Analytical materials / Uzbekistan

Alisher Taksanov: Declarativity and the Reality of the “Uzbek Model of Development”

08.08.2016

“However, the state – it is merely a machine, in which, those actually in charge, are the bureaucrats. It is, precisely, the bureaucrats, who have taken the “courage” and “responsibility” to pursue a course to change the political and economic system. As a result, the bureaucrats have concentrated enormous powers in their hands, while their responsibility for the consequences of the acts committed is blurred, hence there is a clan-oligarchic capitalism with feudal-Soviet methods of management”, – in the material made specially for CABAR.asia, an economist Alisher Taksanov unveils the specificities of the political system of Uzbekistan.

ТаксановAny state strives to present official statistics, which would meet the interests of the political power and show good work results. Uzbekistan is no exception either. The presidential decree “On the preparation and celebration of the 25th anniversary of the state independence of the Republic of Uzbekistan”, dated June 2, 2016, Islam Karimov called on citizens to “show practical results of large-scale reformations” in the country. As noted in the document, over “the years of independence, the national economy grew by nearly 6 times, real incomes per capita — by more than 12 times, gold and foreign currency reserves of the country increased significantly.”[1]

Declarativity as a cover-up for the real state of affairs

The document should impress upon both the world community and the Uzbek citizens that Uzbekistan made dramatic changes in the framework of “the national model” of development over a quarter of a century. For economists, the above figures indicate serious imbalances at the macroeconomic level: first of all, the violation of the economic law on the advance of labor productivity growth over the growth of the salaries. In this case, income growth was 2 times ahead of the growth of the GDP, when the population had greater financial assets than the amount of goods, services and works it created in reality (i.e. money it possessed, without the backing of internal material reserves). Historical experience shows that such a trend leads to a serious economic crisis and the collapse of production, followed by an inception of political instability and social upheaval.

This confirms that Uzbekistan is a state where:

  • the bulk of the work falls on the primary industry sector of the economy and trade, in which the proportion of production is insignificant and there is a high added value;
  • the bulk of the revenues is generated in the “shadow” economy, that is in illegal and unofficial spheres of activity, beyond statistical accounting and taxation; according to experts, every second imported item in Uzbekistan comes in through illicit channels;
  • financial-credit and banking and monetary systems create a “soap bubble”, i.e. increase assets with no material basis behind: money create money, evading the cycle of production of goods;
  • the main source of foreign exchange is not the export of goods and services, but bank transfers of Uzbek citizens working abroad – almost 15% of GDP, and considering the shadow transactions (the so-called “hawala”) – up to 20% (or, from $7 to $10 billion).; Gastarbeiter (1/4 of the labor force) – a new export item, under which the government actually does nothing, neither in the legal nor economic or the social spheres, but in the end draws significant benefits.

Uzbekistan in the assessments of international institutions

International institutions’ records show the contrary, i.e. the absence of any significant progress in the 25 years of Uzbekistan’s independence. Thus, Uzbekistan found itself on the 90th place and the ranging index of 59, 71st in the ranking of social progress (The Social Progress Index), moving ahead of China, Kyrgyzstan, India, while falling behind Honduras, Mongolia and Cuba. In a study of 133 countries, with Norway as the leader (1st place and the index of 88, 36), and – Central African Republic as the outsider (133rd and 31, 42).

Other studies, as reflected in Table 1, do not testify to the success of the “Uzbek model of development” either.

Table №1. Uzbekistan in international rankings

Image Taksanov

As can be seen from the above, not everyone in the world regards the “Uzbek model” as a kind of a constant, perceived by the international community as an assessment of the real situation.

Nontransparency of the system and attempts to fight corruption

Such a situation is only possible in the presence of a corruption lobby in the government and other branches of state power, the absence of a free market and of real competition. Protectionism and nepotism, cronyism and corruption – this is the result of reforms in the 25 years of independence. All public procurement system working through the ministries and departments, local authorities and business associations (corporations, companies) is nontransparent, and kickbacks reach 30% of the order value; producers invest a quarter of the cost in corrupt payoffs toward prices and tariffs of the sold products, labour and services; a “state buyup” is being effected through access to benefits in the taxation and customs tariffs for major foreign companies, which started the investment process in Uzbekistan. According to expert opinions, practically every single tender held is done so with violations of the laws and in accordance with the interests of the corrupt structures.[2]

Meanwhile, most often under the “foreign investors” lie legal and physical entities of Uzbekistan, who, at one time, took out the capital abroad via gray and black schemes and then brought it back in under a foreign status. Investments are being made primarily in the strategic and highly profitable areas — energy, oil and agricultural processing, trade, export and import of goods and services, that is, where there is a short waiting term for financial returns. In this connection, high-tech and sophisticated production remain outside the realm of serious investment. And even those productions, of which Uzbekistan is proud, in reality, operate through nontransparent schemes and inflict losses on the country.

