Tamerlane #30: April 19-26
5.5% GDP growth in Q1 2023, trade turnover up 12% to USD 14.8 billion, bank capital requirements to be implemented in phases, Uzbekistan to import 300k tons of oil from Gazprom Neft in 2023
Top News
Uzbekistan’s GDP grew 5.5% in Q1 2023 to UZS 198.4 trillion (USD 17.5 billion), defying pessimistic warnings from the government that growth could slow to 3.5% due to harsh cold temperatures in January that caused energy shortages and disrupted economic activity. The stronger than expected results were driven by yoy growth in the construction sector (4.5%), industrial production (4.1%), retail trade turnover (5.2%), services (7%), trade (4.3%), information and communications (20.3%), and agriculture (3.2%). The cold snap and accompanying energy shortages temporarily grounded Uzbekistan’s economy to a halt. For January-February, industrial production fell 3.9% while construction plummeted 8.2%, but both sectors showed strong recovery to finish the quarter. However, despite the surprise to the upside for Q1 2023 GDP growth, all the sectors reported by the Statistics Agency, apart from agriculture, lagged Q1 2022 numbers.
In Q1 2023, Uzbekistan’s total foreign trade turnover reached USD 14.8 billion, an 11.9% yoy increase driven by a 23.4% growth in imports (USD 9.1 billion) while exports fell 2.6% (USD 5.7 billion). Uzbekistan’s trade deficit more than doubled to USD 3.4 billion, with significant increases recorded in imports of machinery (41.9%), fuels (52.7%), and raw materials excluding fuel (21%). Natural gas imports rose 2.6x to USD 153 million while fuel exports fell nearly 50% as Uzbekistan weathered energy shortages resulting from a cold snap. Exports of gold were down almost 20% and raw materials decreased by more than 40%. China (USD 2.4 billion) overtook Russia (USD 2.2 billion) as Uzbekistan’s top trading partner, followed by Kazakhstan (USD 1.1 billion), Turkey (USD 812 million), and Germany (USD 674 million). The share of Uzbekistan’s trade with CIS countries increased 1.9% to 32.3% (USD 4.8 billion) of total trade turnover, although the level remained down from its recent high of more than 40% of trade turnover in 2021.
New regulations requiring banks to increase authorized capital from UZS 100 billion (USD 8.7 million) to UZS 500 billion (USD 43.7 million) by 2025 will be implemented in phases, according to legislation signed by President Shavkat Mirziyoyev. Starting on September 1, the minimum authorized capital for banks will rise to UZS 200 billion and will subsequently increase to UZS 350 billion by April 2024 and UZS 500 billion by January 2025. Restrictions on foreigners’ ability to purchase shares of Uzbek banks on international exchanges have also been removed under the new law, although this move does little to improve the problem of liquidity in Uzbekistan’s local markets.
Uzbekistan will reportedly import 300,000 tons of oil from Gazprom Neft in 2023, according to Ministry of Energy official Atkhamjon Ubaidullaev. The announcement, originally reported by Russian news agency TASS, noted that negotiations are currently underway with other Russian oil and gas producers, including Tatneft and Lukoil, to expand operations and investment in Uzbekistan. Ubaidullaev also claimed that Lukoil is the largest investor in Uzbekistan’s oil and gas industry and has already committed more than USD 10 billion in two projects. On April 22, Russian Deputy Prime Minister Aleksandr Novak announced Russia will begin settling energy payments in national currencies rather than dollars or euros.
The Tashkent Interntional Investment Forum will be held from April 27-28 at the Congress Hall in the Tashkent City International Business Center.
Local Markets
On April 25, the Republican Stock Exchange Toshkent experienced technical issues with its trading software that halted normal operations for several hours. The disruption was caused by a failure with the exchange’s Unified Software Trading Complex, which prevented traders from accessing information on bids and trading results. Modernizing the RSE Toshkent’s outdated trading systems and digital infrastructure has been a priority for several years and is a critical requirement for improving the functioning of the exchange, although little progress has been made thus far.
Macroeconomics
The Asian Development Bank (ADB) announced it will provide USD 174 million in financing to ACWA Power for the development of two wind power plants in the Bukhara region that will generate 3,235 gigawatt-hours. Saudi ACWA Power is building two wind power plants with 79 turbines each in what will be the largest utility-scale wind power project in the Central West Asia region, with the ADB also financing the construction of 282.5 kilometers of transmission infrastructure to connect the plants to the power grid.
The World Bank will allocate USD 240 million in financing to support animal husbandry and the sustainable development of Uzbekistan’s livestock industry. The World Bank’s Second Livestock Sector Development Project will support the government’s livestock industry development program for 2022-2026 that aims to increase the sector’s productivity and production, expand farmers’ access to markets, technology and financing, and establish climate resilient livestock value chains.
The Central Bank of Uzbekistan (CBU) postponed its next board meeting and policy rate decision from April 27 to May 4 in order to study and analyze changes to domestic and external economic conditions. In March, the CBU lowered the policy rate from 15% to 14% after seeing evidence of slowing inflation and the impact of global macroeconomic trends on Uzbekistan’s economy.
