in the water, energy, waste and livestock sectors, from solid waste treatment in Samarkand to the construction of wastewater treatment plants.

See also: In Uzbekistan, promoting “greener” livestock sector development

Through public policy loans, we offer budget financing to the Uzbek government to facilitate implementation of economic and environmental reforms. More specifically, large-scale action was taken in early 2022 to support the government’s Green Economy strategy. The Uzbek government is now aware of the need to be mindful of the environmental externalities of production. This is not only because the country’s water and energy resources are not inexhaustible, but also due to the fact that the lines are shifting internationally on these issues and producing with less environmental impact will become a competitive advantage for exports.

Several economic policy instruments can be used to achieve this goal. This is where our support comes in, namely: on the possibility of issuing green bonds, managing environmentally-friendly expenditure via the budget, using public procurement to introduce rules that are also environmentally-friendly, etc. Indeed, we are keen on pursuing this joint endeavor in the years ahead.