From May 16 to May 18 of this year, the 32nd annual session of the Board of Governors of the European Bank for Reconstruction and Development and a business forum were held in Samarkand. The theme of this year’s event was «Investing in Viability». Government representatives, entrepreneurs, economists and other experts spent three days discussing strategies to respond to the current crisis and plans to prepare for future sustainable stature.
Associate Director, EBRD’s Regional Lead economist, Central Asia Eric LIVNI shared his view on the bank’s country strategy in Uzbekistan and his own opinion on a number of current topical issues.
– “The main mission of the EBRD is to invest in projects that bring on the transition toward an open market economy, as well as the development of private and entrepreneurial activities. How can you characterize the current economic status of Uzbekistan?
– Briefly speaking, it is extremely attractive. This is a huge labor resource, quite young, able-bodied, in many respects possessing skills, and, perhaps, this is the most important feature and advantage of Uzbekistan against the background of the rest of Central Asia. Actually, there is oil in Kazakhstan, we are aware of this, but there is no one to work there. In this regard, Uzbekistan, things are much better. The country is attractive in terms of order and security, hospitable atmosphere, it attracts foreigners who live in Tashkent. We see a strong interest in the country. It is so important that the situation is predictable, stable, and in general, the problems that arise for investors are gradually resolved, and everything will be fine.
– Uzbekistan, openly expressing the position of peace, good-neighborliness and stability, chooses as priorities for its own development what will be for the benefit of our state and people. Do you think Uzbekistan is coping with the geopolitical crisis in the world?
– Basically, yes. This is a very complex crisis, it is very difficult to take an unambiguous position. Uzbekistan is located in the center of the continent. Uzbekistan is one of the two countries in the world that are doubly-landlocked, i.e. has no access to the sea, while being surrounded by countries that are also landlocked. Although the country is quite diversified in terms of foreign economic relations, nevertheless there is a strong connection with the Russian and Chinese economies, with the economies of its closest neighbors, Turkey. Therefore, we have to play a very balanced, multi-vector game. We understand this and do not expect that, for example, Uzbekistan will join the sanctions, but also, of course, we would not like Uzbekistan to become a platform for actively circumventing these sanctions. In principle, we are pleased with the way monitoring control in the banking sector has been established. This helps to avoid secondary sanctions. We welcome this.
Uzbekistan has been showing very good results in terms of sustainability over the past 2-3 years. If some neighbors went into recession during the Covid pandemic, Uzbekistan managed to show positive dynamics even in the most difficult 2020.
The economic recovery in 2021-2022 was substantial, and we forecast fairly good growth rates in the next couple of years.
– What is the reason for this stability?
– First of all, with the fact that, as I said earlier, the country is not tied to any one sector of the economy, i.e. if we consider Kazakhstan, we are talking about dependence on the oil and gas sector, oil in the first place, and on fluctuations in commodity prices, including cereals, wheat. In Kazakhstan, these industries have a very significant share. In Uzbekistan, everything is much better, there is no one sector that would dominate. Here, agriculture is quite large and developed, and mining, and processing, and food industries, in other words, modern industrial production, and production areas show very good results. Each is quite significant, but not dominant. And the second thing that can be noted is diversification in terms of export markets. Here again, there is no dependence on one country. If we take Mongolia, for example, it exports almost all of its products to only one country – China. From Turkmenistan, all gas goes through a pipeline to China. This is not good, so “all eggs are in one basket.” In Uzbekistan, in this aspect, everything is very good, that is, a little export to China, a little to neighboring countries, a little to Russia.
There are different scenarios. At the beginning of 2022, after the outbreak of the war, we observed a very serious shock to the economy, all logistics changed. If earlier people delivered products from Russia or through Russia, then in a very short time it was necessary to reorganize all supply chains. I visited an ice cream factory. And so, absolutely all the ingredients, from milk powder, fats, flavorings to dyes, the manufacturer had to look for. It’s like starting a business all over again.
Really, a shock. The owner of the business for probably did not sleep for two months, called colleagues, partners to find out where it could be supplied from. There was no sugar either. But in the end, after a couple of months, the situation “settled down”, and now we can work.
The general difficulty, again, based on the conversation with customers, on the one hand, it seems that the new logistics situation has led to an extension of delivery times and sometimes an increase in cost, but this is not such a big problem. The main problem is uncertainty. Earlier I spoke with a client of Indorama, it is a large textile company, a foreign investor. They produce cotton thread, fiber and depend on both imports and exports. In the previous period, all their foreign trade activities were carried out through two Russian ports: Vladivostok and St. Petersburg. It would seem that this is easy, but they had a clear understanding of the deadlines: through Vladivostok it is, say, 17 days, from St. Petersburg – 11 days. And the company knew: if you need to deliver something, then you need to order it in 20, 15 days, to ensure delivery. Now the company has reoriented to the Georgian port of Poti. Yes, it is closer in distance, but the problem is different. First of all, now it is multimodal delivery, i.e. by truck, by rail, by sea, and secondly, there are several borders, three different countries, a lot of connections, and, tell directly, sometimes the management at all these epic connections is not very good. What does this lead to? To complete uncertainty: you do not know how long it will take to deliver your cargo on the way. And this is the worst thing. Even if it is 50 days, you can know in advance and order, and the cargo will arrive on time. But here you are just unaware. It is possible to get stuck without a determining factor. Or supply their products to the foreign market, but customers are waiting, but there is no product. It is difficult to work in such a situation. These processes need to be debugged, which means that additional investments will be required. It’s not a question of one day. That’s such a big problem
– How long do you think it will take, as you have mentioned, to establish supplies?