Download Modernization: the nation`s strategic course of growth January 13

Modernization: the nation's strategic course of growth
January 13, 2013
Since the acquisition of independence, the Republic of Uzbekistan has been steadily
proceeding along its own path of development, known as "the Uzbek model", which is based on 5
major principles. In doing so, the country doesn't try to copy any other nation's methods, however
successful. Nor does it deny the positive world experience. As President Islam Karimov points out in
his works, "Resting upon our own powers, we have picked out a well thought-out development
model, on whose basis we started building the future. Over the last few years we have been pursuing
a comprehensive policy to reform the national economy, while ensuring its further liberalization,
modernization and diversification. All this has helped to provide a solid and reliable barrier to
whatsoever negative repercussions of crises and other threats".
As practice shows, the economy can develop successfully only when all its constituent
industries and sectors, and primarily manufacturing as the foundation of technical progress, function
effectively enough.
The Republic of Uzbekistan doesn't keep aloof of the world's modern progressive
achievements. What is more, the persistent implementation of the national development model,
worked out by the Uzbek leader, has made it possible to create a qualitatively novel system of
economic management, as well as to turn the inherited centrally planned economy into a stable and
highly competitive market-oriented one. Over the two decades of its independent development the
country has invested more than US $100 billion in its economy, with a significant portion of that
amount being injected into industrial construction. As a result, the economy has grown 3-4 times, the
average wage has seen a 14-fold rise and the population's aggregate incomes have gone up almost 9
times. The state expenditure on the social sector has risen more than 5 times.
The highest rates of economic growth in Uzbekistan have been recorded in the past 10-15
years, because the first years after the declaration of independence were spent on the struggle with
the negative consequences of the economic crisis generated by the demise of the former USSR.
Compared with the year 2000, the nation's GDP has risen 2,9 times, production of industrial output 2.6 times and the volume of investments - 3.4 times. At the same time, the volume of foreign direct
investments ploughed in the real sector of the Uzbek economy has soared more than 20 times. All
these figures testify to the fact that the country's leaders trying their utmost to realize reforms and
institutional transformations, are seeking to create not only a self- sufficient economy, but also a
harmoniously developed and comprehensively healthy society, Over the last two decades, the life
expectancy of Uzbek citizens increased by 7 years, with the infant and maternal mortality rates
seeing a more than 3-fold decline.
It should be observed that all these spectacular accomplishments are not the property of the
Republic alone, they are acknowledged by the heads of many countries and the world community
alike. At the recent ,International Conference "On the role and significance of small business and
private entrepreneurship in the implementation of socio-economic policy in Uzbekistan", held in
Tashkent in September of the current year, speaker after speaker stressed the great strides made by
the Republic of Uzbekistan as an independent, sovereign state. Forum, a competent foreign
magazine, noted that Uzbekistan, being a sort of "bridge" between Europe and Asia and enjoying
stupendous reserves of natural resources, as well as developed 'manufacturing, power engineering
and agriculture, is of great interest in terms of fruitful cooperation on terms of mutual advantage. It is
necessary to add that Uzbekistan is also a country that boasts the enviable macroeconomic and
political stability, a huge intellectual and scientific-technical potential and a propitious investment
climate and business-friendly environment.
Today's strategic course of the national economic development involves, first and foremost,
modernization of the manufacturing industry, which includes the expansion, reconstruction and
technical re-equipment of operational enterprises. This doesn't mean that new construction of
production facilities is excluded and ignored. Nothing of the kind! It is generally known that the
formation of a renovated and competitive economy is next to impossible without technical progress.
However, because of scarcity of land and investment resources, a feature characteristic not only of
the Uzbek economy, but the economies of many other countries, developed ones included,
modernization togetherwith technical and technological re-equipment of existing enterprises are
regarded as a priority and far more efficient direction for investment and investment policy at large.
When upgrading a fully operational production facility, as practice demonstrates, big swathes of
territory and arable land are not withdrawn from economic use. At the same time, investments are
economized and their quick repayment is achieved. In economic parlance, this is called a rapid return
of funds invested in modernization, technical re-equipment and development of production as a
whole. And any unit of the funds thus saved - no matter in what currency it Is denominated multiplied by the absolute scale of construction or modernization, means none other than the
possibility to expand production without extra investment. It is on this basis that the well-known
principle "The economy should be economical" should be put into practice. It is appropriate to
mention here that the economy of any state, to say nothing of the economy of any household, an
function efficiently only on the principle of justified saving. The saving of resources constitutes the
foundation for zealous management at all levels, across all sectors and production links of an
efficiently performing economy, or a principle of receiving the maximum profit with minimal
production-related expenses, without prejudice to its quality parameters, however.
