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Country Profile 2008

Uzbekistan This Country Profile is a reference work, analysing the country�s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit�s Country Reports analyse current trends and provide a two-year forecast.

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Country Profile 2008 www.eiu.com © The Economist Intelligence Unit Limited 2008

Comparative economic indicators, 2007

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

Gross domestic product(% change, year on year)


Consumer prices(% change, year on year)


Gross domestic product per head(US$ '000)


0 50 100 150 200

TajikistanKyrgyz Republic

MoldovaMacedonia

TurkmenistanArmeniaGeorgiaAlbania

Bosnia and HercegovinaUzbekistan

EstoniaLatvia

AzerbaijanLithuania

BelarusSerbia

BulgariaSlovenia

CroatiaSlovakia

KazakhstanHungaryUkraine

RomaniaCzech Republic

PolandRussia

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

HungaryMoldova

MacedoniaTurkmenistan

Bosnia and HercegovinaBulgariaAlbania

RomaniaCroatia

SloveniaCzech Republic

PolandEstoniaUkraine

SerbiaTajikistan

BelarusRussia

Kyrgyz RepublicKazakhstan

LithuaniaUzbekistan

SlovakiaLatvia

GeorgiaArmenia

Azerbaijan

0.0 5.0 10.0 15.0 20.0 25.0

TajikistanUzbekistan

Kyrgyz RepublicMoldova

TurkmenistanGeorgiaUkraine

ArmeniaMacedoniaAzerbaijan

AlbaniaBosnia and Hercegovina

BelarusBulgaria

SerbiaKazakhstan

RomaniaRussiaPoland

LithuaniaCroatia

LatviaHungarySlovakiaEstonia

Czech RepublicSlovenia

0.0 5.0 10.0 15.0 20.0

Bosnia and HercegovinaMacedonia

PolandSlovakia

Czech RepublicCroatiaAlbania

SloveniaArmeniaRomania

LithuaniaSerbia

EstoniaHungary

BelarusBulgaria

RussiaGeorgia

LatviaKyrgyz Republic

KazakhstanTurkmenistan

UzbekistanMoldovaUkraine

TajikistanAzerbaijan

1,289.6

25.0

420.3


Uzbekistan 1

© The Economist Intelligence Unit Limited 2008 www.eiu.com Country Profile 2008

Contents

Uzbekistan

3 Basic data

4 Politics 4 Political background 5 Recent political developments 8 Constitution, institutions and administration 9 Political forces 12 International relations and defence

14 Resources and infrastructure 14 Population 16 Education 16 Health 17 Natural resources and the environment 18 Transport, communications and the Internet 19 Energy provision

20 The economy 20 Economic structure 21 Economic policy 25 Economic performance 26 Regional trends

27 Economic sectors 27 Agriculture 28 Mining and semi-processing 29 Manufacturing 30 Construction 30 Financial services 31 Other services

32 The external sector 32 Trade in goods 33 Invisibles and the current account 34 Capital flows and foreign debt 36 Foreign reserves and the exchange rate

37 Regional overview 37 Membership of organisations

40 Appendices 40 Sources of information 41 Reference tables 41 Population 42 Labour force 42 Transport and communications statistics 42 National energy statistics


2 Uzbekistan


43 Money supply 43 Interest rates 43 Gross domestic product by sector 43 Agricultural production 44 Livestock numbers 44 Gross domestic product 44 Nominal gross domestic product by expenditure 45 Consolidated budget 45 Prices and earnings 45 Main composition of trade 46 Main trading partners 46 Balance of payments, IMF series 47 External debt, World Bank series 47 Foreign reserves 47 Exchange rates


Uzbekistan 3


Uzbekistan

Basic data

447,400 sq km, of which 9% is arable

27.1m (January 2008, Economist Intelligence Unit estimate)

Population in �000, July 1999

Tashkent (capital) 2,400 Samarkand 392 Namangan 378

Continental desert

Uzbek is the state language; Russian is widely spoken; Tajik is spoken in Samarkand and Bukhara; Karakalpak is used in the autonomous republic of Karakalpakstan

Metric system

The som-coupon was introduced on November 29th 1993 as the successor to the rouble. It was replaced by the som on July 1st 1994, at a rate of Som7:US$1. A multiple exchange-rate system was introduced in 1997, and the main reference rate was subsequently repeatedly devalued in order to keep pace with the rapid depreciation of the currency on the black market. The exchange rate was unified on October 15th 2003 at a rate of Som975:US$1. On March 4th 2008 the exchange rate was Som1,297:US$1

6 hours ahead of GMT

January 1st (New Year); March 8th (International Women�s Day); March 20th (Prophet!s Birthday); March 21st (Nowruz"Iranian New Year); May 1st (Labour Day); May 9th (Day of Memory and Respect); September 1st (Independence Day); October 2nd (Hait); December 8th (Constitution Day); December 9th (Qurban-Hait).

Land area

Population

Main towns

Climate

Languages

Weights and measures

Currency

Public holidays, 2008

Time


4 Uzbekistan


Politics

Islam Karimov has ruled Uzbekistan since the late Soviet period, first as head of the Soviet republic's Communist Party, and then as president of independent Uzbekistan. Since 1995 a series of constitutional amendments and flawed referendums has allowed Mr Karimov to prolong his rule. Most recently, Mr Karimov was re-elected to a third term by an overwhelming margin in a flawed election in December 2007, despite constitutional provisions limiting the president to two consecutive terms. A new bicameral parliament was elected in December 2004, replacing the unicameral assembly that had existed since independence, but it enjoys no greater authority than its predecessor, as the president has retained almost complete control over the institution. All five parties represented in the legislature support Mr Karimov.

Political background

The Uzbek Soviet Socialist Republic (SSR), established in 1924, was based on the territory of what had historically been the Bukharan emirate and the Khiva and Kokand khanates, which the Tsarist empire had conquered in the 19th century. Local guerrillas resisted the Bolsheviks until well into the 1920s, but the borders were finally delineated in 1929, when an autonomous region"modern-day Tajikistan"became a separate Soviet republic. Soviet rule was devastating for the country. Thousands died because of collectivisation and in Stalin�s purges, and most mosques were closed or destroyed. Large numbers of Russians and others from the western Soviet Union migrated to Uzbekistan during the second world war, and thousands of others"such as Koreans or Meskhetian Turks"were deported there.

Until the 1960s the Uzbek SSR was largely run by ethnic Russians. However, under Sharaf Rashidov, the first secretary of the Uzbek Communist Party (UCP) from 1961 until 1982, Uzbeks received considerable autonomy in return for following Moscow�s line. In 1985 Mikhail Gorbachev became Soviet leader and launched a programme of reforms that included curbing corruption. Mr Gorbachev purged the UCP leadership and Mr Rashidov was posthumously disgraced. Domestic unrest grew and there were violent ethnic clashes in the Ferghana Valley in 1989 and 1990.

A product of the Rashidov years, Mr Karimov, who took power in 1989, opposed Mr Gorbachev�s reforms and the break-up of the Soviet Union, and was seemingly sympathetic to the Moscow coup of August 1991. However, after the failed coup attempt he quickly changed tack and declared independence. His swift change of political stance deprived the two small urban-based dissident groups, Erk (Freedom) and Birlik (Unity), of their main political platform. A flawed presidential election was held in December 1991, in which Mr Karimov�s only opponent, the leader of Erk, Muhammad Solikh, won just 13% of the votes.

Uzbekistan�s borders were set by Soviet authorities

Uzbeks took charge only in the 1960s

Mr Karimov becomes president in flawed election


Uzbekistan 5


Recent political developments

Mr Karimov consolidated his power throughout the 1990s, remaining hostile to both political and economic liberalisation. He banned or exiled opposition leaders in 1992-93, and prohibited opposition parties from standing in the 1994, 1999 and 2004 parliamentary elections. In 1995, after holding a flawed referendum, Mr Karimov cancelled the presidential election that was to have been held in the following year. The presidential election held in January 2000 was even less fair than the 1991 poll, as Mr Karimov!s sole challenger, Abdulhafiz Jalolov, the chairman of the ruling People!s Democratic Party (PDP), publicly declared that he was voting for Mr Karimov.

In the face of considerable international criticism, Mr Karimov then organised a flawed referendum in January 2002 to extend his term in office from five to seven years. A parliamentary decree approved shortly after the 2002 referendum ruled that a presidential election must be held on the third Sunday in December of the president!s final calendar year in office, in effect extending Mr Karimov!s term even further, to December 2007. Although the constitution states that an individual may not hold the presidency for more than two consecutive terms, Mr Karimov stood again in a flawed election in the December 2007, in which he was overwhelmingly re-elected.

The 2002 referendum also created a new bicameral parliament, which was elected for the first time in December 2004. In 2007 the authorities introduced modest reforms to the power structure in Uzbekistan. Although designed to give parliament more authority, the president still retains key powers, including the right to nominate and remove the prime minister.

The suppression of the secular opposition has left few avenues open for non-violent dissent. Instead, opposition to the authorities has tended to come from extremist Islamic groups (see Political forces), such as Hizb ut-Tahrir (Party of Freedom) and the armed Islamic Movement of Uzbekistan (IMU). In February 1999 a series of car bombs exploded in Tashkent, killing 15 people. Although no group claimed responsibility for the attacks, the IMU published its extremist manifesto shortly afterwards, advocating the establishment of an Islamic state in Uzbekistan. Based in Afghanistan and remote areas of Tajikistan, the IMU was formed by exiled Uzbek Islamists who had fled a crackdown in the early 1990s and who had fought with the Tajik Islamists during the Tajik civil war. Cut adrift by the 1997 peace deal in Tajikistan, they linked up with the Taliban movement in Afghanistan. Although Uzbek armed forces halted two attempted incursions by the IMU into Uzbek territory in 1999 and 2000, the IMU attacks represented a political success for the organisation, in that the government allowed the group to dominate the political agenda.

The IMU was severely weakened during the course of the US-led campaign in Afghanistan in 2001-02, including through the reported death of one of its leaders, Juma Namangani. However, remnants of the organisation are still active in the Afghanistan-Pakistan border area, and some of its survivors are believed to be responsible for the establishment of a new organisation, the Jihad Islamic Group (JIG), or Jamoat (meaning "societies" or "groups" in Uzbek).

Mr Karimov consolidates his hold on power

There are few avenues open for non-violent dissent


6 Uzbekistan


Recruiting in southern Kazakhstan and Uzbekistan, they announced their presence in March 2004 by means of an accidental explosion at one of their bomb-making factories in Uzbekistan. This was followed by a series of suicide bombings and shoot-outs with the police that resulted in the deaths of more than 40 people in Tashkent and Bukhara. There were three further suicide attacks in July 2004, for which responsibility was attributed to the JIG.

The IMU suffered heavy casualties in fighting with local tribesmen in the Federally Administered Tribal Areas (FATA) of western Pakistan 2007, but it remains a serious threat. The German authorities announced in September 2007 that they had arrested three men for plotting terrorist attacks on the US military air base at Ramstein in Germany and at US consulates. According to reports, the three men were linked to Uzbek-run terrorist training camps in the FATA. An organisation calling itself the Islamic Jihad Union (an alias for the JIG) issued a statement claiming responsibility. It stated that it wanted to attack Uzbek consulates and demanded that German troops leave the Uzbek airbase at Termez on the Afghan border.

In 2005 armed forces opened fire on protesters in the town of Andizhan in the Ferghana Valley. People had gathered in the town in mid-May to protest against the trial of 23 local businessmen, arrested on charges of religious extremism. Armed rebels subsequently stormed the prison where the men were being held, and took local officials hostage. Several thousand people congregated throughout the day in the town!s main square, some calling for the resignation of the government. The authorities appear rapidly to have abandoned attempts to disperse the protesters by peaceful means, and armed forces were used to break up the demonstration. Official accounts report that around 190 people were killed, but unofficial sources suggest that as many as 750 people, of whom the overwhelming majority were unarmed civilians, lost their lives. The government accused Islamist militants of orchestrating the demonstrations, but resisted pressure from Western governments to hold an independent inquiry. At least 150 people were imprisoned for their involvement in the unrest.

The crushing of the demonstration in Andizhan was followed by a clampdown on the small number of international non-governmental organisations (NGOs) still operating in Uzbekistan and the expulsion from the country of most of the foreign media"both regarded by the Uzbek government as destabilising influences, particularly following the "colour revolutions" in other former Soviet republics. Among those expelled from Uzbekistan in 2006 was the Office of the UN High Commissioner for Refugees, which had helped to relocate refugees from the Andizhan events from the Kyrgyz Republic to other countries. By 2007 virtually all foreign NGOs had been forced to leave Uzbekistan, and the country!s human rights activists continued to face arrest. Although still resisting Western pressure for an independent inquiry, Mr Karimov implicitly recognised that social issues had played a role in the Andizhan protest, sacking the regional governor in October 2006 for corruption and for his failure to deal with local grievances. Some of the refugees from Andizhan returned to Uzbekistan in 2006 and 2007, apparently voluntarily, but human rights observers expressed

Authorities crush protest in Andizhan

Most foreign media and NGOs have been forced out


Uzbekistan 7


concern that the government had put pressure on the refugees! families to persuade them to return.

Important recent events

March 2003

Uzbekistan joins the US-led coalition for the war in Iraq, but its contribution is largely nominal.

March 2004

At least 42 people are killed in a series of suicide bombings and apparently related terrorist attacks. The government attributes the attacks to Islamist extremist groups.

July 2004

Suicide attacks on the US and Israeli embassies and on the prosecutor-general!s office in Tashkent kill seven local security guards.

December 2004-January 2005

Five pro-government parties contest the election to a new, bicameral parliament, the attempts of the opposition movements Erk (Freedom) and Birlik (Unity) to register having failed. The Organisation for Security and Co-operation in Europe (OSCE) sends only a limited observer mission, which concludes that the election fell substantially short of Uzbekistan!s commitments to the organisation.

May 2005

Security forces open fire on unarmed civilians to crush a protest in the eastern town of Andizhan, following the trial of 23 local businessmen.

