Tamerlane #16: January 4-11
World Bank GDP forecasts, new industrial strategy, Kapitalbank joins Uzum ecosystem
Top News
The World Bank forecasts Uzbekistan’s GDP will grow 4.9% in 2023 and 5.1% in 2024, among the highest in the Europe and Central Asia regions. Uzbekistan is predicted to lag only Tajikistan (5%) in 2023 and forecasted to take the top position in 2024 ahead of Georgia (5%). The World Bank revised down its growth forecasts for Uzbekistan from its June 2022 estimates by 0.4% for both 2023 and 2024 but the country looks set to remain as Central Asia’s growth leader for the coming years.
After disappointing growth results in certain regions, President Shavkat Mirziyoyev outlined a new industrial strategy to provide financial resources and development “opportunities” to kickstart Uzbekistan’s production capacity. New policies will include a revision of banking standards and the injection of UZS 55 trillion (USD 4.9 billion) to support commercial bank lending to enterprises; UZS 1.7 trillion (USD 150.3 million) for infrastructure development and investment projects for industrial and free economic zones; tax incentives and subsidies for regions lagging the government’s economic development metrics; and USD 300 million for investments in textile projects along with preferential customs duties on raw material imports. Another key element of the nascent development strategy, according to the President, is educating regional leaders on how to effectively use funds provided by the government and to work closely with banks.
Kapitalbank, Uzbekistan’s largest private bank by total assets, is joining Uzum’s digital ecosystem after Finance TCI LLC, a subsidiary of Uzum parent Djuzum SPV, acquired a 50% stake in the bank and increased its overall position to 61.54%. In November 2022, Kapitalbank’s online banking subsidiary Apelsin changed its name to Uzum Bank after integrating into Uzum’s online marketplace the previous month. Before joining Uzum, Kapitalbank looked set to become part of Russian-Uzbek oligarch Alisher Usmanov’s sprawling business empire after his USM Holding became a shareholder. As of February 2022, Finance TCI LLC, which was linked to Usmanov’s Telecominvest, and USM Holding acquired 61.54% of Kapitalbank’s shares after the previous majority shareholder, President Mirziyoyev’s son-in-law Oybek Tursunov, exited the business. But Russia’s invasion of Ukraine and the subsequent sanctioning of Usmanov resulted in the sale of Finance TCI LLC and Telecominvest to private investors.
According to Kommersant, interest in trading the Uzbek soum (and several other Central Asian currencies) on the Moscow Exchange is “minimal or zero.” Uzbek soum trading launched on the Moscow Exchange in September 2022 but has failed to gain traction among Russian traders, with some claiming that the currencies of countries with “friendly” relations with Russia are treated with caution. In an August 2022 article in Vedomosti, some Russian analysts claimed the soum could become an attractive currency for tourists and for cross-border business payments rather than for trading and speculation on the Moscow Exchange.
Local Markets
Super-app and mobile services provider Humans successfully raised UZS 50 billion (USD 4.4 million) in the local market via placement of 50,000 convertible preferred shares on the Elsis-Savdo OTC platform, valuing the company at USD 150 million. The preferred shares will be convertible to common shares in 2025. According to Freedom Broker Executive Director Evgeny Mozheiko, the Humans issue is the first pre-IPO financing deal in Uzbekistan and will help drive the growth of the local capital market. Humans has been operating in Uzbekistan since 2020 and offers a super-app that includes fintech and mobile services as well as an online marketplace.
The State Assets Management Agency (UzSAMA) announced it has extended the deadline for proposals to purchase the state’s 51% stake in pharmacy chain Dori Darmon until March 5. In 2021, Dori Darmon recorded UZS 402 billion (USD 35.8 million) in revenue and UZS 32.7 billion (USD 2.9 million) in net income. Portfolio Investments is acting as privatization consultant to UzSAMA.
The Ministry of Energy puts up 14 plots of land for lease via online auction for the development of small hydroelectric power stations. Auction winners will receive a 20-year lease on the land plots and guaranteed electricity purchases with the requirement to build a power station within two years. The value of the land plots, located in the Tashkent, Fergana, Kashkadaryo, and Surkhandaryo regions, will be determined by their potential monthly capacity for power generation.
Macroeconomics
On January 6, the Ministry of Energy warned about the possibility of renewed power and natural gas outages due to a cold weather spell. The Energy Ministry noted that the supply of natural gas to large enterprises and gas stations will be limited while electricity production and heating will be prioritized. Uzbekistan has suffered multiple episodes of power outages and rolling blackouts due to unusually cold weather this winter. Earlier in December 2022, a blogger in the Fergana region was reportedly fined nearly USD 2,000, a significant sum, for writing about local outages and energy cuts.
From January-November 2022, Uzbekistan imported 2.5 million tons of wheat from Kazakhstan as the country’s food imports totaled USD 3.2 billion over the same period. Uzbekistan also imported significant amounts of wheat flour (375,000 tons), potatoes (155,000 tons), barley (99,000 tons), and vegetable oil (82,000 tons). Uzbekistan’s food imports have increased from USD 1.3 billion in 2017 to USD 2.9 billion in 2021.
According to the World Gold Council, the Central Bank of Uzbekistan was one of the largest sellers of gold in November 2022 with almost two tonnes of sales. Kazakhstan was the top gold seller in November with four tonnes, while the People’s Bank of China was the largest buyer with 32 tonnes of purchases. In the first 11 months of 2022, Uzbekistan sold USD 3.53 billion worth of gold. Despite the sales, Uzbekistan’s gold reserves increased from 11.6 million troy ounces in January 2022 to 12.7 million in January 2023.
The volume of insurance services in Uzbekistan reached UZS 5.4 trillion (USD 480.6 million) from January-November 2022, a 74% yoy increase. Insurance premiums collected totaled UZS 4.5 trillion (USD 397 million), a nearly 70% yoy rise, while the insurance market in the capital Tashkent recorded a leading UZS 3.7 trillion (USD 329 million) in services.
Business
In 2022, Almalyk Mining and Metallurgical Plant (AGMK) exported USD 947.5 million worth of products, a 10.8% yoy increase. AGMK exported 75,208 tons of copper products in 2022 and expanded its export destinations to include new markets in Germany, Spain, Austria, Canada, and South Africa. The mining giant also increased its production of marketable products by 8.3% yoy to a total value of UZS 30.5 trillion (USD 2.7 billion).
The Bukhara Oil Refinery produced 993,400 tons of gasoline in 2022, a record amount according to Uzbekneftegaz. The oil refinery previously set a record with 875,000 tons of gasoline produced in 2021 as Uzbekistan continues to struggle with gas and energy shortages that has led to rationing and closure of gas stations across the country.
Sanctioned Russian bank Sberbank reportedly registered its trademarks in Uzbekistan in December 2022. Russia’s largest bank has been subject to full blocking sanctions from the US Treasury Department’s Office of Foreign Assets Control (OFAC) since April 2022 after Russia’s invasion of Ukraine and is also sanctioned by the UK, European Union, and Canada, and is cut off from SWIFT.