Tamerlane #36: May 31-June 7
EU not seeking to sanction Central Asia, Mirziyoyev meeting with EU's Charles Michel, World Bank raises 2023-2024 GDP forecasts for Uzbekistan, IMF's Georgieva and Emir of Qatar visit Samarkand
Top News
President of the European Council Charles Michel claimed the European Union is not seeking to impose sanctions on Central Asian countries for helping Russia evade sanctions at the European Union-Central Asia summit in Kyrgyzstan on June 2. Michel met with Central Asian leaders including Uzbek President Shavkat Mirziyoyev, Kazakh President Kassym-Jomart Tokaev, Kyrgyz President Sadyr Japarov, Tajikistan’s Emomali Rahmon, and Turkmenistan’s Deputy Chairman of the Cabinet of Ministers Nurmukhammet Amannepesov in Cholpon Ata, Kyrgyzstan, while the EU is preparing a new sanctions package aimed at cracking down on Russian sanctions evasion and targeting those “who support the Russian war machine.” The EU Council President reportedly stressed the EU was offering Central Asian countries a “sincere partnership” and highlighted the work of the EU’s special representative for sanctions, David O’Sullivan, who has been meeting with regional leaders to make the case against helping Russia evade sanctions. Michel also noted that the EU is Central Asia’s top donor and has provided USD 1.2 billion to the region from 2014 and 2020. The EU’s official communique noted that summit participants emphasized “the importance of close dialogue in the context of the EU’s sanctions regimes” while stressing the need for “further expansion of mutual trade and investment mechanisms.”
President Shavkat Mirziyoyev met with European Council President Charles Michel at the European Union-Central Asia summit, where they discussed strengthening ties and increasing bilateral trade. The two leaders noted that trade turnover between Uzbekistan and EU countries has increased by 70% since the beginning of 2023, with European companies participating in investment projects in Uzbekistan’s high-tech sectors worth more than EUR 20 billion. Michel and Mirziyoyev discussed critical issues such as expanding Uzbekistan’s participation in the EU’s GSP + trade program and developing the Trans-Caspian transit corridor to facilitate trade between the EU and Central Asia. Mirziyoyev’s address to the European Union-Central Asia summit focused on expanding trade, increasing investments, and collaborating on joint projects critical for the region’s development. The Uzbek president will visit Italy from June 7-9.
The World Bank raised its GDP growth forecasts for Uzbekistan from 4.9% to 5.1% for 2023 and from 5.1% to 5.4% in 2024. Uzbekistan is forecasted to the have the second highest GDP growth in the Europe and Central Asia region in 2023, behind Tajikistan, and the top rate of growth in 2024 and 2025. Although the World Bank anticipates overall growth in Central Asia to remain flat at 4% in 2023, it sees a modest increases in 2024 and 2025 to 4.4% and 4.2%, respectively, as energy prices and inflation stabilize and FDI in the region rises, particularly in the mining sector.
The International Monetary Fund’s (IMF) Managing Director Kristalina Georgieva traveled to Samarkand on June 6 and expressed “full support” for Uzbekistan’s reforms and offered to provide assistance in negotiations to join the World Trade Organization (WTO). Georgieva met with President Mirziyoyev, where the two discussed priority reforms to improve fiscal and monetary policies and support macroeconomic stability. The IMF head also attended an event with Central Bank of Uzbekistan (CBU) Chairman Mamarizo Nurmuratov and Deputy Presidential Timur Ishmetov, where she spoke about Uzbekistan’s efforts to join the WTO and identified three key drivers for Uzbekistan’s economic growth: structural reforms, the country’s young and growing population, and measures to diversify the economy and integrate into global markets. Georgieva also stated that she did not expect the US dollar to lose its dominant position as the world’s reserve currency and recommended Uzbeks continue to hold dollars.
