ECONOMY
The economy is based primarily on agriculture and natural resource extraction. Uzbekistan is a major producer and exporter of cotton. It also is a major exporter of gold, uranium, strategic minerals, and gas. Since independence, the government has stated its commitment to a gradual transition to a free market economy but has been cautious in moving to a market-based economy.
It is difficult to accurately estimate economic growth in Uzbekistan due to unreliable government statistics, which often serve political rather than economic ends. Economic growth has been strong in the past few years, but wealth is strictly held by the elite. According to the World Bank, approximately 25% of Uzbeks live at or below the poverty line.
The government implements a strict import substitution policy to control foreign trade and prevent capital outflow. Substantial structural reform is needed, particularly in the area of improving the investment climate for foreign investors and liberalizing the agricultural sector. Although the government has committed itself in theory to the provisions of the International Monetary Fund's (IMF) Article VIII regarding currency convertibility for current account operations, in practice firms can wait up to three months for currency conversion. Convertibility restrictions and other government measures to control economic activity, (e.g., harassment of foreign-owned companies, import and export restrictions, and intermittent border closings) have constrained economic growth and led international lending organizations to suspend or scale back credits.
GDP
and Employment
The Uzbek Government 2006 GDP growth figure is 7.2%. The IMF projects 2007 GDP growth in excess of 7.5%. Unemployment and underemployment are very high, but reliable figures are difficult to obtain, as no recent credible surveying has been done. Unofficially, unemployment is estimated around 10% and underemployment around 20%. Underemployment in the agricultural sector is particularly high--which is important given the fact that 60% of the population is rural-based. Many observers believe that employment growth and real wage growth have been stagnant, given virtually no growth in output.
Labor
Literacy in Uzbekistan is almost universal, and workers are generally well-educated and well-trained. Worsening corruption in the country's education system in the past few years has begun to erode Uzbekistan's advantage in terms of its human capital, as grades and degrees are routinely purchased. Additionally, elementary and secondary students in the remote provinces have poor access to basic education. Most local technical and managerial training does not meet international business standards, but foreign companies engaged in production report that locally hired workers learn quickly and work effectively. Foreign firms generally find that younger workers, untainted by the Soviet system, work well at all levels. The government has significantly curbed a long-time program emphasizing foreign education, which in past years annually sent about 50 students to the United States, Europe, and Japan for university degrees, after which they have a commitment to work for the government for 5 years. Reportedly, about 60% of the students who studied abroad found employment with foreign companies upon their return, despite their 5-year commitment to work in the government. In addition, Uzbekistan subsidizes studies for students at Westminster University--the only Western-style institution in Uzbekistan. In 2003, Westminster admitted about 360 students, and the government funded about half of the students' education. Education at Westminster costs $4,800 per academic year.
With the closure or downsizing of many foreign firms, it is relatively easy to find qualified, well-trained employees, and salaries are very low by Western standards. The government has implemented salary caps in an attempt to prevent firms from circumventing restrictions on the withdrawal of cash from banks. Some firms had tried in the past to evade these limits on withdrawals by inflating salaries of employees, allowing firms to withdraw more money. These salary caps prevent many foreign firms from paying their workers as much as they would like. Labor market regulations in Uzbekistan are similar to those once used in the Soviet Union, with all rights guaranteed but some rights unobserved. Unemployment is a growing problem, and the number of people looking for jobs in Russia, Kazakhstan, the Middle East, and Southeast Asia is increasing each year. Business analysts estimate that a high number of Uzbek citizens are working abroad. Estimates range from lows of 3 million to highs of 5 million Uzbek citizens of working age living outside Uzbekistan, most in neighboring countries or Russia. Uzbekistan recently signed a labor agreement with Russia to facilitate the temporary migration of Uzbek workers and the taxation of their income.
Prices
and Monetary and Fiscal Policy
Macroeconomic performance has been strong over the last two years and resulted in a positive trade balance. Real GDP growth was high, and official reserves continued to rise. Inflation is expected to be between 30-40% in 2007. In order to combat inflation, the government has exercised strict currency controls, causing periodic shortages of cash. Reacting to the weakening of the dollar to the Euro, the government recently switched to the Euro for its accounting and financial management. The hospitality sector is following suit.
Outstanding external debt is projected to be $3.86 billion in 2007. Tax collection rates remained high, due to the use of the banking system by the government as a collection agency. The World Bank and the UN Development Program (UNDP) have provided technical assistance to reform the Central Bank and Ministry of Finance into institutions that conduct market-oriented fiscal and monetary policy. Bank reform is very slow and inhibits the ability of citizens or private companies to obtain credit and other banking services.
