Tamerlane #25: March 8-22
Central Bank lowers policy rate to 14%, constitutional referendum set for April 30, foreign trade turnover up 2% in Jan-Feb, privatizations to help cover budget deficit
Top News
On March 16, the Central Bank of Uzbekistan (CBU) lowered the policy rate 100 basis points to 14% in response to what it sees as peaking inflation and the negative effects of tight external financial conditions. Although headline inflation remained flat at 12.2% in January and February 2023, the CBU pointed to falling core inflation, which dropped from 13.8% in December to 13.2% in February, as evidence of declining price growth, along with decreasing 12-month inflation expectations. According to the CBU, the hiking policies of major central banks, increased volatility in financial and commodity markets, and uncertainty in the global banking sector presented risks for Uzbekistan’s economy, which had already materialized in January with slowing growth in the retail trade, industrial production, and construction sectors. The central bank also observed a “significant increase” in money market volumes, along with growth of soum term deposits and loans, which it considered to be a “positive factor” for economic recovery. The next CBU meeting to review the policy rate is scheduled for April 27.
Uzbekistan’s Oliy Majlis (parliament) announced it approved a series of amendments to the constitution and hold a national referendum on the changes on April 30. The amendments, which add 27 new statutes to the constitution, include the introduction presidential term limits while extending terms from five to seven years (and resetting to allow President Shavkat Mirziyoyev to run for a third term); an ostensible expansion of the Oliy Majlis’ powers; the abolition of the death penalty and child labor practices; the granting of the rights of freedom of expression, albeit with “special duties and responsibilities;” new social welfare provision requirements for the government; increased limits and regulations on monopolies; changes to language to “put the interests of a person” above the state; the establishment of habeas corpus; measures intended to establish an independent judiciary; and many others. The Uzbek Constitutional Court approved the amendments for a referendum on March 13.
According to its 2023 consolidated state budget report, the Ministry of Economy and Finance plans to raise UZS 10 trillion (USD 881.6 million) from the privatization of state-owned assets in order to help cover a projected UZS 32.5 trillion (USD 2.9 billion) budget deficit. In addition to the projected 2023 budget deficit, which accounts for 3% of GDP, Uzbekistan is facing debt payments of UZS 19.2 trillion (USD 1.7 billion), which the ministry plans to fund through local bond issues (UZS 17 trillion), international borrowing and Eurobond issuance (UZS 17.3 trillion), and loans for the implementation of state programs (UZS 7.8 trillion). The Ministry of Economy and Finance forecasts Uzbekistan’s GDP will grow 5.3% in 2023, 5.6% in 2024, and 6% in 2025 and expects total foreign trade turnover to rise from USD 58.6 billion in 2023 to USD 78.7 billion in 2025. The budget also estimates that Uzbekistan’s public debt will fall from 36.2% of GDP in 2022 to 35.7% in 2023 despite a 10% increase borrowing to USD 32.1 billion.
Uzbekistan’s foreign trade turnover increased 2% yoy to USD 8.9 billion from January-February 2023, according to data from the State Statistics Committee, a slowdown in growth that saw exports fall 23.7% yoy to USD 3.2 billion, while imports rose 25.1% to USD 5.8 billion. Uzbekistan’s top trading partners by total turnover remained Russia (USD 1.5 billion), China (USD 1.3 billion), Kazakhstan (USD 699 million), Germany (USD 573 million), and Turkey (USD 548 million). Increase in trade turnover with Russia (16.2% yoy) continued to outpace other countries, with only China (14.9%) registering double digit growth for the period among top trade partners.
From January-February 2023, Uzbekistan’s natural gas production fell 8.2% yoy to 8.1 billion cubic meters, according to the State Statistics Committee. The unseasonable winter temperatures in January forced Uzbekistan to identify new sources of natural gas imports, including a controversial deal with Russia, which has yet to be implemented, as well as new arrangements with Turkmenistan. However, for the same period, oil production increased 7.6% yoy.