On June 5-6, the Emir of Qatar Sheikh Tamim bin Hamad Al Thani paid a state visit to Uzbekistan, the first in more than 25 years of diplomatic relations. At the meeting in Samarkand, President Mirziyoyev called Qatar a “promising partner” and welcomed the participation of Qatari companies in Uzbek investment projects in the energy, agriculture, infrastructure, and logistics sectors worth more than USD 12 billion. Both leaders pledged to raise bilateral cooperation to the level of “comprehensive partnership,” including eliminating double taxation, increasing trade volume, supporting large joint investment projects, improving logistics and transportation connections between Gulf countries and Central Asia, and providing humanitarian and economic aid to Afghanistan. During Sheikh Tamim’s visit Uzbekistan announced 30-day visa free travel for Qatari citizens, and earlier in May Qatar opened an embassy in Tashkent. Of note, Qatari Nebras Power, the investment arm of Qatar Electricity and Water Company, began construction in late 2022 on a 1.6 GW power plant in the Syrdaryo region in a joint project with French electric company EDF and Japanese companies Sojitz and Kyuden International.
Local Markets
The State Assets Management Agency (UzSAMA) announced the hiring of KPMG as strategic consultant for the privatization of shares in 40 state-owned enterprises under the “People’s IPO” framework. UzSAMA claimed it received proposals from four local and international consulting firms before it selected KPMG, which will be tasked with developing a strategy and procedures for the privatizations, providing recommendations for the selection of underwriters, coordinating with stakeholders, analyzing market demand, and helping determine the price for the shares.
Hungarian OTP Bank’s takeover of Ipoteka Bank is progressing despite a final deal not yet being announced, with OTP executives elected to positions on the Uzbek bank’s Supervisory Board. Laszlo Wolf, Zoard Gazmar, and Peter Bese Janos were elected by shareholders to Ipoteka Bank’s Supervisory Board after a shareholders’ meeting on May 25, which now includes four independent non-executive directors and one representative from Uzbekistan’s Ministry of Economy and Finance. Ipoteka Bank’s CEO Elyor Inomzhonov retained his position.
The Foreign Investor’s Council under the President of the Republic of Uzbekistan (FIC), a body that facilitates dialogue between investors and the Uzbek government, published a useful handbook on taxation in Uzbekistan. The English-language guide provides an overview of Uzbekistan’s tax regime and covers changes implemented in the new edition of the tax code, which was introduced in January 2023. The membership of the FIC, which is supported by the European Bank for Reconstruction and Development, includes the Islamic Development Bank, TBC Bank, Visa, P&G, Knauf, Carlsberg, and others.
UNG Petro, the largest gas station network in Uzbekistan, and the Angren Logistics Center, a regional transportation center, will be privatized as the State Assets Management Agency (UzSAMA) published tenders to hire privatization consultants. UzSAMA will sell the state’s 100% stakes in both assets, with proposals due by June 11 for UNG Petro and June 20 for Angren Logistics Center.
Macroeconomics
Since Russia’s invasion of Ukraine, more than 60,000 foreigners have opened bank accounts in Uzbekistan, with a total of nearly USD 900 million deposited by foreigners in Uzbek banks, according to CBU Chairman Mamarizo Nurmuratov. Nurmuratov cited the figures in an address to the Uzbek Senate, where he noted that foreigners’ deposits had increased 9.5x and accounted for around 15% of all retail bank deposits, which were also driving an increase in foreign currency demand deposit accounts. By the end of October 2022, around 67,000 Russians had opened bank accounts in Uzbekistan, with approximately half of those living permanently in Uzbekistan, although Uzbek banks have since tightened account opening requirements to cut down on so-called “card tourism” by Russians.
Although Uzbekistan has emerged as a regional leader in attracting foreign direct investment (FDI), the country faces potential headwinds in maintaining momentum amid geopolitical uncertainty and domestic challenges, according to a piece in Investment Monitor featuring comments by former Deputy Finance Minister Odilbek Isakov. After the death of former President Islam Karimov, FDI inflows to Uzbekistan began growing rapidly, increasing from USD 2 billion in 2017 to USD 9.8 billion in 2021, and the government’s development strategy for 2022-2026 seeks to bring in USD 120 billion in investments, with the goal of attracting USD 5 billion of FDI annually by 2026. However, geopolitical headwinds such as Russia’s invasion of Ukraine have put Uzbekistan in a difficult balancing position, with Isakov noting that despite the country’s efforts to comply with the Western sanctions regime, “it is definitely not in Uzbekistan's interests to cease its relationship with Russia.” Other challenges include Uzbekistan’s centralized and authoritarian government, the economy and state budget’s reliance on commodities, underdeveloped transportation infrastructure, an inefficient and sprawling bureaucracy, and corruption.
