Uzbekistan

A Stagnant Economy
Kayssar Daher
21/02/2012

Unlike many former USSR states, Uzbekistan actually has the building blocks of a solid economy. The Uzbek republic has a soil rich in raw minerals, metals and petroleum, 4200 hectares of arable land and a population of 30 million people, 34.1% of which is under 14 years of age. Nevertheless, the countrys GDP per capita is merely 3136$ (161st of 220) and its HDI just over 0.65. Clearly, the Uzbek economys rise, after 1991, is far from meteoric.

Uzbekistan: A Stagnant Economy

Unlike many former USSR states, Uzbekistan actually has the building blocks of a solid economy. The Uzbek republic has a soil rich in raw minerals, metals and petroleum, 4200 hectares of arable land and a population of 30 million people, 34.1% of which is under 14 years of age. Nevertheless, the countrys GDP per capita is merely 3136$ (161st of 220) and its HDI just over 0.65. Clearly, the Uzbek economys rise, after 1991, is far from meteoric. The Uzbek economy primarily relies on the exportation of textiles, cotton, metals, gold and, most importantly, hydrocarbons and natural gas , with exports securing a 13.4 billion dollars revenue in 2011. In that same year, agriculture contributed 22% of the GDP, industry 38% and services 40%, the total topping 43 bil lion dollars. In contrast to this distribution, 44% of the workforce is in agriculture, 20% in industry and 36% in services, and, surprisingly for a country in economic difficulty, only 1% of the workforce (16.3 million people) is unemployed. Despite these promising statistics, 26% of Uzbeks live in poverty.

I.

Remnants of a communist past 1. Tight regulations

After its independence in September 1991, Uzbekistan faced the challenges of any newly liberalized country, and in many ways, failed to rise up to them: inflation rates soared past 1000% per year in 1992, 1993 and 1994. With help from the IMF, the government implemented very strict measures and managed to reduce these rates to the single digit range , but simultaneously jeopardized the liberality of the economy. The government tightened the laws governing imported goods and raised customs tariffs so much that foreign goods were rendered unaffordable, a move characteristic of a communist regime (the same strategy is adopted in Syria and in Cuba prior to the 2011 reforms).

2. Impeding investment
On the political front, little progress has been made for the 80s communist legacy remains anchored in the state bureaucracy, hence a Corruption Perception Index ranking of 175th out of 179 in 2007. In fact, the government hasnt fully shaken off its communist heritage; therefore it still exercises a restrictive policy when it comes to private investment and foreign investment: On one hand, to keep the middle class at bay, the ruling elite is hostile to the development of an independent private sector over which it would have no control; on the other hand, for many years the government made it difficult to convert foreign currency into Uzbek Som, preventing international companies from entering the Uzbek economy, but having to comply with international law, the government made currency conversion possible but tightened currency controls and border permeability to preserve the status quo.

Kayssar DAHER 21/02/2012

Uzbekistan: A Stagnant Economy

In spite of the importance of agriculture, rural infrastructure is subpar: inadequate irrigation and drainage systems and unreliable power supply constrain growth. Another factor undermining possible growth is the shortage of skilled personnel in the large Uzbek workforce.

In essence, Uzbekistan is still deeply influenced by its communist past and has not yet embraced the liberal model. However, internal dysfunction alone does not account for the economic difficulties of the country.

II.

Troubled international relations 1. USSR

As a part of the USSR, Uzbek economy was profoundly integrated into the USSRs economy. Uzbek manufacturing plants would receive raw materials from remote USSR territories, and export manufactured goods to other USSR countries and Uzbek mines export raw materials to plants elsewhere. Uzbekistan subsisted on the intricate system of interrepublican trade and payments mechanisms. After the collapse of the USSR, the networks linking raw materials suppliers, factories and consumers were shut down; subsequently the Uzbek economy suffered a major setback when its plants and mines were severed from the larger soviet entity.

2. USA
In this perspective, the newly founded state failed to adapt the new world and basked in its isolation since 1991. After its independence, Uzbekistan quickly became an ally of the USA: in 1993 Uzbekistan was granted the most-favored-nation trade status and in 1994 a bilateral assistance agreement and an open lands agreement were signed. Notwithstanding, human rights were frequently violated in the Republic of Uzbekistan, what threatened bilateral relations. The relationship between the two countries further deteriorated after the color revolutions in Georgia and Ukraine and after the USA called for an international independent investigation of the Andijan events (May 2005). President Karimov (the countrys only president since its independence) then changed the alignment of Uzbekistan, bringing it closer to that of Russia and China.

Briefly put, Uzbekistans economy suffers from its isolation from global financial markets and the countrys uneasy relations with USA and Russia, the two former superpowers of the cold war. Its communist past heralded its less than bright present; the corruption and the semblance of democracy also contribute in stalling the burgeoning economy. The question is: what is the needed catalyst? What will kick start this potential solid Eurasian economy?

Kayssar DAHER 21/02/2012