July 2005

The government gives the US 180 days to leave the Karshi-Khanabad airbase in southern Uzbekistan, after the US helps to evacuate refugees from the events in Andizhan, who had taken shelter in the Kyrgyz Republic, to safety in Romania. Uzbekistan had granted the US the right to use the base for military operations in Afghanistan in 2001.

November 2005

Uzbekistan and Russia conclude a wide-ranging treaty that incorporates mutual defence obligations.

December 2005

The interior minister, Zakirjon Almatov, who oversaw the crackdown in Andizhan, resigns, having been in the post since 1991.

June 2006

Uzbekistan rejoins the Collective Security Treaty Organisation"the security body for the Commonwealth of Independent States"reinforcing its growing military ties with Russia.

October 2006

The governor of Andizhan province is sacked for corruption and his failure to address residents! grievances. His predecessor is imprisoned for complicity in the Andizhan protest.


8 Uzbekistan


October 2007

The EU eases the limited sanctions imposed on Uzbekistan over the 2005 Andizhan events by lifting its travel ban on leading Uzbek officials, including the minister of defence and head of national security, for six months.

December 2007

Mr Karimov is overwhelmingly returned to a third presidential term with 88% of the vote on a turnout of more than 90%, in an election that is criticised by the OSCE. With genuine opponents of Mr Karimov having failed to secure registration, he faces only token opposition from three pro-government candidates.

January 2008-February 2008

Mr Karimov reshuffles his government, promoting Rustam Azimov, a deputy prime minister and the finance minister, to first deputy prime minister, and bringing his daughter, Gulnora Karimova, into government as deputy foreign minister.

Constitution, institutions and administration

The constitution of December 8th 1992 enshrines democracy; a free press; freedom of conscience and religion; the rule of law; and due process. In practice, Uzbekistan is an authoritarian state where the government, parliament and the judiciary exist to serve the president. The prime minister and his cabinet are largely powerless, as all major decisions come from the president�s office.

After a referendum the constitution was amended in 2002 to extend the presidential term to seven from five years, and to change the legislature from a one- to a two-chamber body. The authorities did not, as some had expected, change the constitution to allow Mr Karimov to stand for a third term in office in the December 2007 election (the constitution prohibits candidates from serving more than two). Instead, they appear to have relied on the argument that Mr Karimov had served only one term under the constitutional changes approved in 2002.

The parliament, the Ali Majlis (Supreme Council), is constitutionally the highest body of state, but plays only a limited political role. Since the December 2004 election, which created a bicameral assembly, the Ali Majlis has consisted of the 120-member Legislative Chamber (the lower house), whose members are directly elected by constituencies, and a 100-member Senate (the upper house). Uzbekistan!s 12 provinces, the Karakalpakstan autonomous republic and Tashkent city elect 84 of the senators; Mr Karimov appoints the remaining 16.

Mr Karimov hailed the establishment of the new legislature as an important step in Uzbekistan!s democratic development. However, in practice the powers of the new assembly are little changed in comparison with its predecessor, even after a presidential decree approved by the Senate in March 2007, which allows for an organised majority and an organised opposition in the Legislative Chamber. The president still nominates the prime minister, albeit now after consultation with the factions present in the Legislative Chamber. The president likewise has the right to remove the prime minister, although this can now also occur in response to a Legislative Chamber initiative.

The president plays a dominant role in politics


Uzbekistan 9


The National Security Service (SNB), the successor to the KGB, reports directly to the president. The SNB is one of the most powerful and effective secret police forces in the former Soviet Union. There are almost no curbs on its activities. Its main functions are to repress dissent, harass the Muslim clergy, and keep the expatriate population"including foreign financial officials and diplomats"under close surveillance. The other arm of the security service is the police force of the Ministry of Internal Affairs, whose function is to monitor and control the activities of ordinary citizens. In the wake of the Andizhan protest, the interior ministry ceded some powers to the SNB, including control over its paramilitary troops.

Corruption is a serious and all-pervasive problem in Uzbekistan that weakens the effectiveness of the state and creates considerable popular discontent. The political elite dominates business. Senior politicians have the right to dispense economic power and privilege, and some have considerable business interests, particularly in the cotton sector. Mr Karimov frequently sacks leading officials in response to graft allegations. The judiciary is appointed by the executive and is subordinate to the government. Judicial procedures fall a long way short of international standards and corruption is widespread.

Political forces

Uzbekistan!s Soviet-style constitution promises wide-ranging political rights that, in reality, are curbed by state practice and legislation. Although it states that all citizens have the right to form trade unions, political parties and any other public associations, subsequent legislation and administrative procedures ensure that only parties approved by the state can operate legally in Uzbekistan. Until 2004 the main political force was the People!s Democratic Party (PDP), headed by Abdulhafiz Jalolov. As of the 2004 election, the PDP ceded its dominant position to the Liberal Democratic Party (LDP), founded in November 2003 by government loyalists, and describing itself as a party for entrepreneurs and businessmen. Mr Karimov stood as the LDP candidate in the December 2007 presidential election.

In addition to these two, three other pro-government parties won parliament-tary seats in the 2004 election: the Adolat (Justice) Social Democratic Party (not to be confused with the banned Islamic movement Adolat), the Fidokorlar (Self-Sacrificers!) Party, and the Milliy Tiklanish (National Renaissance) Party.

The government allows no genuine opposition movements to operate freely in Uzbekistan, and uses force, exile and legal harassment to prevent credible opposition groups from emerging. Two main secular opposition movements emerged in the late communist era: Birlik (Unity) and Erk (Freedom, which split from Birlik in the early 1990s). The leaders of both groups, Abdurahim Pulatov (Birlik) and Muhammad Solikh (Erk), are living in exile, and years of repression have left the groups with limited popular support. Between mid-2003 and early 2005 the movements were permitted to hold small-scale meetings in Tashkent, but the authorities rejected their attempts to register as political parties in

Secular opposition parties struggle to survive

Corruption is rampant

The secret services wield extensive powers

Most political parties are pro-government


10 Uzbekistan


advance of the 2004 election and prevented their candidates from standing as independents. Messrs Pulatov and Solikh were barred from standing in the December 2007 presidential election by the requirements that candidates have to have lived in Uzbekistan for ten consecutive years before the poll and collect 700,000 signatures of eligible voters (5% of registered voters).

Two parties attempt to represent the large agricultural population, Ozod Dehqonlar (Free Peasants) and the Agrarian Party, both of which were barred from the 2004 election. Neither has been able to take advantage of the discontent with government policies that exists in rural areas. Another secular opposition movement, Serquyosh Uzbekistonim (My Sunny Uzbekistan), emerged in mid-2005. The group!s leader, Sanjar Umarov, was highly critical of the authorities! response to the unrest in Andizhan, and in October 2005 was arrested"ostensibly on charges of embezzlement. He was subsequently sentenced to 14.5 years in prison. Another leader of My Sunny Uzbekistan, Nodira Hidoyatova, received a ten-year sentence, having been convicted of a range of charges, including tax evasion (although she was released from custody in May 2006, with her prison term reduced to a three-year suspended sentence).

Legislative Chamber election, Dec 26th 2004a Party % of vote No. of deputiesLiberal Democratic Party 34 41People's Democratic Party 23 33Fidokorlar (Self-Sacrificers') Party n/a 18

Milliy Tiklanish (National Renaissance) Party n/a 11Adolat (Justice) Social Democratic Party n/a 10

Independent n/a 7Total 100 120

a Run-off elections were held in 56 constituencies on January 9th 2005. Official turnout was 85.1%in the first round and 80% in the run-off elections.

Source: press reports.

The suppression of the secular opposition has left virtually no avenues open for dissent, and has increased the attractiveness of underground groups such as Hizb ut-Tahrir (Party of Freedom), a radical Islamist group that seeks to overthrow the Karimov administration and establish an Islamic state. Hizb ut-Tahrir does not advocate the use of violence in Uzbekistan (although it has incited and used violence elsewhere, including in western Europe and the Middle East), but the Uzbek authorities have accused it of espousing an ideology that encourages terrorism. They have arrested many of those suspected of membership of the group, and handed down lengthy prison sentences for such offences as possessing banned literature.

Unlike Hizb ut-Tahrir, the Islamic Movement of Uzbekistan (IMU) advocated the use of violence to oust the government. Allied to al-Qaida, the IMU was believed to have been responsible for the February 1999 bomb attacks in Tashkent (see Recent political developments). The movement suffered a significant military defeat at the hands of US-led coalition forces in Afghanistan in November-December 2001, but is still present along the Afghanistan-Pakistan border. An IMU successor group, the Jihad Islamic Group (JIG), is believed to have been responsible for several terrorist attacks in Uzbekistan in March and July 2004.

Underground groups win supporters


Uzbekistan 11


Main political figures

Islam Karimov

The president of Uzbekistan, Mr Karimov rose to prominence through the regional structures of the Uzbek Communist Party (UCP). He became head of the local State Planning Committee, whose practices have influenced his statist, interventionist view of economics. His career was helped by the patronage of Uzbekistan�s Brezhnev-era leader, Sharaf Rashidov. During Mr Karimov�s administration"which is characterised by a mixture of state-sponsored nationalism and aggressive secularism"he has implemented few economic reforms, and has maintained strong state control. Having abolished the post of vice-president in 1992, Mr Karimov has no designated successor. Uncertainty over the 70-year-old Mr Karimov!s health has long fuelled speculation that he will begin to groom a successor to replace him when he eventually departs the scene.

Shavkat Mirziyoyev

Appointed prime minister in December 2003, Mr Mirziyoyev was previously the governor of Mr Karimov!s home province of Samarkand. Mr Mirziyoyev is a Karimov loyalist who has been entrusted with sensitive posts in the provinces. Born in Mr Rashidov!s home province of Jizzakh, Mr Mirziyoyev is by education an agricultural engineer. He was in charge of a Tashkent city district before being promoted to the post of governor of Jizzakh province in January 2000, and subsequently appointed as governor of Samarkand in September 2001. Mr Karimov retained Mr Mirziyoyev as prime minister following his re-election in December 2007.

Rustam Azimov

The 49-year-old Mr Azimov has long been considered one of the leading potential successors to Mr Karimov. Mr Azimov has held a number of high-level posts during a career marked by loyalty to the president. Mr Azimov is currently the finance minister, and was promoted from deputy prime minister to first deputy prime minister by Mr Karimov in January 2008.

Gulnora Karimova

The other leading contender to succeed Mr Karimov is considered to be his daughter, Gulnora. In February 2008 Mr Karimov brought Ms Karimova into the government by appointing her to the post of deputy foreign minister for cultural and humanitarian affairs. Ms Karimova!s elevation is undoubtedly a strong indication that she could be in the running to hold an important position of political influence, if not the presidency itself, in order to protect the family!s interests once Mr Karimov leaves office. Although Ms Karimova claims to have only very limited business interests, she is widely believed to have built up a substantial presence in the country!s economy, and to have made enemies among the country!s political elite as a result. Her elevation to the presidency would therefore be controversial.

Muhammad Solikh

The most prominent leader of the exiled Uzbek secular opposition, Mr Solikh was one of the founders of the Birlik (Unity) People�s Movement in 1989, when he was elected to the Soviet-era parliament. He left Birlik in 1990 to form Erk (Freedom). In the 1991 presidential election Mr Solikh was the only candidate other than Mr Karimov and he secured 13% of the vote. The authorities perceived his minimal


12 Uzbekistan


degree of success as a threat, and he was persistently harassed, culminating in his arrest in 1993 on charges of sedition. He was released within three days as a result of international pressure and left Uzbekistan shortly thereafter. In 1999 he was convicted in absentia of alleged involvement in a bomb attack in Tashkent. After periods of exile in Turkey and Bulgaria, he is now based in Norway, where he has been granted political asylum. In 2005 Mr Solikh joined with other Uzbek exiles to found the Democratic Uzbekistan Congress.

International relations and defence

Uzbekistan!s foreign policy since independence has generally been directed towards ensuring an external security guarantee. Uzbekistan felt threatened by the civil wars in Tajikistan and Afghanistan, by the regional ambitions of Iran and Pakistan, and was suspicious of Turkey, which briefly gave asylum to Uzbek dissidents. It joined the Commonwealth of Independent States (CIS) Collective Security Treaty (now the Collective Security Treaty Organisation"CSTO) in 1992, but declined to renew its membership in 1999, on the grounds that it wished to pursue a closer bilateral security relationship with Russia. Security co-operation with Russia intensified under the Russian presidency of Vladimir Putin. This led to the conclusion of a bilateral treaty of strategic partnership in 2004 and a wide-ranging mutual defence treaty in 2005, which also envisaged a broadening of economic ties. The two countries held joint military manoeuvres in September 2005, their first since the collapse of the Soviet Union. Moreover, in June 2006 Uzbekistan agreed to rejoin the CSTO, reinforcing its strengthening security ties with Russia.

The two countries find common ground in their respective campaigns against Islamist extremism"a concern shared by China, with which Uzbekistan!s relations have also been strengthening in recent years, both on a bilateral basis and through the auspices of the Shanghai Co-operation Organisation (SCO; see Regional overview: Membership of organisations).

The warming of Uzbekistan!s relations with Russia and China has coincided with a notable deterioration in Uzbek-US ties. Generally cool relations between Uzbekistan and the US in the 1990s"because of the Uzbek government!s broken promises of political and economic reform, and the fact that Uzbekistan was perceived by the US as being of only marginal interest"gave way to stronger links after the September 2001 terrorist attacks on the US, when the US was given access to an Uzbek airbase for its operations in Afghanistan.

However, relations soon became strained when Uzbekistan was slow to open its border with Afghanistan in late 2001 to allow the delivery of humanitarian aid. Uzbekistan!s nominal participation since 2003 in US-led operations in Iraq did little to assuage US impatience with the Uzbek government for its failure to implement substantive political and economic reforms. Rejecting calls by the US administration for an independent, international inquiry into the May 2005 events in Andizhan, shortly afterwards the Uzbek government requested that the US withdraw its troops from Uzbekistan by end-2005. It also withdrew overflight rights for EU aircraft involved in the peacekeeping operations in Afghanistan (although it permitted a 300-strong German contingent to remain

Ties with US and EU deteriorate

Relations with Russia and China are strengthening


Uzbekistan 13


at the Termez airbase, close to Uzbekistan!s border with Afghanistan). China and Russia had unequivocally endorsed the Uzbek government!s crackdown on the unrest in Andizhan in May 2005, and are believed to have put pressure on Uzbekistan to force the US withdrawal. Uzbekistan!s decision in May 2005 to leave GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova), the only post-Soviet regional grouping that does not include Russia, was a further sign of the country!s cooling relations with the West. More recently, there have been signs that the US is seeking to rebuild military relations with Uzbekistan. The US and its allies are keen to secure alternative supply routes to Afghanistan because of the rising difficulties faced there by the international coalition, as well as increased instability in Pakistan since late 2007.

