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Galiya Ibragimova: Uzbekistan’s investment sphere – dynamics and general situation

“The success of reforms will largely depend on the ability of the new president to abandon Karimov’s methods of governing the country and open Uzbekistan to innovation and investment” – independent political scientist, Galiya Ibragimova, writing specially for cabar.asia, notes in an article concerning Uzbekistan’s current investment situation.

The President of Uzbekistan, Shavkat Mirziyoyev, has remained focused on the nation’s internal agenda during his one and a half years in office. During this time, he has not made a statement critical of a single specific regional or international problem when Islam Karimov was at the helm. The incumbent president, on the contrary and in every possible way, demonstrates productive diplomacy concerning intra-regional problems, which in the last years of Karimov’s rule seemed barely solvable. However, all this unaccustomed compromise by Uzbekistan pursues quite pragmatic goals: political loyalty in exchange for investments and expansion of economic ties.

Summing up the results of 2017, Mirziyoyev called the situation in the investment sphere depressing. Responsibility for this he laid at the threshold of “rats and some people’s children”.[1] For “rats”, the president obviously meant officials who worked under Islam Karimov.  “Some people’s children” refers to the eldest daughter of the first president, Gulnara Karimov, who was charged with financial fraud. At the same time, Mirziyoyev himself acknowledged that he knew about corruption even during his tenure as prime minister, which made it difficult to implement investment projects in Uzbekistan. He continued to call the environment created by Karimov as bad. Seemingly fed up with the situation, he instructed the creation of the National Agency for Project Management to identify and fight corruption in investment projects.[2]

The President of Uzbekistan also criticized the work of the Ministry of Foreign Affairs for its insufficient promotion of the country’s economic interests in the foreign arena.[3] In addition to criticism, punitive measures followed. Ambassadors of Uzbekistan to China, Japan, Turkey, and Malaysia lost their posts for lack of initiative and inefficiency. Employees of the Uzbek Foreign Ministry were called to expand trade and investment ties with foreign countries. Regarding the structure of the foreign policy department, Mirziyoyev proposed creating a subdepartment that would deal with the economic ties of the republic with foreign partners including tourism, export promotion, and partner relations. He then tasked the Senate Committee of the Uzbek Parliament on foreign policy issues to spearhead the new policy shift. The president mentioned nothing about the Ministry of Foreign Trade, which should deal with the development of trade and investment projects involving foreign countries.

Shavkat Mirziyoyev took over the role of chief diplomat and mediator in forging economic ties between Uzbekistan and foreign businesses. During his visits to Russia, China, South Korea, the United States, and fellow Central Asian countries, the Uzbek leader emphasized the fact that Tashkent is interested in attracting investments and expanding trade ties. At the same time, the President of Uzbekistan promised foreign partners personal protection of their financial assets, inviolability of property, and free access to earned profits.[4] Given that for many years there was no free currency conversion and foreign investors often left the market because they could not cash out their profits, Mirziyoyev ‘s promises were revolutionary.

The significance of the president’s statements was appreciated even by the United States, which, beginning with President Barack Obama, lost interest in the country in large part because local authorities refused to recognize and solve outstanding issues. So, for initiative in attracting foreign investments, Washington honored Shavkat Mirziyoyev with a distinguished award.[5] The chairman of the US-Uzbek Chamber of Commerce, Carolyn Lamm, conveyed this symbolic sign of appreciation to the Uzbek president and said that the US is interested in expanding economic ties with Uzbekistan. Regardless of the award, the resumption of business contacts between the two countries can be regarded as an important impetus for business. The opinions of Russia and China, who remain the main investors in Uzbekistan’s economy, are no less interesting. These countries have found ways to retain their shares in the Uzbek market even during the rule of Islam Karimov when the country’s economy was almost closed to any honestly competitive business.

Shavkat Mirziyoyev has become a revolutionary in cooperating with other Central Asian countries. For the short time of his presidency, he was able to compromise with Tajikistan and Kyrgyzstan on water and energy issues and the delimitation of borders, which seemed unsolvable under Islam Karimov. Despite the fact that the details of some agreements remain unknown, in particular Tashkent’s position on the construction of the Rogun Dam, the willingness of Uzbek authorities to openly discuss these problems looks promising. But in this case, Uzbekistan’s devotion is aimed at developing economic ties with its neighbors. The authorities of Uzbekistan are calling on investors from other Central Asian countries to expand their ties with the republic while Uzbek investors are also encouraged to develop ties with their neighbors in the region. Again the president gave an example for future business ties by promising to allocate a $100 million soft loan to Tajik entrepreneurs.[6] These funds from Uzbekistan’s state budget will go to joint Uzbek-Tajik business projects.

