Transformative Governance with Vision - Charting the Course for Future SOE Success

Last year, as the amber leaves heralded the arrival of autumn, I had the privilege of speaking at the Corporate Governance Forum, a gathering devoted to the future of Uzbekistan's state-owned enterprises (SOEs). It was a gathering of bright minds and forward-thinking ideas aimed at improving the governance system, which is critical to the long-term viability and success of SOEs.

Not long ago, the dynamics of corporate governance became the subject of a lively televised debate (link ), allowing me to analyze its evolution, a topic that is not only fascinating to me but is also critical to Uzbekistan's economic development. These discussions are more than just academic - they reflect ambitions and milestones, serving as both an indicator and a catalyst for the progress we seek.

It is time to examine Uzbekistan's SOE progress more closely. This is more than just a tally of the outcomes - it is a careful examination of the changes occurring in the economic fabric itself.

Public Assets, Private Innovation - Navigating Beyond Privatization

The economy of Uzbekistan is richly diverse, with over 2,000 SOEs touching all aspects of society, ranging from strategic pivots in industries such as mining, energy, oil and gas, chemicals, automobiles, transportation, and communications to those critical to local communities such as hospitality and agricultural services. A powerful group of 20 SOEs stand out within this vast ecosystem, not only contributing to the country's revenues but also serving as the foundation for hardworking citizens' employment.

Among the loud discussions about privatizing Uzbekistan's economic giants, there is a cacophony of voices calling for a decisive divestment of state assets. This change chorus implies that the private sector is solely responsible for the path to prosperity. However, I remain cautious, drawing on global experience in which strategic state ownership and thriving markets can coexist.

On the international stage, there is a spectrum of successful state ownership models, ranging from Norway, where SOEs account for an impressive 43 % of the 200 largest companies, to economic powerhouse Germany, where SOEs have a turnover of 253 billion euros. Singapore and France make a compelling case that state-owned enterprises are critical components of their economic machinery, and the data backs up their claims.

The debate is thus about the nuanced interplay between state ownership and market viability, rather than the abstract merits of privatization. The significant market share of Norway, Germany's massive turnover, Singapore's strategic integration, and France's economic strength all attest to the potential of SOEs when managed with precision and competence.

I will continue to advocate for a well-balanced approach based on global best practices. It is a path that acknowledges the distinct role that SOEs can play in a thriving market by combining public management discipline with private enterprise innovation. This, in my opinion, is the key to realizing Uzbekistan's SOEs' true potential, ensuring that they are not only economically viable enterprises, but also pillars of a modern and dynamic economy.

Governance Reboot - Uzbekistan’s Bold Re-imagining of SOE Ownership

Uzbekistan has begun a transformational path toward professionalizing state ownership, as evidenced by the strategic transfer of the largest SOEs' shareholder rights to the Ministry of Economy and Finance. The establishment of UzAssets as a managing entity signals the adoption of a strong institutional shareholder structure consistent with long-term strategies and best practices found in Singapore and Norway governance models.

These countries serve as models because they have distinct structures, commercial savvy, and expert control over SOEs. Uzbekistan's adoption of such models demonstrates not only a desire for change, but also a pursuit of excellence that serves as a model for international best practices.

This realignment is more than just a change in procedure - it represents a fundamental rethinking of the state's role in the economy. It compels us to consider fundamental questions about the strategic goals and economic rationale of state ownership, especially in industries with a volatile competitive environment.

The transfer of shareholder rights to the Ministry of Economy and Finance is a fundamental step toward the establishment of sound governance structures. This initiative ensures a continued focus on long-term strategic goals and lays the groundwork for a comprehensive review of the State's asset management mandate. It is a paradigm shift that ensures not only the presence of public engagement, but also its economic viability and strategic importance.

Uzbekistan can clarify the contours of state ownership, align it with global standards, and cement a future in which governance is not just a policy, but a practice that is consistently applied across the board, positioning SOEs for success in a competitive global marketplace through this transition.