EU policy towards Uzbekistan has been divided over whether to engage or isolate the Uzbek authorities. The European Parliament delayed until February 1999 ratification of a partnership and co-operation agreement (PCA), signed in 1996, on the grounds that Uzbekistan did not meet the minimum conditions of respect for democracy and human rights, or current-account convertibility. Following the government!s disproportionate response to the unrest in Andizhan, the EU suspended the PCA and imposed a narrow range of sanctions on Uzbekistan, including travel bans on several leading officials and a prohibition of the sale of arms to the country. In November 2006, following pressure from some member states, the EU weakened slightly its sanctions on Uzbekistan, allowing the resumption of low-level contacts in return for increased co-operation on human rights issues. The Uzbek authorities permitted an EU delegation to visit Andizhan in December 2006, but human rights campaigners reported that their access to the EU officials had been restricted. The EU sanctions were eased further in 2007.

Uzbekistan�s assertive regional policy and its intervention in the civil wars in Afghanistan and Tajikistan have created tension within the region. The frequent imposition by the government of draconian border restrictions, as well as the placing of landmines on its frontier with Tajikistan, have also strained relations. Moreover, Uzbekistan has tended to use natural resources such as gas as a bargaining tool in political disputes with Tajikistan and the Kyrgyz Republic, which has hampered the development of regional energy and water networks. Uzbekistan has frequently accused the Tajik authorities of doing too little to stem the rise of Islamic militant groups in the region.

The fleeing of refugees from Andizhan across the border strained Uzbekistan!s ties with the Kyrgyz Republic in 2005, but since 2006 relations have improved, following the Kyrgyz government!s decision to return to Uzbekistan four of the refugees who were wanted by the Uzbek authorities. In mid-2006 the two sides concluded an agreement to broaden intelligence co-operation, and later in that year they carried out joint security operations in the southern regions of the Kyrgyz Republic, killing several people"including a prominent imam"described as suspected militants.

As the centre of the Soviet military district in Central Asia, Uzbekistan inherited a large military infrastructure on independence. Of the Soviet officers based in Uzbekistan in 1991, only 6% were ethnic Uzbeks, who during the Soviet period

Defence forces

Disputes over natural resources create tension


14 Uzbekistan


were generally placed in the Soviet stroibat (construction battalions), where they received little military training. By 2003, however, more than 90% of officers in the armed forces were ethnic Uzbeks with little active military experience. The poor preparedness of the armed forces was exposed in 1999 and 2000, when they struggled to deal with the small-scale infiltrations of the IMU.

The country has recently completed a long-term process of military reform, with the aim of creating a mobile force centred on light infantry and special forces that will cover Uzbekistan!s long and porous borders. The armed forces have reduced their reliance on conscripts (who now only serve one year). Defence spending is estimated at a relatively high 3.7% of GDP.

The most important forces are the SNB, the interior ministry troops and the National Guard. These forces are geared towards domestic repression and preventing coups. The interior ministry troops include the Border Guards, an elite formation that has been under the control of a separate government office since 1999.

Security forces, 2006 Personnel Equipment

Army 40,000340 tanks, 714 armoured fighting

vehicles/armoured personnel carriers

Air force 10,000-15,000 135 combat aircraft

110 combat helicopters (attack, assault &

reconnaissance)Interior ministry troops up to 19,000 Unknown

National Guard 1,000 Unknown (acts as a presidential guard)

Source: International Institute for Strategic Studies, The Military Balance, 2007.

Resources and infrastructure

Population

Data on Uzbekistan�s population are unreliable and are only intermittently available. According to the World Bank, the population was 26.2m in 2005; the Economist Intelligence Unit estimates that it had risen to just over 27m by January 2008 (based on official figures).

Population growth slowed from an annual average of 2.5% in the 1980s to 1.9% in 1990-99, decelerating further to an annual average of just over 1.2% since 2001, owing to a falling birth rate and large-scale emigration by ethnic minorities. Between 1990 and 1999 there was net emigration of 845,000 people, most of them Russian-speakers.

The UN Development Programme (UNDP) has estimated unemployment at 6%. In addition, hidden unemployment (workers on compulsory unpaid leave) was as high as an additional 8% in industrial enterprises in 2004. The largest share of unemployment is in rural areas; 73.4% of total unemployment was in these areas in 2004, according to the UNDP. The number of rural unemployed is likely to have risen since then, as restructuring in the agricultural sector has

Population growth slows


Uzbekistan 15


been transforming the shirkat (large agricultural enterprises) into private farms (see Economic sectors: Agriculture).

The size of ethnic minorities and the scale of emigration are sensitive subjects. The government wants to balance its emphasis on Uzbek nationhood with policies that will slow the exodus of non-Uzbeks. The position is complicated by the fact that in the past many people, especially Tajiks, came under official pressure to declare themselves as ethnic Uzbeks. As a result, the number of Tajiks indicated in official statistics is probably under-reported.

Ethnic composition of the population (% of total; year-end)

1989 1996Uzbek 71.1 75.8

Russian 8.3 6.0Tajik 4.7 4.8Kazakh 4.1 4.1

Tatar 3.3 1.6Kyrgyz 0.9 0.9

Jewish 0.5 0.1German 0.2 0.1

Other 6.9 6.6

Sources: 1989 Soviet census; Uzbek government.

Most Tajiks live in Samarkand and Bukhara, whereas the Kazakh minority is found mostly in the Tashkent region. Officially, ethnic Uzbeks make up about 76% of the population. Russian-speakers"which encompasses non-indigenous, non-Muslim groups including Russians, Ukrainians, Germans and Koreans"tend to live in Tashkent and other major cities, but their numbers have declined through emigration.

Population by region, 2005 Population density Urban Rural (people per sq km) (%) (%)Andijan 559.2 29.6 70.4

Bukhara 37.5 29.7 70.3Ferghana 425.8 28.2 71.8

Jizzakh 49.5 30.0 70.0Kashkadarya 83.3 24.8 75.2Karakalpakstan 9.4 48.7 51.3

Khorezm 235.3 22.4 77.6Navoi 7.3 39.7 60.3

Namangan 281.0 37.3 62.7Samarkand 171.2 25.7 74.3Surkhandarya 94.5 19.3 80.7

Syrdarya 157.2 31.3 68.7Tashkent 296.2 39.4 60.6

Tashkent (city) n/a 100.0 0.0Total 58.2 36.3 63.7

Source: UNDP, Uzbekistan: Human Development Report, 2006.

Population data are skewed by political aims


16 Uzbekistan


Education

Uzbekistan!s education standards, already low in the Soviet era, have fallen since independence. The system is poorly organised and a lack of sufficient funding has encouraged corruption, particularly in higher education, where students are forced to pay substantial bribes in order both to secure a place and to achieve favourable grades. This contributed to a decline in university attendance throughout the 1990s, with enrolment in tertiary institutions falling to a low of 6.6 per 1,000 people in 1998 (according to the UNDP). Since then the number of attendees has risen steadily, and stood at 10.1 per 1,000 people in 2004. The increase is partly attributable to a rise in the number of women attending institutes of higher education: between 2000 and 2005 the number of female students rose by 44%, compared with a 27% increase in male enrolment.

According to official data, Uzbekistan�s population is well educated for its income level. Officially, the illiteracy rate is less than 1%. However, government spending on education dropped from 12% of GDP in 1992 to 6.3% in 2003 (according to the UNDP), although as a share of total state expenditure that allocated to education increased from 23% in 1995 to 26% in 2003. Universal pre-school education was an important component of the Soviet education system, but by 2004 only 19.3% of children of pre-school age were attending kindergarten, a steep fall from 31% in 1992. In rural areas the ratio was just 12.1%, compared with 36% for pre-school urban children. By contrast, enrolment in specialised secondary and higher schools has risen strongly in recent years. In 2004 almost 700,000 students attended specialised secondary schools, more than double the number in 2000, and the number of students in higher schools rose by more than two-thirds to around 265,000 over the same period. Secondary education lasts for 11-12 years.

Health

The standard of healthcare in Uzbekistan has suffered because of the emigration of Russian-speaking doctors, funding shortages and continued inefficiencies. State spending on healthcare fell from 4.8% of GDP in 1992 to 2.4% of GDP in 2004. Healthcare is intended to be free at the point of delivery. However, the Soviet-era practice of using bribery to obtain faster treatment is now common, given the lack of resources and larger population. Most healthcare spending goes on salaries and benefits for healthcare workers, whereas capital investment is minimal. The government often fails to use medical aid from overseas efficiently, and healthcare staff are not trained properly to use the more advanced imported equipment. Private expenditure on healthcare amounted to 2.7% of GDP in 2004, according to the UNDP.

Like other former Soviet republics, Uzbekistan has tried to save money by reducing expensive in-patient care. The number of hospital beds per head fell by almost 50% between 1992 and 2001, although it has risen slightly since then. Primary healthcare, particularly in rural areas, is becoming more important. Infant mortality is falling, from an average of 47 per 1,000 live births in 1971-80 to 15.4 per 1,000 in 2004. Contraception is more widely used than in the past,

Healthcare standards are declining

Standards weaken because of a shortage of resources


Uzbekistan 17


reducing maternal deaths by extending the time between pregnancies. According to the UNDP the maternal death rate in childbirth was 30.2 per 100,000 live births in 2004, down from a ten-year peak of 34.1 in 2001. The UNDP has reported that life expectancy at birth was 72.5 in 2004, up from 69.1 a decade earlier.

As healthcare provision deteriorated in the years following independence, the incidence of diseases such as tuberculosis increased, reaching 139 cases per 100,000 population by 2005. The number of people registered as HIV-positive amounted to 0.2% of the population in 2005.

Natural resources and the environment

The main natural resource in Uzbekistan is gold. The government releases scarcely any data relating to gold"the country!s largest export"but industry sources have calculated proven reserves at 2,100 tonnes"the sixth-largest in the world"and estimated total reserves at 3,350 tonnes. Annual production is about 85 tonnes, equivalent to around 3% of global gold output, making Uzbekistan one of the ten leading producers in the world. Uzbekistan also has substantial deposits of other metals and minerals, such as silver, copper, uranium and iron ore.

Uzbekistan has a reasonable endowment of crude oil and natural gas, but insufficient quantities to permit large-scale exports. According to BP (UK), at end-2005 natural gas reserves amounted to 1.85trn cu metres, equivalent to 1% of global reserves; proven oil resources at end-2005 were 600m barrels, equivalent to less than 0.05% of global oil reserves. The depletion of oilfields currently under exploration has resulted in falling output in recent years, but the sector is set to receive new investment, which should enable an increase in exports to regional markets (see Energy provision).

Irrigation is critical for Uzbekistan!s agricultural sector. Of total land area, 60% is either desert or semi-desert. Farmers are able to cultivate just 4m ha"equivalent to only 9% of the land area"of which almost 90% must be irrigated, as rainfall is insufficient. Misuse of water resources is a problem affecting the whole region. The expansion of cotton monoculture during the Soviet era caused large volumes of water to be diverted from the two largest rivers in Central Asia, the Amu Darya and the Syr Darya (the Oxus and the Jaxartes, respectively), which contain 90% of the region!s water resources. This prevented the water from flowing downstream to the Aral Sea, which is now drying up as a result.

The Soviet authorities devised large and complex schemes, in which dams were to provide the upstream republics (Tajikistan and the Kyrgyz Republic) with hydroelectric power in the winter months, while enough water flowed downstream in the summer to support the agricultural sectors of Uzbekistan, Turkmenistan and southern Kazakhstan. Uzbekistan now finds itself in conflict with the upstream republics, Tajikistan and the Kyrgyz Republic, which have started to demand payment for water supplies. Proposed schemes to share

Uzbekistan has a reasonable endowment of oil and gas

Misuse of water resources is widespread

Gold is Uzbekistan's main natural resource


18 Uzbekistan


water have so far come to nothing, and no republic has yet been willing to impose a realistic price on water to encourage more efficient use of supplies.

Transport, communications and the Internet

Uzbekistan is doubly landlocked"that is, goods have to cross at least two other countries to reach a port. As of 2006 Uzbekistan had just under 4,000 km of railways and over 80,000 km of main roads. Most infrastructure is poorly maintained owing to a lack of funding, although a US$155m project, funded in part by the Asian Development Bank (ADB), to upgrade around 341 km of railway track linking Jizzakh and Khodjadavalet was completed in 2006. The national airline, Uzbek Havo Yollari (Uzbekistan Airways), flies within the former Soviet Union and long-distance routes such as from the UK to India.

The fixed-line telecommunications system is dilapidated and telephone density is low. The state telecoms company, Uzbektelecom, dominates the fixed-line market, and has used a US$110m loan from the Japanese government to expand the network. As of the beginning of 2007 the number of main fixed-line telephone lines was 1.794m, equivalent to 6.74 lines per 100 inhabitants. Of the total, around three-quarters were digital, up from around two-thirds a year earlier. The government has tried several times to sell a stake in Uzbektelecom, but reluctance to offer a majority share in the company has so far deterred investors.

Mobile telephony services are expanding rapidly. The number of subscribers doubled to 5.47m as of the beginning of December 2007, from 2.72m at the start of the year, according to the Uzbek Agency for Communication and Information, with the penetration rate reaching a still low 20%. There are five service providers, three of which offer Global System for Mobile Communications (GSM) services. The five are Uzdunrobita, which is controlled by Russia!s Mobile TeleSystems (MTS), Unitel (owned by the Russian company VimpelCom), Coscom (majority-owned by the Scandinavian group TeliaSonera, after its purchase of the US company MCT in July 2007), Perfectum Mobile and Uzbektelecom Mobile.

