Tamerlane #38: June 14-28
Uzbekistan agrees to buy 2.8 billion cubic meters of Russian gas, foreign trade turnover up 25% to USD 28.5 billion, UzOman invests in Zood, President Mirziyoyev pays official visit to Iran
Top News
Russia will provide Uzbekistan 2.8 billion cubic meters of natural gas annually after the Ministry of Energy and Gazprom struck a deal on June 16 after months of negotiations, with daily deliveries of 9 million cubic meters set to begin on October 1. Uzbek Energy Minister Jurabek Mirzamakhmudov and Gazprom’s Alexei Miller signed the agreement at the St. Petersburg International Economic Forum, which will see Russian gas pumped to Uzbekistan through Kazakhstan and the Central Asia-Center pipeline, which required the addition of new compressor stations to reverse the flow of gas that was previously transported from Turkmenistan and Uzbekistan to Russia. The sale of Russian natural gas to Uzbekistan generated controversy after President Vladimir Putin proposed a “gas union” between Russia, Kazakhstan, and Uzbekistan in November 2022, which critics called an attempt to exert political control over Central Asia using energy and prompted Mirzamakhmudov to assert “we will never agree to political conditions in exchange for gas.” However, Uzbekistan experienced severe energy shortages in the winter of 2023 due to inclement weather, forcing the country to halt natural gas exports to China and to increase imports from Turkmenistan. Under the agreement with Gazprom, Uzbekistan will purchase natural gas from Russia at market rates over the next two years.
From January to May 2023, Uzbekistan’s total foreign trade turnover reached USD 28.5 billion, a 25.4% yoy increase driven by steady growth in exports (24.1%) and imports (26.4%). China remained Uzbekistan’s largest trade partner with USD 4.5 billion in total turnover and USD 3.7 billion in Chinese imports, followed by Russia (USD 3.8 billion), Kazakhstan (USD 1.9 billion), Turkey (USD 1.3 billion), and South Korea (USD 1 billion). CIS countries accounted for 32.3% of Uzbekistan’s total foreign trade turnover, down from the same period in 2022 (34%) and 2021 (36.3%). Russia was the top export destination for Uzbek goods (9.4% of total exports), followed by China (7.8%) and Kazakhstan (5.5%). Uzbekistan exported more than USD 4.4 billion worth of gold and USD 1.7 billion of industrial goods in the first four months of 2023, while textile exports fell 6.5% yoy to USD 1.3 billion. China was the top exporter to Uzbekistan (24.3% of total imports), followed by Russia (18.7%) and Kazakhstan (8.9%). Imports of food products topped USD 1.5 billion, driven primarily by grain imports (USD 573 million) while imports of oil and gas reached USD 852.4 million. Other major categories of imports for Uzbekistan included automobiles (USD 1.7 billion), iron and steel (USD 1 billion), medical and pharmaceutical products (USD 660 million), and plastics (USD 374 million).
Uzbek Oman Investment Company (UzOman), a joint venture between the Oman Investment Authority and the Uzbek Fund for Reconstruction and Development of Uzbekistan, invested in fintech company Zood, a digital lender with 10 million users in Uzbekistan, Pakistan, Iraq, and Lebanon. Zood, which has been called “the next Kaspi,” is backed by VCs including Sturgeon Capital and Zain Ventures, has over 5 million users in Uzbekistan and operates a digital ecosystem that includes lending and buy now, pay later (BNPL) provider ZoodPay, e-commerce platform ZoodMall, and logistics service ZoodShip. UzOman CEO Mohamed Al Lawati said the undisclosed investment in Zood “is part of our ongoing efforts to promote and invest in Uzbekistan's rapidly growing financial sector.”
On June 18, President Shavkat Mirziyoyev paid an official visit to Iran, which included meetings with President Ibrahim Raisi and Supreme Leader Ali Khamenei in Tehran, the signing of a pledge to strengthen cooperation between Iran and Uzbekistan, and the approval of a series of intergovernmental and economic agreements. The agreements included plans to implement joint investment projects in the energy, chemicals, pharmaceuticals, food production, and agricultural sectors; the exchange of technological and innovation experiences; a preferential trade agreement; and pledges to increase transportation, logistics, and tourism links between the two countries. Additionally, Uzbekistan’s Minister of Transportation Ilkhom Makhkamov met with Iranian Minister of Roads and Urban Development of Iran Mehrdod Bazrposh and reached agreements to develop a joint logistics center and to build terminals and warehouses in the Iranian ports of Chabahar and Bandar Abbas with the participation of Uzbek businesses. The parties also pledged to revisit transportation and fuel tariffs between Iran and Uzbekistan in the near future.
