The Uzbek Model

by Nathan Hamm on 12/8/2008 · 8 comments

podshokarimov.jpgIn a speech marking Constitution Day, Islom Karimov took a moment to heap praise upon himself for his wise economic policy decisions. Proof of his wisdom, he says, is the ongoing global economic turmoil, which has yet to do much direct damage to Uzbekistan. (No surprise given how disconnected it is from the global economy.)

Karimov could not pass up the chance to once again sound what has been a common theme since independence — that he has created a unique model of economic development. This “Uzbek model,” Karimov claims, is one for other countries to follow. Unfortunately, Karimov never quite explains exactly what policies potential adopters should follow. Judging from the Uzbek government’s own track record, the general principle apparently is to follow a Chinese model on quaaludes with a pinch of autarky.

At RFE/RL, Farangis Najibullah points out some of the glaring failures of Karimov’s Uzbek model.

He neglected to point out that despite all his “right choices and decisions” (and he left no doubt as to whose decisions they were) and despite Uzbekistan’s vast deposits of natural resources, much of the population lives in poverty and hundreds of thousands of Uzbek have left the country for seasonal jobs elsewhere.

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Nathan is the founder and Principal Analyst for Registan, which he launched in 2003. He was a Peace Corps Volunteer in Uzbekistan 2000-2001 and received his MA in Central Asian Studies from the University of Washington in 2007. Since 2007, he has worked full-time as an analyst, consulting with private and government clients on Central Asian affairs, specializing in how socio-cultural and political factors shape risks and opportunities and how organizations can adjust their strategic and operational plans to account for these variables. More information on Registan's services can be found here, and Nathan can be contacted via Twitter or email.

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Turgai Sangar December 9, 2008 at 9:08 am

If reality in Uzbekistan was not so tragic, this would be a joke really. This being said, Kafirov’s economic ‘model’ is not that unique when it comes to grab loans and grants from international financial institutions (no wonder the latter tumble into it when you see what pathetic morons head the EBRD in Tashkent).

noah tucker December 9, 2008 at 6:32 pm

This just goes to show that no matter what happens in the world, everything proves that Islam Karimov was right about something.
I guess this is the true purpose behind being “president for life,” because that way you get to be right about everything until your dead–and at that point I guess you stop caring.

Turgai Sangar December 10, 2008 at 6:00 am

Sometimes I wonder… Kafirov is a monster, he’s surrounded by sycophants who tell him what they think he wants to hear, but he’s not stupid. Does he believes his rethoric himself?

Shohmurod December 11, 2008 at 2:16 am

So what do you all think about this article?

Financial Times

Uzbekistan: Basket case economy emerges from the shadows
By Clare Nuttal in Almaty
Thursday Oct 30 2008 04:35

The central Asian republic of Uzbekistan is set to overtake Ukraine to become the largest consumer market in the Commonwealth of Independent States within the next decade.

An increase in real disposable income in recent years, albeit from a low base, has stimulated consumer markets across the board. Official data shows that real disposable income increased by 20 per cent in 2006 and by the same amount in 2007: Gross domestic product per capita is now $2,300 on a purchasing power parity basis and is fuelling a shopping binge. Car sales doubled between 2005 and 2007. Mobile penetration is the fastest growing in the CIS growing from just 1.5 per cent in 2005 to more than 35 per cent in August 2008. And the 20 per cent increase in imports in 2007 was in part due to rising imports of consumer products.

“Pretty much anything related to consumption – shops, banking and insurance, mobile phones, for example – is doing well,” says Akmal Mirsadikov, deputy general director of Ansher Capital, a local fund.

Bertrand December 11, 2008 at 5:24 am

The thing is, the global financial crisis is beginning to hit Uzbekistan’s economy and it is only going to get worse. Many of the millions of Uzbek “guest workers,” who have been toiling in Russia, Kazakhstan and other countries are started to flood back into Uzbekistan as work dries up in these countries. They arrive here with no jobs and no income in an atmosphere of already high unemployment. Plus, the remittances they have been sending back home will drop off sharply – a real blow to the Uzbek economy.

Turgai Sangar December 11, 2008 at 5:32 am

Here below is the rest of the story.

What do I think? Just look at the sources and respondents quoted (to whom and to what are all these ‘companies’ and ‘funds’ connected, why is there no reporting form the grassroots level, etc… ) and then you know.

This would be a good piece for a hooray inflight magazine. It says more about a certain kind of pundits than about Uzbekistan.

Still, given the country’s poor reputation, foreign investment has been patchy. Several successful local chains of eight to 10 shops have emerged in the retail sector, but the market is as yet too small to attract big international operators. However, it is a different story in other consumer-related markets.

