Significance of Public Procurement for Uzbekistan's Economy
Introduction
Public procurement plays a key role in Uzbekistan's economy, serving as an essential instrument for infrastructure development, enhancing the quality of public services and reinforcing the domestic market. By financing the construction of roads, educational institutions, medical facilities and other socially significant projects through public procurement, high-quality standards can be ensured. Furthermore, it functions as a mechanism for the implementation of government programs and projects aimed at modernizing the nation and elevating its competitiveness on the international stage by fostering the growth of local entrepreneurship. Procurement of goods and services from domestic producers stimulates business expansion, generates new employment opportunities, and increases tax revenue to the national budget.
Clear, transparent and unbiased public procurement system enhances efficiency and ensures integrity in the utilization of budgetary funds. Modern mechanisms of control and reporting minimize the risks of corrupt schemes and misuse of resources, thereby strengthening trust in public institutions.
Public procurement is an important element in the implementation of large investment programs that support strategically important sectors of the economy, such as energy, transport and agriculture, thereby driving investment and sustainable economic growth.
Public procurement serves not only as a tool for economic growth but also as a key factor in improving the quality of life for the population and strengthening Uzbekistan's position on the global stage. As the world practice shows, in developed countries the development of national economy sectors is achieved through public procurement. For example, in countries with a low standard of living, public procurement accounts for 10-15% of GDP, in developing countries - up to 25% of GDP, and in developed countries - 30% of GDP and more.
One of the most important indicators of public procurement is the share of public procurement in public expenditures. According to the data of the Organization for Economic Cooperation and Development (OECD), the share of public procurement in public expenditure is 27% in Russia, 41.6% in Japan, 40.1% in Korea, 35.3% in Germany, 31.7% in the UK, 25.6% in France, 24.5% in the USA [1] [2].
Modern public procurement system is an integral element of governance and fulfills the functions of state regulation of the economy. The question of what is more efficient - market mechanism or state regulation - is often still under discussion. The effectiveness of the market mechanism depends on the existence of adequate legal and regulatory framework, market infrastructure and investment climate. At the same time, state regulation can ensure stability and transparency of processes, which is especially important in developing economies.
Keywords: public procurement, economy of Uzbekistan, infrastructure, state programs, investment programs, modernization, electronic procedures, electronic platforms.
1. Basic Principles and Legislative Framework for Public Procurement
The main principles of public procurement include professionalism, rationality, transparency and anti-corruption. The Law of the Republic of Uzbekistan “On Public Procurement” dated April 9, 2018 (No. ZRU-472) and the Decree of the President of the Republic of Uzbekistan dated December 5, 2019 No. PP-4544 “On Measures to Further Improve the Public Procurement System and Widespread Involvement of Business Entities in the Public Procurement Process”, modernized the procurement system by introducing e-commerce and involving local SMEs. These measures served as a trigger for reforms aimed at digitalizing procurement, reducing corruption risks and facilitating business access to tenders and selections to improve efficiency, support local producers and successful implementation of investment programs, making the procurement system more modern, open and focused on national interests. These steps continue to be developed in subsequent acts, for example, the Law of the Republic of Uzbekistan dated 22.04.2021 No. ZRU- 684 “On Public Procurement” and its amendments of 2024.
Below is a complete list of regulations related to this area.
1. The Law of the Republic of Uzbekistan “On Public Procurement” of April 22, 2021 (No. ZRU-684), which regulates relations in the field of public procurement and defines the basic principles, procedures and order of their conduct.
2. Decree of the President of the Republic of Uzbekistan “On Measures for the Implementation of the Investment Program of the Republic of Uzbekistan for 2023-2025” dated December 28, 2022 (No. PP-459), which establishes measures for the implementation of the investment program and includes provisions regarding public procurement.
3. Decree of the President of the Republic of Uzbekistan “On Measures to Further Improve the Public Procurement System and Widespread Involvement of the Business Community in the Public Procurement Process” dated December 5, 2019 (No. PP-4544), which provides for a gradual transition to electronic tender procedures in the field of public procurement from April 1, 2020.
The Law “On Public Procurement”, adopted in April 9, 2018, marked a new stage in the regulation of relations in the field of public procurement. Article 4 of the Law defines public procurement as the process of meeting the needs of public customers in goods (works, services) on a paid basis. The new e-commerce system for public procurement was developed and implemented in accordance with the Decree of the President of the Republic of Uzbekistan No. PP-4544 dated December 5, 2019 “On measures to further improve the system of public procurement and wide involvement of business, subjects of public procurement”.
