Neighbors in crisis, Uzbekistan focuses on investment
Landlocked Uzbekistan is shrouded in crisis. Afghanistan to the immediate south, Ukraine further west to name but a few. None of this is of their own making, which is the good news. Russia, its biggest trading partner, is being punished in a thousand pieces for its war in Ukraine. China, the first source of its imports and the third destination of exports, is facing a resurgence of Covid-19 in its busiest business city, Shanghai. In the midst of this, Uzbekistan decides to launch its very first international investor conference.
The Tashkent International Investor Forum took place from March 24 to 26. The meeting was moderated by the communications director of the European Bank for Reconstruction and Development, Jonathan Charles, a well-known former BBC World News presenter.
In recent years, starting in 2016, President Shavkat Mirziyoyev launched a series of economic reforms and declared the country open for business. He was joined at the Investment Forum by leaders from the European Bank for Reconstruction and Development, the Asian Development Bank and officials from the Asian Infrastructure Investment Bank, among others.
The main topics of the forum focused on restoring and stimulating the development of economic activity in post-Covid Uzbekistan; reduce poverty; regulate monetary policy; supporting private enterprises and the privatization of public enterprises and developing the banking sector and the financial market.
“I’m a big fan of the new Uzbekistan although it’s still largely unknown to Westerners,” famed investor Jim Rogers told me in August. “Previously it was run like a dictatorship, but the new government seems to know what it’s doing. What they have accomplished in recent years deserves congratulations.
Some of these achievements include the elimination of forced labor on cotton plantations in Uzbekistan, the privatization of state assets (still in progress) and the reform of the judicial system. They launched their very first Eurobond in 2019. Interest rate there are 17%. Their bonds are all double B speculative credit. Rolling 12-month consumer price inflation is around 9.7% in February.
On April 13, the International Monetary Fund released a report of their visit to the country. They said Uzbekistan had weathered the pandemic “relatively well”.
Strong fundamentals, ample headroom (room to cut interest rates) and high gold prices have enabled authorities to take decisive action to mitigate the social and economic impact of the pandemic, while maintaining economic stability at a time when the world seems to be collapsing all around them.
In other words, Afghanistan is next door.
The economic recovery initiated by Uzbekistan at the end of 2020 accelerated in 2021, with growth accelerating to 7.4%.
But just when it appeared that Uzbekistan had passed the acute phase of the pandemic and was ready to resume operations, the war in Ukraine and the sanctions imposed on Russia brought new uncertainty and weighed on the outlook for Uzbekistan, the IMF said.
Russia is a big source of remittances from Uzbeks who live there and send money home. It is also a source of financing, particularly in the energy and mining sectors. The fallout from the Russian and Kazakh crises, coupled with disruptions to the Chinese supply chain, will mean further headwinds for Uzbekistan at a time when the drama is over and ready to move on.
“Volatility and uncertainty are expected to remain elevated for some time,” the IMF report said.
With new headwinds, Uzbekistan’s growth is expected to slow to 4% this year, from 6% previously forecast. Inflation will rise again, reaching 12% thanks to sanctions imposed on Russian commodity producers and China’s zero Covid policy closing the world’s largest port.
Everyone wants a breath of fresh air. This is especially true for countries that have been tested. Uzbekistan has been on hiatus since the fall of the Soviet Union. He didn’t know what to do with himself. Mirziyoyev, who came to power in 2016, is presented by the West as the man who could change that.
During a March 9 meeting with Uzbek Foreign Minister Abdulaziz Kamilov, Secretary of State Antony blinken said“We appreciate the strategic partnership between Uzbekistan and the United States and all the work that is being done through it.”
This partnership is now twenty years old. It is still primarily a political arrangement due to its border with war-torn Afghanistan, its close ties to Russia and its geostrategic location. However, Washington also wants to have a friend in a former Soviet space and do business. This is something the private sector will have to believe in.
At last month’s forum, Mirziyoyev essentially took the time to describe an old world trying to plug into the new.
“We have been known since ancient times for the fact that there were caravan routes connecting different parts of the world,” he said. mentioned. “There was a mutual enrichment of civilizations and cultures formed in China, India, Iran, Byzantium and Egypt. Our country, with more than 3,000 years of statehood, has long been one of the world’s most developed centers of trade, economy, science, culture and art.
For market history buffs, Mirziyoyev mentioned Abu Ali Ibn Sino – or Avicenna as he is known in Europe. He was an early founder of modern medicine and established the practice of quarantine.
Muhammad Khwarizmi was one of the first mathematiciansand the term algorithm is related to it.
The local ruler, grandson of Tamerlane and founder of an observatory, Mirzo Ulugbek, built an observatory in Samarkand in the 15th century.
That was then.
Uzbekistan is now a frontier market for alternative investors and risk takers like Rogers.
Business has picked up. The volume of annual foreign direct investment has tripled since Mirziyoyev took power in 2016. He is the country’s second president. FDI reached $25 billion last year, with around 59,000 investment projects implemented over the past six years and more than 2.5 million new jobs created as a result of this opening, according to the government figures.
Over the next five years, the Uzbek government has said it aims to achieve a GDP of $100 billion, double exports to over $30 billion, and have 80% of GDP produced by the private sector. By 2030 or earlier, Uzbekistan aims to join the WTO and become a country with GDP per capita in the upper middle income bracket. It’s only 8 years from now. If they were to do so, they should become the Singapore of Central Asia.
Global companies and traders see the country as a promising area of opportunity in Eurasia, as are all new markets.
The country recently joined the European Generalized System of Preferences (GSP+) for certain products that can be shipped to reduce customs fees.
Privatization of state assets in more than 25 sectors is expected to take place by 2026.
For residents, the total number of taxes was reduced from 13 to 9. And property tax rates were reduced more than three times, from 5% to 1.5%. Personal income tax has been reduced from 40% to 20%. Capital gains taxes are around 10%, based on Data from PriceWaterhouseCoopers.
“Our work over the past 5 years has yielded positive results,” Mirziyoyev told forum participants from some 50 different countries. The average annual growth of the economy under this new government was around 5%, with industrial growth around 8%. Their central bank’s foreign exchange reserves have fallen from $27 billion to $35 billion, which is still small, but equates to about $1,000 per person. In Brazil, central bank reserves stand at about $1,600 per person, with total reserves of $357.8 billion in February.
In 2020, in the midst of the coronavirus pandemic, Uzbekistan’s economy fared much better than that of Brazil, which recorded negative GDP. Last year, GDP growth in Uzbekistan exceeded 7%.
“It inspires us to pursue new frontiers,” Mirziyoyev told the conference. He wants Uzbekistan to be a transport corridor to export goods to the east, via a railway to Kyrgyzstan and China, to the south via Afghanistan and to the west via a multimodal transport corridor across the South Caucasus.
Uzbekistan reportedly signed agreements and investment agreements worth $7.8 billion at the forum, including preliminary agreements or memorandums of understanding, estimated at $3.5 billion.
Of course, China was there with its parallel Uzbek-Chinese forum titled “Industrial Cooperation. New opportunities.”
Russia, however, remains a problem.
And neighboring Kazakhstan is in crisis. Their First Deputy Foreign Minister Akan Rakhmetullin told European media in mid-April that “the United States imposed unprecedented sanctions on Russia. We have deep integration with Russia, as well as the longest land border, and we cannot help but feel the impact of these sanctions.
Some global investors remain bullish on Uzbekistan.
“The economy has finally opened up and I’m sure international investors will take advantage of this opportunity to tap into its growth potential,” Rogers said. “I will watch closely.”
Uzbekistan intends to make it an annual event for investors in Central Asia.