Let it be emphasized in this connection that the indicated strategic course of development,
which can be defined as innovative, is implemented throughout all basic industries of the national
economy. It firmly rests on several programs of modernization, and technical and technological reequipment that are being realized countrywide. Moreover, these programs are often complemented
with measures to diversify and localize production. Subject to upgrading, in the first place, are those
enterprises, whose technical and technological level is low compared with today's achievements and
where the machinery used is outdated, both physically and morally, and the proportion of unskilled
manual labour remains very high. The point is, in the present day's environment of rapid technical
progress and tough competition, a technically backward enterprise cannot seriously expect to get any
technical or economic advantage and, as a consequence, to remain an active player in a respective
market for a long time. Another problem lies in the fact that manufacturing continually creates
qualitatively novel machinery and equipment or substantially perfects their production, which means
that the stock of machine-tools in operation is regularly upgraded. Keeping pace with a given
process is only possible if enterprises regularly acquire up-tcvdate equipment or modernize their
existing machinery. That is why modernization should be viewed not as a routine organizationaltechnical measure, but rather as one of the forms of inculcation of new equipment and technology or
reproduction of capital funds.
In all cases, the primary aim of modernization is to bring the functioning production
mechanism into line with the requirements of scientific-technical progress, including an increase in
the efficiency of equipment and labour productivity of workers, who exploit that equipment. As for
modernization's final aim, it encapsulates the following aspects: to swell the volume of output, to
improve its quality and competitiveness, to achieve the maximum improvement of working
conditions and to cut production costs. Unlike new industrial construction, modernization allows
enterprises to preserve their territorial integrity, without the need to use additional land plots, which
is one of the most important advantages of modernization. More than that, modernization makes it
possible to economize capital investments, notably those intended to finance the implementation of
building-and-erection works. It is common knowledge that neither expansion of enterprises nor their
reconstruction can do without such works.
In the case of new construction projects, expenses related to building-and-erection works
(construction of buildings and structures) account for up to 45-50 per cent of the total volume of
capital investments. As far as modernization, technical re-equipment and reconstruction of existing
enterprises are concerned, this sort of expenditure can boil down to 10-15 per cent. At the same time,
if an enterprise has a well-organized labour collective and maintains close business ties with other
enterprises, it is in a position to intensify and develop the new capacities that have appeared due to
modernization and expansion of production, in a far shorter period of time. That said, modernization,
reconstruction, expansion and technical and technological re-equipment are highly conducive not
only to a rise in labour productivity and production volumes and the improvement of output's quality
and competitiveness, but also to the social development of labour collectives. The latter is, without
doubt, an important pre-requisite for the attraction and retention of young college graduates at
enterprises.
In today's environment of runaway technical progress and rapidly evolving competition, there
is no need to persuade enterprises to carry out modernization projects. Most of them realize quite
well that obsolete equipment cannot ensure the achievement of economic progress or an appropriate
business image. It is on the basis of this understanding that not only separate enterprises but the
entire national manufacturing industry stake on modernization and scientific-technical progress. And
the State Program "On priorities of industrial development in Uzbekistan in the 2011-2015 period"
attests to this statement. The document provides for the outstripping development of power
engineering, the oil and gas sector, chemistry and petro-chemistry, non-ferrous metallurgy,
machinery and automobile construction, the textile and light industries, pharmaceutics, production of
building materials, deep and quality processing of farm produce etc. The Program stipulates the
realization of upwards of 500 investment projects designed to improve the structure of
manufacturing, on the one hand, and to augment its share of the nation's GDP, on the other. In
particular, in the indicated period the share of processing sectors in its structure should grow from
41.0 per cent to 49.0 per cent, with the share of manufacturing as a whole going up from 24.0 per
cent to 28.0 per cent of GDP. This increase, among other things, should contribute to a 1.4-fold
increase in the proportion of industrial output in the total volume of exportable domestics.