The World Bank approved an additional USD 12 million in financing to help expand Uzbekistan’s solar power capacity as part of the Uzbekistan Scaling Solar 2 project. The financing will provide up to USD 6 million each in guaranteed support for two solar plants in the Samarkand and Jizzakh regions that are currently being built by the United Arab Emirate’s Masdar and will add 440 MW in total capacity.
Local Markets
The State Assets Management Agency (UzSAMA) announced two privatization deals – the sale of the state’s 44.71% stake in Uzbekkimyomash zavodi and its 58.41% stake in Elektrqishloqqurilish to two Russian linked companies. The stake in Uzbekkimyomash zavodi, which produces equipment for the chemicals and oil and gas sectors, was sold to Tropidia Holding B.V., which is reportedly associated with Russian company Novotroitsk Cement Plant, for UZS 37 billion (USD 3.2 million). Control of Elektrqishloqqurilish, an electrical infrastructure construction company, was purchased by Russian Ural Energy Construction Company for UZS 93.2 billion (USD 8.1 million).
The Republican Stock Exchange Toshkent delisted Turkiston Bank on March 10 after the bank began liquidation proceedings after a ruling by the Tashkent Economic Court. The Central Bank of Uzbekistan revoked Turkiston Bank’s license in October 2022 for lack of sufficient reserves, losses of more than 50% of regulatory capital, consumer rights violations, and repeated regulatory violations.
Since March 13, Freedom Broker has been acting as a market maker for UzAuto Motors (UZMT) shares on the RSE Toshkent, which are down 13% from the state-owned automaker’s IPO price and fell as much as 24% on March 9. UzAuto Motor’s shares debuted on the RSE Toshkent on February 20 after an IPO process marked by subdued interest from both institutional and domestic retail investors.
Macroeconomics
From January to February, solar power plants in the Navoi and Samarkand regions generated 55.2 million kWh of electricity, saving 15 million cubic meters of natural gas and providing electricity for 140,000 households, according to the Ministry of Energy. Uzbek authorities hope ambitious investments in renewable energy generation, including plans to bring online solar plants with a total capacity of 5 GW and wind plants with a total capacity of 3 GW in the near future, will alleviate pressures on the country’s strained energy infrastructure and decrease dependance on natural gas and coal.
Saudi ACWA Power and China Gezhouba Group Investment Company will build two power plants in the Tashkent region with a total capacity of 1.1 GW, according to the Ministry of Energy. The two plants will provide 700 MW and 400 MW of solar power, respectively, with plans to add an additional 200 MW in storage capacity by the end of 2023.
Local publication Spot.uz published an extended interview with the European Bank for Reconstruction and Development’s Zsuzsanna Hargitai, Managing Director for Central Asia. Hargitai pointed to liberal reforms and the effects of Western sanctions against Russia as key growth drivers for Uzbekistan in the coming years, while singling out inflation, volatile commodity prices, rising borrowing costs, and the geopolitical fallout of Russia’s war in Ukraine as major risks.
Uzbek exports of electronics increased by 42.4% yoy in 2022, according to the Center for Economic Research and Reforms (CEIR), reaching a total value of more than USD 800 million. The value of exports of household appliances grew 6.6x to USD 135.2 million while cable and wire products increased 2.6x to USD 386.7 million. While the CEIR pointed to increased investment in the domestic electronics industry over the past five years, exports to the Russian market emerged as the primary driver of export growth, which has caught the attention of US government agencies looking to crack down on sanctions evasion and parallel imports to Russia.
Uzbekistan was the top importer of Kazakh wheat in 2022, purchasing nearly 3 million tons for a total of USD 825 million. The volume of Uzbekistan’s wheat imports from Kazakhstan in 2022 increased 8.3% yoy while the total cost rose 32.1% and accounted for 64% of Kazakhstan’s total wheat exports to the CIS region.
