|
Uzbekistan
Country
Overview |
|
|
|
|
Capital: Tashkent
Area: 447,000 square kilometers
Population: 24.3 million (1998)
Currency: Soum
Exchange Rate: $1 = 112 (official, 2/24/99); $1 = 410 (parallel, 2/10/99)
GNP: $23.9 billion (1997 est.)
GDP Growth: 1.6% (1996); 2.4% (1997); est. 1.0% (1998)
GNP per capita: $1,010 (1997)
Inflation: est. 50% (1997); est. 50% (1998)
|
|
EXECUTIVE
SUMMARY
Uzbekistan has
excellent long-term economic potential, because of its well-educated population and
plentiful natural resources. It is the world’s ninth largest producer of gold (with
annual output of approximately 60 tons) and is among the ten largest suppliers of natural
gas (with annual production of more than 50 billion m 3 ). But both domestic and foreign
demand for its natural gas is declining. Progress in systemic economic reform has been
slow, in accord with President Karimov’s commitment to gradual economic reform. But the
government's reluctance to relinquish control of key sectors of the economy remains a
serious impediment to the fulfillment of Uzbekistan's long-term economic potential.
Uzbekistan's move in early 1999 to begin privatizing major enterprises is a positive sign
for foreign investors, but there are many other hurdles to be overcome, such as the lack
of a convertible currency, before Uzbekistan can become an attractive market for foreign
trade and investment.
Future
Opportunities |
- Transportation/Roads
- Agriculture
- Health
- Thermal Power
|
|
Recent economic
performance has been poor. The cotton crop failed in 1998, and world gold prices declined.
Monthly inflation rates accelerated in late 1998, and inflation probably averaged more
than 50% for the year. By early 1999 the parallel exchange rate for the dollar was nearly
fourfold in excess of the official rate. Shortages of key imports have appeared.
Nonetheless, good project opportunities can be identified in the agricultural sector, and
in public infrastructure and services, supported by international donors. And power
exports may prove to be an area of comparative advantage over the medium term, if
generation technologies are upgraded.
ECONOMIC OUTLOOK
Uzbekistan has a
well-educated population, and is rich in natural resources. It is the world’s ninth
largest producer of gold (with annual output of approximately 60 tons) and is among the
ten largest suppliers of natural gas (with annual production of more than 50 billion m 3 ). More
than 20 percent of Uzbekistan’s GDP is generated in agriculture, which employs about 40
percent of its labor force. Primary commodities, such as cotton fiber, mining and energy
products, account for about 75 percent of its merchandise exports; cotton alone accounts
for 40 percent of exports. Overuse of the rivers that feed the Aral Sea for irrigation of
agricultural lands has already reduced it to two-thirds of its former size, however, and
salinization of the surrounding area threatens the environmental and economic viability of
the region.
Although Uzbekistan’s long-term economic potential is strong, recent
economic performance has been poor. In 1998 the cotton crop failed and world gold prices
declined, contributing to a decline in exports estimated to have exceeded 17%. Immediately
following the collapse of the Russian ruble in August of 1998 the parallel, or
black-market, exchange rate depreciated significantly, but monetary authorities devalued
the official rate only slightly. Instead, the Government kept the trade deficit from
exploding by tightening import controls, with the result that imports declined by nearly
16%. Shortages of key imports appeared.
The price level by the end of 1998 was estimated to have risen by about
50% year-on-year, and monthly inflation figures began to accelerate by year-end, reaching
3.8% in November (implying inflation of 155% at an annualized rate). The Government’s
reaction has been to accommodate price rises by increasing wages in July of 1998 and again
in January of 1999. By February of 1999, the parallel rate had soared to 410 Soums per
dollar, as compared with an official rate of 112. The Government responded by increasing
from 30% to 50% the proportion of foreign exchange earnings foreign companies were
required to surrender at the official rate.