We are following a strategic plan to transform Uzbekistan's SOEs, which promises to redefine the essence of state ownership. Our path is defined by two major objectives:

1. Define the ownership strategy: our initial task will be to create and implement a long-term strategic ownership program. This process includes developing an overall portfolio, clarifying the rationale for public ownership, categorizing assets based on strategic importance, and identifying opportunities to improve current ownership processes. As a result, we hope to align our developments with broader national economic goals, ensuring that they contribute to Uzbekistan's economic growth in an effective and efficient manner.
2. Creating a strong governance structure: The second goal is to establish a strong governance structure. This entails reducing direct government involvement in the day-to-day operations of SOEs in order to give these entities greater commercial autonomy. Ownership consolidation enables economies of scale, and internal process organization enables operational efficiency. As a result, a practical governance scheme that enables SOEs to act quickly and astutely in a competitive global market is produced.

This clear-cut program serves as a road map for transforming Uzbekistan's major SOEs, ensuring that state assets are managed not only to preserve their value, but also to maximize their potential and contribution to the country's economy.

Governance for Growth - Uzbekistan's Strategy for Competitive Balance

When the task of establishing equal working conditions for state and private enterprises is assigned, a watershed moment in Uzbekistan's economic development occurs. Fair competition is the foundation of the country's development. Despite the fact that the government of Uzbekistan has taken significant steps to stimulate the private sector and reduce state intervention in the market, this path is fraught with difficulties.

The Economist Intelligence Unit's reports shed light on long-standing barriers such as anti-competitive practices and the competitive neutrality gap. This disparity stems from SOEs frequently receiving preferential treatment, which can distort market dynamics and impede competition. These difficulties highlight the importance of strong institutional and regulatory frameworks that not only support but also actively enforce competitive neutrality, ensuring that both SOEs and private companies have equal access to market conditions and opportunities.

Addressing these challenges requires not only policy changes, but also a fundamental restructuring of the market environment to promote healthy competition and innovation. It is about creating an environment in which businesses of all sizes can thrive and contribute to a dynamic and sustainable economy.

The commitment to regulatory reform marks Uzbekistan's path to a market with competitive neutrality for SOEs and private companies. The current legal and regulatory framework governing SOEs has flaws, such as inconsistent application of corporate governance standards and inadequate procedures for determining compensation for public service obligations. SOEs are exempt from certain legal requirements and frequently receive preferential treatment in financing, procurement, and subsidies, resulting in an imbalance in the competitive market.

To correct this situation and move toward a level-playing-field market, Uzbekistan must examine its market interventions critically and strengthen the legal framework governing SOEs. Three commitments should be made by the government: tightening market discipline for SOEs, eliminating preferential treatment and increasing transparency of subsidies, and limiting state ownership to sectors of significant economic or strategic importance.

In order to achieve these objectives, Uzbekistan is implementing the World Bank's competitive neutrality assessment methodology, with the goal of aligning its practices with international benchmarks and removing market barriers. This approach is part of a larger initiative to revamp the regulatory framework, as evidenced by our legislative program, which includes immediate amendments to critical laws and the introduction of a new mandatory Corporate Governance Code.

By enacting these reforms, Uzbekistan ensures that its SOEs compete fairly. The goal is simple: to develop a regulatory system that not only promotes competition but also ensures transparency and economic feasibility of state ownership, ensuring that SOEs and private companies operate in a fair environment that fosters growth and innovation across all sectors.

Governance by Design - The Legal Blueprint for Uzbekistan's SOE Advancement

The legislative reform that is underpinning Uzbekistan's SOE transformation is both ambitious and urgent. The Law on Joint Stock Companies, the Law on State Property Management, and the Capital Market Law are all being revised. This is done with the understanding that a new, binding Corporate Governance Code is critical to meeting the unique needs of the largest strategic SOEs.

This reform is more than just an update to the regulatory framework - it is a significant step toward improving governance structures and aligning practices with the highest international standards. Despite its goals, the current "Law on State Property Management" has unintentionally added complexities, emphasizing the need for greater alignment with the broader legal framework. Taking care of this issue will not only streamline processes but will also pave the way for Uzbekistan's SOEs to successfully transform.

The implementation of the new Corporate Governance Code is critical. By establishing a transparent, accountable, and effective governance structure, it will serve as the foundation for ensuring that our key strategic SOEs are not only compliant, but also competitive and capable of navigating the global business environment. Our goal is to bring Uzbekistan's SOEs to the forefront of international best practices, to foster their growth, and to contribute to the country's economic vitality.

This transformative agenda aims to secure the economic future of Uzbekistan. It is about implementing today's best practices and laying the groundwork for tomorrow's innovations. Our goal is to foster an economic environment that is appealing to investors, resilient to global change, and focused on long-term prosperity. These reforms usher in a new era of economic renewal and growth in Uzbekistan, promising a more dynamic and equitable future for all.

