Uzbekistan economy: success or complete failure?

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:47

The modern economy of Uzbekistan was born together with the sovereign Uzbek statehood that arose after the collapse of the USSR. Among the CIS members, this country was one of the first to enter the phase of economic development. By 2001, Uzbekistan managed to restore the Soviet level of production according to GDP indicators. Export was and remains the engine of growth (against the background of domestic consumption, which was in a state of stagnation). As a result, economic growth has little effect on the standard of living of the population.

Sovereign economy

To stabilize the state of the country, which has survived the formation of a new statehood, the government of Uzbekistan has chosen a course of gradual reforms. Their key goal was the gradual transition of the economy from a planned Soviet economy to a modern market one. Structural reforms included strengthening payment discipline and raising prices in the energy sector, transforming former collective farms into individual farms, and abandoning state monopolies.

At the same time, privatizationenterprises never became full-fledged. As a result, the basis of Uzbekistan's economy turned out to be full of contradictions. This feature led to the fact that the transition to a market system slowed down and has not ended to this day. The private sector and entrepreneurial activity are hindered by government intervention.

Banking and Finance

In 1994, the economy of Uzbekistan received its own national currency - soum (one soum is equal to one hundred tiyins). In the second half of the 1990s, its exchange rate against the US dollar remained relatively stable. In the early 2000s, the US currency jumped sharply. At the same time, the change in value occurred at the initiative of the Central Bank of Uzbekistan. The fact is that the exchange rate in the Central Asian state is not free, but is regulated by state financial authorities. The Central Bank had to take unpopular measures in order to bring the value of Uzbek money closer to the real market value. Inflation is one of the main economic problems of the country. To reduce the high rate of price growth, the government has continued to pursue a tight monetary and credit policy for 25 years.

Only in 2003, the Ministry of Economy of Uzbekistan announced the start of free conversion of the national currency. To implement the reform, it was necessary to unify the exchange rates, which was complicated by the then devaluation. One way or another, but thanks to the measures taken, inflation in 2003 fell to 3%. In the future, the government continued to gradually integrate the currencyUzbekistan into the international market.

The five largest banks in the country are the National Bank, Uzpromstroybank, Asakabank, Ipotekobank and Agrobank (they account for 62% of the value of the entire banking system of the country). In 2013, the total capital of commercial credit organizations of the republic amounted to $3 billion.

In 1994, the Tashkent Stock Exchange was established, which became one of the main centers of the country's financial life. It was established by key brokerage, investment and insurance companies in Uzbekistan. The exchange conducts primary placement, as well as secondary trading in securities. In 2012, $85 million was traded on this site.

External Relations

The modern economy of Uzbekistan is trying to become not only a market economy, but also open to the rest of the world. The main tool for this is the participation of the country in the international division of labor and world economic relations. In the 90s, the new sovereign state joined various organizations that helped establish trade contacts with a variety of countries. First of all, this is the UN, within which many economic institutions operate. The Central Asian Republic also cooperates with the World Bank and the International Finance Corporation.

Many organizations have opened their representative offices in Tashkent. These are the UN, the IMF, the European Bank for Reconstruction and Development, the World Bank, the Commission of the European Union. There are also their regional branches. Most of all, the economy of Uzbekistan is connected with the economies of other countries of Central Asia, Russia, Turkey, Pakistan and Iran (withthe latter is especially closely linked to the economies of Kazakhstan, Uzbekistan and the Russian Federation). In total, the republic is included in 37 international financial organizations.

To simplify the creation of enterprises with foreign capital, the registration of companies wishing to invest in the economy of Uzbekistan was facilitated. Particularly positive was the adoption of new norms for licensing exported goods. But as before, so now the key partners of Uzbekistan are the CIS countries.

Investment attraction

According to statistics, the economy of Uzbekistan today, in terms of investment, is most attractive in the energy sector (oil refining, chemical enterprises), transport and agriculture. Traditionally, foreign capital is directed to the Tashkent and Fergana regions. As noted above, the market economy of Uzbekistan is still largely dependent on the authorities. Therefore, the largest foreign investment projects in the country are implemented only under state monitoring. Most often, the Ministry of Economy of Uzbekistan and other responsible institutions choose objects of high-tech and science-intensive production, as well as intersectoral significance. All these initiatives stimulate the growth of the private sector.

Investments are not aimed at short-term current programs, but at long-term projects that are necessary to solve strategically important tasks. According to these principles, the economic policy of the state is built. Foreign capital facilitates the structural transformation of a wide variety ofindustries, accelerates the modernization and technical re-equipment of production. The economy of Uzbekistan today also needs investments in environmental projects. A serious problem is the situation in the Aral Sea, dried up due to the thoughtless use of water resources in the Soviet era.