Economic growth data for the Republic of Uzbkeistan are difficult to
obtain, and the official Uzbek figures tend to vary greatly from data acquired from other
sources. The Government claims that real GDP grew by 5.2% in 1997, while the IMF suggested
that a figure of 2.4% was closer to the mark. The official GDP growth figure for 1998 is
4.4%, while the Economist Intelligence Unit reports a preliminary figure of 1.0%. Demand
for Uzbek natural gas, from both domestic heavy industry and foreign buyers, is declining.
And, although no figures are available, it is likely that Uzbekneftegaz is facing large
payments arrears from both its domestic and foreign customers. The Government tendered
several new gas exploration projects in 1998 but received no bids.
Uzbekistan has implemented a relatively good small-scale privatization
program, with 60,000 enterprises (96 percent of the total) having been privatized or
leased to worker collectives since 1992. But progress in privatization of medium- and
large-scale enterprises, and agricultural enterprises, has been on-again, off-again, with
little real progress. In late 1998 the Government announced another ambitious program of
privatization of many of its major enterprises.
BUSINESS AND
INVESTMENT CLIMATE
Some of the most
serious obstacles faced by foreign companies doing business in Uzbekistan center on import
restrictions and currency convertibility restrictions, coupled with a recent increase in
mandatory foreign exchange surrender requirements, as described in the previous section.
In addition, the Central Bank has begun sharply limiting the amount of
cash Soums in circulation and to require that virtually all transactions by enterprises,
with the exception of wages and travel, must be paid by interbank transfers rather than in
cash. The effect has been to make even day-to-day bank operations difficult and time
consuming, because interbank transfers can take anywhere from several days to several
months to clear. As a result, a parallel pricing system has formed in which the price for
goods in interbank transfers is running as high as three times the cash Soum price. The
overall effect of these measures on foreign trade and investment in Uzbekistan has been
negative. Many major foreign companies are pulling out of or significantly reducing their
activities in the Uzbek market. Over the past six months, major players such as Enron,
Unocal and AIG have all substantially cut back on operations in Uzbekistan, or left
altogether. Foreign direct investment (FDI) remains low; in 1997 only $57 million, or less
than $3 per capita, entered the country as FDI. This is the lowest per capita rate in the
former Soviet Union. This issue was addressed by the Government in May of 1998 when new
legislation was introduced offering stronger protection for foreign investors. The
Government’s policy since 1994 has been to try to encourage foreign investment through a
series of presidential decrees and legislation that provides special tax breaks,
guarantees and concessions to foreign investors and joint ventures with foreign investors.
All of these decrees and legislation are subject to the caveat, however, that their
provisions are subject to existing Uzbek legislation, which significantly limits any
positive impact they may have.
Uzbek authorities remain very interested in attracting U.S. investors
to participate in trade and investment projects identified by the Government as
high-priority for Uzbekistan, and representatives of U.S. companies that participate in
such arrangements, such as Case Corporation, report that their business relationship is
quite satisfactory. The U.S.-Uzbekistan Joint Commission has established a Business
Subcommittee, chaired by U.S. Ambassador Presel, to help resolve business issues.
POLITICAL CLIMATE
The Republic of Uzbekistan gained
its independence on August 31, 1991 and was recognized by the United States on December
25, 1991. Uzbekistan is a member of the United Nations and the Commonwealth of Independent
States (CIS). Islam Karimov was first elected President by Uzbekistan's Supreme Soviet in
1990, prior to independence, and later won a popular election in 1991. In March 1995, Mr.
Karimov held a nationwide referendum to extend his presidential term until the year 2000,
receiving the assent of more than 99 percent of the electorate, according to the official
count. He holds the leading post in the ruling People's Democratic Party (PDP) as well.
Professing allegiance to what he terms "eastern democracy", Mr. Karimov has
stressed the importance of political stability over Western-style democratic reforms.
