Uzbekistan: An ambitious economic transformation

Uzbekistan is today in the midst of an ambitious structural transformation in the economic, commercial, and political spheres that has few precedents.

Uzbekistan is the third-most populous country of the former Soviet Union (after Russia and Ukraine) with approximately 35 million inhabitants, huge reserves of gas (16th place worldwide), gold (11 world-wide), precious metals, and a fertile terrain that is a large producer of cotton.

Upon independence from the USSR in the 1990s, Uzbekistan was ruled by autocrat Islam Karimov, who remained in power until his death in 2016. It exercised heavy-handed power, few freedoms, and multiple human rights abuses, in addition to a totally closed economy controlled almost entirely by the state.

Karimov died unexpectedly at the age of 78, leaving the country without leadership for several days in which his death was not confirmed and during which different power groups fought for the presidential succession.

Even though the favorite to succeed him was the Home Secretary, it was the young and loyal 13-year-old Prime Minister Shavtat Mirziyoyev who managed to obtain the internal consensus and the approval of Moscow to create an interim government and call elections, and in just three months he was elected the new President of the country.

Ambitious economic transformation

Mirziyoyev launched a series of initiatives that surprised everyone by dismantling the black security forces of the state, removing relatives and allies of his predecessor, including arresting Karimov’s daughter, initiating a profound economic transformation accompanied by significant advances in respect for human rights, and the total elimination of the use of child labor in cotton fields.

In just under a year of power, he released the convertibility and transferability of the Uzbek som, whose black market price was 2 to 3 times higher than the official exchange rate. At that time, the country had crossed the point of no return towards more ambitious structural reforms in their depth and speed.

Mirziyoyev has a clear vision for his country, which is transforming into a market economy with a liberalization of food and energy prices, a significant reduction in government size (from 63 ministries and state agencies to only 18), fiscal and administrative simplifications to encourage private investment, and the launch of an aggressive foreign investment campaign that has had great achievements so far, mainly in renewable energy issues with investors from the Middle East (Emirates and Saudi Arabia).

Work has begun to reform and privatize the country’s largest companies and banks. Internal structures have been created to take control of the main state companies and banks, formalize development plans, modernize, adopt international corporate governance practices, and initiate privatizations.

In parallel, the capital market and the Uzbek stock exchange developed. To date, the first prime placement (IPO) of the shares of the UzAuto Motors state enterprise that assembles vehicles in Uzbekistan under license from General Motors has been completed. The stock market offers the possibility for foreigners to invest in their instruments with total freedom to transfer dividends and/or products of sales of positions to their home country without restrictions and with very competitive tax rates. Several companies are already preparing to attract strategic investors and/or make primary equity placements.

The government has defined three social priorities: education, regional development, and health. The reforms have been widely welcomed by the people who recently approved changes to the Constitution, which include the fact that social and economic reforms are irreversible, in addition to allowing President Mirziyoyev to hold a maximum of two terms for a total of another 14 years in power as of the July 2023 elections.

At the bilateral and multilateral levels, Uzbekistan is finalizing negotiations to join the WTO, and is seeking to maintain a balanced relationship with Russia, its main political and trade partner, who has openly expressed an interest in Uzbekistan’s membership in the Eurasian Economic Union and the Collective Security Treaty. Yet to date, Uzbekistan has managed to remain relatively neutral in such approaches.

As a result of the Russian war in Ukraine and the sanctions against Russia and the emigration of Russians to several neighboring countries, including Uzbekistan, the economy and investments have developed rapidly, as, for many foreign investors, Uzbekistan is the market with the greatest potential in the area based on its large population, appetite for modernization, and security offered in investments.