Electrical engineering industry in accelerating development

On 6 May, a video conference was held under the chairmanship of the President of Uzbekistan Shavkat Mirziyoyev, at which new decisions were made on the use of growth reserves in the electrical industry, writes Edvard Romanov.

The electrical industry is the most dynamically developing branch of the economy. Most of the industry's products are knowledge-intensive and have high added value. The development of the electrical industry and the electronic industry contributes to scientific and technological progress, the rapid introduction of scientific developments, the development of scientific and production facilities and the attraction of highly qualified specialists. Therefore, the development of this industry is given priority in many countries of the world.

In Uzbekistan, the electrical industry is also developing dynamically. The industry enterprises have mastered the production of more than 60 new types of electrical and household products previously imported from other countries. In particular, high-tech productions have been mastered for the production of LCD and LED televisions, new models of household washing machines, electric stoves and stoves, air conditioners, refrigerators, electric and solar water heaters, LED lamps, electric meters and other electrical appliances, educational and laboratory equipment, transformers and their components, new modern cables and wires.

In the President's Address to the country's Parliament for 2021, the electrical industry, among others, is referred to as industries that can potentially become "drivers" of the national economy. The Development Strategy of the New Uzbekistan aims to double the production of electrical products and triple exports by 2026, in the same year the volume of production is planned to increase by at least 20%.

Dynamics of recent years

The electrical industry has been developing especially dynamically over the past 5 years. Due to the ongoing reforms, $465 million of investments was raised and disbursed, 163 new projects have been launched. As a result, over the specified period, the volume of production increased 4 times — from 4 trillion sums up to 17 trillion sums, exports increased 3 times — from $190 million to $565 million, and the number of jobs doubled and reached 32.000. As a result, for example, by 2021, the number of televisions produced has increased by 2 times, to 950 thousand units, refrigerators, washing machines, air conditioners — by 3 times, up to 522, 670 and 350 thousand units, respectively.

Despite the coronavirus pandemic, in 2020, the volume of production increased by 22.8% and amounted to 12.6 trillion sums, exports increased by 30.5% to $326.5 million, the volume of attracted investments reached $193.8 million. Within the framework of PP-4563 dated January 9, 2020 "On measures to implement the Investment Program of the Republic of Uzbekistan for 2020-2022", 22 investment projects were implemented through the Uzeltexsanoat Association at 13 enterprises belonging to the association.

In 2021, the production indicators of the industry continued to grow, the volume of production increased by 22.3% and amounted to 16.7 trillion sums, exports increased by 72.2% to a record $562.5 million. At the same time, the volume of processing of copper raw materials amounted to 55 thousand tons, and the volume of attracted investments amounted to $150.6 million, of which $65.6 million was foreign direct investment. Within the framework of the approved PP-5011 "Program for the creation of new production capacities and diversification of production in the electrical industry in 2021-2022", 45 investment projects were implemented in 2021.

In the first quarter of 2022, the volume of industrial production by Uzeltexsanoat enterprises increased by 17.1% and amounted to 3.6 trillion sums ($322 million), and exports reached $150 million, which is almost 1.5 times more than in the same period of 2021. At the same time, the geography of exports has also expanded, the industry's products have reached consumers of new importing countries, such as Yemen, the UAE, Syria, Lithuania and Tanzania. During this period, $14.2 million was disbursed within the framework of 36 investment projects included in the program, of which $6.9 million was foreign direct investment.

Stimulating the development of the industry

Such a dynamic development of the industry was due to the ongoing state policy to stimulate it. So, for example, in accordance with PP-4348 of May 30, 2019 "On additional measures to create favorable conditions for the further development of the electrical industry and increase the investment and export potential of the industry", all enterprises of the electrical industry, and not only enterprises that are part of the Uzeltexsanoat Association, until January 1, 2025 they were exempted from paying customs duties for raw materials imported for their own production needs, materials, components and equipment not produced in the republic.

In addition, industry enterprises enjoy state-provided benefits for exporters. In particular, the benefits include partial, up to 50%, reimbursement of transportation costs for exporting products; participation in exhibitions; certification of products, as well as reimbursement of up to 6% of the volume of exports of copper products with high added value, as well as a quick VAT refund, receiving at a preferential rate (2%) funds for replenishment of working capital funds, financial guarantees (up to 50%) of the guarantee amount when participating in tenders, etc.

At the video conference held on May 6, 2022, specific instructions were also given to support manufacturers of electrical products. In particular, the participants of the copper cluster will be allowed to exclude 50% of the cost of new technological equipment from the tax base in the first year. Also, during the last meeting, a wide range of other issues on the development and support of the electrical industry were considered.

Production and export potential

The industry has the opportunity to increase its export potential. For example, neighboring countries annually purchase electrical products worth $6 billion, some of which could be purchased from us, but the share of goods produced in Uzbekistan in their imports is less than 5%. At the same time, Uzbekistan imported $1.3 billion worth of electrical products in 2021, which, as the President noted, could be produced at home. The task has been set to bring the industry's exports to $700 million this year and to $1.0 billion next year.

