Russia may strengthen its positions in Uzbekistan: interview

Now that Uzbekistan is facing a power change, the country has become the focus of attention in the post-Soviet area. In an interview to EADaily, the head of the Sector for the Economic Development of the post-Soviet Republics of the Institute of Economics of the Russian Academy of Sciences Yelena Kuzmina has shared her expectations concerning the Russian-Uzbek relations.

What prospects do the Russian-Uzbek relations have?

It is not a very good time for a shift of power. Today, Uzbekistan is facing a protracted economic crisis caused by falling prices for its key export items – hydrocarbons and rare metals. Demand for Uzbek machines is shrinking as are the incomes of Uzbek Gastarbeiters abroad. Despite the Uzbek authorities’ assurances that the revenues from Uzbeks working abroad make up just 2% of Uzbekistan’s GDP, the IMF and the WB say that this figure is as high as 10-12%. As many as 90% of Uzbek Gastarbeiters work in Russia. But now that the Russian authorities have imposed new migration rules, the number of labor immigrants from Uzbekistan and other post-Soviet republics has dropped. The Uzbek authorities are also trying to solve this problem by offering their youths jobs at home.

Uzbekistan is one of the few post-Soviet republics that have a diversified economy. China and Russia are Uzbekistan’s biggest trade partners. Kazakhstan is the third biggest partner. The Uzbeks also trade with Turkey, Japan, South Korea and some European countries.

One more good thing for Uzbekistan is that due to its current presidential hopeful Shavkat Mirziyoyev it has retained its industry. Mirziyoyev has restructured it a bit: it no longer has aviation sector but has automotive industry. It also has a textile sector. Instead of selling raw cotton, Uzbekistan is now processing 40% of it and is selling finished products. In 2015, the sector set up and modernized 147 enterprises and by 2020 is going to launch 77 more textile projects worth a total of $918mn.

As a result, the capacities of the textile industry are expected to redouble, which is crucial for a country where most of able-bodied citizens, especially women, are unemployed. The growth of the textile industry is a chance for them to get new jobs. And this a good way to solve the existing social problems. Modernization and industrialization are the key priorities for Mirziyoyev.

Recently, they spoke a lot about growth in gold mining. Are the figures really so significant?

In 2015, this sector appeared as one more driver of the Uzbek economy. The Uzbek authorities adopted a program for structural reforms and economic diversification in 2015-2019. The program consists of seven strategic points aimed at improving business climate, privatizing state property and developing modern infrastructure. It stipulates the implementation of over 900 projects to create high-tech productions and to upgrade existing enterprises in the petrochemical, chemical, electric power, machine building, car, textile and pharmaceutical industries.

How is developing the cooperation with Russia?

This is a very stable niche. In Uzbekistan, there are almost 900 Uzbek-Russian enterprises; in Russia, there are over 500 companies where Uzbeks have capital. In 2015, Russia invested as much as $6bn in Uzbekistan, mostly in extraction. Lukoil is implementing a Kandym project in the framework of the Kandym-Khauzak-Shady-Kungrad production sharing agreement as well as projects in Southeastern Gissar and Aral blocks. The Russian company expects to produce 6bn c m of gas in Uzbekistan this year. For this purpose, it has invested $3.6bn and is planning to invest a total of $12bn. Since 2006, Gazprom has invested over $400mn in Uzbekistan.

Those two Russian giants can afford investing money now and gaining profits tomorrow. The problem is that it is very hard to work in Uzbekistan. It is not the best place for investors. But over the last years, the local government has lowered taxes for businessmen, particularly, for small business and farms, the tax has been cut from 25% to 15%. The reporting and inspection procedures have been simplified. The Central Bank of Uzbekistan has reduced its refinancing rate from 10% to 9%. All this is supposed to attract foreign investors and has already pushed Uzbekistan 8 ranks up to the 87th rank on the Ease of Doing Business Index.

There are a number of investments projects but most of them were one-time-only. For example, in 2012 Power Machines modernized Charvak HPP with a total of $56.5mn invested. Western Ural Machine Building Group is carrying out a number of projects worth of total of $180mn in the chemical, coal and mining sectors. Electroshield Samara and Samara Cable Company are reequipping and upgrading O'zelektroapparat-Electroshield and AndizhanCable and have already invested $3.5mn.

The Russians might also invest in Uzbekistan’s petrochemistry, chemistry, power engineering, machine building and pharmaceutics. There are promising prospects for cooperation in agriculture, first of all, in fruit and vegetable growing.

What an impact has the economic crisis had on the Russian-Uzbek relations?

In 2015-2016, we recorded a big cut in our trade turnover, first of all, due to a decline in car industry. Russia is the key market for Uzbek cars. In 2014, the exports dropped by 40%. In 2015, they dropped by 60%. At one point, the Uzbeks even were forced to shut down the car plant in Asaka, with lots of locals left unemployed. And this affected not only the Asaka plant itself but also almost 40 factories that produced components for it. It was a serious challenge. But the fact that during the last Moscow showroom the Asaka plant had one of the largest pavilions proves that things are improving.

Today, we see some Russian medium-sized and small businesses – mostly e-commerce and food – seeking to gain a foothold in the Uzbek market. It is not easy for a newcomer company to work in Uzbekistan as here it is faced with local mentality and customs. But despite all difficulties, Uzbek businessmen still give preference to Russian companies.

What else can Uzbekistan offer to Russian companies?

Communications market. There are wide opportunities in this sector. But there are certain laws that give foreign companies no confidence that they will own the communications they will build. For example, Telia Sonera of Sweden is trying hard to sell its stake but it is not yet clear if anybody will want to buy it.

In any case, Russia has a chance to expand into this market. Of course, it will not challenge China or Japan. But since Uzbekistan is very active in machine and car building, textile and chemistry, we have certain chances to work there, of course, on condition that we will work at profit. One of the advantages here is that the Uzbeks are seeking to improve their business climate.

Should we expect China’s economic expansion in Uzbekistan? Can Uzbekistan become dependent on China?

Over the last years, China has significantly enlarged its economic presence in Uzbekistan. The Chinese have a big investment program in that country. One of its priorities is high-speed railways.

Uzbekistan does not sell its lands to foreigners. It does not give its citizenship even to those who marry an Uzbek citizen. So, even if the Uzbeks continue enlarging their contacts with China, they will not put all eggs in one basket and will not become dependent on one foreign partner as is the case with Turkmenistan. The examples of gold recovery and communications have shown that the Uzbeks are not going to give their industries to foreigners but prefer regaining control over a sector once a foreign investor has helped to recover it. Of course, things have not been settled yet in those two sectors and the Uzbek authorities will yet have to face international trials but the fact is that both sectors remain parts of the Uzbek economy rather than some transnational corporations. And this tendency will most probably be continued.