In modern Uzbekistan, the most favorable situation for investment has developed in the processing and mining industries. The appearance of technical innovations in them helps to reduce resource costs that hinder the production of goods with low prices on the international market. Today's rating of Uzbekistan in the economy is largely due to such exports (cotton, textiles, etc.). Investments are especially important in the transitional period in which the Central Asian republic is now living.

Raw materials

The long-term development of the economy of Uzbekistan has made it the leading industrial state of Central Asia, which is the guarantor of the stability of the entire region. The country has several principal advantages for foreign investors. These are macroeconomic and political stability, favorable climatic and natural conditions. The listed features are also the key to the even development of the republic as a whole.

Uzbekistan's economy has been evolving for 25 years thanks to its rich resource base and favorable geographical location (Uzbekistan is located in the center of the largest regional market). The scientific-intellectual as well as human resources potential of the country is also important. Access to raw materials reduces transport costsmaterials, optimizes the cost of manufactured products.

Today, about 2,800 different deposits have been discovered in the country. The mineral resource base of the republic is estimated at 3.5 trillion dollars. Thanks to her, the following achievements of Uzbekistan in the economy were formed: 9th place in the world in the production of gold, 9th - uranium, 5th - cotton fiber.

Energy

The Central Asian state is one of the few completely energy independent countries in the world. The industry of Uzbekistan is 100% provided with oil, oil products, natural gas, electricity and coal. Economic needs will be covered for at least another 100 years. About 200 gas, oil and condensate fields have been explored in the country.

The economy of the Republic of Uzbekistan is efficient in terms of electricity. It not only covers the growing demand, but is also several times cheaper than even the most developed countries. In addition, there is also unlimited potential in alternative energy sources (wind, solar, etc.).

Today, 45 power plants operate in Uzbekistan, generating 12,000 megawatts per year. This complex generates about half of the energy of the entire international energy system of Central Asia. Uzbekistan's power plants produced 52 billion kilowatt-hours in 2012.

Agriculture

Agriculture is significantsupplier of raw materials for industrial production. Regardless of who the Minister of Economy of Uzbekistan was, the agricultural sector has always remained the pride of the country. The basis of agriculture is the production of cotton fiber. It is the most important export product. For example, in 2010, 3.4 million tons of cotton were harvested. Other important agricultural exports of Uzbekistan are raw silk, grapes, fruits, melons. In addition, the amount of fruit and vegetable products sold is significant (10 million tons per year).

About 60% of the population of Uzbekistan lives in rural areas. In this regard, a significant part of the able-bodied population involved in the national economy is employed in the agricultural sector. Large areas used for crops are served by a huge irrigation system. It appeared in the Soviet era. Realizing the importance of this infrastructure, the authorities of already independent Uzbekistan are regularly modernizing it. Today, the area under crops in the republic is estimated at 4 million hectares (irrigated land is about 87%).

According to statistics given by the Ministry of Economy of the Republic of Uzbekistan, there are more than 80,000 farms in the country. The average area of such a plot is 60 hectares. Agricultural farms are regularly exempted from taxes and mandatory contributions to the treasury. About 10,000 of them specialize in animal husbandry, potato and vegetable growing, the other 22,000 specialize in viticulture and horticulture (about 50,000 tons of grapes and 15,000 tons of fruit are grown annually).

According to the decision of the late PresidentIslam Karimov Uzbekistan has joined the International Fund for Agricultural Development. In case of unforeseen circumstances, the government can receive soft loans from it for the development of the agricultural sector. According to various estimates, about $700 million from foreign funds have been invested in this area of the Uzbek economy to date. This is the money of the Asian Development Bank, the World Bank and the Islamic Development Bank. Every year, the agriculture of the republic produces products, the total value of which is estimated at 12 trillion soums. Chemical industry enterprises of Uzbekistan supply more than 1 million tons of various fertilizers to the market.

A positive factor for the development of agriculture is the proximity of Uzbekistan to various markets. Also, its economy is distinguished by a developed transport infrastructure. It is integrated into the common system of communications uniting the whole of Eurasia. For example, Slovak companies that invest in Uzbekistan get access to the five largest and fastest growing markets (CIS countries).

Workforce

The Central Asian Republic remains a significant source of labor resources. Uzbekistan is a multinational and densely populated state located at the crossroads of trade routes between East and West. Since ancient times, it has been a concentration center of educational and research institutions, as well as a forge of highly qualified personnel.

