Public Procurement as a Tool for Enhancing the Competitiveness of National Products

Introduction

Enhancing the competitiveness of national products is a key objective of Uzbekistan's current economic policy. Since 2017, the country has implemented large-scale reforms aimed at economic liberalization, attracting investment, and developing domestic production. In this context, the effective use of public policy tools that support domestic producers on both domestic and foreign markets is of particular importance.

One such tool is the public procurement system, which creates stable demand for national products, stimulates the expansion of production capacity, and fosters favorable conditions for localization. Public procurement not only supports existing enterprises but also promotes modernization, the adoption of new technologies, and access to export markets.

This article examines the potential of the public procurement system to enhance the competitiveness of national products, analyzes ongoing measures, and assesses their impact on domestic production and the economy as a whole. Special attention is given to financing, institutional mechanisms, and practices aimed at supporting local manufacturers.

The next section focuses on the import substitution policy, which lays the foundation for integrating domestic production into the public procurement system.

Import Substitution Policy in Uzbekistan

Uzbekistan's import substitution policy is based on the Production Localization Program launched in 2000. Over two decades, more than 2,500 projects totaling over USD 4 billion have been implemented, increasing import-substituting production by 220 times by 2015. The program supports domestic production through tax incentives, customs preferences, and state subsidies.

Since 2017, Uzbekistan has implemented major economic reforms, including currency market liberalization, reduction of trade barriers, and simplification of business procedures. These steps have been accompanied by a strengthened import substitution policy, integrated into the "New Uzbekistan — Country of Competitive Products" strategy (2022–2026), approved by Decree of the President of the Republic of Uzbekistan No. DP-60 of January 28, 2022 [3]. As part of this strategy, an exporter support program was launched under Decree No. DP-228 of September 30, 2022 [4], which provides for the selection of 200 exporting enterprises through an open competition on the Unified Exporter Support Portal (www.exportportali.uz), with rating updates every six months. [13]

Selection criteria include:

• Registration as a legal entity operating for at least two years;
• Export of finished products worth over USD 1 million in the past 12 months;
• Export revenue share exceeding 30% of total revenue;
• Export of at least two product types to more than two countries (excluding neighboring states);
• Overdue accounts receivable of less than 5%.

The program is being implemented in phases: 50 companies in 2022, 100 from January 1, 2023, and 200 from July 1, 2023. Participants receive benefits such as expedited VAT refunds within seven days, use of export contracts as loan collateral, financial support from the Export Support Fund (ranging from USD 1 to 5 million depending on export volume), and up to USD 30,000 for implementing international standards and hiring foreign consultants [13]. These support measures facilitate the integration of Uzbek enterprises into global value chains, expansion of export geography, and increased share of finished products in foreign trade, aligning with the strategic priorities of the "New Uzbekistan."

The strategy aims to triple the share of finished goods in exports, increase the number of exporting enterprises from 6,500 to 15,000, and expand export coverage from 115 to 150 countries.

The Role of Public Procurement in the Import Substitution Policy

Public procurement plays a key role in Uzbekistan's import substitution policy, serving as a tool to stimulate local production and reduce import dependence.

The Law of the Republic of Uzbekistan "On Public Procurement" (No. ZRU-684 of April 22, 2021 [2], as amended by No. ZRU-1005 of November 27, 2024 [1]) is a cornerstone of import substitution policy. It regulates public procurement procedures, ensuring transparency, competitiveness, and process efficiency. The law establishes support mechanisms for domestic producers, including price preferences of up to 20% for local enterprises and restrictions on the purchase of certain imported goods. Enforced from July 24, 2021, it provides favorable conditions for the preferential participation of national suppliers, strengthens economic independence, and stimulates the development of local production. These measures create a stable foundation for further improving the public procurement system while providing financial support to national producers.

