In April 2020, the Center for Economic Research and Reforms (CERR) introduced a new tool for assessing the sentiment of the business community in Uzbekistan, based on the German Business Climate Index methodology developed by the IFO Institute in Munich.
For the past year, CERR has been conducting a monthly survey among 1,000 enterprises in various sectors of the economy (a breakdown by sectors of agriculture, industry, construction and services was introduced in July 2020). The survey clarifies the issues of the current state of the business, changes in demand for goods/services, the dynamics of the number of employees, as well as the expectations of entrepreneurs about changes in the general state of their business and possible price changes in the future.
The business climate assessment includes an assessment of three main indicators. The first indicator is an assessment of the current state of the business, which is calculated as the difference between the answers "good" and "bad" as a percentage of the population of the sample. The value of the current state varies from -100 points (all respondents assess the current state as bad) to 100 points (all respondents assess the current state as good). The second indicator is the expectation of business development prospects for the next 2-3 months. As in the first case, it is calculated as the difference between the answers "will improve" and "worsen" in percentage terms from the population of the sample. The expectation value also ranges from -100 points (all respondents expect their business to deteriorate further) to 100 points (all respondents expect their business to improve further).
And finally, a summary indicator of the business climate, which is calculated based on the average balance sheet values of the current state and business expectations. The business climate value can fluctuate between -100 points (all respondents assess the current state as bad and expect further deterioration of their business) and 100 points (all respondents assess the current state as good and expect further improvement of their business). The relationship between the balance sheet values of the current state and expectations helps determine the prospects for economic development in the country for the next 3 months.
Dynamics of business environment assessment
Given the annual dynamics of indicators, we can see how the coronavirus pandemic has affected the state of the business environment in Uzbekistan (Figure 1).
Figure 1. Dynamics of business environment indicators for 2020-2021
All three indicators were low when a pandemic hit the country in April last year. In addition, in May 2020, the business climate index and expectation index made their lowest for the entire period, at 22 points and 30 points, respectively. The minimum value of the current situation is set in July 2020 - 12 points. The minimum values of the indicators coincided with the introduction of the first nationwide lock in April 2020, which lasted until the end of the month.
Factors influencing the state
In 2020, Uzbekistan provided small business loans and financial assistance in the amount of 120 trillion soums. As a result, 104 thousand companies restored activity, and the turnover of private enterprises increased by 33%, in comparison with the previous year. The volume of microcredits in legal entities increased by 21.7% and at the beginning of April 2021 amounted to 11.2 trillion soums.
A sharp increase in diseases in the summer led to the introduction of new quarantine measures throughout the republic from July 10 to August 1, 2020.
The July results of assessing the business climate in the country can be interpreted as a consequence of the second lockdown - a decrease in the composite indicator to 37 points. The next three months are marked by a phase of moderate economic recovery. During this period, the business climate indicator is kept at 49 points and in November drops to 38 points. Until April 2021, the composite indicator remains above 50 points, and in January it reaches its maximum of 69 points, which is mainly explained by optimistic expectations among entrepreneurs about the prospects for their business.
According to Figure 2, the minimum "improvement" in demand was recorded in May 2020 (15%), and it rose to 35% the next month. This indicator remained at the level of 32 to 42% in other periods.
Figure 2. Dynamics of estimates of demand for goods/services for the last 3 months
Figure 3. Dynamics of the number of employees over the last 3 months
The smallest increase in the number of employees was also noted in May 2020 (9%), and the largest one - in March 2021 (28%) (Fig. 3). Figure 4 gives an idea of the values of the current state and waiting. In general, the relationship between the values of the current situation and expectations for April 2021 means that, according to the estimates of business entities, a positive trend in economic development will continue in the next 3 months.
Figure 4. Relationship between the values of the current state and waiting
The leading indicator of the business climate in Uzbekistan made it possible to assess the prospects for economic development during a pandemic and promptly respond to unfavorable trends. Despite a difficult period for the country, the government's prompt response eased the consequences of the spread of coronavirus infection for business, as evidenced by the indicators of the business climate in Uzbekistan. The introduction of other similar indicators of a different nature in the future will help to assess the situation in a timely manner, prioritizing, to prevent future problems, which will maximize the use of time and resources.
Feruzbek Davletov, CERR
Economic Review Magazine №6 (258) 2021