Previous Quarterly Editions
Expropriation Risk: 62 62 61 60 Political Violence Risk: 38 38 38 36 Terrorism Risk: 56 54 52 52 Exchange Transfer and Trade Sanction Risk: 58 58 58 58 Sovereign Default Risk: 58 58 54 54
TREND ► OUTLOOK ►
A presidential decree issued at the end of April sets out steps for the full or partial privatisation of 29 state-controlled enterprises in areas ranging from banks to power stations, including the country’s oil and gas sector. The emphasis on privatisation reflects President Shavqat Mirzioyev's commitment to economic reform but the process faces major challenges given Uzbekistan’s long period of institutional rigidity. Despite his efforts to open the country and attract foreign investment, economic change has lagged behind political reform under Mirzioyev and is still at risk of being slowed or even halted by a combination of bureaucratic inertia and entrenched vested interests. Reforms under the National Development Strategy for 2017-21 have focused on improving the business environment, reducing the state's presence in the economy, and facilitating foreign direct investment (FDI). The most significant move has been flotation of the Uzbek som in September 2017, which brought the official and black market rates into alignment and broadened access to foreign currency beyond well-connected companies and individuals. The IMF expects growth to be 5.5% this year and 6.0% in 2020, continuing the rising trend as FDI increases. President Mirzioyev has worked hard to drum up new investment, with his visit to the US last year producing deals worth more than 4.8 billion dollars and trips this year resulting in deals with Germany worth 5 billion dollars and twice as much from the UAE. However, Russia and China will continue to be the main investors for the medium term while Uzbekistan develops international trading relationships. Negotiations over WTO accession resumed last year, and a first round of negotiations on upgrading its agreement with the EU took place in February. Mirzioyev has staked his legitimacy on securing genuine growth as a shield against popular discontent and challenges from within the elite. Until there is evidence that the economy can deliver higher standards of living, political reform will remain limited. At present, no opposition parties operate legally and the judiciary, legislature and media all remain tightly controlled. Despite his warm reception abroad, President Mirzioyev cannot yet be fully confident of his position at home. In February, he forced the removal of Ikhtiyor Abdullayev, the head of the State Security Service (SGB) that Mirzioyev had chosen only a year before to replace his main rival and long-time SGB head Rustam Inoyatov. Abdullayev’s departure was ostensibly due to ill health but is widely believed to have resulted from Mirzioyev’s discovery that the SGB was bugging members of his family. In March, Gulnara Karimova, daughter of the late President Islam Karimov, was returned to prison to complete a ten-year sentence in a move that confirms her loss of power in a political system that is still hierarchical and opaque.
TREND ▼ OUTLOOK ►
International organisations and investors have responded positively to Mirzioyev's reform agenda, but Uzbekistan still has weak institutions, under-developed infrastructure, and poor corporate governance standards. Corruption is endemic, transparency is low, and the economy remains dominated by state-owned enterprises. Moreover, despite the recent emphasis on privatisation, the government will proceed cautiously to ensure that an increase in foreign ownership does not result in large-scale job losses. In March, President Mirzioyev praised businessman Alisher Usmanov for providing a 50-million-dollar grant for the Namangan region in the Ferghana Valley where he grew up. Usmanov, who is trusted by Mirzioyev and had previously pledged to invest 400 million dollars in Uzbekistan using funds raised from selling his stake in Arsenal, the English football club, offers a valuable conduit to the Kremlin leadership and Russian investors.
In May, the government restored access to a number of foreign news websites including the Uzbek-language services of the BBC as well as Deutsche Welle, Eurasianet, and the locally based Uzmetronom, as well as sites for Human Rights Watch and Amnesty International. The decision was announced by the Information and Mass Communications Agency with the explanation that the websites had not been accessible for technical reasons. 'Undesirable' websites have been blocked since the 2005 Andijan massacre, and domestic media was tightly censored long before that. The move builds on the permission already granted to the BBC and other journalists to report from inside Uzbekistan and suggests genuine momentum towards greater openness. However, it is not clear whether local media can expect a relaxation of restrictions. The reforms undertaken so far have been popular, but the social costs and heightened expectations of change will need to be carefully managed.
Although individuals from Uzbekistan took part in several attacks attributed to Islamic State in recent years, including those on an Istanbul nightclub in 2016 and the St. Petersburg metro and Stockholm truck attacks in 2017, this does not represent a high level of domestic radicalisation. Those individuals appear to have been racialised outside the country, which is consistent with other IS operatives from Central Asia. However, the government is increasingly concerned about extremism infiltrating the country. In its first major arms purchase under President Mirzioyev, Uzbekistan has bought twelve Mi-35M attack helicopters from Russia that can be used in a counter-insurgency role.
TREND ► OUTLOOK ▼
The need for strengthening the economy is underlined by an unemployment rate above 20% and an inflation rate that has returned to the double-digit levels not seen since 2013, starting 2019 at around 15%. After its new convertibility, the som fell back in the second half of 2018 but has been relatively stable during the first months of 2019. There are plans to expand the country’s Islamic banking capacity and encourage greater foreign investment in the financial sector.
TREND ► OUTLOOK ▲
Uzbekistan received its first long-term sovereign ratings at the end of 2018 and debuted on international capital markets in February with an issue worth one billion dollars. The February offering was oversubscribed, largely as a result of Uzbekistan's low debt and large reserves, and follow-up sales are expected next year. Public debt was estimated to be 24% of GDP, with external debt at 48%, at the start of 2019. These numbers are creeping up as a result of new loans from China associated with its Belt and Road Initiative but are still very acceptable.
Return to contents Next Chapter