Page 47 - bne_Magazine_September_2017

bne September 2017 Eurasia I 47
convert a quarter of their earnings into local currency, importers are unlikely to see the full benefits of pre-Karimov regu- lation era trade. In March, Mirziyoyev made it clear the country intends to keep some of its protectionist policies in place, when he announced a plan to reduce Uzbekistan’s imports by $1.1bn in 2017.
Some of these policies will be carried out through import substitution measures such as increasing local content in manufacturing facilities that assemble products from foreign imports. But it is not unreasonable to expect Uzbekistan to implement or maintain quotas and tariffs in order to keep Uzbekistan’s
own products competitive. In that regard, the post-Soviet country might not be truly opening up just yet.
“[Uzbekistan’s] customs duties for imported goods range from zero to more than 100%, but the average
rate is approximately 30%,” accord-
ing to a 2017 update by the US export. gov website. “Since January 2010, 5% customs duties are applied to imported live animals, milk and cream, wheat, and computer hardware; 10%-30% duties are applied to clothing, furniture, metals, foodstuffs; and more than 50% duties are applied to luxury consumer goods such as cigarettes and cars.”
Impact on the population
All consumer goods within the country
rate would most likely converge somewhere between UZS7,000- UZS8,000 against the greenback.
The other positive aspect of abolish- ing the strict currency regime might be a reduction of Uzbekistan’s reliance on remittances from Uzbek migrant workers, mostly situated in Russia, for foreign currency inflows. Remittances “make up 13-15% of the country's GDP and a large portion of the popu- lation’s foreign exchange earnings”, Alisher Taksanov, an exiled economist based in Switzerland told bne Intel- liNews last year. The migrant workers themselves will certainly benefit from the increased employment opportu- nities within their home country.
“The reform would also promote job creation and growth by increasing exter- nal competitiveness, attracting foreign direct investment (FDI), and improving the allocation of domestic resources,” the IMF mentioned in its statement.
With the expected changes over the horizon, some foreign businesses are already returning to Uzbekistan – including Turkish companies such as Demir Holding. The European Invest- ment Bank and the European Bank for Reconstruction and Development are also already re-entering the Uzbek mar- ket. It is now up to Mirziyoyev to follow up on the rest of his commitments.
To this day, the exchange rate regime still stifles foreign investment, so it was welcome news when Uzbek state-run media announced in July that commer- cial banks have been granted access to the market rate of the sum. A Reuters report from the same month did, how- ever, suggest this rule only applied to
a limited number of commercial banks and companies.
In two consecutive visits to the country in the same month, Interna- tional Monetary Fund (IMF) officials welcomed the upcoming changes and pledged to provide support.
Addressing inflation
One of the key challenges standing
in Uzbekistan’s way is the threat-
ened impact of inflation on exist-
ing Uzbek businesses following the adoption of a floating exchange
rate regime. To address this, the country announced in July its previ- ously unreported gold and foreign currency reserves, and the government pledged to support Uzbek businesses as they adjust to new conditions.
“Given Uzbekistan’s ample foreign exchange reserves, the reform can
be implemented from a position of strength,” the IMF said on July 24. The gold and foreign exchange reserves were later revealed to stand at $20bn – enough to cover two years of imports.
Before the country can proceed, however, it needs to solve the issue of existing double-digit inflation cre-
ated by the black market currency. Despite official figures reporting annual consumer price hikes of 5-7%, inde- pendent press and economic reports from 2016 have suggested a rate run- ning between 20% and 30% a year.
To curtail unreported double-digit infla- tion, the Central Bank of Uzbekistan has decided to increase its refinanc-
ing rate by as much as 5 percentage points to 14% -- the first hike in years. The move appears to be accompanied by cautious gradual adjustment of
the sum – the currency has devalued slightly to UZS$4,070 at the official rate since the beginning of July.
“Unifying exchange rates and allowing a market-based allocation of foreign exchange resources would allow the Central Bank of Uzbekistan (CBU) to pivot to a stability-oriented monetary policy capable of effectively control- ling inflation,” the IMF noted.
Impact on trade
While the currency reforms will undoubtedly improve prospects for exporters, especially after the authori- ties lift the requirement for exporters to
are priced in accordance with the black market rate. Since the ultimate goal of the reform process is to maintain con- sumer prices at more or less the same level as before currency liberalisation, Uzbek consumers are expected to stay largely unaffected by the liberalisation.
Independent Uzbek economist Yuliy Yusupov confirmed this to Ozod-
lik in May, when he said that, once devalued, the official rate, the bourse market rate and the black market
“We are not going to waste our precious hard currency reserves on importing chewing gum”
www.bne.eu