After decades of isolationism and resistance to openness, Uzbekistan revised its economic policy under new president Shavkat Mirziyoyev since 2017. The new government implemented comprehensive reforms, in particular unified the exchange rate and liberalized the foreign exchange market, began price and trade liberalization, and made significant cuts to tax rates for both firms and individuals from January 2019 [World Bank, 2019]. At the same time, the country revised trade, integration, agricultural and industrial policies. Therefore, this commentary aims to review basic outcomes and achievements of Uzbekistan’s open economic policy.
New policy of Uzbekistan aims to strengthen its economic cooperation with advanced countries. Uzbekistan and South Korea have interests in becoming strategic partners. South Korea refers to Uzbekistan as a key state in its plans to expand its role as a player in Central Asia. South Korea is one of the top five partners of Uzbekistan’s imports. It should be noted that the country’s economic ties with Uzbekistan have largely been government-led, while relations with other Central Asian states are mainly driven by the private sector. During Mirziyoyev’s visit to Seoul, the parties signed deals totaling almost $9 billion. Moreover, South Korea agreed to assist Uzbekistan in its efforts to accede to the World Trade Organization (WTO) [Rinna, 2017]. At the same time, bilateral relations between Uzbekistan and the United States (US) started to improve. In 2019, the US was in the list of 10 main trade partners of Uzbekistan. During one of the videoconferences with participation of officials and business circles of both countries, Uzbekistan asked the US to remove it from the Jackson-Vanik Amendment, which restricts trade with countries that discourage emigration and violate other human rights [New Europe, 2020]. Later the government of Uzbekistan called the Cotton Campaign to lift the cotton boycott, which was in place since 2006. According to the government’s open letter, economic and social costs of the boycott are high. This lift would be essential under the current situation in Uzbekistan. In particular, since the country’s lockdown began, nearly 150 thousand citizens have lost their jobs, more than 200 thousand people have fallen below the poverty line and 140 thousand migrant workers returned to Uzbekistan and have no sources of income. Uzbekistan implemented concrete steps in order to lift the boycott, in particular criminalized forced labor [Pikulicka-Wilczewska, 2020].
Uzbekistan also deepens its economic ties with more technologically advanced developing countries. According to the Ambassador of India to Uzbekistan, ongoing reforms in Uzbekistan stimulate India’s business to be involved and invest in different sectors, including pharmaceuticals and healthcare, information and communication technology and agriculture. Indian pharmaceutical company, Cadila, has announced an investment of $50 million in a pharmaceutical plant in the Andijan region of Uzbekistan. The countries plan to increase bilateral levels of trade from current $325 million to $1 billion [Seyfaddini, 2020]. Uzbekistan and Belarus agreed to cooperate in establishing a genetic breeding center in Uzbekistan, which is important as 90% of cattle are kept in private farms and the country buys breeding stock abroad in significant volumes. In 2019, the country’s imports of cattle amounted to $122.5 million and doubled compared to 2018. Cooperation will increase employment and enhance transfer of technology [BelTA, 2020].
It is important to note that Uzbekistan proposes new schemes of cooperation to its Central Asian neighbors, with some of which it has border and water disputes. The country plans to set up free trade zones on the border areas with Turkmenistan and Kyrgyzstan. Through the zones, authorities of Uzbekistan aim to facilitate cross-border trade, develop modern forms of international and regional wholesale and retail trade and logistics services. The zones will have special regulation, in particular in terms of customs issues. Citizens of the bordering countries can benefit from the zones, as they will be granted visa free access to the zones for 5 days [AKIpress, 2020a]. Such kind of cooperation based on economic interests can resolve many Central Asian regional problems.
Uzbekistan also strengthened its cooperation with international financial and development institutions. This cooperation became important since pandemic induced lockdowns in Central Asia. The European Bank for Reconstruction and Development (EBRD) provides a $150 million trade finance facility for three banks of Uzbekistan. This package aims to mitigate trade and supply chain disruptions. Moreover, the EBRD is working on the launch of a larger assistance package compared with the previous one. In Uzbekistan, the bank has 79 projects and its gross investment reached €1.85 billion [Marray, 2020]. Due to pandemic induced strict lockdowns, which hurt businesses and led to a surge in unemployment, Uzbekistan experiences lower economic growth this year. As a result, in order to mitigate consequences of economic shocks the country decided to borrow money from the Asian Development Bank. The bank approved a $500 million loan to Uzbekistan. This aid can support the social sector of the country [Reuters, 2020]. Uzbekistan also attracts loans and financial assistance in order to support its industrialization policy. Recently, the EBRD and the World Bank agreed to finance modernization of JSC Indorama Kokand Fertilizers and Chemicals, which was formerly known as the Kukon Superphosphate Factory. Indorama Holdings, a wholly owned subsidiary of Singaporean Indorama Corporation, acquired this state-owned company in 2019. By such kind of privatization, the government plans to restructure the chemicals sector and increase its competitiveness. Modernization through introducing energy-efficient equipment will help the company to increase its annual output of fertilizers threefold to 350 thousand tones and assist the growth of the agricultural sector in Uzbekistan. The company will create equal employment opportunities and increase the female share of the workforce to 25% [AKIpress, 2020b]. Recently, the World Bank approved a $500 million loan to Uzbekistan for agricultural modernization projects under the implementation of the Strategy for the Development of Agriculture in Uzbekistan for 2020–2030. The government expects that agriculture may become one of the engines of the country’s economic recovery and the new project will help farmers to increase productivity and export of their products. The share of agriculture in Uzbekistan’s GDP is 28%, and the sector employs 27% of the country’s workforce. Moreover, its share in total exports is 10%. To date, the World Bank has 23 projects in Uzbekistan totaling $4.4 billion, which is the largest operation in the Europe and Central Asia region after Turkey [UzDaily, 2020].