The primary objectives of state regulation in the field of public procurement in the Republic of Uzbekistan are to create a favorable environment for public procurement participants and to combat corruption and other violations of legislation during procurement activities. This is aimed at: (i) achieving the strategic goals and objectives of the state; (ii) meeting the needs of public customers for goods (works, services); (iii) implementing the Investment Program of the Republic of Uzbekistan and other state programs; (iv) fulfilling the state's role in addressing social challenges; and (v) delivering public services.
In the Republic of Uzbekistan, the terms public and commercial procurement are commonly used. Within the republic, closed public procurement is employed in highly sensitive sectors, such as procurements related to national security and defense.
To improve the efficiency of procurement activities, Uzbekistan is actively studying the practices of leading countries, such as South Korea, Singapore and Georgia, which demonstrate advanced methods of public procurement management. In particular, an example for Uzbekistan is the KONEPS system of South Korea which is a benchmark of an electronic platform that promotes automation of processes, transparency and reduction of transaction costs.
Singapore, with its strict anti-corruption model and high level of digitalization, serves as an example of efficient budget management, which is especially relevant for optimizing financial flows in the Uzbek economy. Georgia, which has successfully implemented the ProZorro system and is integrating this system in CIS countries (Ukraine, the Kyrgyz Republic, etc.), shares its experience in simplifying procedures, minimizing bureaucracy and involving SMEs in government contracts.
Cooperation with international institutions helps Uzbekistan to create a competitive and cost- effective procurement system that meets international standards.
In addition, Uzbekistan is actively introducing centralized methods of organizing procurement for budget organizations, which makes it possible to optimize expenditures and reduce administrative costs. This approach contributes to a more efficient allocation of public resources, creating conditions for sustainable functioning of the budget sector and supporting efforts to modernize the economy.
2. Evolution of public procurement regulation
The topic of public procurement is experiencing a surge of public interest and quite reasonably: one of the most important problems facing the state at present is the problem of developing market mechanisms for public procurement aimed at improving its efficiency. The formation of fair competition principles and deepening of market relations between customers and contractors is associated with the introduction of bidding practices [1].
On April 9, 2018, the Law of the Republic of Uzbekistan No. ZRU 472 “On Public Procurement” came into force. This law aimed to ensure openness and transparency in public procurement and promote competition among entrepreneurs in this field. It also facilitated the efficient use of funds from the state budget, centralized sources, and enterprises with state shares. The Law outlined five types of procurement procedures, two of which excluded human involvement in decision-making. Transparency in the remaining procedures was maintained by publishing relevant information on a designated information portal [1]. The Law became void on July 24, 2021, in accordance with the Law of the Republic of Uzbekistan dated April 22, 2021 № ZRU-684 “On public procurement”, which is designed to regulate relations in the field of public procurement and defines the basic principles, procedures and procedures for their conduct.
Other innovations include: (i) the establishment of a single information system for the submission of bids; (ii) the use of a register of bank guarantees; (iii) the application of measures to prevent unjustified reduction of procurement prices; and (iv) the expansion of contract or bid security options. These measures can significantly improve the efficiency of the entire public procurement system.
An example of successful implementation of these methods is the electronic public procurement system xt-xarid.uz, cooperation.uz and etender.uzex.uz, allowing public customers to publish procurement announcements and suppliers to submit price quotations. It ensures transparency and competition in the procurement process.
The New Cooperation Project facilitates public procurement by allowing participants to evaluate potential contractors and access relevant information.
These projects streamline and automate procurement, reducing time and minimizing errors.
The role of electronic platforms in the transparency of public tenders is becoming more prominent and Uzbekistan continues to strive to improve its procurement procedures
3. Role of electronic platforms in transparency of public tenders
Electronic platforms increase the transparency of public tenders by publishing information on tenders and their results, creating a competitive environment and reducing the risk of corruption, thus they provide:
1. Publication of information. Public contracting authorities are obliged to publish information on planned and ongoing procurement on official internet portals and specialized electronic platforms. This ensures availability of data for all stakeholders and promotes transparency of the procurement process.
2. Openness of procedures. Tender procedures are conducted in accordance with transparent and publicly available rules, which allows participants and the public to monitor and evaluate the fairness and transparency of public procurement. This reduces the risk of corruption and abuse.