Thus, it was instructed to establish a system of "processing in the customs territory", first using the example of household appliances. In addition, it is planned to allocate 20 billion sums for the introduction of innovations in the industry and the expansion of exports of finished products to the Electrotechnical Fund. At the same time, it is planned to direct 1% of the volume of exports of semi-finished copper products and imports of electrical products to the fund.

At the same time, domestic demand for finished electrical products will be stimulated. To provide 300 thousand homes with water this year, water heaters and solar collectors, as well as water meters will be required. In this regard, it is planned to implement a project for the production of electronic water meters within 3 months in the Technopark of Tashkent. In addition, a project for the production of water pumps is planned to be launched in Namangan.

In general, 86 projects worth $250 million are planned to be implemented this year. At the same time, the heads of the regions were instructed to attract new projects in electrical engineering for at least $100 million, and to organize electrical clusters in three regions of the republic on the example of the Tashkent Technopark. The responsible departments were pointed out the importance of preventing low-quality products from entering the domestic market, as well as the introduction of a labeling system for household appliances. Recall that, according to the government Decree of April 2, 2022 "On the introduction of a system of mandatory digital labeling of certain types of goods", mandatory labeling of household appliances will be introduced in Uzbekistan gradually during 2022.

It should also be noted that for the first time in the history of Uzbekistan and CIS countries, power transformers of the TMG series of the Chirchik Transformer Plant have been successfully tested in the laboratory of KEMA (Netherlands) and received a certificate of conformity meeting the requirements of international IEC standards, which makes it possible to export them to any country in the world.

Providing the industry with raw materials

Copper is the main raw material for the production of many types of electrical products. About 148 thousand tons of copper were produced in Uzbekistan in 2020, of which 55 thousand tons of copper, or only 37%, were processed into finished products by industry enterprises in 2021. The rest was exported in the form of copper raw materials. Therefore, in the coming years, the volume of copper processing is planned to increase by 2 times, from 37% to 50% in 2022 and up to 70% in 2026.

For these reasons, in the new copper cluster in the Akhangaran district of the Tashkent region, which will include an integral chain "education—innovation—production—service", processing capacities of 90 thousand tons of copper will be created within 12 projects worth $168 million. Enterprises participating in this cluster will be given the opportunity to purchase copper under long-term contracts at a discount to exchange prices. This will help to increase the share of processing of copper extracted in the country into finished products and reduce the volume of exports of copper raw materials.

Human resources and R&D are of great importance

The issues of personnel training were also touched upon at the meeting. In the next three years, the industry will require 4,000 specialists with higher education and 14,000 workers with secondary education. The Ministry of Higher and Secondary Special Education has been instructed to review and improve the curricula for electrical engineering. It was decided to assign the Tashkent Radio Engineering College, the Samarkand and Chirchik technical service colleges, the Fergana Electrotechnical College to the Uzeltexsanoat Association, as well as to create a Design and Engineering Center under the Uzeltexsanoat Association with the involvement of leading foreign companies. In addition, it is planned to implement a special research and development (R&D) program in the field of electrical engineering. For reference: R&D (Eng. Research and development ("research and development") is a functional unit in a company that unites several divisions and is responsible for creating, marketing a product and managing its lifecycle. The R&D block includes: market analysis, search for promising niches and consumer requests.

By the end of the year, R&D centres will be created on the basis of the enterprises "Electroapparat" (research of alternative energy and voltage equipment), "Technopark" (complex molds), "Artel" (new models of household appliances), JV "Uzkabel" (new insulation materials and cables). It is planned to attract qualified foreign and local specialists to these centers. Grants in the amount of 10 billion sums will be allocated to these centers from the Innovation Fund. In addition, R&D centers will pay only 1% of the amount of accrued property tax and land tax for three years. The Ministry of Finance has been instructed to introduce a bill to establish a social tax rate of 1% for them.

Electrical engineering in "green" energy

The meeting also discussed the development of alternative energy. Due to the fact that new projects in this area require components of at least $1 billion, the localization of components will be expanded. This promising industry will develop with the involvement of new partners and investments. As an example, it can be noted that on December 17, 2021, an agreement was signed with ACWA Power (Saudi Arabia) on the construction of a 100 MW wind power plant to be built in the Republic of Karakalpakstan, the project cost is $108 million. In addition, a special program will be developed to install water heating systems in social institutions and street lighting based on alternative energy sources.

In conclusion, I would like to once again note the importance and prospects of the electrical industry for the country's economy. The faster production capacities are increased, R&D is used more efficiently and the quality of manufactured products increases, the more opportunities will open up for the realization of export potential, which will allow in the future to compete with more well-known world brands and fully meet the demand in the domestic market.

Edvard Romanov, is chief researcher for the Center for Economic Research and Reforms under the Administration of the President of the Republic of Uzbekistan.

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