Changes of Uzbekistan’s trade policy are significant. The country revised its attitude towards both multilateralism and regionalism. It announced its readiness to join the WTO. In April 2020, the parliament of Uzbekistan with a majority vote approved the government’s proposal to become an observer state to the Eurasian Economic Union (EAEU). This status allows Uzbekistan to participate in open EAEU meetings when invited by the members and receive non-confidential documents [Hashimova, 2020].
Thus, revision of economic policy, cooperation with developed and technologically advanced developing countries and its Central Asian neighbors, partnership with international development institutions brought Uzbekistan economic opportunities. Availability of labor, capital investment and openness can stimulate economic growth and development. However, the country should focus on development of human capital, provide higher investment in research and development and build strong political and economic institutions. These factors are the foundations of the knowledge-based economy, which can transform resource dependent economies, diversify sources of income and, consequently, significantly reduce economic and political risks.
References:
AKIpress (2020a). Uzbekistan to set up free trade zones on borders with Kyrgyzstan, Turkmenistan. Retrieved from https://akipress.com/news:643465:Uzbekistan_to_set_up_free_trade_zones_on_borders_with_Kyrgyzstan,_Turkmenistan/. Accessed on 12.06.2020.
AKIpress (2020b). EBRD supports modernization of fertilizer plant in Uzbekistan. Retrieved from https://akipress.com/news:644759:EBRD_supports_modernization_of_fertilizer_plant_in_Uzbekistan/. Accessed on 03.07.2020.
BelTA (2020). Belarus, Uzbekistan work to set up joint genetic breeding center. Retrieved from https://eng.belta.by/economics/view/belarus-uzbekistan-work-to-set-up-joint-genetic-breeding-center-131200-2020/. Accessed on 22.06.2020.
Hashimova, Umida (2020). Uzbek Parliament Approves EAEU Observer Status. Retrieved from https://thediplomat.com/2020/05/uzbek-parliament-approves-eaeu-observer-status/. Accessed on 14.07.2020.
Marray, Michael (2020). EBRD provides US$150 million trade finance facility in Uzbekistan. Retrieved from, https://www.theasset.com/covid-19/40222/ebrd-provides-us150-million-trade-finance-facility-in-uzbekistan. Accessed on 22.04.2020.
New Europe (2020). Uzbekistan discusses WTO entry. Retrieved from https://www.neweurope.eu/article/uzbekistan-discusses-wto-entry/. Accessed on 03.04.2020.
Pikulicka-Wilczewska, Agnieszka (2020). Uzbekistan seeks end of cotton boycott as virus weighs on economy. Retrieved from https://www.aljazeera.com/news/2020/04/uzbekistan-seeks-cotton-boycott-virus-weighs-economy-200416074105140.html. Accessed on 16.04.2020.
Reuters (2020). ADB approves $1.5 billion in Kazakhstan, Uzbekistan COVID-19 loans. Retrieved from https://www.reuters.com/article/us-kazakhstan-uzbekistan-adb-loans/adb-approves-1-5-billion-in-kazakhstan-uzbekistan-covid-19-loans-idUSKBN23W1RM. Accessed on 25.06.2020.
Rinna, Anthony (2017). Uzbekistan: A Key to South Korea’s Central Asia Strategy. Retrieved from https://thediplomat.com/2017/11/uzbekistan-a-key-to-south-koreas-central-asia-strategy/. Accessed on 14.07.2020.
Seyfaddini, Ilkin (2020). Reforms in Uzbekistan attract more Indian businesses. Retrieved from https://menafn.com/1100434763/Reforms-in-Uzbekistan-attract-more-Indian-businesses. Accessed on 05.07.2020.
UzDaily (2020). World Bank provides US$500 million for agricultural modernization in Uzbekistan. Retrieved from http://www.uzdaily.uz/en/post/58390. Accessed on 12.07.2020.
World Bank (2019). Uzbekistan. Toward a new economy. Country Economic Update. Retrieved from http://documents1.worldbank.org/curated/en/866501562572675697/pdf/Uzbekistan-Toward-a-New-Economy-Country-Economic-Update.pdf. Accessed on 14.07.2020.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.