Directing all efforts and resources to the introduction of new equipment and advanced
technology and modernization of production has a substantial effect. The evidence for this comes
from the experience and practices of many enterprises, such as ОАО Kyzyikumcement , one of the
leaders in the cement industry of Uzbekistan. Between 2008 and 2011 a given enterprise
implemented more than 40 measures within the framework of the Program for Modernization and
Technical and Technological Re-equipment. Their realization required over 125 billion Soum
(official exchange rate $1=1985.46 UZS) in investment. Last year alone, an increase in cement
production amounted to some 565,000 tons. It was the first time in its 33-year-long record of
performance that ОАО Kyzylkumcement turned out more than 3.1 million tons of cement, or nearly
47 per cent of the aggregate volume of cement produced in the Republic.
As the experience gathered by this and many other enterprises suggests, an even bigger effect
is achieved, if the latter is accompanied by intensification of production processes, which means
production of a larger volume of output per unit of industrial capacities and raw material used. In
economic practices, this phenomenon is known as an outstripping growth of production compared
with that of expenditure. In other words, it is the achievement of maximum outcome with minimum
expenses, provided the qualitative parameters of production remain intact. There is no practical sense
in modernization, which cannot meet this essential condition of economic activity. What's more,
such modernization is disadvantageous and even useless.
While doing justice to both the role and significance of modernization, it should be noted that
it is neither the end in itself nor a fashionable industrial trend. Activity aimed at modernization and
up-to-date innovations as a whole should not be of a temporary nature. Nor should it cover only
separate enterprises. On the contrary, all enterprises, irrespective of their 'sectoral subordination,
type of ownership and other peculiarities, should be involved in the modernization process. And one
more important factor is to be mentioned when it comes to modernization: it is necessary to take into
account all achievements of world practice in the field of innovation. Of particular significance is
cooperation between big and small enterprises, which differ from each other not only by the scale of
production, the number of personnel and provision with resources, but also by their innovation
potentialities. Large-scale enterprises are well-armed to concentrate a group of highly qualified
engineers and technicians, to run corresponding divisions, services, experimental workshops,
laboratories and other departments, carry out advanced scientific-design research and maintain
fruitful links with various scientific-research institutions. Needless to say, small and medium-sized
enterprises lack all these advantages, although their personnel numbers may 10 or even 100-fold
exceed those at their bigger counterparts.
In conformity with the Presidential Decree, "On measures to stimulate the intensification of
cooperation between big enterprises and the services sector through the development of home-based
labour", big enterprises create new or additional jobs, a factor subservient to an increase in the
population's employment and incomes. It is expedient to develop and expand such cooperation
between large-scale enterprises and small businesses in the field of innovation, as is the case in many
industrialized countries. Big enterprises should not confine themselves to the creation of new jobs,
the placing of orders with small enterprises for the production of some categories of commodities or
their components, provision of services etc. Their cooperation should include the encouragement of
the small sector's innovation-directed aspirations and the attention paid to their technical and
technological state of production. Such a diverse collaboration will make it possible to effectively
exploit the certain advantages of big and small enterprises: the solid provision with innovation and
investment resources and huge scientific-technical and intellectual potential - big enterprises, and the
flexibility, maneuverability and mobility, including a quick response to changes in the market
situation, - in small enterprises.
Speaking at the January governmental sitting that discussed the main results attained by the
Republic in 2011 and priorities of its socio-economic development in 2012, the Uzbek President
emphasized in particular that "the entry into the world markets can be ensured, in the first place, by
reforming the economy, intensifying structural transformations, diversifying the economy,
developing high-tech enterprises and production facilities at an outstripping pace and accelerating
the processes of modernization and technical upgrading of existing production capacities".
Another Presidential thesis is also worth reminding here that "neither modernization nor
renovation of the economy is feasible without investment". That is why the 2012-2016 period will
see the realization of more than 270 investment projects to the tune of US $6.2 billion. In the current
year, the Fund for Reconstruction and Development of the Republic of Uzbekistan will provide
funding towards the realization of as many as 29 strategic investment projects in the leading sectors
of manufacturing and industrial infrastructure. The total amount of financing exceeds US $758
million, up 38.2 per cent on last year. The implementation of sectoral programs for modernization,
and technical and technological re- equipment of production will continue. Undoubtedly, all this will
facilitate the growth of the manufacturing industry's production potential and switch the national
economy to the innovative path of development, ultimately allowing it to compete on a par with
other economies in the international marketplace.
Erkin Makhmudov, Feruza Rakhmonova (Source: Business partner.uz newspaper)