Integration vs. conservation

Economic reforms have become one of the main topics of discussion in Uzbek mass media and Internet. Thus, discussion on Uzbekistan’s possible participation in regional economic associations has resumed in the media, social networks, and the scientific community. Scientists, economists, politicians, journalists, and Internet users are discussing the feasibility of recreating the Central Asian Cooperation Organization, as well as the pros and cons of Tashkent’s accession to the Eurasian Economic Union. They are also debating the advantages and disadvantages of Uzbekistan’s accession to the World Trade Organization.

Participants in these discussions can be divided into two groups: liberals and conservatives. The former advocate for market reforms and argue that the advantages of Uzbekistan’s withdrawal from isolation outweigh possible costs. The latter are frightened by cheap, low-quality foreign consumer goods, which will flood the Uzbek market and become a threat to local producers if the market is excessively liberalized. At the same time, if the liberals are hoping to be heard by the new government concerning economic reforms, then the conservatives retain either hopes or suspicions that the talks about liberalization are temporary and that Uzbekistan is about to return to the usual isolationism of Karimov’s times. However, in and of itself, a free discussion of reforms is an important trend that was previously unacceptable in the era of Islam Karimov.

The end of Uzbek dual power

To understand how Mirziyoyev’s course of reform has attracted foreign business, one can turn to figures. According to the State Statistics Committee of Uzbekistan, by the end of last year the volume of foreign investments in the country’s economy amounted to $ 2.4 billion, an increase of 1.4 times compared with similar data for 2016.[7] The share of foreign investments in their total volume increased to 20.4% versus 15.3% a year earlier. In November last year, the European Bank for Reconstruction and Development resumed its efforts, which also promised $120 million worth of loans to the Uzbek economy. China ranks first in terms of investment in the Uzbek economy followed by Russia, South Korea, the United States, and Kazakhstan.

The Uzbek government also claims that it is necessary to liberalize investment and tax legislation, reform the judiciary, and fight corruption. At the same time, the currency reform is expected, which previously seemed dangerous and impossible to many experts. All this has a direct impact on the attractiveness of the Uzbek market to foreign investors. However, in addition to all these economic reforms it is equally important to understand how stable the political system under Mirziyoyev is and, most importantly, how stable the president’s position in the system is.

Staff reshuffles in the government continue to demonstrate that the process of building a loyal environment is not yet complete. Rearrangements in the government and disposing of Karimov’s henchmen mean that Mirziyoyev still feels threatened by them. The recent resignation of Rustam Inoyatov, who headed the National Security Service since 1995, is indicative of his awareness. The previous head of the Uzbek security forces was only second in the republic after Islam Karimov. His sphere of responsibility included not only the national security system but also the economic, political, social, cultural, and educational spheres. Given the rumors that Karimov, due to his age and state of health, did not possess all the information about the country’s domestic and foreign situations, it is possible that Inoyatov was in fact the first person in the state. He himself may have guided state structures, business, and the political elite of the country with foreign investment projects remaining close to his oversight. Mirziyoyev’s rise to power after the death of Karimov was only possible due to the fact that Rustam Inoyatov approved his ascension.

At the same time, the situation in Uzbekistan before the official resignation of the head of the National Security Service could be described as a period of dual power, in which foreign partners saw a potential threat to their serious financial investments. This situation hampered the implementation of reforms announced by Mirziyoyev. Obviously, the president himself was aware of the uncomfortable work under the conditions of such a duality. From the very beginning of Mirziyoyev’s presidency, rumors of Inoyatov’s resignation appeared in the media. Through these informational outlets, the new authorities apparently wanted to introduce uncertainty and suspicion into elite groups oriented toward the head of the Chekists. However, the combination of Inoyatov ‘s old age (74) , fatiguing business, and the public’s weariness from excessive control of all spheres of life did not play into chief security officer’s favor.