3. Simplification of the procurement process. Electronic platforms allow procurement participants to electronically submit their bids and documents, as well as receive information on ongoing procurements. This reduces the time and effort required to participate in tenders and makes the process more efficient and accessible.
4. World experience and problems of public procurement
Global experience in public procurement represents a valuable source of knowledge and best practices that can be applied to improve the situation in this area. Below are a few key aspects and examples of global experience:
1. Transparency and openness. Many countries have developed mechanisms to ensure transparency and openness in the public procurement process. For example, the United States has The Federal Acquisition Regulation system (FAR) in which procurement information is widely available to the public through electronic platforms.
2. Stimulating competition. One of the key aspects of effective public procurement is to ensure competition among suppliers. The European Union has developed a common public procurement system for all members, which increases competition and lowers prices.
3. Electronic trading platforms. Many countries have successfully used electronic trading platforms for public procurement. For example, Estonia has introduced e-Procurement, which allows online procurement with minimal administrative barriers.
4. Monitoring and evaluation. Effective systems for monitoring and evaluating the public procurement process can identify problems and improve its quality. For example, Canada has a Ministry of Public Services and Procurement Canada responsible for monitoring and analyzing the effectiveness of public procurement.
5. Public participation. Involvement of the public and civil society in the public procurement process can help to increase transparency and control. Some countries, such as Germany, actively involve public organizations and experts in monitoring procurement procedures [4].
The public procurement system often faces a number of problems that reduce its efficiency and lead to suboptimal use of budget funds. One of the main problems is insufficient transparency of the procurement process. Often, information about the procurement process and criteria for selecting suppliers is not available to the public, which creates conditions for corruption and distrust on the part of citizens. In addition, the lack of competition among suppliers can lead to overpricing and inefficient use of budget funds. Bureaucratic procedures and complex rules also create obstacles for small and medium-sized enterprises to participate in public procurement, which reduces competition and limits choice for public customers. Insufficient quality of delivered goods and services is another serious problem that can lead to losses and dissatisfaction on the part of end users [4].
A set of measures and reforms of the public procurement system is required to address these problems. This includes simplifying bureaucratic procedures and revising requirements for procurement participants to ensure equal opportunities for small and medium-sized enterprises. It is important to implement specific measures that have proven effective in other countries is necessary.
For instance, the experience of South Korea, both prior to and following the implementation of the new procurement system, demonstrates substantial improvements. Prior the reform, Korea's public procurement process was complex and opaque, making it difficult for small and medium-sized enterprises to participate and increasing the risk of corruption. In 2002, the KONEPS (Korea On-Line E-Procurement System) electronic platform was introduced, which greatly simplified the procurement process and increased its transparency.
The implementation of KONEPS resulted in the following indicators:
· reduction of procurement costs by 9.4% (comparison of administrative costs before and after KONEPS implementation).
· 6.6% increase in process efficiency (based on time spent on tendering and contract execution).
· reduction of time for tenders by 75% was achieved due to the automation of the process stages, which significantly reduced the time spent on processing applications and decision-making.
These improvements were achieved by automating the process, reducing administrative barriers and ensuring transparency in procurement information.
It is also necessary to stimulate competition among suppliers by improving access to public procurement for small and medium-sized enterprises, as well as developing mechanisms for assessing the quality and efficiency of goods and services supplied.
Further, it is necessary to develop and implement a register of ratings of suppliers who have previously participated in public procurement procedures and delivered goods and services. This register should be based on objective evaluation criteria, such as the quality of fulfilled obligations, compliance with delivery deadlines and compliance with declared standards which will systematize data on the reliability and efficiency of suppliers. Integration of such tool into the public procurement system will contribute to increased transparency, enhanced competition and informed decision-making when selecting contractors.
Simplifying administrative procedures and improving the qualifications of personnel responsible for procurement also contributes to the efficiency of the public procurement system [4].
Strengthening the role and significance of public procurement within a market economy serves as a pathway for the gradual and qualitative evolution of the market economy into a systematically and efficiently functioning economic system [5].
Proposed measures to improve procurement procedures in Uzbekistan's budgetary organizations:
1. Development of centralized public procurement, primarily for natural monopoly entities. For natural monopoly entities, such as electricity, water supply and transport, unified bodies or authorized structures are created to coordinate procurement, ensuring standardization and economies of scale. Major example is Canada, where the development of centralized public procurement for natural monopoly entities is implemented through the creation of a single authority The General Services Agency (GSA). This body coordinates the procurement of public utilities for federal agencies, ensuring their standardization and efficiency. The use of digital platforms for tendering and monitoring ensures a high level of transparency while the government, acting as procurer on behalf of the monopolies, achieves economies of scale. This approach not only reduces costs but also contributes to the achievement of environmental goals supported by strict control and openness of processes [9].