As of the start of 2008 there were more than 780 Internet service providers (ISPs), up from 680 a year earlier. The number of users exceeded 2m, according to the Uzbek Agency for Communication and Information, equivalent to 75 users per 1,000 inhabitants. This is still low as a share of the population, as a combination of strict government controls, unreliable infrastructure and high dial-up costs has prevented most Uzbeks from using the Internet.

Under state control, the media are less free now than in the late Soviet period of glasnost (openness). The small number of journalists who have dared to criticise the authorities have been harassed or arrested, and censorship by editors and self-censorship is prevalent. Most foreign media have been forced to leave the country, having failed to have their licences renewed. Amendments to the 1991 media law, introduced in January 2007, have further constrained the reporting environment for independent outlets, by broadening the authorities!

Uzbekistan is doubly landlocked

Telephony services are improving

Media are state-controlled and self-censorship is widespread


Uzbekistan 19


control over the content of reports, and requiring all foreign journalists to apply for accreditation before they can work in Uzbekistan.

According to the US-based non-governmental organisation (NGO) Freedom House, there are between 30 and 40 privately owned television stations and about seven private radio stations in Uzbekistan. However, four state-owned television channels dominate the broadcast media market. The three largest national daily newspapers"all of which are owned by the state"dominate the print market, albeit with a low combined readership of about 50,000. The four main privately owned newspapers have a circulation of just 3,000 copies each.

Energy provision

Following extensive development of the hydrocarbons sector since independence, Uzbekistan is self-sufficient in oil and natural gas. Annual extraction of natural gas rose from 42bn cu metres in 1991 to around 62bn cu metres in 2006. Gas output was up by around 8% year on year during the first half of 2007, to 33.8bn cu metres. Rising gas output is largely explained by higher exports to Russia, with gas exports now at the highest level they have been relative to overall output. However, most of the gas output is for domestic consumption. Gas exports to regional markets have generally amounted to around 10bn cu metres annually, although these are due to rise, as investment by Russian and Chinese companies brings new fields on stream. Gas is provided to domestic households, and to a lesser extent to industrial consumers, at heavily subsidised prices, although the government is gradually raising gas tariffs to bring them closer to cost-recovery levels.

Oil production increased from 2.8m tonnes in 1991 to a peak of 8.1m tonnes in 1998-99, but since then the depletion of oilfields has resulted in a fall in annual output, to just 5.4m tonnes in 2006 (including gas condensate). Production dropped by 1.8% year on year to 2.548m tonnes, or 103,000 barrels/day (b/d), during the first half of 2007. The downstream oil sector has recently performed better, however, with petrol production rising by nearly 7% year on year in the first half of 2007, to 700,400 tonnes. The low price of crude oil and refined products in Uzbekistan has resulted in the smuggling of goods such as petrol to neighbouring markets, leading to occasional shortages on the domestic market.

With an installed generating capacity of 12,300 mw in 2007, Uzbekistan is the region!s largest electricity producer, and a net exporter, providing more than one-half of the total electricity in the Central Asian Energy System (which links the Uzbek grid with those of Kazakhstan, the Kyrgyz Republic and Tajikistan). A total of 39 power plants are operational, including 11 thermal plants, with a combined generating capacity of 10,600 mw, and 28 hydroelectric stations. These produce around 49bn kwh of electricity annually. Although the government has attempted to part-privatise the generating sector, it has yet to attract any foreign direct investment (FDI), and much of the generating, transmission and distribution network is outdated and in need of rehabilitation. Independent industry estimates have calculated that the demand for power will exceed the country!s production capacity by 10% in 2010. The state electricity company, Uzbekenergo, is currently undergoing a

Uzbekistan is self-sufficient in energy

Electricity tariffs are being raised


20 Uzbekistan


US$1bn, ten-year (until 2010) modernisation programme with a view to increasing generating capacity by 15%.

As with gas supplies, the state has faced problems of non-payment in the heating and electricity sectors, and has installed meters in an attempt to improve compliance. Utility tariffs remain below cost-recovery levels for the providers, although gradual rises in tariffs for consumers have brought energy prices more closely into line with world market levels and reduced pressure on the budget.

The economy

Economic structure Main economic indicators, 2007 (EIU estimates)

Real GDP growth (%) 9.5

Consumer price inflation (av; %) 12.0

Current-account balance (US$ m) 4,615

Exchange rate (av; Som:US$) 1,264

Population (m) 26.8

External debt (year-end; US$ m) 3,927

Source: Economist Intelligence Unit, CountryData.

Although reliable recent data are not available, Uzbekistan!s economy remains skewed towards an inefficient agricultural sector that subsidises a growing industrial sector. According to the World Bank, agriculture generated just over one-quarter of GDP in 2005 (the most recent full-year data available), compared with over one-third earlier in the decade; the sector employs around one-third of the economically active population. Most agricultural output and much light industrial output is related to cotton, which is grown throughout the country. In order to achieve self-sufficiency in food production the government has transferred to grain some of the acreage formerly given over to cotton. Nevertheless, cotton remains Uzbekistan!s second-largest source of export earnings (see Economic sectors: Agriculture). Gold is the country�s largest export earner, accounting for an estimated one-quarter of total export revenue in 2006.

The industrial sector accounted for just over one-quarter of GDP in 2005, according to the World Bank, and 13% of the economically active workforce. Most industrial production is of low value added, and the sector has adjusted only slowly to the breakdown of the command economy. To prevent the collapse of the sector the government has used protectionist policies and state-guaranteed loans with the aim of building up production of import substitutes. These policies have not encouraged the development of a broad, competitive industrial base, although in recent years subsectors such as automotives and chemicals have benefited from strong import demand in overseas markets (see Economic sectors: Manufacturing).

The largest industrial sector is energy, which, according to official figures, accounted for about 24% of industrial output in 2004. Light industry"including

Cotton and gold dominate the economy

Government focuses on import-substituting industries


Uzbekistan 21


cotton-processing and textiles manufacturing"is the second-largest subsector, generating 19% of industrial output in 2004, followed by ferrous metals (15% of total industrial output).

Comparative economic indicators, 2007 Uzbekistana Kazakhstana Turkey a Ukrainea Russiaa

GDP (US$ bn) 18.1 103.8b 490.5 143.6 1,289.6b

GDP per head (US$) 674 6,701 6,521 3,106 9,059

GDP per head (US$ at PPP) 2,389 10,797 8,708 6,943 14,645

Consumer price inflation (av; %) 12.0 10.8b 8.9 b 12.8b 9.0b

Current-account balance (US$ bn) 4.6 -6.6 -38.0 b -4.8 76.6

Current-account balance (% of GDP) 25.5 -6.3 -7.7 -3.3 5.9

Exports of goods fob (US$ bn) 8.1 48.0 113.2 b 48.3 354.0

Imports of goods fob (US$ bn) -4.5 -33.5 -160.7 b -56.7 -225.3

External debt (US$ bn) 3.9 96.8 238.5 66.7 343.5

Debt-service ratio, paid (%) 10.9 40.8 35.4 25.3 8.2

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Economic policy

Following independence in 1991 Uzbekistan faced the same challenge as the rest of the former Soviet Union: the need to reform a command economy at a time of economic and political collapse. Uzbekistan initially benefited from the fact that it possessed resources of two easily exportable commodities: cotton and gold. Exports of these commodities helped to cushion the blow from the loss of substantial subsidies and the captive Soviet market at the end of 1991. However, whereas most other former Soviet republics embarked on economic reform programmes"albeit not always consistently implemented"the Uzbek authorities under the president, Islam Karimov, have largely resisted any attempts at liberalisation, instead preferring state-led economic development policies.

The Uzbek government has focused on a policy of import-substituting industrialisation (ISI), which builds up domestic industries in order to reduce import costs. However, the quality of these goods is often not high, and development of the ISI sector was aimed at the domestic rather than the export market. As a result, until the large devaluations of the som carried out periodically until 2003, the ISI sector generated only minimal export earnings with which to service the large burden of hard-currency debt. The few ISI industries that produced exportable goods tended to sell these to former Soviet markets, thereby generating only soft-currency export receipts.

The government largely paid for the ISI-related external debt through a system of multiple exchange rates, which was not abolished until October 2003 (see The external sector: Foreign reserves and the exchange rate). This system resulted in a transfer of money from exporters to subsidise the capital goods purchases and debt repayments of importers"a transfer that the IMF estimated at the equivalent of 16% of GDP in 1999. The government also imposed strict controls on imports. These trade controls were replaced by a series of steep

Economic policy aims at import substitution

The government has been wary of economic reform


22 Uzbekistan


tariffs in 2002. The authorities have also resorted to non-tariff barriers to restrict imports, such as the closure of Uzbekistan!s borders on health grounds.

Uzbekistan grudgingly embarked on an IMF programme in 1995, but by the end of 1996 the government!s failure to adhere to its commitments resulted in the suspension of its stand-by arrangement. Following an apparent renewed commitment to reform by the Uzbek authorities, in 1997 the IMF formed a working group with the government to discuss economic issues. However, the IMF became increasingly frustrated at the government!s unwillingness to liberalise either interest rates or foreign exchange, and in 2001 the Fund decided not to replace its representative in Uzbekistan when his term ended.

The government resumed talks with the IMF towards the end of 2001, hoping to exploit the international goodwill towards frontline states in the "war on terror". However, it remained wary of reform. Instead of signing up to a full IMF agreement such as a stand-by arrangement, the authorities undertook a so-called staff-monitored programme (SMP), under which the IMF oversaw reform targets that the government set for itself. Reform was slow, and key changes, such as the unification of the exchange rate, were delayed.

Relations with the IMF have improved slightly since late 2004. An IMF mission visited Uzbekistan in December 2006 for Article IV consultations. The mission noted Uzbekistan!s strong economic growth of the past few years, its large external surpluses and increasing international reserves, as well as the government!s tighter fiscal position. However, as in previous years, the Fund urged the authorities to address a number of issues of concern, including constraints on the banking system, sizeable trade barriers and the inflexible exchange-rate policy. The IMF has also expressed concern at the quality of official data, particularly with regard to the government!s inflation calculations.

Development of the private sector in Uzbekistan has been extremely hesitant. Mr Karimov frequently proclaims his commitment to fostering the private sector, but its share of the economy remains small. According to official figures, small businesses"most, but not all, of which are privately owned"accounted for just 42% of the economy in 2006. The Uzbek authorities have made little effort to attract foreign investment, and the business environment is hostile to both the foreign and the domestic private sector, as the government reserves the right to intervene in all management decisions. Since 1997 the authorities have periodically declared plans for large-scale disposal of state assets, but these have been followed by unexplained delays and hardly any major sales have been completed. Privatisation revenue in January-June 2007 was up by more than one-half year on year, but remained low at Som50.8bn (US$41m).

The government announced a renewed privatisation programme in July 2007 that aims to dispose of more than 1,400 state-owned assets by 2011. Some 994 state-owned enterprises and assets are for sale in non-production sectors of the economy, and 363 in key industrial sectors, including chemicals, electrical engineering, construction and energy. Investors will also be allowed to buy a large number of loss-making firms at zero redemption value, provided that they have a credible, financed investment programme to turn the enterprises

IMF is frustrated at lack of commitment to reform

There has been little progress in privatisation

Relations with the Fund improve slightly since 2004


Uzbekistan 23


around. According to press reports, the number of firms in which the state exercises equity control through state-owned holding companies will be reduced to 29, from 55. Among the assets for sale are 50% stakes in UzDaewoo Auto and SamAvto, two state-owned automotives manufacturers, as well as 49% stakes in the state-owned oil company, Uzbekneftegaz, and the state-owned telecommunications concern, Uzbektelecom. In theory, all of the equity in state-owned agricultural machinery and consumer electronics companies is on offer. The monopoly steel producer, UzMetKombinat, and the state-owned airline, Uzbekistan Airways, will remain in government hands.

Economic policy in Uzbekistan

2000

The Central Bank of Uzbekistan announces that it will adjust its refinancing rate every month. As the spread between the official exchange rates and the black-market rate widens, the government devalues the main reference rate in May and the interbank rate in June and November.

2001

In April the IMF refuses to replace its resident representative in protest at government policies. In July the government introduces changes to the exchange-rate regime, allowing exporters to convert hard currency into som at a rate that is more favourable for them than before. In November the government merges the main reference rate and the interbank rate at the value of the latter. Western donors and bilateral lenders increase assistance to Uzbekistan following the outbreak of war in Afghanistan, but also put pressure on the government to seek an IMF agreement.

2002

Uzbekistan adopts an IMF staff-monitored programme (SMP) in January, with a pledge to introduce full currency convertibility after July. Reforms to the cotton procurement process and the exchange-rate regime are announced, but there is little change in practice. Trade restrictions are replaced with exorbitantly high tariffs, which lead to the closure of many markets. The SMP lapses, with the main policy aims"for example, the introduction of convertibility"unmet.

2003

The government closes parts of Uzbekistan�s borders to restrict the outflow of hard currency. In October the exchange rate is unified and the som is declared convertible for current-account transactions.

2005

The IMF criticises restrictions on convertibility. The European Bank for Reconstruction and Development (EBRD) announces that it will no longer lend to the public sector.

2006

The World Bank suspends lending to Uzbekistan, expressing concern that its loans to the country are not being used effectively. After the government gives a commitment to make progress on reforms, the Bank slightly relaxes its stance to allow lending in certain areas such as education.


24 Uzbekistan


2007

In February the IMF concludes Article IV consultations with the authorities. The IMF notes Uzbekistan!s strong economic growth in recent years, large external surpluses, rising international reserves and a tighter fiscal stance, but repeats calls for faster structural reform. A renewed privatisation programme is announced in July 2007, under which the authorities aim to sell more than 1,400 state-owned assets by 2011.