Import Substitution Practice in Public Procurement

Uzbekistan’s public procurement system is actively used to promote domestic products by prioritizing the use of localized goods and stimulating internal production. The main mechanisms include:

1. Priority for Domestic Products

According to the Law "On Public Procurement" (No. ZRU-684 of April 22, 2021 [2]) and Cabinet of Ministers Resolution No. 454 of June 16, 2018 [8], preference is granted to local suppliers when prices and quality are equal, including pricing advantages established by regulatory acts.[4] This is especially relevant for construction, building materials, and the food industry. For example, in the agricultural sector, wheat and cotton procurement ensures demand for local farmers' products, covering about 40% of wheat and 30% of cotton fields in 2023. That year, local suppliers accounted for 60% of total procurement contracts (USD 1.4 billion out of USD 2.3 billion). It is projected that by 2025 this share will increase to 65% due to enhanced import substitution policies and procurement digitalization. Implementation mechanisms include import restrictions, electronic tenders for transparency, and monitoring by the Ministry of Economy and Finance to ensure priority is given to domestic producers.[14]

1. Electronic Platforms

According to the Law "On Public Procurement" [2] the authorized body is the Ministry of Economy and Finance.

Before 2022, the e-procurement landscape in Uzbekistan was fragmented, with several separate platforms primarily operated by the Uzbek Republican Commodity Exchange (UzCE), such as dxarid.uzex.uz, exarid.uzex.uz, shop.uzex.uz, and others. Each platform served specific procurement types or customer categories.

A major milestone came with the enactment of Resolution of the President of the Republic of Uzbekistan No. RP-5031 of March 17, 2021 “On measures for further implementation of market mechanisms in the processes of realization of highly liquid and monopoly goods” [5], which mandated the consolidation of all public procurement into a single electronic system starting January 1, 2022.

As a result, the current system is structured as follows:

1.     Centralized public procurement portal (xarid.uzex.uz):

·      This portal is the primary, unified information system for all procurement activities, covering budgetary and state-owned organizations.

·      Its goal is maximum transparency, public accessibility, efficient process control, and convenience for all participants.

1. Accredited electronic trading operators (e.g., JSC "HAYOT BIRJA" / xt-xarid.uz):

·      In addition to the central portal, certified operators like HAYOT BIRJA, which manages xt-xarid.uz, operate under agreements with the Ministry of Economy and Finance.

Thus, xarid.uzex.uz currently serves as Uzbekistan’s central and unified e-procurement platform, created to enhance transparency, streamline procedures, and provide a one-stop shop for all procurement activities.

In 2022, over 8,000 offers were published on the platform, 70% of which came from local companies. In 2023, the volume of electronic procurement reached 30 trillion UZS (USD 2.3 billion). According to the "New Uzbekistan" Development Strategy, 100% of public procurement will be digital by 2026, reducing bureaucracy and ensuring equal access for SMEs, especially in textiles, construction, and food industries. [5

New Initiatives Strengthening Import Substitution in Public Procurement

As part of Uzbekistan’s broader reforms and economic digitalization, a series of foundational legal acts were adopted in 2024–2025 to transform the public procurement system and expand support for domestic producers.

1. "Producers’ Ecosystem"

As of January 1, 2025, Uzbekistan is implementing the "Producers’ Ecosystem" pursuant to Resolution of the President of the Republic of Uzbekistan No. RP-417 of December 3, 2024. [6] The initiative aims to create an enabling environment and incentive system to actively involve domestic manufacturers in public procurement and scale up localized and import-substituting production. It includes the creation of an Industrial Producers Map— a detailed digital database by region and product type to facilitate identification of local alternatives. A dedicated B2B and B2C marketplace will also be launched to expand sales channels.

The ecosystem prioritizes procurement from registered domestic manufacturers, with limited exceptions. Financial incentives include a 50% discount on commission fees for participation in tenders and exemption from bid securities for producers with "high" or "medium" sustainability ratings. A scoring system for reliability assessment is being introduced, alongside automated notifications about tenders (effective October 1, 2024). In addition, long-term contracts from large state enterprises are encouraged to ensure stable demand and incentivize investment in new production lines. Each State Investment Program project will specify the required share of domestic content.

1. Amendments to the Law "On Public Procurement"

Law No. ZRU-1005 of November 27, 2024 [1], introduced major updates to the legal framework governing public procurement. These amendments, while indirect, significantly promote import substitution by making the system more flexible and efficient. Key changes include simplified low-value procurement procedures and the introduction of two-stage bidding processes. The updated law incorporates the principle of sustainability, taking into account environmental, social, and governance (ESG) factors in procurement decisions. It also clarifies mechanisms for centralized procurement and regulates framework agreements, increasing long-term flexibility and predictability.