In a December speech before the Uzbek parliament, Shavkat Mirziyoyev rejected the law enforcement agencies’ excuse of strengthening their powers purely for public safety. The official resignation of Inoyatov, which followed in January, was evidence that Mirziyoyev has become a single center of power in the country and independently controls all sectors of the government. This was an important signal for foreign business, as it means that a single locus powers controls the country’s stability.

 The seduction of the Karimov’s heritage

Shavkat Mirziyoyev will use his trusted people to help Uzbekistan withdraw from isolation and implement economic reforms. Officials who worked with him while he was prime minister make up a significant number of these people. Mirziyoyev’s relatives also took important positions in the presidential administration and law enforcement agencies. In addition, rumors have spread among the country’s population that the president’s son-in-law is trying to gain control over domestic businesses. This pertains mainly to the wholesale markets where Chinese consumer goods are sold. It is noteworthy that relatives of Islam Karimov previously controlled these markets.

The Uzbek power structures are also being reoriented to protect business and foreign investors. However, instead of the National Security Service, such protection will probably be provided by the National Guard, which is strengthening its positions in the country. While this department is primarily entrusted to ensure public order in the country, it is possible that the functions of the National Guard will expand given the demotion of the National Security Service. Moreover, the NSS left behind a large school also headed by a person from the president’s entourage, Bahodir Tashmatov. General Batyr Tursunov, a relative of the president, now has a leading post in the National Guard.  The president apparently condones such people filling these positions.

As for foreign investments, they are increasing largely due to investments by foreign oligarchs with Uzbek roots. The largest such investor is the Russian oligarch, Alisher Usmanov, who coincidentally has family ties with Shavkat Mirzyoyev. During Islam Karimov’s tenure, the same ties of power existed with the oligarchs. The only difference is that it was local and not foreign oligarchs that he kept close.

Thus, with the Uzbek economy dealing with the problems left after the rule of Islam Karimov, the new authorities are trying to greatly open the market and attract foreign partners. However, the success of these reforms will largely depend on the ability of the new president to abandon Karimov’s methods of governing the country and open Uzbekistan to innovation and investment. At the same time, it is possible to talk about the success of these reforms when the citizens of the country feel their positive influence.

References

[1] “Uzbek president addresses parliament for the first time.” EurAsia Daily. December 22, 2017. Accessed March 12, 2018. https://eadaily.com/ru/news/2017/12/22/v-uzbekistane-prezident-vpervye-vystupil-s-obrashcheniem-k-pralamentu.

[2] “All projects will be screened for evidence of corruption and other abuses.” UzbekistanToday. July 25, 2017. Accessed March 12, 2018. http://www.ut.uz/ru/politika/vse-proekty-budut-prokhodit-proverku-na-predmet-nalichiya-v-nikh-priznakov-korruptsii-i-drugikh-zlou/.

[3] “Mirziyoyev pointed out the need to optimize the structure of the country’s Foreign Ministry.” Sputnik. January 13, 2018. Accessed March 12, 2018. https://ru.sputniknews-uz.com/politics/20180113/7259257/mirzieev-naobhodimo-optimizirovat-strukturi-mid.html.

[4] “President of Uzbekistan: “I guarantee reliable protection of your investments”.” Gazeta.uz. November 23, 2017. Accessed March 12, 2018. https://www.gazeta.uz/ru/2017/11/23/forum/.

[5] “Mirziyoyev honored with the award for reform in Uzbekistan.” Sputnik. February 2, 2017. Accessed March 12, 2018. https://ru.sputnik-tj.com/asia/20170202/1021621538/uzbekistan-nagrada-mirzieevy.html.

[6] “Mirziyoyev will allocate $ 100 million to loyal Tajik businessmen.” Stan Radar. February 19, 2018. Accessed March 12, 2018. http://stanradar.com/news/full/28483-mirzieev-vydelit-100-mln-lojalnym-tadzhikskim-biznesmenam.html?page=3.

[7] “Foreign investment rose to $ 2.4 billion in 2017.” Gazeta.uz. January 12, 2018. Accessed March 12, 2018. https://www.gazeta.uz/ru/2018/01/12/investments/.

Author: Galiya Ibragimova, independent political scientist.

The opinions expressed in this article are the author’s own and do not necessarily reflect the view of cabar.asia.