Uzbekistan is pursuing ambitious reforms as it opens up to international investors, but Russia and China have a head start on the West as the country embarks on a programme of privatisations.
“The very big state-owned enterprises are not on the block as yet, but there is a list of several dozen companies in which the government will be selling its strategic interests through IPOs and auctioning systems,” said Sardor Koshnazarov, managing director at Silk Capital, which is advising the Uzbek government on its privatisations. “There is another resolution awaiting approval by the president that will unlock another wave of privatisations.”
China and Russia are clamouring to provide Uzbekistan with financing. Koshnazarov said: “We’ve seen Chinese and Russian investors coming into the oil and gas sector. Russia is also building a nuclear power station, while China is active in the manufacturing sector. Unfortunately, we haven’t seen American and European players represented as yet, because they wait for certain market conditions and regulatory considerations to be addressed, but we expect that to change soon.”
British Petroleum has signed a deal with Uzbekistan to explore the country’s oil fields.
Uzbekistan must be careful about the sources of funds it accepts as it reforms its huge state sector. A source familiar with the country who asked not to be named said: “The privatisation will be a tremendous challenge and must be handled very carefully. It’s important that the financing for the process comes from international financing institutions or the international investor community. If Russia provides the cash, or local vested interests and oligarchs, there will be serious problems in Uzbekistan’s future.”
Multilateral engagement
So far, the country’s operations have focussed on international, rather than domestic investors. While Western investors are lagging behind Russia and China, international financing institutions are already deeply involved in guiding Uzbek economic development. “We’re seeing unprecedented engagement from multilaterals, both in lending and in providing technical assistance,” said Koshnazarov. “The EBRD, World Bank, IFC and ADB are all heavily involved. The ADB in particular has dominated infrastructure lending.”
Uzbekistan has allowed its currency to float freely, liberalised trade, improved its statistics, and strengthened the independence of its central bank and transition to inflation targeting. Following its Eurobond debut in February, Uzbekistan is intending to introduce a new tax code, liberalise prices and work on reforming state-owned enterprises, according to deputy finance minister Odilbek Isakov.
Alkis Drakinos, head of EBRD’s resident office in Uzbekistan, said the reforms were “key to improving the investment climate in Uzbekistan”.