Agriculture
and Natural Resources
Agriculture and the agro-industrial sector contribute more than 40% to Uzbekistan's GDP. Cotton is Uzbekistan's dominant crop, accounting for roughly 16% of the country's GDP in 2006. Uzbekistan also produces significant amounts of silk, wheat, fruit, and vegetables. Nearly all agriculture involves heavy irrigation. Farmers and agricultural workers earn low wages, which the state seldom pays on a regular basis. In general, the government controls the agriculture sector, dictates what farms grow, and buys directly from the farmers to sell abroad.
Minerals and mining are integral to Uzbekistan's economy. Gold is Uzbekistan's second most important foreign exchange earner, unofficially estimated at around 20%. Uzbekistan is the world's seventh-largest producer, mining about 80 tons of gold per year, and holds the fourth-largest reserves in the world. Uzbekistan receives a considerable amount of income from natural gas exports. It produces oil for domestic consumption and has significant reserves of copper, lead, zinc, tungsten, and uranium.
Trade
and Investment
Uzbekistan's export/import policy is based on import substitution. The highly regulated trade regime has led to both import and export declines since 1996, although imports have declined more than exports, as the government squeezed imports to maintain hard currency reserves. Draconian tariffs and sporadic border closures and crossing "fees" decrease legal imports of both consumer products and capital equipment. Uzbekistan's traditional trade partners are from the Commonwealth of Independent States (CIS), notably Russia, Ukraine, and Kazakhstan. Non-CIS partners have been increasing in importance in recent years, with the European Union, South Korea, Germany, Japan, and Turkey being the most active.
Uzbekistan is a member of the IMF, the World Bank, the Asian Development Bank, the Islamic Development Bank, and the European Bank for Reconstruction and Development. It has observer status at the World Trade Organization (WTO) and has publicly stated its intention to accede to the WTO. It is a member of the World Intellectual Property Organization and is a signatory to the Convention on Settlement of Investment Disputes between States and Nationals of Other States, the Paris Convention on Industrial Property, the Madrid Agreement on Trademarks Protection, and the Patent Cooperation Treaty. In 2006, Uzbekistan was again placed on the special "301" Watch List for lack of intellectual copyright protection.
Since Uzbekistan's independence, U.S. firms have invested roughly U.S. $500 million in Uzbekistan. 2006 and 2007 were some of the worst years for foreign investment, especially U.S. investment. Due to declining investor confidence, harassment, and currency convertibility problems, numerous international investors have left the country or are considering leaving. In 2006, the Government of Uzbekistan forced out Newmont Mining (at the time the largest U.S. investor) from its gold mining joint venture. Newmont and the government resolved their dispute, although the action adversely affected Uzbekistan's image among foreign investors. The government attempted the same with British-owned Oxus Mining. Coscom, a U.S.-owned telecommunications company, involuntarily sold its stake in a joint venture to another foreign company. GM-DAT, a Korean subsidiary of GM, is the only known U.S. business to have entered Uzbekistan in over two years. It recently signed a joint-venture agreement with UzDaewoo to assemble Korean-manufactured cars for export and domestic sale.
(Note: Government of Uzbekistan statistics are not consistently reliable. This report therefore relies heavily on unofficial estimates and states clearly when a figure is an estimate.)
GDP: 2006 real GDP growth, according to Government of Uzbekistan statistics, was 7.2%. Actual GDP growth was likely lower.
Inflation: International institutions estimate inflation reached 25-30% in 2005 and 2006.
Per capita GDP: Estimated per capita GDP in 2006, on a purchasing power parity measure, was $1,983.
Natural resources: Natural gas, petroleum, gold, coal, uranium, silver, copper, lead, zinc, tungsten, molybdenum. Natural gas production in 2006 was 62.5 billion cubic meters (bcm). In 2006, the U.S. Government estimates 48.4 bcm of natural gas was consumed in Uzbekistan and 12.5 bcm was exported. Oil production in 2006 was 3,450,000 tons.
Agriculture: Products--cotton, fourth-largest producer worldwide; vegetables, fruits, grain, livestock.
Industry: Types--textiles, food processing, machine building, metallurgy, natural gas, automobiles, chemical. The industrial production growth rate was estimated at 10.8% in 2006; electricity production was 49 billion kilowatt hours (estimate).
Budget (2006 estimates): Revenues--$3.22 billion; expenditures--$3.4 billion.
Trade: Total exports--(2007 est. $7.61 billion f.o.b.): largest contribution from cotton, gold, natural gas, mineral fertilizers, ferrous metals, textiles, food products, automobiles. Major export markets (IMF 2005)--Russia 25.2%, EU 18.6%, China 12.6%, Turkey 6.7%, Ukraine 5.7%. Total imports--(2007 est. $5.32 billion f.o.b.): machinery and equipment, chemicals, metals, foodstuffs. Primary import partners (IMF 2005)--Russia 26.9%, EU 21.9%, South Korea 15.4%, China 7.2%, Kazakhstan 6.5%.
External debt (2007 est.): $3.860 billion.