Since 1994, the Government of Uzbekistan has taken a number of steps to improve its record
in respect to human rights, including the release of political prisoners, establishment of
a Government Commission for Human Rights, and permission granted to human rights and
international observer offices to establish themselves in Tashkent. These efforts
facilitated a warming of the U.S.-Uzbekistan bilateral relationship beginning in 1995,
although reports of alleged human rights abuses continued to be filed by credible
international organizations and NGOs. More recently, Uzbekistan has again come under
attack by human rights organizations for the hundreds of arrests that have been made in
the wake of a series of terrorist bombings in Tashkent's city center on February 16, 1999.
SOURCES OF
FINANCING
The Uzbek banking system is
small, weak and as yet plays a minimal role in financing investment. As of June 1998,
there were 33 banks licensed for operations in Uzbekistan, all of which had licenses to
conduct foreign exchange operations. While a number of foreign banks maintain offices in
Uzbekistan, none of them has opened branch operations. As of 1998, the state-owned
National Bank of Uzbekistan still controlled about 60 percent of all banking assets.
The IMF program in Uzbekistan has been in abeyance since 1996, limiting
the extent to which international financial institutions can increase lending in support
of economic development. Nonetheless the World Bank, the European Bank for Reconstruction
and Development (EBRD) and the Asian Development Bank (ADB) are all active.
The following agreements and U.S. agency programs underpin the
financing of U.S. business activity in Uzbekistan:
· The Bilateral Trade Agreement. The 1994 agreement provides for Most Favored Nation (MFN)
status for products of both countries, improved market access, and non-discriminatory
treatment for U.S. goods and services in Uzbekistan and for Uzbek products in the United
States.
· General System of Preferences (GSP). Also in 1994, Uzbekistan was granted GSP status from the
United States, conveying nonreciprocal tariff preferences. Through this, 4,400
semifinished products and agricultural goods were exempted from U.S. import tariffs and
customs duties.
· The Bilateral Investment Treaty. The 1994 treaty guarantees U.S. and Uzbekistani companies
the right to invest on the same terms as those accorded to domestic or third country
investors. This remains to be ratified by the U.S. Senate.
· U.S. Export-Import Bank. The Export-Import Bank is open for short and medium term
credits in Uzbekistan. Ex-Im will require an Irrevocable Letter of Credit or guarantee
from the National Bank for Foreign Economic Activity of the Republic of Uzbekistan.
· Overseas Private Investment Corporation (OPIC). The OPIC agreement which allows OPIC to offer political
risk insurance and other programs to U.S. investors in Uzbekistan was concluded in 1992
and is in force. This bilateral agreement authorizes OPIC to provide loans, loan
guarantees, and investment insurance to American companies that invest in Uzbekistan.
· U.S. Trade & Development Agency (TDA). TDA is authorized to operate in Uzbekistan. TDA provides
funding for U.S. firms to carry out feasibility studies and conduct other planning
services related to major projects.
SECTORAL OVERVIEW
AGRICULTURE
More than 20 percent of
Uzbekistan’s GDP is generated in agriculture, which employs about 40 of its labor force.
Cotton alone accounts for 40 percent of Uzbek exports. By the same measure, lower prices
and seriously diminished production in 1998 have severely hurt the country’s foreign
exchange earnings. Aside from commodities trading, foreign involvement in Uzbekistan's
food and agricultural sector is most prevalent in harvesting equipment and in cotton,
tobacco and food processing. Case Corporation is currently exporting grain and cotton
harvesting equipment. Swiss and Turkish firms have also entered into joint ventures to
improve Uzbekistan's cotton milling capacity which currently extends to only 15 percent of
the harvest. In the area of food processing, a number of firms including Coca-Cola have
contributed sizable investments. Coca-Cola opened a new bottling plant in Tashkent in
August 1998, which will produce 350 million liters a year. Coca-Cola's total investment in
Uzbekistan is estimated at $140 million over the last five years.
· Agricultural Enterprise Restructuring. The Agricultural Enterprise Restructuring Program (AERP)
aims to increase the profitability and sustainability of Uzbek agriculture through the
privatization and restructuring of farming and associated agribusiness activities. The $41
million cost of Phase I is to be supported by a $30 million World Bank loan. Phase I will
(a) help create the enabling conditions for farm privatization and restructuring; and (b)
initiate the process of farm privatization by providing the necessary support to farmers
who choose to participate in the process.
