Uzbekistan Going Multivector?

Multiple news agencies reported lately that the economic relations between Uzbekistan and Russia are hitting a rough patch, despite some of the warm fuzzies expressed when President Karimov received Russian Prime Minister Fradkov in Tashkent. The grievances are fairly significant.

First, Uzbekistan feels that Gazprom is dragging its feet on the development of new gas fields.

Sharonov said Uzbekistan is unhappy with the timeframe and the investment amount with two of the three projects, which the Russian energy giant is implementing in the republic. Gazprom has currently invested $30 million compared with the expected investment figure of $300 million, the deputy minister said.

Russian Deputy Economic Development and Trade Minister Sharonov points out though that the licenses for developing new deposits were only obtained in December, suggesting that the Uzbek side has unrealistic expectations. (As an aside, Uzbekistan plans to significantly increase gas exports to Russia this year. Ferghana.ru wonders whether or not that will require less domestic consumption.)

Second, Russia is unhappy with trade imbalances and Uzbek debt to Russia.

In 2006, UzDaewoo exported 67,000 cars to Russia out of its total output of 110,000, while Russia sold to Uzbekistan only 3,500 cars made by VAZ, GAZ, and UAZ (Interfax, March 7).

Bilateral economic relations have been also adversely affected by Uzbek debt to Russia, estimated at about $700 million. Russian deputy Finance Minister Sergei Storchak said that both sides had agreed to resume negotiations on the debt issue. Uzbekistan had not serviced its debt since 1998 (Interfax, March 7).

Third, the two sides are having trouble on joint aircraft production at the Chkalov factory.

Moscow and Tashkent have also struggled to cooperate on joint aircraft production. In November 2006, Russian officials indicated plans to move production of Il-76 military transport planes from Tashkent to the Russian town of Ulyanovsk. Russian had complained that Tashkent was slow to fulfill a $1 billion contract to supply 38 Il-76 military transport planes and Il-78 refuellers to China (Interfax, March 7).

Fourth, Russian business are unhappy with obstacles to hard currency conversion and gains repatriation.

It takes Russian companies between several months and half a year to get back the gains and that upsets Russian businesses too. The Uzbeks deny the innuendo and claim that the delay never exceeds 4 or 6 days. “They are bluffing. Whoever is interested, there are lists at our trade mission of Russian companies owed millions,” Sharonov said. According to the newspaper Vedomosti, the Uzbek legislation does not set any deadlines while the Russian does (90 days).

Trade mission official says as well that conversion of gains is another problem Russian businesses encounter in Uzbekistan. Russian companies deliver goods whose price is set in US$ to the Uzbek partners, the latter transact money to local banks, and money gets stuck there for months on end. Handling the Russian money, Uzbek banks profit handsomely. RBK Daily suspects in the meantime that the blame for this practice cannot be pinned on the banks themselves because these latter have their orders from the political leadership.

When Uzbekistan signed the strategic partnership agreement with the United States, President Karimov expected massive investment to rapidly follow. Perhaps indicative of his training as a Soviet economist, he seems to see investment as the result of state policy rather than rational business decisions. I believe that much of the breakdown in US-Uzbek relations is ultimately attributable to Karimov’s disappointment with the lack of US investment in Uzbekistan. Much of the reason for the forging of close ties with Russia, I also believe, is a result of Karimov’s belief that Russia’s government could deliver massive investment in Uzbekistan. (Military ties are all well and good, but a large amount of cash controlled directly by the executive administration is a more effective enhancer of Karimov’s power.)

It turns out though that even Russia cares about such trivialities as returns on investment and a healthy investment climate. It remains to be convinced to simply place its trust in Karimov and simply fork over the cash. Granted, the relationship still has enormous positives for both sides — they even agreed on a new investment project during Fradkov’s visit — but whatever is the Uzbek government to do if even Russia will not be the patron it wants?

Keep sticking out feelers to the West, for one.

Daniel Kimmage notes in a report on the possibility that Uzbekistan is attempting to make its foreign policy multivector that an article by Rafik Saifulin, a former adviser to President Karimov, recently appeared in Pravda Vostoka praising the exploration of ties with the West.

Attributing Uzbekistan’s strained ties with the West to the latter’s penchant for “criticism and allegations,” Saifulin argued that “it is necessary to think jointly about ways to create new, promising opportunities for cooperation and to modernize traditional relations.” He concluded: “A majority of the representatives of leading analytical structures abroad, and in Uzbekistan, support this view and hope that this will lead to positive political, economic, and other types of changes in relations between our states and people in the near future.”

If Saifulin’s article signals a possible shift in the Uzbek official line — which has been harshly critical of the West — it also reflects limited overtures on the other side.

Kimmage mentions the EU’s exploration of better ties with Uzbekistan, wanted more in some European capitals than others. He also notes the recent visit by the State Department’s Evan Feigenbaum. At his press conference at the conclusion of his visit, he expressed the US desire for better ties, but no specific plans.

The odds that Uzbekistan could really execute the kind of multivector foreign policy that Kazakhstan has are pretty long. Kazakhstan has the distinct advantage of a much better public image, a great deal of which is deserved. On top of that, the demands of Uzbekistan’s domestic politics put pressure on Karimov to seek patrons over partners. Most of Europe and the United States do not seem too particularly interested in working too hard for better ties with Uzbekistan, and they certainly are not prepared to be patrons. It seems increasingly clear that to really get ahead, the Uzbek government may have to open up its economy at the very least.

This post was written by...

Nathan Hamm – author of 2974 posts on Registan.net.

Nathan is the Founding Editor and Publisher of Registan.net, 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. Nathan is currently seeking research, analysis, and consulting opportunities. He can be contacted via Twitter or email.

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