The Uzbek Auto Industry: Sources of Growth Outside the Sector

Center for Economic ResearchTashkent, 2014

What are the priority industries for Uzbekistan economy?

• Priority should be given to the sectors generating not only direct effect by increasing production and creating jobs but also a multiplier effect expanding supply and demand for the products of other sectors.

• Priority sectors for Uzbekistan include electric power, chemical and petrochemical industries, oil refining, machine building and metalworking, automotive industry, transport services, oil production, nonferrous metallurgy and construction (see the yellow quadrant).

• These sectors must become the primary reference points for industrial policy and the drivers of sustainable economic growth of at least 8% per year.

What industries are the effective drivers to stimulate development of the priority industries?

Each priority sector has its own locomotives, intensifying the development of these key industries.

The locomotive sectors for virtually all of the key sectors are the chemical industry, machine building and the auto industry.

Multiplier effects for these three sectors are much higher in comparison to the other ones.

Machine building Oil refining

Transport services Chemical industry

Su

pp

ly m

ult

ipli

er

Demand multiplier

Which one of the three? -Auto industry best fits for the role of “engine” of the priority sectors

Why automotive?• Each of these sectors has goods in which Uzbekistan has a comparative advantage, however, among all

these goods automobiles have the greatest technological sophistication the industry makes a bigger contribution to the processes of structural transformation than others do.

• The share of automobiles in total exports is also significantly greater than the share of goods with comparative advantage from chemical or machine building 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.

Automotive industry could become an effective driver of growth for the key sectors. The strategic importance of the automotive industry is based not so much on direct as on indirect multiplier effects that promote economic growth and structural reforms.

A high level of technological sophistication means that this sector makes a bigger contribution to the processes of

structural transformation than other, PRODY, UZD

Having established its own niche in export markets, the industry is forming a market inside the country for other

sectors, %

Is there enough potential to transform the auto industry into a driver of growth for the priority sectors and Uzbekistan economy as a whole?

• There is a high potential to strengthen the linkages of automotive industry with other priority industries and contribute more to structural reforms. This potential is illustrated by arrows.

• The demand multiplier for machine building goods may increase more than tenfold; in oil refining, fivefold; in the chemical industry, more than threefold; in transport services, by 20-25%.

• The supply multiplier may increase by 120% in oil refining; by 150% in transport services; and by nearly threefold in the chemical industry. A comparable increase in demand and consumption will also occur in other sectors, such as R&D and vocational education.

Machine building Oil processing

Chemical industryTransport

Forw

ard

mu

ltip

lie

r

Backward multiplier

It is important to employ this potential

1. At this stage the auto industry has managed to become a driver of growth for enterprises inside the cluster:

• more than 200 localizing enterprises, has set up processes for more than 260 new types of components,

• the level of localization exceeds 50% for new models and 80% for the Nexia and Matizmodels.

2. For the long-term growth it is important to maximize the effect of the auto industry to other sectors.

Automotive industry is not an ultimate goal, but a means to implement effective structural transformations

To employ this potential the following policies need to be implemented:

1. Create the critical mass of enterprises and production capacity in the automotive industry. This will require at least a 30% increase in output of the automotive industry by 2020.

2. Develop inter-industry cooperation between the automotive and other priority sectors.

• In metals industry: development of production facilities for iron and aluminum castings, which may be used to manufacture intermediate goods for production of engines, chassis and braking-system components;

• In machine building: production of high-tech modules and components, e.g. ABS and EBD systems, gearboxes and braking-system and steering-system components;

• In glass industry: construction of a plant to manufacture flat sheet glass, to be used in auto industry;

• In chemical industry: manufacture of polypropylene, localization of tire production for the industrial-rubber sector.

3. Step up the localization of production of high-tech modules and components for motor vehicles, stimulate participation of transnational corporations in added-value chains and diversify the commodity structure and geography of exports.

4. Develop Uzbekistan’s own engineering and R&D capability to employ the potential of inter-industry cooperation.

What will be the effects:

Implementation of these measures:

Will contribute to the sustainability of high economic growth rates –at least 8% a year;

Intensive processing of local raw materials, generation of demand for products of associated industries will contribute to structural transformations of the economy;

Development of production facilities in various parts of the country will promote effective spatial development and reduction of regional disparities;

Will contribute to generation of decent jobs, improvement in the quality of human capital, thus accelerating processes of social transformations;

Will contribute to the diversification of the country’s economy, thereby creating the foundations for long-term sustainability and stability.

Thank you!

Resources in English: http://www.cer.uzhttp://transformation.cer.uz/https://www.facebook.com/CER.Uzbekistan