The aim of monetary policy following independence was to provide cheap finance to the industrial sector and to favoured state-owned enterprises. From August 1996 the Central Bank of Uzbekistan kept the benchmark interest rate, the refinancing rate, negative in real terms (using the level of inflation measured by the IMF, which is substantially higher than officially recorded inflation)"a practice that undermined the exchange rate and kept bank deposits low. Acknowledging the need to tighten monetary policy, the government announced in 2000 that it would adjust the refinancing rate on a monthly basis as part of an anti-inflationary policy. However, meeting this anti-inflationary target proved difficult, and interest rates were lowered rather than raised, weakening the exchange rate. Monetary policy was not tightened until January 2002. Credit growth and cheap financing from the budget were curbed, causing a dramatic slowing of inflation in 2003-04 (see Economic performance).

The government has few monetary policy tools at its disposal, relying instead on the removal of som from circulation, which has led to cash shortages and, in turn, wage and payment arrears. In addition, the Central Bank has on occasion prevented commercial banks from having full access to their correspondent accounts. Citing the deceleration in inflation, the Central Bank reduced the refinancing rate twice in 2004. The faster depreciation of the som in 2005 and accelerating inflation indicated that growth in the money supply picked up in that year. This was partly owing to the clearance of the wage and pension arrears that had accrued in 2003-04. A tightening of monetary policy in 2006 through increased bank and government deposits, and the resumption of bills issuance by the Central Bank, is likely to have helped to bring down money supply growth that year. However, that is likely to have been reversed again in 2007, linked to strong export-related inflows and election-related spending.

Official fiscal data are often misleading, and tend to understate spending levels by not including interest on Treasury bills and external debt, and expenditure from extrabudgetary funds. However, tax collection rates have been high, which is in part a result of continued state control of the leading sectors of the economy, as well as reforms in recent years to ease the tax burden.

The government!s fiscal position in the 1990s fluctuated in line with the cotton crop, with the failed harvests of 1996 and 1998 contributing to sharp increases in the budget deficit in those years. Since 1999, however, the government has kept the budget under control"the government recorded a small surplus in 2006 and reported that it ran a budget surplus during the first three quarters of 2007"through a combination of a build-up of spending arrears and cutbacks in capital expenditure. It has also lowered direct tax rates in a bid to improve compliance, reducing the rate of corporate profit tax from a peak of 35% in 1998 to 10% as of 2007. At the same time, an improved performance by several parts

Money supply growth speeds up after 2006 tightening

Fiscal policy has been mildly accommodating


Uzbekistan 25


of the industrial sector and higher exports from sectors such as manufacturing have boosted revenue"the State Tax Committee reported that tax revenue rose by 29% in 2006.

Economic performance

Assessing Uzbekistan�s economic performance is difficult because statistical data are not widely circulated and those figures that are available tend to be unreliable. Official data indicate that between 1992 and 1997 real GDP fell by only 14%, compared with a 30% cumulative fall in Kazakhstan in the same period. Given that Uzbekistan lost Soviet subsidies worth 19.5% of GDP in 1991, and that export reorientation towards hard-currency markets was slow, such a shallow drop in real GDP looks unlikely. When Uzbekistan�s relatively rapid population growth is taken into account, real GDP per head between 1992 and 1997 fell by a cumulative 24%"slightly less than the 26% drop recorded in Kazakhstan in that period.

The superficially milder recession can also be explained by favourable prices for Uzbekistan�s two main exports, gold and cotton, as well as by policies such as import-substituting industrialisation (ISI), which temporarily boosted uncompetitive domestic production. Output of oil and gas also rose sharply in 1991-97, driven by government efforts to achieve energy self-sufficiency.

Although the economy has grown strongly in recent years thanks to favourable external conditions, the official figures may overstate the extent of the expansion. According to official data, economic growth turned positive in 1996, since when the economy is reported to have grown by an annual average of about 5%. However, the official figures remain at odds with IMF estimates. The IMF has pointed to issues such as falling electricity production and consumption in some years, the rapid depreciation of the black-market exchange rate and the erection of import barriers as reasons why the official growth rates appear to be overstated. In addition, the government!s tendency to under-report inflation gives real GDP growth figures an artificial boost.

Official data on growth by expenditure tend to report high levels of both domestic and foreign investment. The government claims that investment (overwhelmingly by the state) reached a peak of 37% of GDP in 1996, declining to 25% of GDP in 2000, and remaining at about 20-25% of GDP since then. However, investment totals are exaggerated through the inclusion of current spending (such as spending on wages), and in the past the IMF has generally put the true level of investment much lower, at the equivalent of around 12% of GDP.

Between 1991 and 2002 the low priority given to price stabilisation kept year-on-year inflation in double digits. However, government measures to protect incomes from inflation failed because wages and benefits were often paid late, with no back-indexation. Moreover, the official inflation data that are used to determine the size of increases in state-sector wages and benefits understate the true rate of price rises. As a result, the IMF calculates that in Uzbekistan

The government denies sharp drops in GDP output

Investment figures are misleading

Inflation is under-reported

Official growth data raise questions


26 Uzbekistan


recorded inflation has tended substantially to underestimate the rate of increase in the cost of living.

In 2003 the Central Bank succeeded in reducing the officially recorded rate of annual inflation, and then maintaining that low level in 2004. According to Mr Karimov, consumer price inflation at end-2003 was 3.8%, falling to 3.7% in 2004"the slowest rate of increase since independence. Rapid money supply growth in 2005 contributed to an acceleration in inflation in that year, to a year-end rate of 7.8%. Inflation then decelerated slightly, to 6.8% in 2006, according to official figures, and stayed unchanged at end-2007 according to Mr Karimov. However, a number of factors suggest that inflation is likely to have been running significantly higher. Owing to questions over the accuracy of the official data, the IMF calculates its own inflation measure for Uzbekistan, according to which end-year inflation was estimated at 11.4% in 2006, compared with the official 6.8% figure. The difference in the two sets of figures is attributable to the composition of the consumer price basket, the way in which the data are compiled, and the methodology subsequently used to calculate the rate of inflation.

Wholesale prices rose more than twice as fast as consumer prices in 1996-2000, squeezing the profitability of local firms and increasing cost-push inflation. Producer price data used to be released with a considerable time lag, but the gap between consumer and producer prices seemed to be narrowing as of 2001. The true rate of producer price inflation may be higher than officially recorded, as many producer prices are administratively controlled and kept artificially low. No recent producer price data are available.

Regional trends

Uzbekistan consists of 12 provinces, the city of Tashkent and the autonomous republic of Karakalpakstan. Decision-making is highly centralised, and the provinces have little power. Nevertheless, because Uzbekistan is a relatively recent creation, political cliques founded on provincial affiliations are strong. To consolidate central power over the regions, Mr Karimov has created a system of presidentially appointed provincial governors (the equivalent position in Karakalpakstan is the president of the autonomous republic). Each governor has considerable powers, but they are regularly reminded that these derive from the president. Mr Karimov dismisses several provincial governors every year, often humiliating them in televised sessions of the provincial assemblies.

Next to cotton, which is produced in the majority of regions, the most important economic activity takes place in Navoi, a sparsely populated desert region where much of the country�s gold and uranium is mined. Coal is mined in the Angren Valley in the Tashkent region, one of the most industrially developed areas of Uzbekistan. Oil and gas deposits are found throughout the country. Politically, the most sensitive region is the Ferghana Valley, which has a growing and underemployed population, a history of ethnic violence, and a strong undercurrent of Islamist sentiment. The government keeps a tight grip on the capital, Tashkent. The city was rebuilt after an earthquake in the 1960s to a design that allows the centre to be isolated in case of unrest. The large ethnic

The provinces have little power


Uzbekistan 27


Tajik populations in the cities of Samarkand and Bukhara are closely monitored for potential separatist aspirations.

Economic sectors

Agriculture

Uzbekistan still operates a moderated version of the Soviet system of compulsory state purchasing, the goszakaz, and this has hampered growth in the agricultural sector. In addition to low procurement prices, shortages of machinery and fuel constrain agricultural growth. A ban on the private ownership of land has further dampened growth; there is no land market, and leasehold rights can be curtailed by the considerable discretion that local authorities have over the rights of private farmers. Modest reforms are under way to transform the country!s large agricultural enterprises (shirkat) into private farming units (ferma). However, the tender process has come under criticism for not allocating land fairly, with many farmers who have worked on the shirkat for years unable to put in high enough bids. A limited land privatisation programme announced for the beginning of 2007 did not extend to agricultural land.

The private sector"in particular household farms (dekhan) and garden plots"plays an important role in agricultural production, in terms of both subsistence farming for individual households and the cultivation of fruit, vegetables and livestock for the market. Government data claiming that almost 100% of all agricultural output is from the non-state sector are exaggerated, since in Uzbekistan non-state firms include those in which the state still retains a majority stake. Nonetheless, not including wheat, household plots now produce more than 75% of all food output. A strong performance by the fruit and vegetables subsector drove overall growth in agricultural output in 2006.

It is unclear what drove growth the 6.1% increase in agricultural output in 2007, as the country!s two most important crops, cotton and grain, reported only moderately larger harvests in 2007 than in the previous year. The cotton crop was up by around 1-2%, and the grain harvest was officially reported to have increased by 2.5% (albeit to a new record high).

Uzbekistan is among the world!s ten leading producers and exporters of cotton, and as much as 60% of the population rely on cotton for their income, according to 2000 data from the UN. Students are still conscripted to pick the cotton crop by hand. Although cotton prices have since picked up, weak global prices and poor harvests contributed to a sharp fall in cotton�s share of export earnings to an annual average of about 21% in 2003-06, from 39% in 1998. All cotton exports must still pass through the state-owned export company, Uzauktsionavdo.

The total volume of cotton production taken by the goszakaz fell from 100% in 1991 to 50% in 2006. Low procurement prices have created a considerable incentive for production levels to be under-reported and for cotton to be illicitly exported. Moreover, as farmers are paid only a small proportion of the world

Limited restructuring is under way

Goszakaz system creates distortions


28 Uzbekistan


cotton price, this implies a substantial transfer away from the cotton sector, despite the considerable subsidies that the sector receives.

As part of its import-substitution policy, the government aimed to make Uzbekistan self-sufficient in wheat by 1996. The area sown to wheat was increased from 974,000 ha in 1990 to a peak of 1.82m ha in 1997 in an attempt to produce the 4.5m tonnes of wheat needed to eliminate imports (the area given over to cotton fell as a result). Data for the wheat harvest are considered to be politically sensitive and are frequently revised upwards. Official data report that since 1998 Uzbekistan has had bumper harvests, including a record harvest of 6.3m tonnes in 2007. However, the purported increase in the grain harvest in recent years is open to question, given that climatic conditions in Uzbekistan are far from favourable for such crops. Although it is likely that Uzbekistan has achieved its goal of self-sufficiency in grain, as claimed, the quality of the harvest is less certain. Rice is Uzbekistan!s second most important grain crop after wheat, with most rice grown in the north of the country.

Mining and semi-processing

Uzbekistan is among the world!s ten largest producers of gold. The country�s main gold mine, at Muruntau in Navoi province, is owned by the Navoi Mining and Metallurgical Combine (NMMC), a Soviet-era, state-owned mining enterprise. Industry sources estimate that Uzbekistan mines around 85 tonnes of gold annually, a figure for which there is no independent confirmation. Gold has become the country�s largest export, accounting for roughly 30% of export earnings. A steep drop in world gold prices between 1997 and 2001 affected gold exports, and discouraged foreign companies from investing in the sector. World gold prices have picked up strongly since 2002, but the business environment is unfavourable to new entrants.

The UK company Oxus Gold has a 50% stake in the Amantaytau Goldfields project in central Uzbekistan, close to the Muruntau mine. The NMMC and the state geology committee hold stakes of 40% and 10%, respectively, in the project. Operations at the project began in August 2003, and the first gold was mined in December 2003. Amantaytau!s gold production fell by around 40% in 2006 to 98,050 ounces as a result of tax claims by the authorities. In October 2006 a court in Navoi province ruled that Amantaytau Goldfields owed back taxes and penalties worth Som297bn (US$239m). Amantaytau Goldfields successfully appealed against the decision in December of the same year. The Navoi regional government also tried to claim around US$17m in value-added tax (VAT), other taxes and customs payments, but the regional economic court rejected most of these demands in February 2007. In November 2006 Oxus Gold agreed to bring Uzbekistan�s largest private company, Zeromax (which is Swiss-registered), in as a strategic partner. Zeromax acquired 6.9% of Oxus, and boosted this to 11.9% in April 2007.

Newmont Mining of the US held a 50% stake in Zarafshan-Newmont, a joint venture with NMMC and the state geology committee, but this was in effect expropriated in 2006 when Zarafshan-Newmont was forced into bankruptcy by

Gold is Uzbekistan's largest export

Wheat harvest rises to record high in 2002-07


Uzbekistan 29


a large back-tax demand. In August 2007 the government decided to liquidate Zarafshan-Newmont and transfer its assets to NMMC.

Since 1997 the government has been attempting to part-privatise the country!s second-largest gold producer, the Almalyk Mining and Metallurgical Combine (AMMC), but so far without success. The AMMC also mines 90% of Uzbekistan!s silver, and is the country!s only copper producer. Uzbekistan has some uranium deposits, estimated at 116,000 tonnes, the tenth-largest in the world and equivalent to 2% of global reserves, according to the Uranium Information Council. The South Korean company Korea Resources is interested in entering Uzbekistan!s uranium mining sector through a joint-venture deal.

Manufacturing

In the Soviet era industrial and mining activities were largely controlled from Moscow. Some agricultural-processing equipment was made in Uzbekistan, but it was of low value added. Tashkent also hosts a factory that assembles Russian and Ukrainian aircraft, but it has relatively few sales. Following the collapse of the Soviet Union, the industrial sector experienced sharply lower demand from former Soviet markets. However, the government has been unwilling either to privatise or close plants. There are a number of officially designated �strategic� sectors that are not subject to privatisation: the mining of precious metals and gems; oil and gas production and processing; defence; aerospace; and communications. The government is generally unwilling to give foreign companies a majority holding in joint ventures, and the legal regime for investors lacks transparency. Many foreign partners complain about the slow pace of decision-making, as well as bureaucratic interference and persistent government surveillance.