POWER
Uzbekistan possesses substantial
hydrocarbon resources, particularly in natural gas, where it is among the world's ten
largest producers. The corollary is that it has developed a significant electrical
generation plant, and is a net exporter of power. Electric power in Uzbekistan is derived
primarily from natural gas-powered thermal plants with a smaller portion coming from coal
and hydroelectric facilities. Uzbekistan currently possesses 11,000 MW in electrical
generating capacity with plans for an additional 4,000 MW through rehabilitation of
existing and/or development of new plants. The largest natural gas-powered facilities
include the Syr Darya and Navoi plants. The coal-powered facilities consist principally of
two power plants in the vicinity of the Angren open pit mine near Tashkent.
There are significant opportunities to upgrade Uzbekistan’s
electrical generation plant through investment in new gas steam turbines, which would
greatly improve efficiency. Over the medium term Uzbekistan could increase its export
earnings from electricity as its neighbors in the region become increasingly capable of
paying for it. · Tashkent Thermal Power Plant. The proposed new power plant would be a gas steam turbine
unit with a capacity of 370 MW, at a total cost of $440 million.
· Navoi Thermal Power Plant. The project calls for replacing the existing Navoi Power
Plant’s first unit with two new gas steam turbines, with a capacity of 120 to 150 MW
each for a total capacity of 240 MW to 300 MW at a total cost of $180 million. · Additional
Thermal Power Plants. This project deals
with rehabilitation and construction of three additional power plants. The first, in
Novo-Angren, will be a gas-fired boiler with a steam turbine generator unit with a
capacity of 220- 240 MW (total cost: $288 million). The second calls for the complete
removal of the existing Ferghana power station and construction of a new plant on or near
the same site with two 60 MW steam turbines with boilers (total cost: $144 million). The
third calls for construction of a new combined cycle steam power plant in Mubarek which
will probably a combined-cycle steam turbine power plant (total cost: $120 million).
No international financing has
been established for any of these projects as yet, and vendors are expected to come up
with their own financing proposals. Uzbekistan may have to consider opening up its state
power monopoly to competition from independent power producers, however, for foreign
financing to be realized as hoped.
TRANSPORTATION
Uzbekistan is the center of
regional road transport systems in Central Asia, and a number of donor projects focus on
upgrading the highway network within Uzbekistan.
· Bukhara-Turkmenistan Road Rehabilitation. This $136 million project will be supported by $50 million
from the Asian Development Bank (ADB). The project will: (1) Rehabilitate the existing
road between Bukhara and the Turkmenistan Border to a 4 lane divided highway standard; (2)
Support policy reforms and provide institutional strengthening to those Uzbekistan
agencies involved with the road sector; and (3) Improve road maintenance and safety
systems along the Samarkand - Bukhara - Turkmenistan highway corridor
Bukhara-Tashkent Road
Rehabilitation. Pending final project
approval, it is expected that the ADB will provide $60 million in financing for this
project, which will include the following: this project will include the following: (1)
Rehabilitation of the existing road along the Bukhara -Tashkent corridor; (2) Support
policy reforms and provide institutional strengthening to those Uzbek agencies involved
with the road sector; and (3) Improve road maintenance and safety practices.
HEALTH
The World Bank is involved in
improvement of the health care delivery service in Uzbekistan.
· Rural Health Care. The main project goal is to help improve the quality and
the efficiency of health care service delivery in the rural sector. The World Bank has
approved a $30 million loan that will be matched by a $40 million contribution by the
Government of Uzbekistan.
URBAN
INFRASTRUCTURE
World Bank economic development
projects also focus on improvement of urban infrastructure.
· Urban Transport Project. The main objective is to increase the quantity and improve
the quality of public transport services in a sustainable manner in five medium-sized
Uzbek cities. The $75 million total cost for the project is to be supported by a $60
million World Bank loan. Most of the vehicles and equipment procured under the project
would come from abroad |
|
|
