Speech of the Ambassador of Uzbekistan H.E. Dilyor Khakimov at a conference “FinTech – Unlocking Asian Landlocked Countries”

 

At the outset of my presentation, allow me to express deep appreciation to the organizers of the conference, dedicated to the untapping the potential of landlocked countries. Assuming that Uzbekistan is the only double land locked country in the world, if we don’t count the Kingdom of Lichtenstein, which is in the middle of Europe, then it becomes obvious how crucial is developing transregional connectivity for our state. A recent World Bank study shows that, on average, it costs $3,040 to export a standard container of cargo from a landlocked developing country, whereas a coastal neighbour spends about $1,268. 

Active development of foreign economic relations of the Republic of Uzbekistan is largely dependent on solving the existing challenges of developing foreign trade transportation systems, which are pertinent, I would say, to all landlocked countries. Some of you might have heard that the academician Barthold said about more than 100 years ago: «The Future of Turkestan (which had occupied the areas of modern Central Asia) depends on what position it will hold in world trade. Commercial value of Turkestan is entirely dependent on the development of railways, reducing the cost of land trade compared with the sea trade». At the early years of independence, foreign economic relations of Uzbekistan were carried out through three sea ports – Ilyichevsk (with access to the Black Sea), St. Petersburg (with access to the Baltic Sea) and Vladivostok (with access to the ports of the Far East), with respective distances to them from Republic as of 3000, 4300 and 8000 km, which significantly increased the cost of transportation. 

A major achievement in the development of international transport corridors was put into operation on May 12, 1996 with the active participation of the Republic of Uzbekistan of Tejan-Sarakhs-Mashhad railway with length of 320 km (with bogie change from 1520mm track onto 1435mm track at the Sarakhs station), which opened a new Trans-Asian corridor for Central Asia countries to access world markets through territories of Iran and Turkey. 

In September 1998, in Baku by the initiative of Azerbaijan, Georgia and Uzbekistan, as well as by the European Union was held an «TRACECA – Restoration of the Historic Silk Route» international conference. Landmark project for the entire Central Asian region had been recently constructed and put into operation in November 2010 «Hairaton – Mazar-e Sharif» railway line with length 75 km, first of its kind in Afghanistan. The project was implemented by state joint-stock railway company «Uzbekistan Railways» and with support of ADB.

In April 25, 2011 entered into force «Agreement on the use of wagons between railway authorities of Uzbekistan and Turkey» that made rail transportation of goods in the direction of Turkey feasible and more attractive. In order to promote international trade, large-scale cooperation between the regions, by the initiative of Uzbekistan in April 2011 in Ashgabat was signed an Intergovernmental agreement to establish new transport corridor «Uzbekistan – Turkmenistan – Iran – Oman – Qatar». 

Additionally, a major event took place on December 3-4, 2018 when the railway heads of Russia, Kazakhstan, Uzbekistan, Afghanistan, and Pakistan met in Tashkent and agreed to establish a financial consortium and working group for exploring the possibility of jointly contributing to the creation of a Mazar-i-Sharif-Kabul-Peshawar railway line, which could in effect pioneer a cross-Eurasian rail corridor between Europe and South Asia – via Central Asia. The grand strategic implications of these corridors can’t be overstated because the strengthen real-sector economic connectivity and have far-reaching geopolitical ramifications. However, distance alone cannot explain why LLDCs are at a disadvantage compared with equally remote, inland regions of large countries. Border crossings, cumbersome transit procedures, inefficient logistics systems, poor infrastructure and weak financial system substantially increase the cost of doing business. Undoubtedly, high-tech financial services, combined with other IT instruments, serve as viable tools for overcoming the biggest challenge in this regard – the distance. 

So what should LLDCs do? The success of the few rich landlocked countries offers some hope to poorer ones. Switzerland specializes in finance, which does not travel by boat or car, and its high-end manufacturing is integrated with Europe’s single market. Many of the goods it exports, such as watches, are expensive and small.

