Uzbekistan is one of the largest and most dynamic economies of Central Asia
Strategically located in the very heart of Eurasia, on the ancient and new silk road trade routes between China and Europe, Uzbekistan has been a center of international commerce for centuries.
It is the most populated country of the region with its 32 million inhabitants, nearly twice the population of its Kazakh neighbour. It is also a young country, with almost 90% of the population at or below working age, presenting an opportunity for labor supply-led growth.
The capital Tashkent counts 2.4 million inhabitants and nearly 2,6 million for Tashkent agglomerate, which makes it the 4th most populated city in the former Soviet Union, just after Moscow, St-Petersburg and Kiev.
The Uzbek real GDP has been growing at a 7% CAGR over the last seven years (+5% in 2018). Public debt is low (35,6% of the country’s GDP) and Uzbekistan’s sovereign wealth fund (“SWF”) holds currency reserves equivalent to 40% of GDP. In February 2019, the country sold its first dollar-denominated bond, which yields at 5.4% over then years.
Uzbekistan has a significant endowment of natural resources, including large reserves of diverse commodities, the export of which have supported past current account surpluses.
Globally, the country is one of the top 20 producers of gold (4th largest reserves), natural gas, copper and uranium. Mineral resources are estimated at 3,5 trillion USD. Agriculture is another important pillar of the economy and is the 3rd largest cotton exporter.
Several challenges remain, however: inflation averaged 17,9% in 2018 (Fitch) and is likely to remain near 10% over the medium term (EBRD). World Bank “Doing Business“ indicators have been quite low historically but are improving: the country’s ranking went up from 166th in 2012 to 76th in 2019.
Invest in Uzbekistan
The Uzbek Opening
The liberalization of the foreign currency exchange in September 2017 has opened new perspectives of development for the investment climate of the country.
The Government has created a more business friendly environment by drastically reforming the tax system and customs regulations. These reforms will simplify the tax code, lower tax rates and reduce trade barriers.
Uzbekistan’s country risk profile has undergone significant improvement over the past three years.
The country’s economy used to be quite isolated and government-led, with state-owned-enterprises representing 60% of the GDP (S&P). However, over the last few years, Uzbekistan has entered into a spectacular and unprecedent period of opening and reforms to a more market-based, integrated and participatory system.
“President Mirziyoyev, who came to power after the death of longstanding President Karimov in 2016, has initiated a series of broad-based policy reforms, including attempts to increase the independence of the judiciary, remove some restrictions on free expression, and increase the government’s accountability to its citizens.”
“Changes have also included the implementation of an anti-corruption law, an increase in transparency regarding economic data, and the liberalization of trade and the foreign exchange regimes. Relationships with neighbors have also greatly improved, evidenced by increase co-operation and improvements in transportation links.” S&P, December 2018
Attracting FDI is a priority. The government has created special economic zones with investment incentives and tax breaks. Short-term visa requirements have just been lifted for EU citizens.
One of the most significant economic reforms that Uzbekistan has made is the liberalization of the exchange rate regime in September 2017, from a crawling peg over-valued in comparison with the black market rate, to a managed float. The former rules made it quite difficult for foreign investors to repatriate their profits. Now exporters are no longer required to sell a part of their foreign currency revenues to the government. These long-awaited reforms have opened new perspectives of development for the investment climate.
“Implementation of the reform program to date has exceeded expectations in terms of its pace and scope” EBRD Uzbekistan Strategy , September 2018
“S&P: Uzbekistan Assigned “BB -” Long-Term and “B” Short-Term Ratings ; Outlook stable” (December 2018)
Since coming to power in 2016, President Mirziyoyev has launched a number of economic and institutional reforms to open up the economy and support future growth. Our ratings on Uzbekistan are supported by the government’s strong fiscal and external positions.
GDP per capital remains low, at an estimated US$ 1,200 in 2018. We expect real GDP growth to remain relatively strong, averaging 5% over our forecast period to 2021, supported by growth in the services, manufacturing and natural resources sectors. The construction sector is small but growing.
We expect the reduced trade barriers to lead to an increase in imports, especially capital goods and high technology goods required to update and modernize the economy.
“Fitch Assigns Uzbekistan “BB -” : Outlook Stable” (December 2018)
Uzbekistan ratings balance a robust sovereign balance sheet, low government debt and a record of high growth.
Uzbekistan has embarked on an ambitious and comprehensive reform program that seeks to improve macroeconomic stability and growth prospects, as well as addressing institutional and governance weaknesses.
Growth will be driven by government investment in strategic projects, housing and infrastructure expenditure. Long-term growth potential is underpinned by favorable demographics and rich natural resource endowment.