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Uzbekistan – the rising Central Asian economy
August 10, 2014, 11:08 am
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Modern means of transport by road, rail and air have diminished the once powerful role enjoyed by nations with direct access to sea ports and river routes. Landlocked countries are no longer dependent on their neighbors having ports to transport goods and people. Nevertheless, countries with means of marine transport still enjoy a competitive edge when it comes to external and internal trade, especially in the transport of products from the energy and heavy industry sectors. Moreover, ports also serve as nodes for inter-modal logistic chains which play a significant part in the economic growth and development of a country.

Uzbekistan, one of only two doubly landlocked countries in the world, the other being Liechtenstein in Central Europe, is landlocked by five countries, which in turn are landlocked by other countries. No doubt this geographic situation, which denies direct access to any marine outlets, constrains Uzbekistan’s ability to trade easily with the rest of the world. However, its strategic location at the center of Central Asia, has given Uzbekistan distinct advantages in influencing geo-politics in the region; it has also provided the country with unique opportunities in facilitating trans-border trade with a large number of neighboring countries.

Uzbekistan’s transformation from a landlocked to a land-linked country, at the cross roads of rising economic growth and development in Central Asia, has helped its transition from a state controlled economic system to a stable mixed economy. The country has witnessed Gross Domestic Product (GDP) growth of around eight percent for the last seven consecutive years. This growth it should be remembered has come at a time of unprecedented financial turmoil and sluggish economic growth in many countries around the world.

As Uzbekistan leans towards a highly competitive market economy where businesses decide what to sell on what terms, without much government interference, we look at some of the economic indicators that herald this country as a rising star of Central Asian economies.

The Asian Development Bank in its country assessment noted that in 2013, economic growth in Uzbekistan remained robust at 8 percent, led mainly by wage and pension increases, high public investment spending, and large remittances from abroad. Recovery in external demand raised the current account surplus to 3.7 percent of GDP, while continued high public spending, strong private consumption, and an improving external environment are projected to keep growth near the 8 percent figure for much of 2014 and 2015.

The Bank reported that in industry, the ongoing modernization program in Uzbekistan, backed by substantial public investment and recovering external demand, boosted the production of machinery, textiles, construction materials, and foodstuffs. Services posted healthy growth as retail trade, telecommunications, finance, and catering all recorded double-digit increases. The continuing housing boom raised construction growth, while agriculture production grew on the back of favorable weather resulting in record harvests of the key cereal and vegetable crops.

In January, 2014, the Central Bank of Uzbekistan reduced its main policy rate from 12 percent to 10 percent, signaling lower inflation expectations for 2014. The country’s state-dominated banking sector has promoted industrial development by channeling public investment to strategic industries and increasing total bank lending, while keeping banks sound. In August 2013, Moody’s Investors Service issued a stable outlook for the country’s banking sector, citing healthy bank profits, improvements in asset quality, stable liquidity, limited reliance on wholesale funding, and few problem loans, averaging less than 10 percent of total lending.

In its session on 16 July, 2014, Uzbekistan’s Cabinet of Ministers summarized the outcomes of the socio-economic development of the nation for the first-half of the 2014 and worked out additional measures to secure the realization of critical priorities for the rest of year. The ministers deliberated on the effectiveness of measures taken so far to implement the country’s strategy of modernization, diversification and enhancement of the competitiveness of the economy so as to ensure the well-being and quality of life of its citizens.

As figures for the first-half of the current year indicate, the GDP has grown by 8.1 percent; the volume of manufactured industrial products increased by 8.1 percent and construction works went up by 17.4 percent, while agriculture production saw an increase of 6.9 percent. The national budget registered a surplus of 0.1 percent while inflation remained within forecast parameters.

The period in review also saw agriculture sector producing a record 8.5 million tonnes of grain. In his congratulatory message to the country’s farmers, the President of Uzbekistan, His Excellency Islam Karimov, noted that just over two decades ago the country had to import 5 million tonnes of grain to feed its people, today, he said the country fully meets the needs of its over 31million people.  This increase in grain production is especially impressive given that less than 10 percent of Uzbekistan is intensively cultivated irrigated land, mainly in its river valleys and oases; most other parts of the country are occupied by barren mountains and a vast desert, the Kyzyl Kum.

The implementation of measures to stimulate domestic demand also bolstered the production of manufactured consumer goods by 10.8 percent, while retail turnover went up by 13.7 percent and services sector saw an increase of 9.7 percent. Services, which accounted for the largest contribution to the country’s GDP with 52.7 percent, retained its pole position among the three sectors — agriculture, industry and services — which together form the mainstay of the economy.

Agriculture produces cotton, vegetables, fruits, grains, and livestock. Industry, on the other hand, accounts for the production of automobiles, textiles, the processing of food, building machines, metallurgy, mining, hydrocarbon extraction, and chemical production. Services sector is mainly made up of customer-front jobs, such as employees for restaurants, merchandisers, and anyone working in the tourism industry.

An irony to the country’s economy is that its agriculture sector, which employs the largest workforce, exports in main only its cotton products, whereas its industry sector, which employs the fewest people, exports almost everything it produces. Investment-led industry and consumption-led services will continue to be the key drivers of economic growth in the country and, as such, the government aims to increase industry’s share of GDP to 28 percent by 2015.

Uzbekistan is a major exporter of cotton, as well as natural gas, oil, gold and uranium. Steps taken to encourage the country’s export potential, and support those enterprises that have not been traditional exporters of their products, have resulted in volume of exports going up by 8 percent, leading to a considerable surplus in foreign trade.  In figures, exports from Uzbekistan crossed US$7.22 billion while imports were US$6.74 billion, resulting in the country having a foreign trade surplus of over US$482 million.

The country’s dynamic investment policy, and measures taken to accelerate the commissioning of crucial high-tech and modern facilities and enhance production capacities, has facilitated the growth in volumes of drawn investments by 10.8 percent, including an increase of Foreign Direct Investments (FDI) by 28.8 percent. Since the start of current year, the implementation of 64 projects totaling US$680 million that were included in the 2014 Investment Program have been successfully completed and 1,651 new production facilities have been commissioned.

In line with its new investment policy, a number of licensing procedures were cancelled and the timeframe required for remaining procedures were significantly reduced. Also, to encourage the startup of small production capacities, the government sold 86 government assets to small businesses and private entrepreneurs, resulting in the share of small enterprises to industrial sector going up to 28.4 percent.

The improvement of business environment has also led to a substantial increase in the contribution of entrepreneurship to GDP growth, rise in employment, and improved material well-being of people, especially in rural areas. It is worth mentioning that of the total of more than 500,000 new jobs created in first half of 2014, nearly 60 percent were in rural areas.

As the figures above show, Uzbekistan, the growing star among Central Asian economies, is proving to be a lucrative destination for individual and institutional investors from around the world. The Kuwait Fund for Arab Economic Development, which provides loans, grants and other investments to developing countries around the world, has already provided financial support to several projects in Uzbekistan, including in its agriculture, infrastructure, transport and healthcare sectors. It now remains for businesses and individual entrepreneurs in Kuwait to seize the amazing potential of investing in the Uzbekistan economy.


 

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