Import-substituting industrialisation (ISI) is the main focus of the government!s industrial policy. Few figures are available, but those that are released indicate the limitations of the ISI policy. Uzbekistan now has an inward-looking industrial sector with low export potential, and it produces goods that many Uzbeks do not want to buy. ISI has also led to a build-up of state-guaranteed external debt, which the government has to service from hard-currency exports of cotton and gold, as the export earnings of sectors promoted by ISI are low. Protectionist trade policies in recent years have nevertheless forced consumers to buy locally produced goods, thereby benefiting the domestic manufacturing sector.

Daewoo of South Korea founded UzDaewoo Auto, a joint venture with the state-owned Uzavtosanaot, to assemble cars at Asaka in the Ferghana Valley. Production started in 1996 and investment was planned to reach US$658m over the long term. However, Daewoo went bankrupt in 2000. The government bought out Daewoo!s stake in 2005, but continued to source its parts from South Korea. In October 2007 General Motors (GM; US) signed an agreement with the Uzbek authorities setting up a joint venture based on the existing UzDaewoo Auto plant. GM holds a 25% stake in the venture, with the option to increase this to 40%. The project launched assemblage of Chevrolet

The industrial base is narrow

The government has concentrated on ISI

Automotive sector grows but most other sectors are weak


30 Uzbekistan


models in October, and will continue to produce Daewoo models in the short term. GM aims to have a dealer network of over 60 showrooms in place throughout Uzbekistan by the end of 2008. Output from the UzDaewoo Auto factory has not yet reached the plant!s annual capacity of 200,000 vehicles, although production rose strongly in 2004-07"to 171,810 units in 2007, up by 23% year on year"mainly owing to an increase in sales to Russia, its main export market.

Along with the mining and automotive sectors, cigarette manufacturing is another sector that has attracted investment, and is dominated by the monopoly manufacturer BAT Uzbekistan, an Uzbek-British joint venture. However, the company!s performance in Uzbekistan has been affected by a combination of smuggling and a high tax burden. BAT has estimated that illegal tobacco products account for as much as 30% of the Uzbek market, with indirect taxes on cigarettes at between three and five times higher than in neighbouring countries.

Government-guaranteed debt has helped to develop the chemicals sector, which grew by 18% in 2007. The government is also trying to develop the textiles industry, in order to increase the value added of its exports. About 30% of total output of cotton fibre is processed locally into textiles (up from 13% in 1996); the government is aiming eventually to raise the domestic textiles industry!s share in consumption of cotton fibre to 50%.

Construction

Construction is a low priority for the government. Investment figures are unreliable, but 16% of officially reported investment in 1995-99 went into dwellings, compared with the 6% that went to agriculture, 26% to manufacturing and 15% to transport and communications. The sector�s share in GDP at factor cost fell from 11% in 1990 to 6.8% in 2000 and to 5.5% in the first half of 2006. For the most part, there are few of the high-profile, prestige projects that are seen elsewhere in Central Asia. The introduction of a long-term mortgage programme, announced in early 2005, could boost housing construction.

Financial services

As a result of government restrictions and controls, financial services are poorly developed. Uzbekistan!s banks do not fulfil an adequate financial intermediation role. The banks! traditional role has been to funnel government-guaranteed foreign debt to favoured state enterprises, particularly in the industrial sector. There has been no sustained programme of financial sector reform, and there is little competition. Until recently, the population avoided the banks, in part because of government interference with bank operations. In theory, the government is committed to reforming the financial sector, but is finding it difficult to relax its grip. There is a persistent official tendency to manage banks! activities, rather than allowing them to make credit decisions based on market opportunities. Tax changes in 2007 appear designed to encourage the banks to lend to state-favoured investment projects. The 12% income tax previously applied to banks was replaced at the beginning of 2007

Construction is a low priority for the government

The financial sector is in need of reform


Uzbekistan 31


by a 17% profit tax. However, the president, Islam Karimov, issued a decree in July 2007 exempting banks until 2012 from paying tax on profits derived from long-term investment credits (defined as loans with a maturity of more than three years to priority industries). In 2005 a similar tax break was extended to the banks up until 2010. Banks will also be exempt from VAT and from profit tax on money transfers to their affiliates, and the Ministry of Finance will subsidise the mortgage support fund to relieve pressure on the banks.

Strong economic growth in recent years and a moderate increase in confidence in the domestic banking sector have allowed the banks to attract deposits and to increase lending. Nevertheless, banking sector growth is from a low base, and financial intermediation in the economy remains low. According to the authorities, banking sector capital increased by 40% year on year in 2007 to Som1.5trn (US$1.2bn). This was equivalent to just 8.3% of GDP, according to Economist Intelligence Unit estimates. The commercial banks! credit portfolio rose by 16% in 2007, to Som4.8trn (26% of GDP). Although there are grounds for concern over the quality of many of these loans, given poorly developed credit analysis and credit procedures, the loan book is of long-term maturity. Most loans"Som3.7trn, equal to more than three-quarters of the total"were long term.

Efforts to reduce the dominance of state-owned banks have so far produced few results. Of the 28 banks in the sector, the three state-owned institutions control most of the market, and attempts to part-privatise the National Bank of Uzbekistan, which manages most foreign-exchange transactions, have failed because the terms on offer to investors are unappealing. However, the government is now taking small steps to strengthen the banking sector by increasing the minimum capital requirement. As of the beginning of 2008, new commercial banks need minimum charter capital of #5m (US$7.4m), as opposed to US$5m previously. New private banks now have a minimum capital requirement of #2.5m, compared with US$2.5m previously.

The Tashkent Stock Exchange is small and there is almost no foreign involvement. Most of the firms listed on the exchange are owned by employees and other insiders. Although yields are negative in real terms and the market is small, Treasury bills are, in the Uzbek context, a liquid and safe asset, and banks can tax-deduct their gross earnings from T-bills.

Other services

Economic instability, scarce credit and government controls have prevented the development of services other than the financial sector. Excluding the education, health, trade and catering and banking sectors, there were at most 500,000 persons employed in other services in 2001"about 5% of the economically active population. Public services remain important employers. In practice, many public-sector employees moonlight as small-scale traders, importing consumer goods from abroad and selling them in the bazaars. Trading in domestically produced food and imported goods in the bazaars has traditionally been a major form of economic activity and an important source of income. However, a combination of high import tariffs on consumer goods

The services sector is underdeveloped

Stockmarket is essentially non-existent


32 Uzbekistan


and stringent licensing procedures has dealt a serious blow to small-scale market traders, resulting in the closure of many bazaars since 2002.

The external sector

Trade in goods

Uzbekistan!s trade balance performed erratically in the 1990s, mainly owing to fluctuations in prices for its main export commodities"cotton and gold. The deficit on trade in goods reached US$700m (equivalent to just over 5% of GDP) in 1996, following the failure of the cotton and grain harvests, and the economy!s return to positive growth, which stimulated year-on-year import growth of more than 30%. Since 1998, however, the trade balance has remained positive and the surplus has grown strongly since 2002, with total trade in goods and services posting a US$2.8bn surplus in January-September 2007, owing to a combination of import compression and an increase in revenue from non-cotton exports. Rising world prices have boosted revenue from gold and metals, and some manufacturing sectors, notably automotives, have benefited from the depreciating exchange rate and growing import demand in regional markets such as Russia. Sales of energy products have also risen.

As with all official data in Uzbekistan, the trade figures reported by the customs committee are questionable. They tend to understate the true cost of both imports and exports, since they do not take into account smuggling. State controls on imports and the resultant shortages of consumer goods have encouraged a large crossborder smuggling business into Uzbekistan, whereas low purchasing prices in Uzbekistan have resulted in goods such as cotton being smuggled out to neighbouring countries such as Kazakhstan, where they command a higher price.

Uzbekistan�s main export is cotton fibre, which is processed from the preceding year�s cotton crop. The share of cotton fibre in total export revenue has fallen markedly compared with the 1990s, owing to a combination of poor harvests, weak global prices and an increase in domestic processing capacity. By 2006 cotton fibre provided just 17% of total export earnings, according to official sources, compared with an annual average of more than 40% in the 1990s.

The government does not release figures on the production or export of gold; the most recent full-year figures for gold exports are for 1998, when Uzbekistan earned US$277m from gold sales, equivalent to about 10% of total exports. A steady rise in gold prices is believed to have pushed up the share of gold in total exports to an average of 30% of goods exports in recent years.

Export revenue from natural gas rose sharply in 2007, as Uzbekistan secured an increase in its gas export price from US$51-55 per 1,000 cu metres in 2006 to US$100 per 1,000 cu metres in 2007. Gas export prospects are also being helped by Russia!s desire to act as an intermediary for Central Asian gas exporters. To further this aim, Russia!s president, Vladimir Putin, agreed with his Kazakh and Turkmen counterparts in May 2007 to upgrade and to add to the gas export pipeline network between Turkmenistan and Russia via Kazakhstan. To boost

Trade surplus has risen steadily over past five years

Cotton, gold and natural gas are the main exports


Uzbekistan 33


the volume of gas that will flow through the pipeline, and so increase its commercial viability, Russia has suggested that Uzbekistan might wish to participate in the project. The volume of gas available for export could be increased substantially if gas were properly priced in the domestic market and the country were to institute a programme of energy efficiency.

According to the authorities, manufactured products accounted for 38% of the value of goods and services exports in 2007. Exports of machinery were reported to have increased by 50% in value terms in 2007. Much of this growth will have been provided by the rapidly growing automotive sector: car production rose by 33% year on year in 2007, and a large share of this output was exported to Russia.

The few official import figures that are available for Uzbekistan indicate that machinery and equipment"destined for import-substituting industries, as well as capital-intensive projects in the hydrocarbons sector"account for the largest share of import spending, at around 45% of the total. Plastic goods and foodstuffs are the next largest import commodities. Uzbekistan is no longer dependent on energy imports, but this has been partly offset by the rising cost of importing chemicals and metals.

One consequence of Uzbekistan�s strengthening political ties with Russia is an increase in trade with the Commonwealth of Independent States (CIS). Russia is Uzbekistan�s largest trading partner, accounting for around 25% of total trade turnover in the first half of 2007. Russia buys most of Uzbekistan!s vehicle and agricultural exports, as well as gas, cotton and textiles, and Uzbekistan relies on Russia for imports of machinery and equipment. Uzbekistan also exports gas to the rest of Central Asia. Around two-thirds of Uzbekistan!s export revenue is generated outside the CIS, with China now its second most important export market. Leading purchasers of Uzbek cotton are the UK, Switzerland and Latvia, and gold is also sent mainly to European destinations.

Uzbekistan has had an equivocal attitude to regional trade structures, generally preferring to conclude bilateral agreements. In 2005, however, reflecting its growing ties with Russia, it opted to join the Eurasian Economic Community (Eurasec). Membership of Eurasec is unlikely greatly to increase regional trade flows, given Uzbekistan!s ready resort to protectionist trade measures. Uzbekistan�s restrictive trade arrangements make it ineligible for membership of the World Trade Organisation (WTO).

Invisibles and the current account

The end of subsidised communist-bloc trade had an adverse effect on the balance of payments, pushing the current-account balance from a surplus into large deficit in 1992. Since then the current account has tended to move in tandem with the trade balance, fluctuating in line with commodity prices. According to the IMF the current-account surplus rose from 8.7% of GDP in 2003 to 14.3% in 2005 and an estimated 19.5% in 2006.

The balance-of-payments position has been erratic

Uzbekistan joins Eurasec

The direction of trade is changing

Machinery and equipment dominate import structure


34 Uzbekistan


Services debits are believed to be substantial, owing in part to Uzbekistan!s geographical location. As it is a doubly landlocked country, its goods must travel through two other states before they reach the sea. Nevertheless, although services imports related to development of the hydrocarbons sector are likely to have risen, these will have been partly offset by an increase in revenue from transit fees for Turkmen gas and from rail services. Current transfers credits are an important contributor to the current account. According to the Central Bank of Uzbekistan, remittances from Uzbeks working abroad (mainly in Russia) were worth US$790m in 2005.

Capital flows and foreign debt

Uzbekistan renounced all claims on Soviet assets and liabilities in November 1992, becoming debt-free. However, by the end of 2003 the demands of the Uzbek government�s policy of state-led economic development had pushed the country�s total debt stock to almost US$5bn, equivalent to roughly 50% of GDP, according the World Bank!s Global Development Finance. World Bank data for 2006, the latest available, show that the debt stock had fallen to US$3.9bn, equivalent to 26% of GDP; the Economist Intelligence Unit estimates that external debt stayed roughly unchanged in US dollar terms in 2007. The debt stock has fallen in recent years because the pick-up in export earnings resulting from high global commodity prices reduced the need for substantial new debt inflows.

Most lending to Uzbekistan is by official institutions, such as the Asian Development Bank (ADB), and is used for infrastructure projects and sectors such as healthcare and education. China has also become a major lender, agreeing in 2006 to extend almost US$400m of credit to Uzbekistan for ten infrastructure and urban construction projects. The World Bank and the European Bank for Reconstruction and Development (EBRD) extended substantial credit to Uzbekistan in the past. However, both organisations have reassessed their lending policies towards the country, citing the government!s failure to implement substantive political and economic reforms. The EBRD ceased lending to the public sector in 2004, and in 2006 the World Bank announced that it would not extend new loans to Uzbekistan (although it subsequently relaxed its stance slightly).

Uzbekistan has one of the lowest cumulative inflows of foreign direct invest-ment (FDI) in the former communist bloc. In the past the Uzbek authorities have claimed cumulative FDI inflows of around US$8bn for the period 1992-2000, nearly 11 times more than the IMF reports. The discrepancy is partly attributable to the inclusion of foreign debt inflows in FDI figures before 1998. Portfolio investment is virtually non-existent. Until late 2003 the som was not convertible for current-account transactions, and foreigners are barred from the securities markets, which are in any case small and non-transparent.

Debt rises sharply in 1990s but has stabilised at US$5bn

FDI inflows are very low


Uzbekistan 35


Foreign direct investment in Uzbekistan

Stocks and flows

Uzbekistan has been among the least successful of the members of the Commonwealth of Independent States (CIS) in attracting foreign direct investment (FDI). The Economist Intelligence Unit estimates that cumulative net FDI inflows at the end of 2007 amounted to about US$1.9bn, or around 12% of GDP. Restrictions on currency transactions and the unpredictable treatment of foreign investors by the Uzbek authorities have discouraged most Western investors from entering the Uzbek market. The stock of FDI per head, at an estimated US$66 at the end of 2007, is one of the lowest in the CIS.