Uzbekistan is reportedly planning to increase gold production by nearly 50%, double the country’s uranium output, and begin mining lithium, according to Ministry of Mining and Geology officials speaking at the Innoprom Central Asia exhibition. Uzbekistan’s current annual gold production is around 105 tons, which the government hopes to raise to 150 tons while doubling uranium production from 3,600 to 7,000 tons, according to a statement by First Deputy Minister of Mining and Geology Omonulla Nasritdinkhodzhaev, although he did not provide a timeline for the increases. Deputy Mining and Geology Minister Azam Kadirkhodjaev noted that preparations were underway to begin mining and processing lithium from a “large deposit” as part of a government program to mine technology metals.
In the first three months of 2023, fixed capital investment reached UZS 56.6 trillion (USD 5 billion), an increase of 3.1% yoy, with more than 60% of the total sum invested financed by lending. Foreign investments and loans provided UZS 25.1 trillion (USD 2.2 billion), including UZS 11.9 trillion (USD 1 billion) in foreign direct investments, an increase of 36.8%. The top sources of foreign fixed capital investment and lending included China (19.9%), Russia (15.7%), Saudi Arabia (13.5%), and Turkey (6.1%). One third of total fixed capital investments (UZS 18.6 trillion), including 46.8% of foreign investments and lending, went into the manufacturing industry, while only 8% (UZS 4.5 trillion) flowed into the construction of new housing, a major priority for the government’s “New Uzbekistan” program to double housing construction in 2023.
Business
TBC Bank Uzbekistan posted its first profitable quarter in Q1 2023 with net income of UZS 3.89 billion (USD 342,727), compared to a loss of UZS 49.2 billion (USD 4.3 million) in Q1 2022. TBC Bank, which is backed by the International Finance Corporation and European Bank for Reconstruction and Development, opened its digital bank in Uzbekistan in 2020 and posted losses in its first two years of operation, in line with its business plan, as the bank aggressively invested in acquiring customers. TBC Bank Uzbekistan recorded growth in revenue, commission and fee income, and net interest income in Q1 2023.
Warner Bros. Discovery has entered into an exclusive partnership with Uzdigital TV to provide streaming services and premium content in Uzbekistan. Subscribers of Uzdigital TV will have access to premium streaming content including Discovery, CNN, Eurosport, and Animal Planet as Warner Bros. Discovery seeks to expand into new markets after a leadership shakeup in its international divisions.
State-owned AvtoVAZ, Russia’s largest automobile manufacturer, intends to restart production of its Lada cars in Uzbekistan and is targeting a 10% market share of 30,000 cars annually. AvtoVAZ president Maksim Sokolov, speaking at the Innoprom Central Asia exhibition, announced plans to resume production of two Lada models, the Vesta and the Granta, in Uzbekistan through its strategic partnership with Uzbek company Roodell at its plant in the Jizzakh free economic zone.
Russian retailer Magnit reportedly plans to expand its presence in Uzbekistan by opening up new locations of its cosmetics brand MCosmetics and bringing the total number of stores in the country to 80 by the end of 2023. Magnit, which opened its first store in Uzbekistan in April 2022, has recorded impressive results from its Uzbek venture, according to General Director of Magnit Central AsiaDmitry Kosachenko, and the company plans to expand its presence outside of Tashkent and the Tashkent region.
Government & Politics
On April 26, Italian Minister of Defense Guido Crosetto visited Tashkent and met with President Shavkat Mirziyoyev to discuss deepening cooperation between Italy and Uzbekistan. The meeting touched on issues including potential defense partnerships, growing bilateral trade relations, and cooperation in the renewable energy, agriculture, and logistics sectors. On the same day, Mirziyoyev held a phone conversation with Russian President Vladimir Putin to discuss the Innoprom Central Asia exhibition and “topical aspects of regional cooperation” after hosting Russian Minister of Industry and Trade Denis Manturov on April 25.
President Shavkat Mirziyoyev met with Czech Prime Minister Petr Fiala on a visit to Tashkent that included the opening of an Uzbek-Czech business forum and pledges to restart the bilateral Business Council. Fiala met with Uzbek Prime Minister Abdulla Aripov and business leaders of over 50 Uzbek companies at the business forum, noting that the Czech Republic was seeking to increase trade with Uzbekistan, particularly for key raw materials such as uranium and copper, while Czech companies like Škoda Transportation are participating in tenders for transportation contracts.
Kyrgyz President Sadyr Japarov ratified an agreement with Uzbekistan for the joint production of automobiles and the construction of a car manufacturing plant outside of Bishkek. The project, which is led by Uzavtosanoat and Kyrgyz companies DT Technic LLC and Nur OJSC, aims to produce up to 30,000 cars annually at a new factory in Ak-Su, 30 miles outside of the Kyrgyz capital. Relations between Uzbekistan and Kyrgyzstan have warmed recently, and on April 24 Kyrgyz Deputy Chairman of the Cabinet of Ministers Edil Baisalov announced the government of Uzbekistan had committed USD 5 million for the restoration of the Osh State Academic Uzbek Music and Drama Theater in Kyrgyzstan.
Bakhtiyor Saidov was confirmed as Minister of Foreign Affairs after serving in the role as acting minister since December 2022. Saidov was previously Uzbekistan’s ambassador to China from 2017 to 2021 after holding positions in the Cabinet of Ministers and the Ministry of Investment and Foreign Trade.