Uzbekistan Becoming More Compliant With International Business Standard Norms
Op/Ed by Chris Devonshire-Ellis
The pace of change in Uzbekistan has been speeding up as the country has its eyes on a coveted place between Europe and China along the Belt & Road Initiative. Since the death of long term, Soviet era Uzbekistan President Islam Karimov in 2016, his successor, Shavkat Mirziyoyev has almost single handedly dragged the country out of its torpor and into the international business community. It is a lesson in how China’s Belt & Road Initiative can spur development by showcasing trade as a tool towards prosperity, and reduce, rather than increase regional tensions.
Uzbekistan had been a real Soviet hard case, picking disputes with its neighbors, shunning both international and regional initiatives and think tanks, and generally acting as a one man fiefdom largely ruled on the coda of suspicion. The change, in little over two years, has been extraordinary. First, Mirziyoyev began by settling border disputes with neighboring Tajikistan and Kazakhstan, thus putting into place the diplomatic platform to develop regional trade as opposed to being a low income, self consuming economy. Uzbekistan also opened up its borders to foreigners, with a previously un-heard of 45 day visa free access granted to nationals of 45 different countries. including many European nations. Infrastructure development has taken off, partially with Chinese funding, and this has permitted far better road and rail links than previously existed to again support trade dynamics.
Now, attention is being paid to local laws, with economic reforms also now coming into effect. The Uzbek Government has just announced tenders are available for foreign companies to participate in a large number of PPP projects in turn part funded by the Uzbek government themselves. These include projects involving power stations, airports, roads and rail among other smaller tenders such as improving waste management.
Communications and transparency are also improving, further bringing Uzbekistan into the international business community. The BBC has been unblocked for the first time since 2005, along with Voice of America, Amerika ovozi, BBC Uzbek, Deutsche Welle, Amnesty International, Human Rights Watch, Reporters Without Borders, Eurasianet, AsiaTerra, Fergana News, Centre1 and Uzmetronom. Foreign journalists have now been given official accreditation and local news websites have been working with relative freedom.
In terms of foreign market access, and the protection of IP, Uzbek courts recently upheld a claim by Colgate, manufacturers of toothpaste, against a local company, marketing a very similarly packaged product.
In 2016, Uzbek company Torimed Pharm started producing a toothpaste called Galaxy. Its marketing borrowed heavily from Colgate, using a near-identical font and color scheme for its packaging. The two brands are often stocked side-by-side in shops and at first glance are almost indistinguishable. In a statement, the Uzbek antimonopoly authorities said: “An order has been issued to eliminate this violation by stopping the sale of products of packaging that imitates the design of the packaging and advertising of Colgate-Palmolive Company products … packaging held in the Torimed warehouses will be destroyed.” This is an important win for Western companies concerned about copyright issues in Central Asia and also shows that the Uzbek authorities are getting more serious about pushing Uzbek businesses to meet global standards.
The local economy has reacted positively to these changes. Uzbek GDP for 2019 is expected to be 5.3%, mainly due to the industrial sector which continues to fuel the overall expansion, thanks to booming manufacturing production, while the services and construction sectors both strengthened in Q1 this year. Moreover, external sector dynamics were upbeat in the quarter: Merchandise exports surged, chiefly on the back of soaring demand for gold and energy, particularly from China, Kazakhstan and Turkey. The last recorded GDP per capita figures were released in 2017 and showed a figure of US$2,031, however these can reasonably be expected to have grown significantly since then.
China has now become the largest single investor, closely followed by Russia, and the country is a member of the Shanghai Cooperation Organization. It is not currently a member of any of the regional trade blocs, but is currently aligning its tariffs with those of the Eurasian Economic Union, signaling that a move to join the EAEU is probably imminent. That is important as the EAEU harmonizes and significantly reduces tariffs between much of Central Asia and Russia, while it is also expanding its Free Trade Agreements into Asia. China has a non-preferential FTA with the EAEU, a step to introducing tariffs at a later stage. Vietnam already has a vibrant EAEU FTA and countries such as Singapore and India are at the final stages of agreeing such deals. Uzbekistan joining the EAEU will have a significant impact on trade throughout Asia and open up opportunities for Asian based businesses interested in expanding into Central Asia.
The potential for EAEU membership and a reorganizing of taxes has significant implications for Uzbekistan. Uzbek small businesses account for about 50% of GDP, yet only produce about 7% of budget revenues, mostly via Value-Added Taxes (VAT) on goods and services. Reducing tariffs for trade helps reduce business expenditures for the country’s smaller firms while also moving to capture greater revenues via administrative improvements. To get rid of resistance of an expansion of the VAT network, which effectively takes tax collection away from the auspices of customs officials and into the arms of the Central Government, President Mirziyoyev has arrested senior officials in the Customs Service, which demonstrates the country is now serious about reining in corruption.
With a population of 33 million, the country is likely to develop into a significant opportunity for outreach into the rest of Central Asia. It borders Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan and Turkmenistan, while road, rail and air infrastructure developments are beginning to place it centrally between China and the EU.
|Country||Population (millions)||GDP (US$, billions)||GDP Growth|
|GDP Growth data from Trading Economics.
*2017 last available figures
As a regional total, those figures put Uzbekistan’s orbit and immediate neighbors into a population equivalent to the Philippines or Egypt, with an annual GDP equivalent to that of Turkey, Indonesia or Mexico.
By 2025, Tashkent will have almost certainly developed to become a mid-way point between Europe and Asia, just as Ibn Battuta found all those years ago. As the Belt & Road Initiative continues its development, it is countries such as Uzbekistan and its capital city of Tashkent that will soon become the new economic darlings of the Eurasian continent.
Silk Road Briefing is produced by Dezan Shira & Associates. Chris Devonshire-Ellis is the practice Chairman. The firm has 26 years of China operations with offices throughout China, Asia and Europe. Please refer to our Belt & Road desk or visit our website at www.dezshira.com for further information.