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Expropriation Risk: 65 65 65 65 Political Violence Risk: 51 51 51 51 Terrorism Risk: 50 50 48 45 Exchange Transfer and Trade Sanction Risk: 64 64 64 64 Sovereign Default Risk: 57 57 57 57
TREND ►
Uzbekistan has won widespread international acclaim in recent years for its extensive economic and institutional reform programme, initiated after President Shavkat Mirziyoyev assumed the presidency in 2016. Much has been achieved, including critical currency and tax reforms. In recent years, Uzbekistan has also engaged with capital markets, seeing Eurobond issuances from the state and corporate sector, and eased ownership restrictions in the banking sector.
The country has also begun a widespread privatisation programme, supported by the extensive reform of the state-owned economy. In addition to these structural reforms, the government is making efforts to attract investment into small and medium enterprises, particularly the textile industry, which despite great potential has remained undeveloped due to well-documented cases of forced/child labour. Already, these reforms have resulted in a major expansion of foreign investment, from USD2.9bn to USD9.3bn between 2018 and 2019.
However, despite the economic progress, socio-economic conditions remain extremely poor across the country, particularly in more rural areas. Uzbekistan is amid a demographic boom which is seeing hundreds of thousands of young people join the workforce each year, with little prospect of finding employment. The COVID-19 pandemic has only exacerbated these difficulties by restricting the operation of the local economy and halting the flow of the country’s more than two million economic migrants, which generate approximately 15% of the country’s GDP and which are a key source of income for many families.
The government has attempted to respond to the labour challenge with several measures, including public works programmes, forcing small and medium-size enterprises to take on employees and ordering farmers to allocate land to unemployed young people, which in many cases has added to tensions. Popular anger boiled over in January 2021 when a number of regions were subject to electricity and gas shortages, with the erection of roadblocks emerging as a common method of drawing attention to residents’ demands.
For this reason, President Mirziyoyev has, despite claims to the contrary, kept a tight lid on popular dissent and opposition activity. Facing re-election this year (2021), he appeared to bring forward the election date from December 2021 to October 2021, to avoid any unrest over utility shortages in the winter months. Activists, journalists and bloggers have all found themselves subject to increased state repression in recent months. The President, his family and associates have also been subject to growing criticism as their economic and political influence has grown in recent years, sparking accusations of an economic oligarchy developing.
On the international front, Uzbekistan is yet to decide on membership of the Russia-led Eurasian Economic Union, having adopted observer status in 2020. The country has also expanded its economic cooperation with China, which is now Uzbekistan’s largest trade partner and its primary source of credit. China is investing heavily across the economy, from energy to technology sectors, with companies such as Chinese tech giant Huawei setting up regional headquarters in Tashkent, Uzbekistan’s capital city. Developing this relationship will be critical to Uzbekistan’s economic recovery and future growth.
The 2017-21 National Development Strategy has focussed on several key pillars of reform, including to public administration, the rule of law, economic development and economic liberalisation. The strategy has resulted in considerable improvements to the investment climate, seeing foreign investment between 2018 and 2019 grow from USD2.9bn to USD9.3bn.
Among the structural reforms have been moves to improve the competitive environment by unbundling regulatory functions from, and breaking up, state-owned enterprises. The government has also embarked on a major programme of privatisation and eased ownership restrictions in the banking sector. However, implementation of these reforms remains uneven, and the economy is suffering from the emergence of a new oligarch class which benefits from strong political connections.
Demonstrations over living conditions, local corruption, and electricity and gas shortages, are not uncommon in Uzbekistan. However, the combination of an economic slowdown due to COVID-19, restrictions on the movement of economic migrants and a very cold winter has heightened popular tensions. In January 2021, most regions saw sporadic protests over utility shortages, with the establishment of roadblocks and burning tyres becoming more commonplace as a form of demonstration.
The government has adopted a dual strategy of seeking to meet these demands while punishing protest leaders as well as journalists and bloggers seeking to cover the shortages. More widely, journalists have found themselves to be the subject of arrest and even violence for covering sensitive political topics. As the government prepares for presidential elections, suppression of political activism and journalistic activity is set to increase.
TREND ▼
Approximately 2,500 Uzbek nationals joined Islamic State in Iraq and Syria, many of which have now been repatriated to Uzbekistan. However, despite this interest in religious extremism, there has been very little evidence of a domestic terrorism threat in recent years.
Nevertheless, the government has consistently maintained that there is a credible threat of Islamist violence. State-owned media regularly reports on security service operations against cells of extremists.
Under Mirziyoyev, regulation of religious activities did see a period of liberalisation, particularly regarding public expressions of religious affiliation. However, the government has entered a period of retrenchment, perhaps fearing the impact of the COVID-19-induced economic crisis.
The Uzbek national currency, the som, has lost more than 6% of its value since COVID-19’s onset in March 2020, largely a result of falling exports and remittance income. While at the onset of the pandemic there were reports of restrictions on the exchange of foreign currency, the government, which only recently completed a two-year process of floating the som, has refrained from major interventions in the currency markets or attempts to introduce capital controls. While inflation remains high, at over 11%, the government has prioritised expanding economic activity and investment, and in 2020 steadily lowered the base rate from 16% to 14%.
Despite COVID-19, the Uzbek economy has demonstrated considerable resilience at the macro level. The government has maintained a moderate level of debt to GDP, approximately 29%, and has secured more than USD2bn in anti-crisis and budget support funds.
While ratings agency Standard & Poor’s has given Uzbekistan a negative outlook, other agencies have maintained a stable outlook. International financial markets also appear sanguine about Uzbekistan’s prospects, having actively engaged in a USD555mn sovereign Eurobond offering, as well as two corporate issuances in the fourth quarter of 2020.
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