1. Strategy for Public Procurement System Development (2025–2027)

Resolution of the Cabinet of Ministers No. 865 of December 20, 2024 [7], approved the “Strategy for Further Development and Improvement of the Public Procurement System for 2025–2027”. This roadmap outlines key directions such as continued optimization and unification of procurement procedures to enhance efficiency and reduce administrative barriers. The strategy emphasizes transparency and accountability through stronger monitoring and public oversight, as well as further improvement of the xarid.uzex.uz portal. Creating a competitive environment is a top priority, helping reduce costs and improve the quality of goods and services.

The strategy also calls for the adoption of "green" procurement practices—applying environmental criteria in the selection of goods and services—thereby stimulating domestic green production. Additional objectives include expanding digital tools and integrating them with other government information systems.

Challenges of Import Substitution

Despite notable progress, import substitution through public procurement in Uzbekistan faces several challenges:

• Limited Competitiveness. Local producers, particularly in high-tech sectors such as electronics and pharmaceuticals, often lag behind foreign competitors in quality and pricing. This leads to elevated prices for localized goods. For example, in 2022, prices for domestically produced construction materials rose by 10–15% due to low market competition. [14]
• Technological Constraints. Infrastructure and technological limitations hinder full localization in sectors such as petrochemicals and mechanical engineering. The production of complex components for the oil and gas industry remains 30–40% import-dependent.[10]
• Bureaucratic Barriers. Despite ongoing digitalization, certification processes for product eligibility in procurement remain a bottleneck for some companies, delaying participation and execution.[10]

Development Prospects

The prospects for import substitution in public procurement are closely linked to the modernization of the economy and integration into global trade systems, including accession to the World Trade Organization (WTO). Key directions include:

1. Development of High-Tech Industries. Investment in the production of innovative products, such as electronics and medical equipment, will expand the range of import-substituting goods. This will require improving the procurement system to support startups and small businesses.
2. Export Orientation. Transitioning to an export-oriented model under the 2022–2026 strategy involves increasing the number of exporting enterprises from 6,500 to 15,000. Public procurement can stimulate this process by providing initial demand for new production facilities.
3. Tax System Simplification. Tax reforms initiated in 2019 aim to reduce the tax burden and simplify administration, increasing the attractiveness of public procurement for SMEs.[11]
4. Digitalization. Full digitalization of public procurement by 2026 will improve efficiency and transparency, attracting foreign investors to localized projects.[10]

Financial Aspects

The financial aspects of import substitution in public procurement include financing mechanisms, budget expenditures, and economic effects.

Financing Mechanisms

1. Public Investment. A significant portion of localization projects is funded by the state budget. For example, in 2016, 31 oil and gas projects received funding to produce goods worth 746 billion UZS. In 2023, budget expenditures on import substitution reached about 2% of GDP.[10]
2. Preferential Loans. Commercial banks, regulated by the Central Bank of Uzbekistan, provide preferential loans to manufacturers participating in the localization program. However, high collateral requirements limit access for small businesses.[9]
3. Foreign Direct Investment (FDI). Reforms since 2017 have boosted FDI, particularly in the oil and gas and textile sectors. The Ustyurt Gas Chemical Complex, partly funded by foreign investors, produces import-substituting products such as polyethylene and polypropylene.[11]
4. Public-Private Partnerships (PPP). PPP projects are used to finance infrastructure and industrial projects, although the IMF recommends limiting their scale due to financial risks.[10]

Budgetary Expenditures and Economic Effects

Procurement of import-substituting products increases budget expenditures, especially in the context of limited competition when local goods are more expensive than imported ones. In 2024, the consolidated budget deficit was 3% of GDP, reflecting fiscal pressure. However, long-term effects offset these costs:

• Job Creation. Localization fosters employment growth in the agricultural and industrial sectors. In 2024, the average industrial salary reached 6.43 million UZS (USD 494), exceeding wages in healthcare and education.[10]
• Reduced Import Dependence. According to the IMF, the current account deficit fell to 5% of GDP in 2024 due to increased exports and reduced imports, strengthening the national currency.[10]
• GDP Growth. Import substitution policies supported GDP growth of 6.5% in 2024, making Uzbekistan one of the fastest-growing economies in the region. [10]