Origin and distribution

Russia, the UK, the US and Germany are the largest investors into Uzbekistan, with FDI directed mainly to the industrial sector (about 50% of the total FDI stock), information and communications technology (ICT), which has received around 12%, and the financial sector (11%). Sizeable foreign investments include the US$300m linked with the project of the UK!s British American Tobacco (BAT) to rehabilitate the tobacco industry.

Determinants

Uzbekistan may offer various tax breaks to foreign investors in joint ventures for a set period and on an individual basis. However, in the past the government has imposed extensive limits on currency transactions to protect its hard-currency resources, thereby deterring foreign investors. The state maintains control over exports of important commodities, such as cotton and gold.

Impact

Industries with a high share of foreign joint ventures, such as electronics and automotives, have in the past experienced difficulty operating because of increasingly distorted prices and because of attempts by the government to intervene in management decisions. The state remains a majority shareholder in most large enterprises. Privatisation has faltered, and a privatisation programme announced in 1997 has still not been implemented. Of total privatisation revenue of Som81bn (US$68m) in 2005, foreign investors provided only about one-third.

Potential

Uzbekistan has the largest domestic market in Central Asia, with a population of 27m. The government is targeting investment inflows of at least US$6bn in 2006-10 and has commissioned a feasibility study of almost 200 proposed projects that it believes could prove attractive to investors. However, the business environment for investors remains extremely difficult. Although the government signed up in October 2003 to the IMF!s Article VIII relating to current-account convertibility, informal reports suggest that importers still face restrictions on access to hard currency. Furthermore, the government has not reduced the plethora of restrictions on trade, which act as a serious deterrent to potential investors, as does the pervasiveness of state control throughout the economy, even in those enterprises that are nominally private. In recent years, moreover, the business environment worsened considerably. In 2006 the government stopped granting indefinite tax exemptions to foreign investors"previously it had awarded tax exemptions under individual resolutions to joint


36 Uzbekistan


ventures that had a foreign partner. The changes were applied retrospectively to the Zarafshan-Newmont gold-mining company"in which the US company Newmont Mining held a 50% stake"forcing it into bankruptcy in 2006. Although a British-Uzbek joint venture, Amantaytau Goldfields, successfully contested the imposition of a large back-tax bill, in August 2006 the government deprived the British company Marakand Minerals of its licence to work the Khandiza gold deposit. The government!s campaign against Western joint ventures is likely to have been at least in part politically motivated, reflecting the poor state of Uzbekistan!s bilateral relations with the US and the UK, but a number of other investors have also lost their tax and customs privileges. Given these factors, as well as the difficult legislative framework and undeveloped financial sector, interest in Uzbekistan!s state assets is likely to be restricted to companies from Russia and Asia. The oil and gas sector will be a major recipient of investment, with the Russian hydrocarbons companies Lukoil, Gazprom and Soyuzneftegaz between them planning to invest over US$1.5bn in the sector in the coming years. The telecommunications sector is also set to receive new investment; Russian-owned companies dominate the industry, with VimpelCom and Mobile TeleSystems having acquired Uzbekistan!s largest mobile telephony providers. In 2006 the president, Islam Karimov, stated that Russian companies would be the state!s preferred choice in any tender. The government has also been courting investment from Japan, South Korea and China to develop the country!s energy resources and industry.

Foreign reserves and the exchange rate

The Uzbek authorities do not publish data on foreign reserves, reporting merely that they are at comfortable levels. According to the IMF, gross official reserves were US$2.9bn in 2005 and an estimated US$4.6bn at end-2006, equivalent to an estimated 12 months of import cover. High commodity prices and controls on imports have helped to boost reserves in recent years.

Until 2003 the som was not convertible for current-account transactions. In October 2003 the government adopted the IMF!s Article VIII, which relates to current-account convertibility, and unified the three main exchange rates that existed until then at the prevailing official rate of Som975:US$1. The Central Bank of Uzbekistan now operates a managed float, with no predetermined exchange rate, fixing the rate of the som to the US dollar at weekly currency auctions. Between 2005 and May 2006 it allowed the som to depreciate against the US dollar at a monthly rate of just under 1% in nominal terms, but since then it has depreciated by an average of 0.3% a month.

The som!s stabilisation in recent years is attributable to the solid performance of Uzbekistan!s export-oriented sectors, which are benefiting from high global commodity prices. Restrictions on access to foreign exchange are also sup-porting the local currency. The som has been appreciating in real effective terms since 2005. Using the official inflation data, the appreciation was a modest 3.5% in 2005-06, but using the IMF!s higher inflation estimates, the som was around 15% stronger in September 2006 than in 2004. The IMF believes that the som could still be undervalued by as much as 30% and has advised greater exchange-rate flexibility to help combat inflation.

Foreign reserves data are classified

Export boom has helped to stabilise the currency


Uzbekistan 37


Regional overview

Membership of organisations

In 1995 Belarus, Kazakhstan, the Kyrgyz Republic and Russia formed a Customs Union, which was joined by Tajikistan in 1999 and became the Eurasian Economic Community (Eurasec) in May 2001. Eurasec absorbed the Central Asian Co-operation Organisation (CACO) in January 2006. Both groupings had been mostly ineffective in promoting greater regional integration.

CACO dates back, in inception, to June 1990, when the five Central Asian Soviet Socialist Republics signed a treaty designed to regulate economic integration between themselves. Although by 1993 Turkmenistan was forging its own independent and neutral policy and Tajikistan was mired in civil war, the remaining republics formed a Central Asian Regional Union (CARU) in January 1994, designed to establish a common market and regional structures. Tajikistan joined at the beginning of 1998, and in July 1998 the name of the union was changed to the Central Asian Economic Community (CAEC). The terrorist bombings in Tashkent in February 1999, and incursions by radical Islamic groups into the region in 1999 and 2000, boosted security co-operation among the four member countries. This aspect was further emphasised in January 2002, when the union was renamed the Central Asian Co-operation Organisation (CACO). In May 2004, at Uzbekistan!s request, Russia was invited, and accepted, to join as a full member of the organisation.

With Russia!s inclusion, all the members of CACO except Uzbekistan were also members of Eurasec, the successor to the CIS customs union. This overlap was formally acknowledged in October 2005 when Uzbekistan applied to join Eurasec; simultaneously, the two organisations began a merger process that was completed in January 2006"at which point Uzbekistan was accepted into Eurasec, the merged body having retained this name. Armenia, Moldova and Ukraine have observer status.

The Commonwealth of Independent States (CIS) was established on December 8th 1991 by the Minsk Agreement signed by the heads of state of the Republic of Belarus, the Russian Federation and the Republic of Ukraine, sealing the end of the Soviet Union. The formal clause stating the dissolution of the Soviet Union was included in the subsequent treaty signed in Almaty, Kazakhstan, by all former Soviet republics except the Baltic states and Georgia. Azerbaijan initially refused to ratify the treaty, but by December 1993 both Georgia and Azerbaijan had joined the commonwealth. The CIS therefore includes all the former Soviet republics except the Baltic states.

The main organ of the CIS is the Council of the Heads of State, the supreme body of the organisation, which co-ordinates the co-operation of the executive authorities of the member states. The activities of the CIS are logistically supported by the Executive Committee, which acts as a secretariat and has its seat in Minsk, Belarus. The organisation also has an Inter-parliamentary Assembly. The perception of the CIS and its role varies considerably among the

Commonwealth of Independent States

Central Asian Co-operation Organisation and Eurasec


38 Uzbekistan


participating states, but it has introduced a certain order into post-Soviet affairs, and has served as a useful political forum. However, integration and levels of co-operation have lagged behind some initial expectations. Many members remain wary that a closer union could become the instrument of Russia�s post-imperial ambitions. Moreover, Russia has been reluctant and incapable of bearing the costs of a more ambitious reintegration process. In mid-2005 Turkmenistan downgraded its participation in the CIS to that of associate member, citing its neutrality as the reason for its decision.

The CIS has been unable either to prevent or resolve numerous regional conflicts. The main security component of the CIS is the Collective Security Treaty Organisation (CSTO), formally established in April 2003. The CSTO developed out of the CST, founded in 1992 by six member states"Armenia, Kazakhstan, the Kyrgyz Republic, Russia, Tajikistan and Uzbekistan.

The CIS has not implemented a functioning customs union or a free-trade area covering all member states. In 1995 Belarus, Kazakhstan, the Kyrgyz Republic and Russia formed a Customs Union"also joined by Tajikistan in 1999"but this proved largely ineffective. A treaty on the setting up of a Eurasian Economic Community (Eurasec)"which augments the customs union with sanction and enforcement powers"was signed by the five countries in October 2000, and entered into force in May 2001. Uzbekistan joined Eurasec in January 2006, and Armenia, Moldova and Ukraine have observer status.

The European Bank for Reconstruction and Development (EBRD) was set up in 1991 to help finance the development of central and eastern Europe after the fall of communism. By contrast with most other multilateral organisations involved in the region, the EBRD�s mandate compelled it to focus on the private sector, as it was allowed to commit no more than 40% of its funds to public-sector projects. It received an initial capital of Ecu10bn (US$12bn at 1991 average exchange rates), which was doubled in 1997. The EBRD initially found it difficult to carve out a niche for itself, and was in its early years beset by scandals and a leadership crisis. Although it recovered from these, in 1998 the Russian financial crisis resulted in heavy losses for the bank. Since then it has expanded its portfolio to become the largest single investor in the region.

Over the past 16 years the EBRD has invested substantial amounts in the region and has helped to encourage private-sector investors. The EBRD�s clientele has grown from just a handful of transition countries in the early 1990s to 29 countries today. The EBRD has funded hundreds of projects, ranging from bank privatisation to road-building. The bank!s commitments have risen strongly over the past seven years, from #2.67bn in 2000 to #4.9bn in 2006, reflecting an increase in the number of viable investments across the transition region, as well as the bank!s efforts to develop new business. By end-2006 its total commitments were #33.3bn; if co-financing from other lenders and the private sector is added, the EBRD was involved in projects worth a total of #102.9bn between 1991 and 2006. Russia was the EBRD!s largest client in 2006, accounting for 38% of total business volume in 2006"at #1.9bn"up from 26% in 2005.

The enlargement of the EU to include ten of the EBRD!s countries of operations has prompted a shift in the focus of the bank!s investments. The bank is now

European Bank for Reconstruction and

Development


Uzbekistan 39


shifting its investment focus eastwards, away from central Europe and towards Russia, Ukraine, Central Asia, the Caucasus, the western Balkans and south-east Europe. Total investment in Central Asia, south-east Europe, the western CIS and the Caucasus amounted to 48% of the bank!s overall business volume in 2006, when the share of investment in central Europe and the Baltic states fell from 16% to 14%.

Initially a non-institutionalised multilateral forum for cold war East-West dialogue, the Conference for Security and Co-operation in Europe (CSCE) gradually expanded in aim and strengthened its organisational structure in the 1990s. Established in 1972, the CSCE served for almost 20 years as a convenient and flexible arrangement for easing cold war tensions. After the end of the cold war the role of the CSCE started to change quickly, and in December 1994 the conference was officially renamed the Organisation for Security and Co-operation in Europe (OSCE). With 55 member states, the OSCE is the only inclusive pan-European security organisation. Canada and the US are also members of the organisation.

The OSCE has played a key role in conflict prevention and resolution, as well as post-conflict reconstruction in Europe. Its activities embrace three dimensions: security, economy, and human rights. The OSCE is engaged in preventive diplomacy, arms control and confidence-building activities. It undertakes fact-finding and conciliation missions, and crisis management. The OSCE is a component of the European security architecture. It is a �regional arrangement� in the sense of Chapter VIII of the UN Charter, which gives it authority to try to resolve a conflict in the region before referring it to the UN Security Council. Since the early 1990s the OSCE has been heavily involved in the Balkans and the Transcaucasus.

The activities of the OSCE are performed by a web of specialised agencies. The High Commissioner on National Minorities, based in The Hague, is the primary source of �early warning�, with responsibility for identifying ethnic tensions that might endanger peace. The Office for Democratic Institutions and Human Rights (ODIHR), based in Warsaw, focuses on promoting human rights, democracy and the rule of law. It monitors elections, assists at developing national electoral and legal institutions, promotes the development of non-governmental organisations (NGOs) and civil society, conducts meetings, seminars and special projects. The Office of the Representative on Freedom of the Media, based in Vienna, assesses the implementation of the member states� commitments concerning freedom of journalism, broadcasting and access to information.

Organisation for Security and Co-operation in Europe


40 Uzbekistan


Appendices

Sources of information

Government statistical publications are not publicly available, as economic data are considered highly sensitive. The twice-yearly Basic Indicators of Social and Economic Development of the Republic of Uzbekistan, produced by the Ministry of Macroeconomics and Statistics, is released to international financial institutions and a limited number of ministers, diplomats and Uzbek embassies. The data are of poor quality and are frequently inconsistent. Between 1998 and 2001 the government worked with EU-funded consultants to produce an economic quarterly publication, Uzbekistan Economic Trends, which provided some useful"if still flawed"data, but this is no longer published.

The authorities� reluctance to release information makes it difficult for inter-national organisations to publish data on Uzbekistan. The best data available are produced by the IMF, which analysed the official figures and provided its own estimates. It published its last report in March 2007. Other data come from the World Bank, the European Bank for Reconstruction and Development (EBRD), and the Asian Development Bank (ADB), although in these there is less critical analysis of the figures. Useful demographic data are provided by the UN Development Programme (UNDP)"albeit irregularly"but government data are presented without alteration or analysis.

EBRD, Transition Report

IMF reports, 1998, 2000, 2007.