2. Active placement of tenders on international tender platforms, such as www.globaltenders.com and www.dgmarket.com, with parallel incentives for local suppliers and manufacturers to participate. This approach involves creating favorable conditions for national companies to engage in global procurement processes by providing them with access to international platforms where they can compete with foreign participants. This requires organizing support programs, including training in the preparation of tender documents, consultations on compliance with international standards and subsidizing the cost of participation. Such a mechanism not only improves the quality of preparation of state companies for tenders by studying best international practices, but also strengthens the competitiveness of local service providers and manufacturers. As a result, their access to new markets is enhanced, production modernization is stimulated and product quality is improved, which contributes to the integration of the national economy into the global procurement system.
3. Enhancing the training of qualified procurement specialists and promoting continuous learning is achieved through the development of specialized educational programs in universities and training centers. These programs include the study of legislation, practical case analyses, as well as conducting training sessions and certifications (e.g., CIPS), with a focus on working with electronic platforms and preventing corruption. Organizing internships in government agencies and companies, introducing virtual simulations to develop skills, and participating in international programs (e.g., OECD, World Bank) enable specialists to adopt best practices, thereby improving their competence and efficiency in procurement management at both national and global levels.
Conclusion
Public procurement in Uzbekistan plays an important role in meeting the needs of the state and achieving its strategic objectives. Main principles of public procurement include professionalism, rationality, economy, efficiency, openness and transparency, competition and objectivity. Public procurement is regulated by various laws and decrees designed to enhance the procurement system and address corruption.
Public procurement is a subject of significant interest due to its critical role in fostering market mechanisms and enhancing their efficiency. Coming into force the Law of the Republic of Uzbekistan No. ZRU-472 “On Public Procurement” since April 9, 2018, has ensured openness and transparency, as well as competition among entrepreneurs. The legislation established five types of procurement procedures. Two of these procedures entirely remove human involvement, thereby improving transparency by publishing information on a designated portal.
The new Law of the Republic of Uzbekistan№ ZRU-684 “On Public Procurement”, adopted on April 22, 2021, replaced the previous acts and introduced new principles and procedures aimed at improving the efficiency and transparency of public procurement, as well as combating corruption.
Experience from developed countries is actively adopted for further improvement of procurement system in Uzbekistan. Development of centralized public procurement, capability to conduct international electronic tenders and training of qualified procurement specialists are the key measures aimed at improving procurement system as whole. Creating a suppliers rating registry and involving public organizations and experts in monitoring will improve transparency and efficiency in public procurement, while promoting healthy competition.
References:
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[2] Karriev, K. S. Comparative review of methods of organization of public procurement in the Russian Federation and the Republic of Uzbekistan / K. S. Karriev // Youth Week of Science IPMEiT: Proceedings of the All-Russian student scientific and academic conference, St. Petersburg, 02-04 December 2021. Volume Part 5. - St. Petersburg: POLITEH-PRESS, 2021. - С. 53-56. - EDN UZUUBF.
[3] Turdiev, Sh., Tashmatova, R. "Effective record keeping in public procurement in Uzbekistan." Ta'limning zamonaviy transformatsiyasi 5.2 (2024): 25-29.
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[6] Sources Law of the Republic of Uzbekistan "On Public Procurement", URL: https://lex.uz/docs/5382983?form= MG0AV3
[7] Law of the Republic of Uzbekistan No. ZRU-684 of April 22, 2021, URL: https://lex.uz/docs/5382983?form= MG0AV3
[8] "Why reform public procurement" - Copyright ©2012 by the International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street NW Washington DC 20433 U.S.A.
[9] Regulating Natural Monopolies in Canada: An Introduction to 'Regulatory Failure and Renewal: The Evolution of the Natural Monopoly Contract', by John R. Baldwin - John R. Baldwin (1989), Regulatory Failure and Renewal: The Evolution of the Natural Monopoly Contract, Economic Council of Canada: Ottawa. Posted: 17 Dec 2020. URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3716335
[10] Decree of the President of the Republic of Uzbekistan dated December 5, 2019, No. PP-4544 “On Measures to Further Improve the Public Procurement System and Widespread Involvement of Business Entities in the Public Procurement Process”, URL: https://lex.uz/docs/4629472