In October 2007, General Motors announced a joint venture with state holding company Uzavtosanat, which has run the UzDaewoo auto factory since Daewoo’s bankruptcy in 2005. GM has a 25 per cent stake in the joint venture, with the potential to increase this to 40 per cent. At full capacity, the former UzDaewoo plant, in Asaka in Andizhan province, will produce 250,000 Chevrolets a year, to be sold in locally and in other CIS countries. As a sign of the deal’s importance, President Islam Karimov attended the signing.

Foreign telecoms companies such as MTS and Vimpelcom from Russia and the Nordic region’s TeliaSonera have bought into the fast-growing mobile telecoms industry. In the insurance sector, Russia’s Ingosstrakh bought up 76 per cent of Tashkent-based Standard Investment Group as part of the government’s 2007-2010 development programme for the sector. “Uzbekistan is much more open, even compared with two or three years ago. Most of the laws were always there, but policy has changed a lot,” says Komil Ruzaev, managing partner of Essential Investments, a local brokerage.

Rather than the “shock therapy” and mass privatisations pursued in other countries, Mr Karimov followed his “unique way”, which involved gradual change, keeping taxes, subsidies and state spending high, and only gradually releasing control of major companies to the private sector.

The state remains heavily involved in the economy, but in the current turbulent climate, the country’s relative isolation has played to its advantage. “Recent supercharged high-flyers Russia, Ukraine and Kazakhstan have now found themselves at the epicentre of the ongoing crisis in the region,” says Alisher Ali Djumanov, managing partner of Eurasia Capital Management and believed to be the only alumnus of France’s Insead business school in the country.

“Uzbekistan, the fourth largest economy in the CIS, is in better shape because of government policies which at the time were considered to be too rigid and less pro-market. There is still a question of whether this policy will be better for the economy in the long term but, in the current environment, the conservative approach will benefit Uzbekistan. We believe the long-term investment story for Uzbekistan is intact.”

Eurasia launched Uzbekistan Growth Fund, the first Uzbekistan-dedicated hedge fund, in September. Its initial capital was $5m but, according to Mr Djumanov it could grow substantially as the economy expands. “Uzbekistan has a centuries-long tradition of entrepreneurship and commerce. The ancient cities of Samarkand, Bukhara and Khiva were key trading outposts along the Silk Road. That talent is still there,” he says.

Abandoning its traditional job of growing cotton, over the past decade the government has been encouraging large-scale private investors to move into sectors such as manufacturing, mining, textiles and food processing. In the oil and gas sector, foreign investors include Russia’s Gazprom and Lukoil, China National Petroleum Company, Malaysia-based Petronas and Korea Gas. Europe has also been keen to secure supplies of Uzbek gas.

As well as its oil and gas reserves, Uzbekistan is the world’s ninth largest producer of gold, and has significant reserves of coal, phosphate and tungsten under the deserts in the west of the country. The Uzbek State Committee of Geology estimates total mineral potential to at about $3,5000bn. Ratings agency Standard & Poor’s has independently estimated the value at close to $1,000bn.

However, a dispute between US gold miner Newmont and the Tashkent government highlights the risks of doing business in Uzbekistan. One of the few large investments in the republic in the 1990s, relations turned sour last year. The dispute was settled by international arbitration in mid-2007. But, since then, new government regulation has tried to set clear rules on licences for exploration and mining.

Under the government’s 2007-2010 privatisation programme, opportunities to invest in large state-owned companies are also appearing. The most attractive are plans to sell a 49 per cent stake in the national energy companies Uzbekneftegaz, the world’s 12th largest gas producer, and 35.55 per cent of Uzbekugol, the largest coal miner in central Asia. Other companies to go under the gavel include Uzbekistan Airways, electricity company UzbekEnergo and two big banks – Asaka Bank and National Bank of Uzbekistan.

ZZ December 11, 2008 at 10:16 am

Karimov has just lost a sense of what is real. This happens to all the dictators. They no longer see and don’t want to see what’s going on around…

The FT article does not mention that the increase in consumption has largely to do with the money being sent from Uzbeks working abroad. Government policy has nothing to do with this “emerging from the shadows”. Western Union, Chequepoint etc are the only real source of money for many in Uzbekistan. This is also the only thing that keeps society calm. If those are cut, Uzbekistan will have an increased risk of new andijans, if not a total civil war…

Dolkun December 11, 2008 at 9:15 pm

I agree that money earned abroad is probably behind a lot of consumer spending — which also makes this source of income frighteningly vulnerable to other countries’ economic problems.

The article, if you’ll note, has a lot of “could” and “would” in it. The UzDaewoo plant has ALWAYS had a capacity of 250,000 cars. The question is, what are they producing now, and what is a rational prognosis?

I don’t see too many hidden strings with people like Djumanov. He’s simply trying to attract capital — that’s his business. So yes, this will put him in bed with some strange fellows from time to time.

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