OECD, Short-term Economic Indicators for the Transition Economies

UNDP, Uzbekistan: Human Development Report, 1998, 1999, 2000, 2005, 2006

World Bank, Global Development Finance; Trends in Developing Economies; World Tables; World Development Indicators

Pauline Jones Luong, Institutional Change and Political Continuity in Post-Soviet Central Asia: Power, Perceptions, and Pacts, Cambridge University Press, 2002

Monica Whitlock, Beyond the Oxus: the Central Asians, John Murray, London, 2002

Ahmed Rashid, Jihad: The Rise of Militant Islam in Central Asia, Yale University Press, New Haven and London, 2002

Olivier Roy, The New Central Asia: Creation of Nations, IB Tauris, London, 2000

Karen Dawisha and Bruce Parrott (eds), Conflict, Cleavage and Change in Central Asia and the Caucasus, Cambridge University Press, Cambridge, 1997

Islam Karimov, Uzbekistan on the Threshold of the Twenty-First Century, Curzon, Richmond, 1997

National statistical sources

International statistical sources

Select bibliography and websites


Uzbekistan 41


Anoushiravan Ehteshami (ed), From the Gulf to Central Asia, Exeter University, Exeter, 1995

Richard Pomfret, The Economies of Central Asia, Princeton, New Jersey, 1995

Boris Rumer, Soviet Central Asia: A Tragic Experiment, Unwin Hyman, London, 1989

The Internet site of the US government Business Information Service for the Newly Independent States (BISNIS) provides useful business information and contacts: http://www.bisnis.doc.gov/bisnis/bisnis.cfm

The Times of Central Asia provides daily information on political and economic developments: http://www.timesca.com/

http://www.eurasianet.org, website operated by the Central Eurasia project of the Open Society Institute in New York, which provides information and analysis on political, economic, environmental and social developments in the countries of Central Asia and the Caucasus, as well as in Russia, the Middle East and south-west Asia

http://www.uzreport.com/ provides some official data and news, but no independent analysis

Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Population (per 1,000 population unless otherwise indicated)

2000 2001 2002 2003 2004Population (m; end-period) 24.8 25.1 25.4 25.7 26.0Crude birth rate 21.3 20.4 21.0 19.8 20.8

Crude death rate 5.5 5.3 5.4 5.3 5.0Life expectancy at birth (years; av) 70.8 71.3 71.2 71.6 72.5 Men 68.4 68.9 68.9 69.4 70.3 Women 73.2 73.6 73.5 73.8 74.7Urban (% of total population) 37.2 37.0 36.7 36.5 36.2

Rural (% of total population) 62.8 63.0 63.3 63.5 63.8Population per doctor 305 309 314 318 334No. of hospital beds (per 10,000

population) 55.9 55.8 57.8 57.4 54.9

State healthcare spending (% of GDP) 2.5 2.5 2.4 2.3 n/aAverage family size (persons) 5.4 5.3 5.1 5.1 5.1

Sources UN Development Programme (UNDP), National Human Development Report, 2006.


42 Uzbekistan


Labour force (% of total population unless otherwise indicated)

2000 2001 2002 2003 2004Total labour force 36.6 36.7 37.1 37.6 38.5 Urban 17.0 16.4 16.6 16.8 17.2 Rural 19.6 20.3 20.5 20.8 21.3

Officially registered unemployed ('000) 35.4 37.5 34.8 32.2 34.9 Urban 14.0 11.5 11.9 9.5 9.3 Rural 21.4 26.0 22.9 22.7 25.6% of labour force 0.4 0.4 0.4 0.3 0.4

Source: UNDP, National Human Development Report, 2006.

Transport and communications statistics 1995 1996 1997 1998 1999Rail Cargo transported (m tonnes) 46.2 40.0 41.1 41.8 41.4Cargo turnover (m tonne-km) 16,907 17,539 16,498 15,672 13,883Passengers transported (m) 14.4 14.1 14.2 15.2 13.4Passenger turnover (bn passenger-km) 2.5 2.0 2.2 2.2 1.8Road Cargo transported (m tonnes) 220.6 243.6 242.8 242.1 243.7Cargo turnover (m tonne-km) 2,298 2,716 3,002 3,354 3,347Passengers transported (m) 2,418.2 2,960.4 3,063.0 3,087.2 3,112.8Passenger turnover (bn passenger-km) 15.1 14.9 18.1 19.2 19.5

Air Cargo transported ('000 tonnes) 10.6 9.0 13.1 11.5 16.1Cargo turnover (m tonne-km) 105 121 117 105 129Passengers transported (m) 1.3 1.3 1.4 1.3 1.5Passenger turnover (bn passenger-km) 3.0 3.0 3.0 2.7 3.5

Private cars (per 100 people) 3.8 3.6 3.6 3.8 3.8Telephones (per 100 people) 7.1 7.0 6.7 6.5 6.4 In rural areas 2.2 2.0 1.9 1.8 1.7

Television sets (per 100 people) 10.3 9.1 8.4 7.3 6.1Tarmacadam roads (% of all roads) 95.6 96.1 96.1 96.1 n/a

Sources: UNDP, Uzbekistan: Human Development Report, 2000; Interstate Statistical Committee of the CIS, Statistical Yearbook.

National energy statistics (domestic production)

2002 2003 2004 2005 2006Oil m tonnes 7.24 7.13 6.58 5.45 5.41�000 b/d 145.4 143.3 132.1 109.4 108.6Gas (bn cu metres) 58.4 57.5 59.9 59.7 62.0Electricity (bn kwh) 47.9 49.4 49.6 47.6 49.3

Coal (�000 tonnes) 2,735 1,909 2,735 3,168 3,121

Sources: IMF; World Bank; UzReport website; Interfax; Economist Intelligence Unit.


Uzbekistan 43


Money supply (% change year on year unless otherwise indicated)

2000 2001 2002 2003 2004Reserve money 42.2 26.0 25.2 26.7 38.7Broad money 37.1 54.3 29.7 27.1 47.8

Source: IMF, Public Information Notice No.05/73.

Interest rates (%; year-end)

2003 2004 2005 2006 2007Refinancing rate 20.0 16.0 16.0 14.0 14.0

Sources: press reports; UzReport.com website.

Gross domestic product by sector (% of GDP at factor cost)

2001 2002 2003 2004 2005Agriculture 34.0 34.3 33.1 30.8 28.1Industry 22.6 22.0 23.5 26.0 28.7Services 43.4 43.7 43.4 43.3 43.2

Total 100.0 100.0 100.0 100.0 100.0

Source: World Bank, World Development Indicators.

Agricultural production (�000 tonnes unless otherwise indicated)

2001 2002 2003 2004 2005Wheat 3,690 4,967 5,437 5,378 5,928

Cotton (raw) 3,265 3,122 2,823 3,537 3,749Cotton lint 1,015 1,008 945 1,150 1,250

Potatoes 744 777 834 896 924Vegetablesa 3,244 3,415 3,883 3,909 4,104

Tobacco 19 19 19 19 20Grapes 573 516 402 589 536Milk 3,665 3,721 4,090 4,281 4,555

Eggs 72 77 92 104 110Wool (m tonnes) 15,912 16,594 17,395 18,618 16,000

a Including melons.

Source: UN Food and Agriculture Organisation (FAO).


44 Uzbekistan


Livestock numbers (�000)

2001 2002 2003 2004 2005Cattle 5,344 5,478 5,879 6,243 6,571Sheep & goats 8,930 9,234 9,929 10,580 11,352

Pigs 89 75 90 87 87Horses 150 145 148 152 158Chickens 14,420 15,355 17,676 18,834 20,541

Source: UN FAO.

Gross domestic product (market prices)

2002 2003 2004 2005 2006

Total (US$ m) At current prices 9,663 10,129 12,021 13,642 15,265

Total (Som m) At current prices 7,450,325 9,837,841 12,261,000 15,210,400 18,620,937

At constant (1992) prices 522.1 544.1 586.0 627.0 672.1

% change, year on year 4.0 4.2 7.7 7.0 7.2

Per head (Som) At current prices 294,808 384,776 474,050 581,274 703,156

At constant (1992) prices 20.7 21.3 22.7 24.0 25.4

% change, year on year 2.7 3.0 6.5 5.8 5.9

Sources: World Bank, World Development Indicators, Economist Intelligence Unit calculations.

Nominal gross domestic product by expenditure (Som m at current prices where series are indicated; otherwise % of total)

2001 2002 2003 2004 2005

Private consumption 3,032,457 4,486,984 5,440,326 6,363,459 7,742,094

61.6 60.2 55.3 51.9 50.9

Government consumption 906,810 1,339,170 1,751,136 1,986,282 2,494,506

18.4 18.0 17.8 16.2 16.4

Gross fixed investment 964,835 1,514,969 1,986,839 3,006,209 3,509,951

19.6 20.3 20.2 24.5 23.1

Exports of goods & services 1,382,800 2,295,555 3,666,808 4,929,871 6,027,683

28.1 30.8 37.3 40.2 39.6

Imports of goods & services 1,361,632 2,186,352 3,007,269 4,024,821 4,563,833

27.6 29.3 30.6 32.8 30.0

GDP 4,925,270 7,450,325 9,837,841 12,261,000 15,210,400

Source: World Bank, World Development Indicators.


Uzbekistan 45


Consolidated budget (% of GDP)

2001 2002 2003 2004 2005Revenue & grants 34.5 35.7 33.4 32.2 32.2 Tax revenue � � 22.7 22.6 21.8Expenditure & net lending 36 37.2 33.9 32.1 32.5 Socio-cultural (incl health & education) � � 9.3 9.1 10.4 Social safety net � � 8.2 7.9 8.5 Economy � � 3.3 3.4 3.3 Public administration � � 0.6 0.6 0.6 Net lending � � 0.8 0.5 0.5

Statistical discrepancy � � 0.6 0.6 1.6Balancea -1.3 -1.9 0.1 0.6 1.3

a Based on below-the-line data.

Source: IMF.

Prices and earnings (% change, year on year)

2002 2003 2004 2005 2006

Consumer prices (av) 27.3 11.6 6.6 10.0 14.2

Source: IMF estimates.

Main composition of trade (US$ m; fob-cif)

2001 2002 2003 2004 2005

Exports fob Gold 537.8 738.3 1,046.0 1,242.0 1,315.0

Cotton 793.0 669.3 739.0 876.0 1,033.0

Energy � � 454 602 623

Total exports incl others 2,740.0 2,510.0 3,240.0 4,263.0 4,757.0

Imports cif Machinery & equipment � � 1,183.0 1,578.0 1,593.0

Foodstuffs � � 264.0 235.0 259.0

Energy products � � 80.0 81.0 104.0

Total imports incl others 2,554.0 2,186.0 2,405.0 3,061.0 3,310.0

Source: IMF.


46 Uzbekistan


Main trading partners (% of total)

2002 2003 2004 2005 2006

Exports fob to: Russia 19.9 22.1 20.6 23.8 23.9

Poland 2.6 1.5 2.0 4.2 11.8

Kazakhstan 1.6 9.2 13.8 11.9 10.5

Turkey 4.4 4.6 6.0 6.9 7.5

Imports cif from: Russia 24.0 22.3 26.7 26.6 27.8

South Korea 10.0 10.9 12.5 15.2 15.6

Germany 5.5 6.5 5.8 7.1 10.4

Kazakhstan 5.4 6.1 7.0 7.1 7.3

Source: IMF, Direction of Trade Statistics.

Balance of payments, IMF series (US$ )

2001 2002 2003 2004 2005

Goods: exports fob 2,740.0 2,510.0 3,240.0 4,263.0 4,757.0

Goods: imports fob -2,554.0 -2,186.0 -2,405.0 -3,061.0 -3,310.0

Trade balance 186.0 324.0 835.0 1,202.0 1,446.0

Services: credit 461.0 475.0 535.0 574.0 659.0

Services: debit -598.0 -657.0 -691.0 -867.0 -790.0

Income: credit 22.0 35.0 35.5 98.0 121.0

Income: debit -228.2 -180.9 -151.5 -146.7 -144.9

Current-account balance -117.2 96.1 882.0 1,215.3 1,949.1

Financing (� indicates inflow) Movement of reserves -73.0 -3.0 -444.0 -487.0 -749.0

Use of IMF credit & loans 0.0 0.0 0.0 0.0 0.0

Source: IMF.


Uzbekistan 47


External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end)

2002 2003 2004 2005 2006

Public medium- & long-term 4,006 4,149 4,117 3,639 3,322

Private medium- & long-term 400 507 518 551 403

Total medium- & long-term debt 4,406 4,656 4,636 4,189 3,726

Official creditors 2,338 2,452 2,593 2,465 2,450

Bilateral 1,768 1,824 1,851 1,666 1,584

Multilateral 570 628 742 798 866

Private creditors 2,068 2,204 2,043 1,724 1,276

Short-term debt 331 221 178 113 167

Interest arrears 85 7 8 9 9

Use of IMF credit 62 43 19 0 0

Total external debt 4,798 4,921 4,833 4,302 3,892

Principal repayments 579 662 725 642 756

Interest payments 181 148 147 145 168

Short-term debt 14 6 6 4 3

Total debt service 760 810 871 788 924

Ratios (%) Total external debt/GDP 49.7 48.6 40.2 31.5 25.5

Debt-service ratio, paida 25.2 21.3 17.7 14.2 14.1

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Foreign reserves (US$ ; end-period)

2001 2002 2003 2004 2005

Total reserves incl gold 1,212 1,215 1,659 2,146 2,895

Total international reserves excl gold 1,003 965 1,101 1,728 2,401

Gold, national valuation 209 249 558 419 494

Source: IMF.

Exchange rates (Som per unit of currency unless otherwise indicated; annual averages)

2003 2004 2005 2006 2007

US$ (official rate) 971.3 1,020.0 1,115.0 1,219.8 1,263.9

£ 1,571 1,543 1,605 1,828 1,894

� 1,036.2 942.5 998.6 1,152.6 1,194.3

Rb 39.5 36.3 38.2 38.9 40.3

W 0.817 0.902 0.864 0.975 1.010

¥ 8.53 9.46 9.17 9.73 10.08

Sources: Economist Intelligence Unit; BISNIS; US Embassy, Tashkent; UzReport.com.

Editors: Stuart Hensel (editor); Ann-Louise Hagger (consulting editor) Editorial closing date: March 10th 2008 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected]


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