For example, this refers to the production of UzDaewoo automobiles of the Asaka plant, in Andijan. Even though annually it produces up to 200 thousand units of products, the domestic market is not satisfied, merely because the established system of sales allows dealers to extract illegal profits. The cost of a “header”(bribe), put out by the buyer for the car reaches 30% of the price marker (sometimes up to $5 thousand, depending on the model). A car has become a symbol of social prestige for the population, in fact, a form of capital hoarding, which is inherent to the countries with strong criminal and parasitic characteristics. In a stable market economy,  financial assets of the people are kept in securities, stimulating production, rather than in commodities. At the same time, the existing production costs of UzDaewoo, including the import of parts and fittings, are assigned to the state budget, that is, the government covers a part of the costs of producers, in case of excess profits of the sellers.

As a result, the sales system has developed a mafia, consisting of state officials and criminal groups, “covered” by law enforcement agencies. However, the drop in exports and foreign exchange earnings have forced the president to have some shake-up done in the automotive industry. In early May of 2016, the Deputy Prime Minister Ulugbek Rozukulov was arrested, who was in charge of this sphere, but prior to that handcuffs were put on Director General of GM Uzbekistan[3], Deputy Chairman of the JSC Uzavtosanoat Tohir Jalilov, and Chairman of the Board of Asaka Bank Kahramon Oripov, who created fraudulent schemes in the automobile trade. However, the prosecution of high-ranking officials will not change the existing system of bribes and kickbacks, it will simply lead to a redistribution of assets among new stakeholders.

Corruption has become a de facto corrosion of the state system. Currently, investigation is underway against the former hokim of the Tashkent oblast, Ahmad Usmanov [4], a general of the MIA, nicknamed “Hitler” for his methods of managing the region. Arrested in April, the hokim of Andijan, Nurillo Alimov was sentenced to 18 years in prison on corruption charges.[5]

What is the “Uzbek model of development” in reality?

One cannot say that the corrupt system came about all of a sudden, it is rooted in the old socialist economic model, in which quasi-marketable production was compensated by shady relations and more or less stabilized the population’s demand for goods and services. Currently, the so-called “Uzbek model of development” is a combined mechanism of redistribution of resources in favor of certain individuals in power, who, moreover, are not so much implicit, as they are legitimized. How did it happen? First and foremost, due to the fact that:

  1. One of the principles of reformation enunciated by Islam Karimov, was the recognition of the state’s dominance in the control and management of the transformation processes. However, the state – it is merely a machine, in which, those actually in charge, are the bureaucrats. It is, precisely, the bureaucrats, who have taken the “courage” and “responsibility” to pursue a course to change the political and economic system. As a result, the officials have concentrated enormous powers in their hands, while their responsibility for the consequences of the acts committed is blurred, hence there is a clan-oligarchic capitalism with feudal-Soviet methods of management.

Any investor was forced to secretly buy, not only the right to work in the local market, but also receive benefits, preferences, which were covered ever more by the profits. This was especially true, when it came to such strategic areas as oil and gas production and processing, the energy sector, gold mining, cotton processing, telecommunications, tourism, industry of building materials, construction of roads and facilities. In the hands of the bureaucrats, the governmental order has become a subject of bargaining, the self-serving game. The more resources the officials possess, the more influence they have in the economy and corrupt dealings. For example, water and land – one of the resources of the state – have become a fertile area for corruption. Mineral resources — another point of interest for investors, ensuring their interest by means of kickbacks and bribes. As a result, the principle of “the state – the main reformer” has turned into the main tool of redistribution of the national wealth for selfish motives, under political insurance of such a corruption.

  1. Law enforcement agencies have gained a de facto control over the economy, based on another principle of Islam Karimov – “The Rule of Law”. The law, within the meaning of a bureaucrat – is a police state, that is, all should be under the (“thumb”) of the administrative structures. In a market system, for example, it is impossible, for the prosecuting authorities to exercise control over the execution of agreements between business organizations, and demand execution of the state order from the farming enterprises in the production of grain and cotton, as it so happens in Uzbekistan. The prosecutor’s office has become a major economic entity of the country. And such agencies as the Ministry of Internal Affairs and National Security Services control banking and investment activity, eliciting the tacit profit. One of the evidences of the concentration of exceeding authority, allowing to elicit profits, is the provision of funds in support of development of the prosecution bodies, the Interior Ministry, the courts, to which, from 10 to 90% of the confiscated goods, property, and assets of businesses and individuals are being channeled.[6] This is, in effect, an authorization for an illegal takeover. Thus, the law enforcement agencies have gained access to businesses, banks, service infrastructure, etc. This allowed them, not only make raider attacks on liquidity facilities, the commercially viable structures, but also dispossess the well-off. Since 2008, a hunt began for people with a significant capital. Those who did not voluntarily part with their assets, eventually found themselves behind bars, but there were also some who wired a part of their capital abroad and got away with it (e.g. Dmitry Lim, the owner of the market at the Hippodrome, as well as others).[7]
  2. There emerged regional and industry tycoons, who control the resources of their areas. According to some data, corrupt officials collected between $2 and $5 billion from the hydrocarbon feedstock market. Airways and railway communication is another area where the management is not only on a payroll, but also receive an unofficial income from transactions on gray and black schemes. A large part of the currency remains abroad, on the bank accounts of certain individuals. In the meantime, the sphere of transport itself barely makes ends meet, while there is a rapid passenger and freight traffic.
  3. The state is entangled in clan and family ties. Peculiarities of the Asian shared household left a mark on the post-Soviet economic and political space. Durable family ties in the administrative bodies, management and resource distribution, have taken root.

