Challenges of Innovation in Industrial Sector of Uzbekistan

After the collapse of the USSR in early 1990s, the independent transition economies in Central Asia have been carrying out structural reforms addressed to improve industrial sector. In this regard, Uzbekistan has managed to overcome difficulties with transforming into market oriented economy. While restructuring the national economy, the Government targeted to get rid of the raw material exports, like exports of raw cotton, chemicals, gold, uranium, gas & etc. Instead, it accented on the promotion of finished goods and services exports. A good foreign investment climate and preferable conditions have been created for foreign enterprises.

Nowadays, the economic reforms in industrial sector mainly foster technical and technological modernization of enterprises in order to provide them with competitive means of production.

Understanding the challenges of innovation, the Government is trying to create an environment in which innovation would flourish by all means. The first attempts to create national innovation system and bolster innovation activity started with the adoption of the President’s Decree #916 on the measures for promotion of innovation projects and technologies from 15th July 2008.

At the same time, the innovation support programs started to attempt to evaluate innovation activity in Uzbekistan. Unfortunately, the results do not soothe: the UNDP project “Support to Innovation Policy and Technology Transfer” calculations for R&D expenditures showed 0,19% of GDP as of 2009. If compared with developed countries this figure will be completely uncompetitive, for instance in Finland it was 3,47% in 2008:

The R&D expenditures in some developing and developed countries (as of 2008).

Countries R&D expenditures (%)

1 Israel 4,74

2 Sweden 3,68

3 Finland 3,47

4 Republic of Korea 3,47

5 Japan 3,45

6 USA 2,67

7 Germany 2,55

8 France 2,10

9 Canada 2,03

10 Great Britain 1,84

Source: World Bank data http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS/countries

The problems and challenges of innovation in Uzbekistan are not restricted solely with financial ones. In order to achieve the goals regarding innovations set by the Government, there are some issues which need to be settled down.

The basic issue is connected with unprofitable industrial enterprises which inherited tired or outdated manufacturing equipment. While majority of industrial enterprises need modernization and technology transfer, it seems too early to talk about innovation.

With the initiative of President I.Karimov an effective system of settling down this issue has been created. The new mechanism of “recovering” these enterprises is intended for selling bankrupt industrial companies to commercial banks – the main lenders of bankrupts. Of course, the new system has many privileges, because after owning bankrupt companies the banks are obliged to equip them with modern technologies and management. However, this system has yet to prove its effectiveness by time.

Another big issue is the low interest of the private sector for innovation. SMEs and large private enterprises tend to make “quick” profits, in other words, majority of them aspire for investing in short term projects, instead of long term innovation projects. Besides, the financial limitations and circumstances, the difficulties in receiving low rate loans will result in rejection of high risk projects by the companies. That’s why it is important to take into account sharing the risks of companies, as well as other participants in the national innovation system.

The majority of fundamental research remain un-commercialized due to low marketing. In practice, innovative products and services must meet the customer needs, otherwise they fail. That’s why is very important to harmonize and coordinate the activity of the research institutes involved in innovations with the newest market trends.

Due to budget limitations, the transition economies have to set priority spheres in order to develop innovational activity only in these spheres. For instance, India chose pharmacy and IT technologies for promotion of innovations, and succeeded. Processing agricultural products, chemical and mining industries would be good options to start with for Uzbekistan.

Legal basis is also important for innovations. The law “On innovations and innovational activity” is being developed and soon will be adopted in Uzbekistan. There is a need to improve the protection and guaranteeing of intellectual property rights, and also the evaluation and pricing methods for intellectual assets in current legislation. The legal basis of innovations should also presume the simplification of licensing and permitting procedures. Some tax privileges are desirable for innovations provided that antitrust and competition laws are observed.

The reforms in education should include promotion of competition among higher education institutions. Nowadays, majority of universities are owned by the Government and propose similar standard research programs. On the other hand not many of them conduct contracts with industrial companies for fulfilling research projects. At this stage of the reforms in education, it’s important to promote private universities and research institutes, which target commercialization of new ideas and technologies.

Another point is lack of good managers. For innovational activity we would rather use the word “leaders” which is more appropriate. Because, simply being a “manager” will not guarantee the success for innovation. “They need to transition from being a manager to being a leader” said once Irving Wladawsky-Berger, who retired in 2007 from IBM after a 37-year career .

Majority of enterprises who aspire for innovation, need to change their managerial systems. Innovations need more flexibility and freedom of thought. Creation of innovations should not be carried out with strict schedules and plans, as it is a natural process, rather than a mechanical one. That’s why is also important to grow such leaders in Uzbekistan.

By

Mr. Bahtiyor Rajabov,

Assistant Chairman

State Competition Authority of the Republic of Uzbekistan

linkedin.com/in/bahtiyorrajabov

bahtiyors-at-gmail.com