Page 57 - bne_Magazine_April_2018

bne April 2018
Opinion 57
Yet is the current president willing to go against the interest of the elites? It’s hard to see Mr Mirziyoyev, who served as prime minister from 2003, as a fresh reformer willing to part with the past. While the reforms enacted so far might seem broad and sweeping, a closer look indicates that the difficult steps are yet to be taken. For example, more than 500 enterprises were reportedly privatised in 2017, but anecdotal evidence suggests the privatisation focused on small and unimport-
“The key for success of the reform plan will be to attract sufficient foreign investment”
ant state assets, not really reducing the role of the state in economy. Even the motivation for the liquidation of the for- eign exchange black market can be questioned, as those who mainly profited from the market were the secret service offi- cials, rumoured to be the key opponents of the new president.
Economic liberalisation also inevitably brings new risks and uncertainties. The previous restrictive economic policies were effective in preventing any kind of significant imbalances in the economy. Many prices are still regulated, shielding the population from macro-economic shocks at the expense of the state. Uzbekistan also enjoys low public debt (15% of GDP),
a balanced budget, and high foreign exchange reserves ($26bn, representing 20 months of imports) accumulated when energy prices were still favourable. During the economic transition, more responsibility will be on the shoulders of policymakers who have yet to acquire the skills and tools needed to navigate an open, market-based economy. Costly mistakes inevitably come, depleting political will for further economic liberalisation.
Development of official and parallel exchange rate of the som
Will Uzbekistan become the next darling of foreign investors, or will a half-hearted pursuit of the reform programme
leave the country behind as another example of a missed opportunity to fully utilise an economy’s growth potential? The reform progress over the next two years will determine which of these scenarios is going to materialise.
A successful reform of the Uzbek economy would be a boon
to the early investors who could reap hefty returns on their brave foray in the country, and have the potential to greatly increase living standards of the country’s 33mn citizens. However, all things considered, there is little ground for much optimism. Economic development is a complex process, and multiple pieces have to fit together to bring sustainable growth. Uzbekistan itself illustrates this point – between
2011 and 2016, Uzbekistan improved its position in the World Bank Doing Business ranking from 150th place to 87th place,
a significant leap forward. Yet these advances were still insufficient, too fragmented to show tangible benefits.
Our current scenario is that we will see the reforms that will make Uzbekistan a freer, more open economy, but the level of corruption will remain high. The economy will be dominated by a small group of people who control both politics and business in the country. In this setting, foreign investment will come in volumes that will be insufficient to transform the country, and the economy will remain dependent mainly on the exports of gas. However, there is a chance that the reforms will succeed, in which case Uzbekistan would offer very high returns to any early investors. The next two years will be crucial to determine which of these two scenarios
will become reality.
Tomas Motl is Senior Economist at OG Research, a Prague-based economic consultancy.
Net inflows of foreign direct investment (% of GDP)
Source: Bloomberg, OGResearch database
Source: WorldBank
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