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International Conference
«Conflicts in the Caucasus: History, the Present and Prospects for Resolution»
Baku (Azerbaijan) 22-23 October, 2012 and Tbilisi (Georgia) 25-26 October, 2012
ECONOMY
Jahangir KAKHAROV
Jahangir Kakharov, Senior lecturer, Department of International Economic Relations and World Economy, Mirzo Ulugbek National University of Uzbekistan (Tashkent, Uzbekistan)
Government Economic Plans for 2005
The priorities for the year were formulated in a report made by President Islam Karimov at a joint session of the Legislative Chamber and the Senate of the Oliy Majlis in late January 2005.1 These include:
deepening of market reforms and further liberalization of the economy in order to ensure a decent living standard for the population by limiting government intervention in economic activity, providing effective guarantees for free enterprise, and creating the necessary market infrastructure;
priority development of the private sector, an increase in its share in the economy, and creation of effective mechanisms and instruments for its legal protection, promotion and support;
deepening and expansion of the efforts to develop private business and private farming through the provision of additional guarantees, benefits and preferences in taxation, authorization procedures and establishment of small enterprises performing contracts awarded by large enterprises and of supply and sales agencies providing services to small businesses;
deepening of reforms in the banking and financial systems by measures to promote the capitalization of banks, increase their authorized and working capital, and encourage them to use their funds for investment primarily in the real economy, and also by enhancing confidence in banks among economic agents and the population at large;
reform of the housing and public utilities sector, including the development and implementation of a special government program for its reform;
further improvement of tax policy, including the development of a new wording of the Tax Code in order to simplify legislation, unify taxes, reduce the tax burden, and upgrade and liberalize tax administration.
These plans were based on the achievements of previous years, such as high rates of economic growth, positive changes in the development of foreign trade, and structural and institutional transformations. Thus, according to the official data of the State Statistics Committee, the gross domestic product (GDP) in 2004 grew by 7.7%, which was one of the highest figures for the past few years. The government continued to pursue a course aimed at ensuring macroeconomic and financial stability through tight monetary policy. The implementation of a set of measures and mechanisms in this area was designed to maintain relatively low inflation (5.6%) and stability of the national currency.
As noted in a publication entitled Ekonomika Uzbekistana (The Economy of Uzbekistan), GDP was expected to grow at a high rate: 7.0-8.0%. The government planned to improve the macroeconomic environment in order to create favorable conditions for the development of the real sector and for institutional and structural changes in the economy. Its privatization program for 2005-2006 was designed to give a new impetus to the appearance of new property owners and the development of the private sector. By 2007, the government proposed to increase the share of small business to 45% of GDP. In the agricultural sector, a key task was to reorganize 1,100 loss-making shirkats (agricultural cooperatives), including 406 shirkats in 2005, and to set up private farms on their basis. For 2005, experts projected an increase in industrial production by 9-10% compared to 2004, agricultural production by 6-7%, and investment by 7-8%. Favorable conditions in the foreign market enabled them to predict an increase in the exports of raw materials, manufactures and consumer goods. Given the outlook for world trade, there was reason to expect an increase in exports by 12-15% and in imports by 10-12%, with a continued trade surplus.
An active social policy remained an overarching priority of the country’s economic reforms. The year 2005 was declared a Health Year, and a special program was adopted in this area. A whole package of special social programs to be implemented during the year was aimed at ensuring social stability and improving the people’s well-being. This includes a reform of the housing and public utilities sector, targeted assistance to vulnerable strata of the population, personnel training, development of the school education system and children’s sport, employment, supply of drinking water and natural gas to rural households, etc.2
During the year, the country’s president issued a number of important decrees and decisions aimed at strengthening the legal protection of business entities, reducing the tax burden, simplifying the tax payment and reporting system, liberalizing financial responsibility, and drastically downsizing and improving the business audit and inspection system.