Financial Risks

Key risks include:

• High Budget Expenditures. Supporting local producers through public procurement increases fiscal burden.[10]
• Low Project Efficiency. Limited competition in some sectors leads to inefficient resource use.[9]
• FDI Dependence. Volatile foreign investment may hinder long-term project implementation.[12]

Conclusion

Import substitution through public procurement in Uzbekistan is a critical economic policy tool for developing domestic production and reducing import dependence. Initiated in 2000 and significantly reinforced by reforms since 2017, the program has enabled the implementation of thousands of projects and substantial growth in national production. While procurement practices are particularly effective in the oil and gas and agricultural sectors, they face challenges related to competitiveness and infrastructure.

Future prospects for import substitution are closely tied to procurement digitalization, export orientation, and investment promotion. Key financial mechanisms—public investment, preferential lending, and PPP—play an important role but entail fiscal risks, including high budgetary load and reliance on foreign capital.

For sustainable development, Uzbekistan must maintain a balanced approach between protecting local producers and integrating into global markets, thereby boosting national economic competitiveness and ensuring stable long-term growth.[11]

References

Legal Acts

1. Law of the Republic of Uzbekistan dated November 27, 2024 No. ZRU-1005 "On Amendments and Additions to the Law of the Republic of Uzbekistan 'On Public Procurement' Aimed at Further Improvement of the Public Procurement System." URL: https://lex.uz/ru/docs/7239170

2.    Law of the Republic of Uzbekistan dated April 22, 2021 No. ZRU-684 "On Public Procurement." URL: https://lex.uz/docs/5382983

1. Presidential Decree of the Republic of Uzbekistan No. DP-60 dated January 28, 2022. URL: https://lex.uz/docs/5841077
2. Presidential Decree of the Republic of Uzbekistan No. DP-228 dated September 30, 2022. URL: https://lex.uz/ru/docs/6217301
3. Presidential Resolution of the Republic of Uzbekistan No. RP-5031 dated March 17, 2021 "On Measures for Further Implementation of Market Mechanisms in the Sale of Highly Liquid and Monopoly Goods." URL: https://lex.uz/uz/docs/5336601
4. Presidential Resolution of the Republic of Uzbekistan No. RP-417 dated December 3, 2024 "On Additional Measures to Support Producers and Create Broad Opportunities in Public Procurement." URL: https://lex.uz/ru/docs/7246787
5. Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 865 dated December 20, 2024 "On Approval of the Strategy for the Development and Improvement of the Public Procurement System for 2025–2027." URL: https://www.lex.uz/ru/docs/7271145
6. Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No. 454 dated June 16, 2018 "On Approval of the Regulation on the Procedure for Conducting Electronic Auctions for the Sale of State Property and Lease of State Assets." URL: https://lex.uz/ru/docs/3784457

Reports of Government Organizations

1. Ministry of Economy and Finance of Uzbekistan. Annual Report 2023.
2. International Monetary Fund. Concluding Statement of the 2025 Article IV Consultation Mission. January 15, 2025. URL: https://www.imf.org/en/News/Articles/2025/01/15/cf-uzbekistan-2025-article-iv-consultation

Independent International Studies

1. The Foreign Policy Centre. Economic Reforms in Uzbekistan: Achievements, Challenges, Prospects. URL: https://fpc.org.uk/экономические-реформы-в-узбекистане/
2. UNDP. Impact of Financial Incentives for Export Promotion on Competitiveness. URL: https://www.undp.org/ru/uzbekistan/publications/vliyanie-finansovykh-instrumentov-stimulirovaniya-eksporta-na-konkurentosposobnost-eksportyorov-respubliki-uzbekistan

Articles

1. 13. Gazeta.uz. “Программа поддержки экспортёров в Узбекистане. 3 октября 2022 года”. October 3, 2022. URL: https://www.gazeta.uz/ru/2022/10/03/exporters/
2. 14. Gazeta.uz. “Внешнеторговая стратегия: импортозамещение или экспортная ориентация? 15 мая 2023 года”. URL: https://www.gazeta.uz/ru/2018/03/24/strategy/