Reinventing Board Leadership in Uzbekistan's SOEs

The effectiveness of Uzbekistan's SOE supervisory boards appears to be hampered by structural issues and procedural flaws. The boards, which have traditionally been dominated by civil servants, lack a significant number of truly independent members, which, combined with limited decision-making autonomy, makes strategic management of these businesses difficult.

Recognizing these challenges, we are making steady progress toward reform. We are currently working hard to improve the composition and performance of supervisory boards. The emphasis is on recruiting independent professional members to supervisory boards with a wealth of knowledge and the ability to contribute unbiasedly to SOE governance.

The transition to better supervisory boards entails more than just meeting requirements - it represents a fundamental shift toward higher corporate governance standards. We are working to improve our nomination processes so that board members are chosen on merit and in accordance with our core values of transparency, accountability, and strategic vision.

These efforts are part of a larger reform strategy aimed at instilling in the SOE governance system a new ethic of independence and professionalism. This work is ongoing and is required for Uzbekistan's SOEs to be managed effectively and strategically in accordance with the governance principles and Presidential directives. The push to redefine these roles exemplifies the commitment to improving SOE governance and decision-making by ensuring that they are governed by supervisory boards that are capable, independent, and ready to meet the challenges of a dynamic global economy.

A comprehensive set of initiatives is being implemented within the framework of SOE Transformation to address the challenges of SOE governance in Uzbekistan:

1. Strict compliance with the Corporate Governance Code: We will ensure strict compliance with the new mandatory Corporate Governance Code, which is consistent with global best practices. This code is more than just a set of guidelines; it is a mandate to ensure that all SOEs adhere to the highest levels of corporate governance.
2. Board Professionalization: We are currently transitioning from Boards of Directors that are primarily composed of civil servants to Boards that are composed of independent, professionally trained members. Our initial goal is to have at least 30% of board members who are independent, and then to increase this to 50%. This includes a strategic decision to appoint independent board chairmen, which will increase supervisory boards' autonomy and effectiveness.
3. Merit-based appointments: The level of government representation on boards is enhanced through a merit-based appointment system. This ensures that individuals leading SOEs are selected for their qualifications and experience rather than political affiliations.
4. Revamping Executive Selection: The process for selecting and nominating senior executives within SOEs is being completely redesigned. We hope that by doing so, we can limit political interference and foster a meritocracy culture in which leadership positions are filled on the basis of capability and potential.

These initiatives are not isolated actions, but rather interconnected components of a larger strategy to transform Uzbekistan's SOE governance. By professionalizing boards, implementing rigorous governance codes, and ensuring meritocratic leadership, we are establishing a new level of transparency, accountability, and strategic oversight that will contribute to the success of SOEs in a competitive global marketplace.

Through a historic collaboration with a UK-based board solutions company, Uzbekistan has taken a significant step toward overhauling the governance of its SOE supervisory boards. This collaboration kicked off a rigorous selection process that included nearly 100 highly qualified candidates, carefully compiling a list of potential board members with the experience and vision needed to lead SOEs into the next era. A rigorous selection process is in place, and it includes seven key industries and 22 of the most strategically important SOEs.

The formal appointment of these candidates, which must be approved by shareholders, is the final act (or beginning) of this transformational journey. This is more than a formality - it is the last step in raising Uzbekistan's SOEs to the highest levels of global corporate governance. Candidates selected using stringent criteria are at the forefront of a transformational shift that will bring Uzbekistan SOEs much closer to corporate governance excellence.

Corporate governance transformation in Uzbekistan is about more than just compliance - it is about rethinking the economic framework. It is about trying to create a market that is not only fair and competitive, but also long-term and growth-friendly. We are making steady progress toward reforms that will ensure competitive neutrality and the highest corporate governance standards. Not just a change in leadership, but a watershed moment that will reshape Uzbekistan's economic destiny. It's an exciting journey in which strict discipline collides with dynamic action and experience waltzes with cutting-edge innovation. We are laying the groundwork for a vibrant and equitable economic fabric that will benefit all sectors of society. I invite you to join us on this journey, to witness and contribute to the story of Uzbekistan's SOEs as it unfolds. As we enter a new era of transformational governance, we are on the verge of rethinking the role of the state in market relations and ushering in a new era of economic prosperity.