Overall economic growth in 2005 amounted to 7.2%, including 7.7% in industry, 7.3% in agriculture, 6.6% in construction, 8.6% in retail trade, and 14.5% in paid services. Investment increased by 6.9%, and exports, by 9.7%. As the result of a moderately tight monetary policy, inflation was 3.1% (i.e., within the predicted limits). Favorable weather conditions were conducive to record crops of grain and cotton. Thus, for the first time in the history of cotton growing, the country’s dehkan (peasants) and private farmers met their contractual obligations (3.6 million tons of raw cotton) by mid-October.3 On the whole, the cotton crop totaled 3.766 million tons (about 4.6% more than in 2004), and the cotton crop, 6.238 million tons (10.3% more).
The most rapid growth was recorded in exports of passenger cars (265%), knitwear (122%), mineral fertilizers (152%), plastic goods (104%), ferrous and nonferrous metals (152.6%) and services (109.3%).
Among the negative trends of the year one should note a significant increase in accounts receivable for utility services and incomplete coverage of consumers by contracts for the supply of these services in some parts of the republic.
In late November and in the first decade of December, Uzbekistan was visited by a mission of the International Monetary Fund, which discussed a number of issues with the country’s government. The mission also studied the latest changes in the economy and assessed the immediate prospects of its development. And although the IMF and the republic’s government decided not to make public their joint statement on the results of the mission’s work, it became known that the IMF representatives had basically agreed with the government in their assessment of the results achieved in the first nine months of the year, the figures expected for the year as a whole and the forecasts for 2006. The mission acknowledged that economic growth had averaged 7% for the third year running and that the country’s international reserves had for the first time reached 10.4% of GDP. The IMF also approved the government’s steps to ease the tax burden for businesses and noted the progress in structural reforms, including reforms designed to simplify licensing and registration procedures for certain types of business activity, to streamline reporting for business entities and reduce the number of audits and inspections. It also noted the government’s successes in the sale of equity stakes in state-owned enterprises, liquidation of unprofitable shirkats and their conversion into private farms.4 However, according to Ferghana.ru (with reference to the press service of the Cabinet of Ministers), certain differences remained in the assessment of the course of economic reforms in the country. In particular, the IMF expressed dissatisfaction with the high excise taxes on imports, the time schedule for the convertibility of the national currency, high bank interest rates slowing down the development of business, and other problems. The IMF recommended that the government tighten its monetary policy in order to curb inflation, improve the business climate and enhance depositor confidence in commercial banks.
The Budget
The parameters of budget policy were approved by the Oliy Majlis: budget revenues (excluding specialized funds)—2.1 trillion soms (UZS), expenditures—UZS 3.3 trillion, and budget deficit—about 1% of GDP.5 As in previous years, the largest share of budget funds (48.7% of total expenditures) was allocated for social purposes, including social protection of the population.
Table
Main Socioeconomic Development Indicators for 2003-2005
(as % of previous year)
2003
2004
2005
Gross domestic product
104.4
107.7
107.2
Total industrial production
106.2
109.4
107.7
Production of consumer goods
108.4
113.4
—
Total agricultural production
105.9
110.1
107.3
Construction
103.5
103.6
106.6
Retail turnover
105.1
104.7
108.6
Paid services
107.9
113.8
114.5
Inflation
103.8
103.7
103.1
Sources:
“Ob osnovnykh itogakh sotsialno-ekonomicheskogo razvitia Respubliki Uzbekistan v 2004 godu,” Narodnoye Slovo, 25 March, 2005; Interfax.The expected results of state budget execution in 2005 with a deficit of 0.4% of GDP (well below the initially projected figure) were on the whole approved by the IMF.6
Investment Projects
The key tasks of the capital investment program for the year were as follows: to ensure stable GDP growth; to deepen structural economic reforms; to implement social programs; to create new jobs; and to attract foreign direct investment on a larger scale.