In 2022, the number of users of online banking services increased 1.5x to 30 million, including 1.2 million businesses and 28.8 individuals, with the volume of online transactions totaling UZS 145.8 trillion (USD 12.9 billion). According to the CBU, bank customers deposited UZS 21.9 trillion (USD 1.9 billion) and paid off UZS 8.2 trillion (USD 722.9 million) using mobile banking apps.
On the border between Uzbekistan and Kyrgyzstan a new logistics hub is under construction and scheduled to open in the summer of 2023. The Bai-Talaa Global center, located in Kyrgyzstan’s Jalal-Abad region, will include warehouse facilities, an agro-industrial complex, a trading zone, and a cattle crossing point.
Business
The CBU granted banking licenses to Apex Bank and Hayot Bank on March 17, bringing the total number of registered banks in Uzbekistan to 34. Apex Bank is part of the Apex group, which owns insurance company Apex Insurance, Uzbekistan’s largest insurer by net premiums written in 2022, while Hayot Bank reportedly plans to operate as a digital bank while also providing financing and investment services.
The Investment and Development Agency of Latvia (LIAA) will open a representative office in Tashkent as Director General Kaspars Rožkalns noted growing interest in Uzbekistan among Latvian businesses. Representatives from the LIAA, which part of Latvia’s Ministry of Economy, met with Uzbek Ambassador Kadambai Sultanov and discussed potential cooperation in the IT, textile, agriculture, and food production sectors.
State-owned Uzbektelecom announced plans to begin rolling out 5G across Uzbekistan in March. Speedtest ranked Uzbekistan 118th globally for mobile internet speeds in February 2023, up four spots from its ranking for 2022, below countries such as Bangladesh, Algeria, and Ethiopia and ahead of Pakistan, the Democratic Republic of the Congo, and Sri Lanka, and others.
German companies Мatteco GmbH and Selfus held a meeting at the Uzbek diplomatic mission Frankfurt to discuss a joint venture for a tire recycling plant in Uzbekistan. Leaders of the two German companies plan to travel to Uzbekistan before establishing a plant for the recycling and processing of old tires for use in photovoltaic panels, drip irrigation houses, and agricultural geogrids.
Government & Politics
On March 9, President Shavkat Mirziyoyev signed a law on the management of state property that protects several categories of assets, including land and reservoirs, from privatization. The decree also bans the privatization of objects of historical and cultural heritage, public roads, and military industrial enterprises, along with state-owned enterprises engaged in the processing of radioactive and toxic substances. The law, which was developed with support from international financial institutions, also lays the foundation for strengthening competition and eliminating preferential treatment for state-owned enterprises, the confiscation of unused or redundant state properties, reforms to corporate governance among SOEs, and increased transparency and disclosure requirements for state companies.
Mongolia opened its first embassy in Uzbekistan on March 8 in a ceremony in Tashkent attended by Mongolian Minister of Foreign Affairs Battsetseg Batmunkh. Acting Uzbek Minister of Foreign Affairs Bakhtiyor Saidov noted that relations between the two countries have shown positive developments “in all spheres without exception,” and in June 2022 Mongolia introduced 30-day visa-free travel for Uzbek citizens.
A report by Freedom for Eurasia uncovered property holdings controlled by Gulnara Karimova, the imprisoned daughter of Uzbekistan’s first president Islam Karimov, that were purchased for USD 240 million. Using a series of shell companies registered in United Kingdom, Gibraltar, and the Virgin Islands, Karimova reportedly owned multiple properties in the UK worth GBP 50 million as well as other assets in Switzerland, France, the United Arab Emirates, and Hong Kong. Karimova was placed under house arrest in 2014 and jailed in March 2019 for more than 13 years for fraud and money laundering.
In a speech celebrating the Nowruz holiday, President Shavkat Mirziyoyev declared “Russia and Uzbekistan have always been and will always be together.”