Beyond financial performance: Reclassifying state ownership in Uzbekistan by economic function
Description
This policy brief examines how Uzbekistan can improve state ownership reform by moving beyond a narrow focus on financial performance and privatization transactions. It argues that financial results alone are not sufficient to determine whether a state-owned enterprise should be privatized, restructured, retained, or subject to special safeguards. Different enterprises perform different economic functions: some operate in competitive markets, some provide public-service obligations, some manage natural monopolies, and others control strategic resources or generate important fiscal revenues. The brief proposes a functional classification of state-owned enterprises based on their economic role rather than legal status or profitability alone. This approach helps distinguish between enterprises that should be exposed to market opening and privatization, those that require transparent compensation for public-service obligations, those that need stronger regulation as natural monopolies, and those that may require safeguards before partial listing or restructuring. The analysis highlights that privatization should follow market opening, not replace it. In competitive sectors, privatization should be preceded by a review of market barriers, exclusive rights, and regulatory advantages. Where such barriers exist, reform should address them before divestment; otherwise, privatization may simply transfer protected rents from the state to private owners. At the same time, enterprises delivering socially necessary but commercially unviable services should not be treated as commercial failures if their mandates are clearly defined and transparently financed. Drawing on international experience, the brief emphasizes that institutional design is critical for the durability of state ownership reform. It recommends shifting from transaction-based privatization toward a functional model of state ownership policy, supported by clear classification criteria, market-opening measures, safeguards for strategic-resource enterprises, transparent treatment of public-service obligations, and stronger legal protection for long-term reform objectives.