An analysis of annual investment forecasts since 1996 shows that the share of centralized investments in their total amount increased from 46% to 58% in 2002. In absolute terms, the projected amounts of centralized investments steadily increased from UZS 65,764 million in 1996 to UZS 1,017,817 million in 2003, and then fell to UZS 862,437 million in 2005. The main sources here were budget funds and government-guaranteed foreign investments. The projected amounts of non-centralized capital investments increased from year to year, totaling UZS 2,011,190 million in 2005. The main sources here were enterprise assets, foreign direct investment and credit, and also household savings (11% of total investments in 2005).7
Among the projects commissioned in the first half of the year were the Baysun-Kumkurgan railway section, the Kagan-Gazli and Mubarek-Gallyaral gas pipeline sections, new installations at the Mubarek Gas Processing Plant, and other facilities.8 A new switching station designed to supply electricity to rural areas was put into operation in the Samarkand Region. A plant for processing farm produce at JV Shark Nematlari went into service. The implementation of a project for the development of specialized secondary and professional education with a $58.8 million loan from the Japan Bank for International Cooperation was completed.
Using their own funds, the country’s enterprises put into operation the first power unit at the Talimardjan Thermal Plant and facilities for the production of knitwear, sewn products, knitted and other fabrics, yarn and other textile products.
Cooperation with TNCs
In late 2004, the Cabinet of Ministers approved a program of investment projects for 2005 to be implemented with government guarantees. It was planned to finance 115 projects with the use of foreign capital investment and credit totaling $865.78 million. At least $209.54 million (10 projects) was to be utilized through the national holding company Uzbekneftegaz. The largest of these projects provided for the investment by Russia’s LUKoil of the first $45 million in the production of hydrocarbons on PSA terms, with total Russian investments in this project due to amount to $995 million. The program included other projects as well: the construction of a compressor station and field facilities at gas condensate fields (Zevardy, Kiltak and Pamuk) by the French company Sofregaz at a total cost of $107.3 million; the development of the Khandiza polymetallic ore deposit in the Surkhandaria Region, with Britain’s Oxus Gold acting as investor (project cost at least $16 million); and the establishment of an aircraft maintenance center with the participation of the Uzbekiston havo Yollari company (Uzbekistan Airways) ($2.83 million). Under the investment program, government-guaranteed loans were projected at 13.3% ($350.15 million) of the total amount of investment. The share of foreign direct investment and credit was due to increase by 19.6% (to $515.63 million).9
In the first quarter of 2005, the government launched a new privatization program for 2005-2006. A total of 2,246 state-owned facilities and equity stakes were offered for sale to foreign and local investors, including 1,385 facilities and state-owned assets for acquisition entirely into private ownership.10 Of these, 249 enterprises, facilities and equity stakes were sold by the end of the first quarter. Thus, stakes in 29 joint stock companies for the amount of UZS 1.4 billion and 56 facilities for the amount of UZS 0.3 billion and $87.5 thousand were sold with a step-by-step reduction in the initial price. Foreign investors acquired state-owned enterprises and shares worth a total of $6.4 million (with investment commitments of $9.2 million and UZS 67.2 million), including the Samarkand Tea Packing Factory, 73.1% of the shares of Uychi Ip-yigiruv, and 25% stakes in the Karbonat and Toj Metall joint stock companies. In the first quarter, the republic’s foreign partners fulfilled their investment commitments in the amount of $6.3 million.11
The overall amount of foreign investment and credit was $423 million (2% more than projected), including $296.4 million of direct investment (24% more than projected).
On the eve of Independence Day (1 September), a new enterprise, Baytex Tijaret, was opened in Tashkent. This enterprise for dyeing, bleaching and manufacturing knitted fabrics was founded by two Turkish firms, Ultash Entegre Textile and Baha Textile. The cost of the first stage of this project is $25 million, and its daily capacity is 15 tons of knitted fabric; bleaching and dyeing—50-60 tons of fabric; drying—100 tons; cutting and sewing—45 thousand pieces. Its clients include companies from the EU countries and the USA, and also such transnationals as Marks and Spencer, Wal-Mart and Chibo. Another new enterprise, JV Turkulteks, was set up on the basis of JSC Turtkul, a spinning and weaving mill located in the Republic of Karakalpakstan. The total cost of the project is $15.2 million, and its export potential is estimated at $10 million. With the participation of Turkey’s Demir Group, yet another joint venture, Demir Tekstil, was established in the Akhangaran District of Tashkent Region. The total cost of this project, designed to produce cotton and blended yarn, is $11.3 million, and its export potential is estimated at $9 million. JV Tashtekstil, set up with the participation of the German company Schultz, is to produce 3,000 tons of dyed knitted fabric and 6 million pieces of knitwear. The cost of the project is $10.2 million, and its export potential, around $10 million.12
Other newly commissioned facilities include three silk factories with foreign capital worth a total of over $3 million, including a $1 million silk spinning mill with 100% Chinese capital.13 Projects for the production of yarn and textile goods at JV Bursel-Tashkent Textiles, utilization of petroleum gases at the Kokdumalak field, and the manufacture of facing slabs at JV Euro Stone were also completed in 2005.