This is particularly evident within the clans – regional institutions of public relations. In contrast to the blood-related, tribalist, regional clans are primarily formed out of land-based, or territorial relationships. Since Soviet times, there remained the following clans: Tashkenti (Tashkent city, Tashkent and Syrdarya oblasts), Samarkand-Jizzakhi (Samarkand, Bukhara, Navoi and Jizzakh oblasts), Surkhandarya (Karshi and Surkhandarya oblasts’ natives have come to be called “surkashi”), Andijani (Ferghana valley – Andijan, Namangan, Ferghana region), Khorezmi (Khorezm and Karakalpakstan), whose representatives were a part of the central agencies of the republic and were defending their regions. This trend continued until the mid-2000s, when regional interests had become intertwined with the interests of financial-industrial groups, the industry moguls. There emerged certain groupings in control of such assets as: agricultural products, monetary and foreign exchange market and credits, distribution of land and water resources, construction industries, the judiciary, and pre-emption of the laws.

Conclusions and predictions

Thus, the political system reflects the economic situation, and at such a deplorable state, it would be naive to suppose that people are happily going to welcome the 25th anniversary of their country’s independence and will believe in the success of the “Uzbek model of development”. More and more people are searching for information about the real state of affairs, not in the official media, but on the Internet, on the opposition websites. One of the evidences of the citizens’ nonconfidence in the “Uzbek model” is the fact of the guest workers – that “surplus” labor force (between 2 and 3 million people), which was unable to adapt to the realities of the “Great Future” and rushed into the northern countries in search of work and income.[8] The difficulties with “plastic” (credit card) cash out, currency exchange, the ever-rising utilities and transport tariffs cause discontent among the whole population, with only fear still standing in the way of an outburst of emotions and opinions. However, the social conflict is inevitable. All in all, one can single out 1 positive and 3 negative case scenarios:

  1. Through democratic elections a technocrat reformer will come to power, who will lead the country out of the impasse, and in the early stages will have to make complex and, at times, difficult decisions, not always positively perceived by the population.

The first option is the most positive, but in order to materialize it the citizens of the Republic must show their political will and become active in the elections. One of the essential aspects of liberalization and democratization will be the rejection of a large number of the bureaucracy and executives, the deprivation of the banks and law enforcement agencies of undue functions, the rejection of the normative-legal acts, which are contrary to the Constitution and the essence of social justice; access of the opposition to the administrative authority; complete media freedom and the independence of judges.

  1. A civil war will break out in Uzbekistan, followed by the dismemberment of the republic into small fiefdoms (based on clans), and the situation will take on a prolonged and unpredictable course, identical to the Afghan case scenario;
  2. A more rigid personality will come to power, whose dictatorship will drive the discontent into the “pot”, but will not solve the problems in the long run;
  3. There will be a revolution, under which, the power will be taken over by the conservative part of the population — religious fanatics, whose dogmas will axe even formally proclaimed democratic values, and Uzbekistan will turn into a Pakistan or a Saudi Arabia, however, without the same economic prosperity.

It should be noted, that the most preferred scenario for Uzbekistan would be the first one, the implementation of which will make the independence of Uzbekistan be perceived by the public as an advantage and important milestone in the development of the republic.

References:

[1] I. Karimov. About the preparation and celebration of the 25th anniversary of the state independence of the Republic of Uzbekistan. URL access mode: http://uza.uz/ru/documents/o-podgotovke-i-provedenii-prazdnovaniya-25-letiya-gosudarstv-02-06-2016

[2] Clans and corruption in Uzbekistan. URL access mode: https://zonakz.net/articles/1119

[3] GM Uzbekistan case of more than 10 people arrested, including Jalilov’s son. URL access mode: http://www.ozodlik.org/a/27713729.html

[4] Media: former head of Uzbekistan’s Tashkent oblast has been arrested. URL access mode: http://ria.ru/world/20160223/1379110635.html

[5] Former head of Andijan, Alimov, sent to prison for 18 years. URL access mode: http://www.centrasia.ru/newsA.php?st=1464191160

[6] On measures to streamline allocations of funds to non-budgetary funds of ministries, state committees and departments. URL access mode: http://www.lex.uz/pages/GetAct.aspx?lact_id=1609351

[7] Islam Karimov eliminates “property inequality of the citizens.” URL access mode: http://www.compromat.ru/page_28923.htm

[8] Uzbekistan’s leadership states that this is an oligarchs-free country. Is this a condition for a social paradise for the population? URL access mode: http://politus.ru/v-mire/1174-rukovodstvom-uzbekistana-zayavleno-chto-eto-strana-bez-oligarhov-yavlyaetsya-li-eto-usloviem-socialnogo-raya-dlya-naseleniya.html

Author: Alisher Taksanov, a freelance journalist, political emigrant (Switzerland, Berne).

The views of the author may not coincide with the position of CABAR.asia

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