Today's place of Uzbekistan inthe world economy is based on the work of specialists graduating from 65 universities of the country (professionals in industrial and technical areas are especially valuable). The Academy of Sciences has been operating in the republic since 1943. It consists of eighteen research institutes. These are the key innovation centers not only of the country, but of the entire Central Asian region. A significant number of Uzbek workers are involved in the Russian economy. Active youth mainly go to Russia to earn money.

Trade Partners

To understand what the economy of Uzbekistan has developed in the country over 25 years of independence, it should be noted that it is closely connected with several dynamically developing markets - the CIS, South Asia, East and Southeast Asia, the Middle East, Afghanistan, Central and Eastern Europe.

Integrity not only gives advantages, but also makes the republic vulnerable to external cataclysms from abroad. For example, the global economic crisis of 2008-2009. led to serious costs in the national economy. To cope with the challenge, the government adopted the Anti-Crisis Program. In the course of it, modernization was accelerated, the most important industries were updated, energy consumption costs were reduced, the competitiveness of manufacturers was increased, modern infrastructure was developed, and the liquidity and reliability of the banking and financial system were cardinally strengthened. According to the program, the implementation of more than 300 important projects has begun, the total amount of which amounted to about 43 billion dollars.

In order to establish economic ties with the outside world, inIn the 1990s, the republic had to create several institutions from scratch. First of all, these are the Ministry of Foreign Economic Relations, the customs service, as well as the National Bank for Foreign Economic Affairs. These structures are controlled by the Cabinet of Ministers of Uzbekistan. In the case of particularly important partners, chambers of commerce and industry have been established (with Great Britain, the USA, Germany and other countries). Today, about two thousand large enterprises of the Central Asian Republic (concerns, associations, etc.) actively use the right to enter the foreign market. The export potential of Uzbekistan has been developing along with the gradual liberalization of the country's international economic cooperation.

Entrepreneurship

Over the past 10 years, private entrepreneurship has significantly increased its own contribution to Uzbekistan's GDP (from 30% to 50%). Small businesses in the construction, agriculture, and trade services sectors are especially noticeable. Its importance continues to grow in light industry.

Out of every four employed residents of Uzbekistan, three work in a small business (either they themselves have a job or are hired by such employers). These figures are only growing. Every year, private enterprise gives the country half a million new jobs (almost half of them are in agriculture, 36% in the service sector, 20% in industry). Stable business development strengthens Uzbekistan in the status of a major regional power.

After the collapse of the USSR, the government faced the need to createa favorable legal framework for the establishment and operation of small private enterprises. In the future, the procedure for registering an individual case was only facilitated and modernized. At the same time, reforms related to taxation were carried out (an updated Tax Code was adopted).

Business and government

It is significant that the recent 2011 was declared by the President of the Central Asian Republic Islam Karimov "the year of small business and private entrepreneurship." The Minister of Economy of Uzbekistan (now this post is held by Saidova Galina Karimovna), on behalf of the first person, submitted to the government a program of measures necessary to attract new investments and create additional jobs. In particular, the budget has provided tailored credit lines for the nation's most outstanding projects and small business ventures.

A separate program operates in the field of entrepreneurship in agriculture. The state additionally finances housing construction in the agrarian regions of Uzbekistan. This infrastructure alone is fertile ground for further business development. Retail trade, the service sector, and family business are growing. Borrowers-agrarians receive benefits in providing loans and financing necessary for the implementation of private projects.

Small rural construction companies are being created under the state "Program for the Development of Rural Regions". About one thousand such firms provide forty thousand jobs for skilled builders. For Uzbekistan, as well as for any other country withtransition economy, it is important to create a competitive environment in all areas so that the market can regulate itself in the future.

Small business affects not only the employment of the population, but also the entire social situation in the state. Only developed entrepreneurship allows the most efficient use of human labor resources. It stimulates the well-being and confidence of society in the future and is an important driving force guiding the country along the path of progress.

Success or complete failure?

One of the key shortcomings of the modern economy of Uzbekistan remains its dependence on grain imports. Domestic production covers only a quarter of the total need for this resource. Structurally, the economy of the republic is as follows: agriculture provides 17% of GDP, the service sector - 50%, industry - 25%.

The situation in Uzbekistan abroad is familiar to the world community rather superficially. The country is distinguished by a closed information space. The nuances of the economic system are known only from the strictly filtered official information of the authorities. In general, the authoritarian nature of the state in Uzbekistan is reflected in the economy itself. It is contradictory, if only because, on the one hand, it is developing as a market economy, and on the other hand, it is under pressure from the authorities trying to control its most important industries.