In the first nine months of the year, 729 state enterprises changed their form of ownership, including 323 enterprises under the privatization program. These were converted into 2 joint stock companies, 68 limited liability companies, and 659 privately owned enterprises. In addition, 26 contracts were signed for the purchase and sale of state-owned assets for the amount of $20.95 billion and UZS 339.8 million, including 11 contracts with investment commitments for the amount of $45.9 million and UZS 6.03 million. In particular, exploratory wells in the Shege area owned by the national holding company Uzbekneftegaz were sold to Russia’s LUKoil (for $4.278 million), and large state-owned stakes in leading Uzbek joint-stock companies were sold to other foreign investors: Bukhara Gypsum (30%) to Knauff (Germany), the Samarkand Elevator Plant (75%) to Condor (Iran), AkhangaranCement (25%) to JV Bentonit, and Karbonat (25%) to Shadella Inc (Switzerland). The implementation of investment programs continued at the Samarkand Tea Packing Factory, bought out by All Americas International Inc (USA). In the first nine months of the year, its new owner attracted $2.759 million worth of investment and restarted the plant, which had stood idle for over five years. JV Coca Cola Bottlers Uzbekistan Ltd (CCBU) attracted $4 million worth of investment and restarted production after a break of over two years.14
Under the Vysokovoltnoye project ($9.1 million) for heap leaching of gold and silver, the Oxus Gold company produced its first silver bar.
1 See: I.A. Karimov, “Nasha glavnaia tsel—demokratizatsia i obnovlenie obshchestva, reformirovanie i modernizatia strany,” Narodnoye Slovo, 29 January, 2005. Back to text
2 See: Ekonomika Uzbekistana. Analiticheski obzor Tsentra effektivnoi ekonomicheskoi politiki (TsEEP) Respubliki Uzbekistan za 2004 god, No. 8, March 2005. Back to text
3 See: “Dannye zasedania Kabineta Ministrov Respubliki Uzbekistan of 20 oktiabria 2005 goda,” Narodnoye Slovo, 21 October, 2005. Back to text
4 See: Biznes Vestnik Vostoka, No. 50 (724), 15 December, 2005. Back to text
5 See: Ekonomika Uzbekistana. Analiticheski obzor… Back to text
6 See: Biznes Vestnik Vostoka, No. 50 (724), 15 December, 2005. Back to text
7 See: M. Abdulatipov, “Investitsionnaia programma respubliki: tseli i formirovanie,” Biznes Vestnik Vostoka, No. 38 (712), 22 September, 2005. Back to text
8 See: “Informatsionnoie soobshchenie o zasedanii Kabineta Ministrov Respubliki Uzbekistan,” Narodnoye Slovo, 20 July, 2005. Back to text
9 See: Biznes Vestnik Vostoka, No. 1 (675), 6 January, 2005. Back to text
10 See: Ob osnovnykh itogakh sotsialno-ekonomicheskogo razvitia Respubliki Uzbekistan v I kvartale 2005 goda. Back to text
11 See: Ibidem. Back to text
12 See: Biznes Vestnik Vostoka, No. 35 (709), 31 August, 2005. Back to text
13 See: Ibidem. Back to text
14 See: “Kratkie itogi deiatelnosti Goskomimushchestva za 9 mesiatsev 2005 goda,” Biznes Vestnik Vostoka, No. 44 (718), 2 November, 2005. Back to text
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