Previous Quarterly Editions
Expropriation Risk: 65 65 63 64 ▲ Political Violence Risk: 51 51 51 57 ▲ Terrorism Risk: 48 45 46 47 ► Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ► Sovereign Default Risk: 57 57 56 47 ▼
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Uzbekistan under President Shavkat Mirziyoyev has made new efforts to engage with climate policy. In 2021, the country significantly increased its Nationally Determined Contribution for emissions reduction under the Paris Climate Accord from 10% to 35% by 2030. It has also set an ambitious net-zero target for 2050. In terms of power generation, Uzbekistan has set out targets of reducing gas power generation from 83% to 50% by 2030. It also wants to increase the presence of nuclear, solar, and wind power generation to 15%, 8%, and 7%, respectively, in the same time period.
Uzbekistan is largely dependent on Soviet-era gas-fired power plants for its energy, owing to the presence of large volumes of recoverable gas reserves within its territory. However, it will need to upgrade this infrastructure to provide the manoeuvrable capacity needed to facilitate the development of renewable energy. It will also need to increase the volume of gas supplies available for power generation, particularly given the increased demand expected as the country’s economy and population grow rapidly.
Uzbekistan has had some success in developing renewable energy sources, having set a target of 25% renewable energy by 2030. Together with international financial institutions and major sovereign-backed investors, the country has installed new solar and wind plants, taking its share of renewable energy in power generation to over 8%.
Uzbekistan is extremely vulnerable to socio-economic unrest, given its rapidly growing population and low living standards. Other than issues of poverty and employment, electricity and gas shortages are a major source of unrest. In 2019, protests over electricity shortages spread across several locations, nearly precipitating mass unrest nationally. The government views both the introduction of renewable energy and the introduction of efficiencies in the energy generation, transmission, and consumption as a way of preventing outages and calming some of these tensions.
Uzbekistan is also disproportionately affected by the effects of climate change. An arid country, Uzbekistan suffered a severe drought in 2021 that seriously hit the agricultural sector, a key employer in the country. Much of Uzbekistan’s water supply comes from glaciers in the Tien Shan mountains of Kyrgyzstan and Tajikistan, glaciers that are declining. Anticipated falls in rainfall in the coming years are likely to add to these water shortages.
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During his first term in office, President Mirziyoyev introduced several pro-market reforms, measures which he has stated he will extend in his second term. These measures have involved improvements to the judicial system, new private property protections, and reforms to reduce the state’s role in the economy.
In late 2020, the government adopted a privatisation programme, which ranged from small state assets in the agricultural sector to major state enterprises, which the government intends to list, potentially on an international stock exchange. However, despite these reforms, there is evidence to suggest that politically connected figures enjoy a privileged position within the economy, raising questions about the rule of law and sanctity of private property.
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In recent years, Uzbekistan has not witnessed political violence: the country lacks an established political opposition and activists are regularly subject to repression by the security services. Nevertheless, Uzbekistan is regularly subject to socio-economic protests, particularly over shortages of gas and electricity. While these protests are typically localised, in previous years, they have spread to other locations.
In late January, a major electricity outage hit Tashkent and six other regions. While no unrest occurred, the incident demonstrated the vulnerability of Uzbekistan’s infrastructure. The government also faces huge socioeconomic challenges, particularly unemployment. Due to the absence of local jobs, more than 2.5 million Uzbeks travel abroad for work, most to Russia. However, these routes have been cut off due to the pandemic-related lockdowns.
With the onset of the Ukraine/Russia crisis, Russia is expected to see a major contraction, the brunt of which is being borne by migrant workers. With migration routes largely closed, the Uzbekistan government will struggle to find employment for its young people, creating a risk of social unrest.
One area the government has not touched is democracy and human rights. While several political prisoners and journalists have been released from jail since 2016, activists and journalists continue to face harassment and imprisonment. The government has also tightened internet freedoms by introducing legislation on the storage of personal data.
One exception to this poor record on human rights is Uzbekistan’s efforts to curtail forced and child labour within its cotton industry. In March 2022, the International Labour Organization reported that Uzbekistan had succeeded in eradicating systemic forced and child labour during the 2021 cotton harvest.
There has been little evidence of a serious domestic terrorism threat in Uzbekistan in recent years. Approximately 2,500 Uzbek nationals joined Islamic State in Iraq and Syria, many of which have now been repatriated to Uzbekistan without adverse consequences.
Nevertheless, the government is intolerant of religious activities not sanctioned by the state. In November 2021, the security services detained several members of Katibat al-Tawhid wal-Jihad, a group banned in 2016 for evangelising for a non-sanctioned form of Islam. This intolerance has intensified with the fall of Afghanistan to the Taliban in August 2021.
Mirziyoyev has pledged to accelerate his current economic reform programme, which involves reducing the role of the state, developing a market economy, and building a new capital market within Uzbekistan. In March, he set an October deadline for the first initial public offering of a state-owned enterprise in Uzbekistan, Qishloqqurilishbank, a state bank.
In the longer term, the state wishes to reduce its presence in the banking sector from 80% to 40%. Other major state-owned firms could also face privatisation, including oil and gas company Uzbekneftegaz and mining company the Navoi Metals and Mining Combine.
The Uzbek national currency, the som, has been in nominal free float since 2017. This has enabled investors to convert the currency and repatriate profits more easily. The government has also lifted capital controls, a major concern for investors.
However, the crisis in Ukraine appears to have had a quite significant impact on the som, causing it to fall nearly 15% in early March. While the economy will be affected by the geopolitical tensions, Uzbekistan is unlikely to reverse its course on the currency or capital controls, barring a severe decline in the economic outlook.
One concern that investors will have to be cognisant of, however, is the inflation rate, which is likely to remain over 11% for the foreseeable future.
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Since 2017, Uzbekistan has experienced considerable growth, upwards of 5% per year. It was also the only nation in Central Asia credibly to report growth during 2020, the year of the COVID-19 pandemic. Currently, the International Monetary Fund predicts 5.4% growth for 2022, although this is likely to be affected by the crisis in Ukraine.
Government debt has also grown in this period as the government engages in major capital investment. While this debt is currently 41% of gross domestic product, this seems manageable, given improvements in growth and productivity.
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