Local Markets
The State Assets Management Agency (UzSAMA) announced it reached an agreement to sell the state’s 51% stake in transportation Urta Osiyo Trans JSC for UZS 65 billion (USD 5.7 million) to Hyper Partners LLC. Hyper Partners LLC, which was founded in 2018 by German Hyper Partners Gmbh, plans to expand Urta Osiyo Trans’s transportation and logistics operations into Europe, China, and Central Asia while also building a customs terminal on land owned by the company. UzSAMA claimed it received two binding offers from foreign and local investors for Urta Osiyo Trans, with law firm Morritz acting as a consultant on the privatization transaction.
AloqaVentures, a venture fund created by Aloqa Bank, invested USD 525,000 in three Uzbek startups in June: edtech provider Mohirdev, financial services platform Depozit.uz, and document exchange program Didox.uz. Established in 2021, AloqaVentures is one of Uzbekistan’s first homegrown VC funds that has invested 13 startups in e-commerce, fintech, AI, cloud solutions, and business automation and partnered with international accelerator Plug and Play.
On June 22, Uzbekistan’s National Agency for Perspective Projects (NAPP) issued the first license to operate a cryptocurrency depository in Uzbekistan. The license was granted to LOCKTON HUB LLC, which was established by Dubai-based LOCKTON SOLUTION LLC-FZ and allows the company to operate an electronic platform for the issuance and storage of cryptocurrencies. In December 2022, the NAPP issued guidance that the sale and purchase of cryptocurrencies in Uzbekistan was only allowed through “national providers” including Uzbekistan’s local crypto exchange, UzNEX, effectively banning the use of foreign trading platforms.
Qizilqum Cement (QZSM) shareholders again failed to agree on the distribution of dividends from the company’s profits from 2020-2022 at its Annual General Meeting on June 9. Minority shareholders, including foreign funds and individuals, will be dismayed that the question of dividend payments has not been resolved after years of regulatory-violating delays as the company hoarded cash for its investment projects.
Macroeconomics
A report by Crunchbase identified Central Asia as “a new frontier on the global tech map” and highlighted Uzbekistan’s rapidly growing IT services sector and the vibrant tech startup scene including homegrown companies such as Billz, Iman Invest, Rahmat, and Tass Vision. Central Asia has emerged as an unlikely center of tech innovation and digital growth, particularly after Russia’s invasion of Ukraine, which led to an exodus of Russian IT workers and companies to a region already rich in educated citizens and opportunities for tech-enabled disruption. Crunchbase also emphasized the global ambitions of the region’s startups and digital companies who are looking to expand to markets outside of the region with the help of VC backers and international acceleration programs.
Uzbekistan reportedly exported 4.4 million pounds of uranium to nuclear power plants in the United States in 2022, a 78% yoy increase, giving it an 11% share of the American market. Uzbekistan has ambitions to double its annual uranium production, which is carried out primarily by Navoi Uran (a company split off from mining giant Navoi Mining and Metallurgical combine in 2022), from 3,500 to 7,100 tons by 2030.
A study by the Institute for Macroeconomic and Regional Studies (IMRS) suggests Uzbekistan’s banking sector has become significantly more competitive over the last five years, with the share of assets held by the three largest state-owned banks falling from 59.8% in 2018 to 40.9% in 2023. Over the same period, the three largest state-owned banks’ (National Bank of Uzbekistan, Sanoat Qurilish Bank, and Asaka Bank) share of loans decreased to 42.3% from 60.9%, while their share of deposits also fell from 51.8% to 40.5%. Uzbekistan’s banking system also recorded considerable growth since 2018, with total assets tripling to UZS 566.3 trillion (USD 48.2 billion) and the volume of loans issued to individuals increasing by 7.5x.
Saudi ACWA Power signed an Engineering, Procurement, and Construction (EPC) contract with Energy China Group Corporation for the development of a solar power plant in the Tashkent region. In March, ACWA Power signed an agreement with Uzbekistan’s National Electric Grids to build a 400 MW solar power plant in the Yukorichirchik district of Tashkent region, which also includes a 334 MW energy storage system. Additionally, Chinese company Tongwei Solar (Hefei) Co., Ltd. will provide small solar panels to state-owned Yashil Energia, which will install them on residential and public buildings.