The potential of FinTech is even greater in LLDCs. As experts say in the global digital economy FinTech disregards physical distances and could be the ticket for land locked countries to the global financial inclusiveness. In line of this development Uzbekistan has entered the stage of digital transformation. In this regard, the followings are on the pipeline in the country: On June 1, the Competence Center for Blockchain Technologies was established at the Mirzo Ulugbek Innovation Center. FedEx Institute of Technology (USA) will be a partner organization in this process. The goal of the initiative is to create a joint platform for an integration partnership between traditional financial institutions and innovative companies in the field of financial technologies. Such cooperation will facilitate the organization of joint introduction of digital innovative products in the financial markets of our country, as well as the development of effective solutions for the use of technologies such as blockchain, open data and others.

Second, the legal basis for FinTech is developed to remove the regulatory barriers. In Uzbekistan, the introduction of blockchain technology was legislated by a presidential decree. The use of the blockchain will provide banks with a number of advantages. Foreign banks highly appreciated such advantages as reducing the level of fraud, errors and costs of document circulation, maintaining the level of competitiveness, simplifying the procedures for processing transactions.

The full implementation of the blockchain will allow banks to process payment transactions much faster and at the same time reduce transaction processing costs and also protect them from cyber attacks. The technology is widely used in the banking sector. In particular, it can be used in clearing operations, when making payments, trade financing (letter of credit), syndicated lending, for personal identification. To take full advantage of this technology, first of all Uzbekistan’s banks must create a global network infrastructure. The payment system GlobUzCard, created in May last year and integrated with international payment systems, can serve as this infrastructure. Many foreign banks are still experimenting with the blockchain to determine in which area this technology will be most effective. First of all, banks in Uzbekistan need to create an appropriate information and communication infrastructure and business environment. To fully implement the blockchain, it will have to be used by other participants in the financial market.

An important condition for the dynamic development of the Republic of Uzbekistan is the accelerated introduction of modern innovative technologies in the economy, finance, social and other areas with the wide use of science and technology. The rapidly developing all spheres of public and state life of the country require close support of the ongoing reforms on the basis of modern innovative ideas, developments and technologies that ensure a fast and qualitative breakthrough of the country into the ranks of the leaders of world civilization. However, the analysis showed insufficient work on the innovative development of the processes of modernization, diversification, increase in production volumes and expansion of the product range of competitive products in the domestic and foreign markets.

The following challenges are believed to be drawing back the development of innovative technologies, including FinTech in Uzbekistan:
– low level of commercialization of the results of scientific activities;
– lack of highly qualified specialists in the field of innovation management;
– low pace in know-how technology transfers;
– shortage of funds for research and development work;
– inadequate protection of intellectual property, lack of qualified specialists in this field, especially in government bodies and organizations;
– low level of implementation of innovative technologies in the field of renewable and alternative energy sources, energy utilization of secondary resources;
– underdevelopment of corporate relations and principles of corporate governance in the country, taking into account the best foreign practices, especially in state-owned companies;
– low share of the information and communication technology sector in the gross domestic product of the country.

These shortcomings impede the accelerated innovative development of the country, attracting investment, economic growth and other spheres of state and public life. Overall Uzbekistan needs to take a holistic approach to creating business environments that truly enable FinTech innovation and address the many challenges that can prove fatal to the growth of this sector. 

In this regard, Uzbekistan has approved recently the Strategy for Innovative Development of the Republic of Uzbekistan for 2019-2021. The main goal of the Strategy is the development of human capital as the main factor determining the level of a country’s competitiveness on the world stage and its innovative progress. The main objectives of the Strategy is to get into the club of top 50 technologically leading countries by 2030. 

To achieve these goals the Government of Uzbekistan is planning to increase the public spending on research and development work and bring this indicator in 2021 to 0.8 percent of the gross domestic product.

I hope that the initiatives on utilizing FinTech solutions to tackle complex challenges in LLDCs will help resolving the abovementioned issues as well as pave the way for a more prosperous Uzbekistan, in general.

H.E. Mr. Dilyor Khakimov