CBU Chairman Mamarizo Nurmuratov noted that Uzbeks are increasingly keeping their savings in soum rather than dollars as the local currency’s relative stability and bank deposit rates topping 20% contribute to declining dollarization. In his speech to the Uzbek Senate, Nurmuratov also claimed that according to the CBU’s calculations, Uzbeks are holding almost USD 12 billion in cash outside of the banking system, particularly in foreign currency, although he has observed an overall trend of increasing bank transfers and deposits. Senator Shavkat Jalolov said that retail bank deposits are up 70% since the beginning of 2023. As noted in Tamerlane #34, high bank deposit rates are stunting the development of a local corporate bond market in Uzbekistan.
The Center for Economic Research and Reforms (CERR) published an overview of Uzbekistan’s pharmaceutical industry and its development prospects. CERR’s report focused on strong government support for the Uzbek pharma sector, a growing domestic production base, progress in adopting international standards, increasing exports, expanding foreign investment in Uzbek companies, and new opportunities for specialized training supported by international universities.
Business
Spot.uz published an interesting interview with Payme CEO David Melikidze about the online payment services company’s rapid growth, recent full acquisition by TBC Group, plans to build a digital ecosystem, and why it does not offer popular cash back perks. Melikidze noted that while the COVID-19 pandemic spurred growth for Payme, the trend has continued as the company now counts more than 9 million users, up from 2.9 million at the beginning of 2021. While cash back rewards have become a prominent offering from Uzbek fintech companies and banks, Payme does not offer this perk, which Melikidze said is a deliberate policy to build customer loyalty through its services, transparency, stability, and security rather than with temporary benefits.
Chinese company Taitung International plans to build three logistics centers in the Tashkent, Andijan, and Syrdaryo, according to the Ministry of Transport. Deputy Transport Minister Jasurbek Choriyev met with Taitong International Chairman Chu Xuan on June 1, where the two sides discussed attracting investments to Uzbekistan’s transportation sector and the potential for collaboration with Uzbek transportation and logistics companies.
Government & Politics
President Shavkat Mirziyoyev hosted the World Bank’s Vice President of the Europe and Central Asia Region Antonella Bassani on June 1 and underlined the importance of the international financial institution’s support for Uzbekistan’s reforms. The World Bank has emerged as one of Uzbekistan’s top supporters, with a project portfolio exceeding USD 11 billion and a Current Partnership Program for 2026 with USD 4 billion in priority projects. President Mirziyoyev and the World Bank’s Bassani also discussed the importance of developing renewable energy sources, the implementation of land reforms, the promotion of regional infrastructure projects, and the privatization of state-owned enterprises.
Uzbekistan’s Central Election Commission officially registered four candidates for July 9 snap presidential elections, although there is little doubt that incumbent Shavkat Mirziyoyev of the Uzbekistan Liberal Democratic Party will extend his rule for another seven years and beyond. The other candidates registered by the Central Election Commission include Ulugbek Inoyatov of the People's Democratic Party, Robahon Makhmudova of the Social Democratic Party "Adolat," and Abdushukur Khamzaev from the Ecological Party. The Milliy Tiklanish Party, led by nationalist firebrand Alisher Kadirov, did not nominate its own candidate but pledged its support for President Mirziyoyev. Although the outcome of the election is already known, the Central Election Commission’s rules allocate free airtime on state television and free space in national newspapers and call for equal coverage of the political campaigns.
On June 1, South Korean Minister of Foreign Affairs Park Jin met with Uzbek Foreign Minister Bakhtiyor Saidov in Tashkent, with the diplomats highlighting the two countries’ “strategic partnership” and signing an intergovernmental agreement on climate change. The two foreign ministers discussed strengthening bilateral economic ties including increasing trade volume, attracting South Korean investments in Uzbekistan’s transportation, logistics, and “green economy” sectors, and developing joint large-scale projects in healthcare, education, and tourism.
President Shavkat Mirziyoyev flew to Ankara, Turkey on June 3 to attend President Recep Tayyip Erdoğan’s inauguration.