Uzbekistan - the lonely economy wants to regain its glory

Uzbekistan is one of the most important countries in Central Asia. It holds a large part of the region's heartland - the Fergana Valley, which has the largest population in the region (31 million people). Its favorable geographical location also helped Uzbekistan play a key role in the ancient Silk Road.

Uzbekistan is a country rich in resources.According toCIA World Factbook, the country has the world's 20th largest natural gas reserves and the 47th largest oil reserves. They are also a major exporter of hydroelectricity and gas-fired electricity. Intelligence analysis organizationStratforIt is said that Uzbekistan's gold reserves are 10th in the world, uranium is 11th and copper is 10th.

Thanks to the rich Fergana Valley, Uzbekistan's agriculture is highly developed and contributes significantly to the country's GDP. The main exports are cotton and wheat. Uzbekistan produces 85% of the wheat consumed in the country and 90% of the rice and barley consumed in the country. All these advantages have helped Uzbekistan's economy to be quite independent compared to many of its neighbors, which rely on foreign countries for energy and food.

After seceding from the Soviet Union in 1991, the country largely maintained its Soviet-era economy, with subsidies and tight controls on production, prices, and foreign exchange. Islam Karimov was the leader for the first 25 years of Uzbekistan's independence.Under Karimov, Uzbekistan was one of the most isolated countries in the world,because he tightly controlled both the economy and politics, and showed little trust in both Russia and the West.

Uzbekistan's growth during this period was driven largely by state investment. Exports of gas, oil, and cotton were the main sources of foreign exchange. Measures to increase the market-based nature of the economy were implemented more cautiously than in other post-Soviet countries.

In 1992, inflation in Uzbekistan began to accelerate. Retail prices rose by 790%, while wholesale prices soared to 2,700% by the end of the year. Meanwhile, real incomes fell by 56%. The disruption of trade agreements with other countries in the former Soviet Union also caused other economic indicators in Uzbekistan to plummet. Between 1991 and 1994, the fiscal surplus fell sharply, and GDP contracted by 17%.

Realizing that slow economic reforms were not working, the government began to accelerate the transition to a market-oriented economy.They tightened monetary policy, increased cooperation with international financial institutions, increased privatization of state-owned enterprises, and improved the environment for foreign investors. As a result, GDP growth fell to just 1% in 1996. Inflation fell to 35%, from 1,300% in 1994. In 1996, they implemented more reforms to increase the private sector's share of GDP to 60%. In 1997, Uzbekistan's GDP grew by 2.5%. By 1998, this figure continued to increase, despite the financial crisis in Russia and Asia.

Data ofWorld Bank (WB)said that between 2004 and 2016, Uzbekistan's economy grew quite rapidly, lifting most of its people out of poverty. The development of small private enterprises in many sectors created a large part of the country's jobs, contributing to income growth and poverty reduction. Increased exports of gas, gold and copper, during a period of rising prices, also provided the budget with more funds for investment and wage increases.

However, the decline in commodity prices in 2013-2016 and the slowing growth of Russia and China had a significant impact on Uzbekistan's economy, forcing them to shift their growth to domestic consumption. Thanks to the government's loose fiscal and monetary policies, their GDP was only slightly affected during this period, growing by 8.1% in 2014 and 7.8% in 2016.

A major turning point for Uzbekistan's economy came in 2016, when Islam Karimov died.His successor is longtime Prime Minister Shavkat Mirziyoyev. Some liken Mirziyoyev to Deng Xiaoping, who helped transform China into an economic powerhouse.

Uzbekistan’s new leaders have kept the old political system in place, but have implemented long-planned reforms. In August 2016, they announced they would abolish exit visas, which had made it easier for millions of workers to leave the country. A month later, they stopped sending students, teachers, and health workers to pick cotton, and they largely scrapped capital controls.

The Uzbek government is also aiming for a fully convertible som by 2019. It has signed several cooperation agreements with foreign companies, such as Hyundai and Lukoil. Like China during its restructuring period, many free trade zones are also springing up here.

Hikmat Abdurahmonov, 36, is planning to build a 10-story office building and start a consulting firm in Uzbekistan. For him, the currency reform means he can focus on making money. "I think you can feel everywhere that the atmosphere is really changing," he said onReuters, "Everyone is planning a business. You're going to see a lot of startups popping up."

The World Bank has included Uzbekistan in the list of 10 countries with the most improved business environment in 2017., thanks to reforms in starting a business, obtaining construction permits, protecting minority shareholders, paying taxes, and getting electricity. The country ranked 74th out of 190 countries, higher than China.

"Our upcoming goals are quite ambitious. We want to be in the top 20 by 2025," said Azim Akhmedkhodjaev, head of the Uzbekistan Investment Commission. He revealed that in the first 11 months of last year, they attracted $3.7 billion in foreign direct investment (FDI). The figure for the whole of 2016 was $1.9 billion.

"Uzbeks have remained quite isolated to this day, but are gradually opening up to their neighbors," said Svante Cornell, director of Silk Road studies at the Central Asia Caucusus Institute.Forbes. Just a few months after his election, Mr. Mirziyoyev visited Turkmenistan, Kazakhstan, Russia and China. Uzbekistan is working to improve trade relations with Central Asia. Good relations with new neighbors are a solid springboard to the world.

The importance of maintaining high economic growth and enhancing the economy's competitiveness "has become a top priority for leaders," Sodiq Safoyev, a former Uzbek ambassador to the United States, told Forbes. The country's GDP in 2016 was about $67 billion.

However, the process with Uzbekistan is almost starting from scratch.The average income here is estimated at more than $2,100 a year, just a quarter of that of neighboring Kazakhstan. But for Safoyev, that is no problem, especially when China launched its Belt and Road initiative to revive the Silk Road.

“We have a centuries-old tradition of entrepreneurship,” Safoyev said of the Uzbek attitude toward doing things alone. “We are young, well-educated and have a dynamic economy, Uzbekistan will once again become a bright spot on the Silk Road.”