In Q1 2023, the number of Uzbek migrant workers traveling to Russia reached 630,000, a 72% yoy increase, according to a report by the World Bank. In addition to increased labor migration flows to Russia, the World Bank expects remittances from Russia to Uzbekistan and other Central Asian countries to remain “well above” prewar levels due to increased demand for labor in Russia, a strong ruble exchange rate, and the relocation of specialized Russian companies and workers to the region.
The Japan International Cooperation Agency (JICA) currently has an investment portfolio of 11 projects in Uzbekistan totaling USD 3.5 billion, according to its newly appointed head of the Uzbekistan representative office Yoshigumi Bito. In a meeting with Minister of Investment, Industry, and Trade Laziz Kudratov, Yoshigumi Bito highlighted ongoing projects in the energy, infrastructure development, agriculture, education, and medicine sectors.
According to the Ministry of Energy, The Asian Infrastructure Investment Bank (AIIB) and the Islamic Development Bank (IDB) will provide EUR 325 million for the construction of a 1.5 GW combined-cycle power plant in the Surkhandaryo region. The project, which will be developed by Siemens Energy, EDF, Stone City Energy, and Nebras Power, will be powered by Siemens turbines and is expected to be completed by 2027.
Business
UAE’s DP World will reportedly invest USD 170 million in Uzbekistan’s logistics infrastructure through a joint venture with Abu Dhabi Uzbek Investment Company (ADUI). The project will focus on developing modern logistics infrastructure in Uzbekistan’s free economic zones and support the growth of ecommerce in the region. In November 2022, DP World took over the management of the Navoi Free Economic Zone after earlier expressing interest in building a logistics center in the Tashkent region in cooperation with the Ministry of Investment, Industry, and Trade.
South Korean construction company Samsung C&T is exploring the possibility of participating in urban development and green energy infrastructure projects in Uzbekistan. In a meeting with Minister of Investment, Industry, and Trade Laziz Kudratov on June 27, Samsung C&T CEO SeChul Oh discussed potential projects in Uzbekistan, including opportunities for public-private partnerships (PPPs).
Chevrolet Cobalt sedans, assembled in Uzbekistan by UzAuto Motors, have gone on sale in Russia for RUB 1.44 million (USD 16,789), according to RBK. Historically Uzbek automobiles have not been popular in Russia, but after the invasion of Ukraine and the imposition of Western sanctions, local commentators believe they have a real opportunity to establish a presence in the budget car market, with the Cobalt comparing favorably to similarly priced Lada Vesta sedan.
Uklon, a Ukrainian ridesharing service that allows passengers to set the price of rides based on their urgency, launched operations in Uzbekistan. The Ukrainian company currently operates in Ukraine and Azerbaijan and will compete with Yandex Taxi, MyTaxi, and others in Uzbekistan.
Government & Politics
On June 24, during the “mutiny” of Yevgeny Prigozhin’s Wagner mercenaries, President Shavkat Mirziyoyev held a phone call with Russian President Vladimir Putin, who informed the Uzbek leader “about the situation in Russia.” Unlike Putin’s call with Kazakh President Kassym-Jomart Tokaev on the same day, where Tokaev acknowledged the situation was an “internal matter” for Russia but emphasized the importance of the “constitutional order” and the rule of law, the readout from President Mirziyoyev’s call was brief and did not include any implicit support for Putin or the stability of the regime.
On the campaign trail, President Shavkat Mirziyoyev pledged to allocate UZS 10 trillion (USD 865.9 million) for geological exploration and raise USD 2 billion from foreign investors to boost Uzbekistan’s extractive industries. At a campaign event in the Navoi region, the candidate for the Uzbekistan Liberal Democratic Party announced the government will issue more than 500 permits for gold, silver, tungsten, coal, and ore mining in 2023 and claimed Uzbekistan will begin producing lithium and graphite to take advantage of increased demand from renewable energy sources and electrical vehicles. Mirziyoyev also told voters more than USD 10 billion will be invested in the development of agricultural machinery and ferrous metals enterprises in Akhangaran, Bekabad, and Chirchik.
The Uzbek government passed an amendment that will “optimize” state fees for licenses for mobile, telephone, and television operators and significantly decrease costs for service providers in an attempt to bring more players into the market.
Deputy Minister of Economy and Finance Ilkhom Norkulov met with the United Nations Development Programme’s Uzbekistan Resident Representative Matilda Dimovska on June 24 to assess the status of joint projects in Uzbekistan. Norkulov and Dimovksa discussed “areas of mutual interest” including gender equality, “green” taxation and budgeting, the “green” development and reconstruction of schools in Uzbekistan, and the potential issuance of sustainable development goal bonds (SDGS).