Page 22 - Uzbekistan rising bne IntelliNews special report

22 I Special Report: Uzbekistan Rising bne December 2021
Karimov, companies have leapt at the chance to do their own export deals and trade is flourishing.
Without the hydrocarbons that bless the economies of Kazakhstan and Turkmenistan, Uzbekistan continues to run a trade deficit that reached $7.6bn in the first nine months of this year
on exports of $10.3bn and imports of $17.9nm. The total trade turnover was $28.2bn, a 2.5% increase y/y in the period, after the turnover bounced back by over a half (54%) in the first half of the year as coronavirus restrictions were lifted.
“About 40% of our imports is equipment but a lot of that comes from China, where inflation remains stable so the import of inflation effect has been muted,” says Nosirov.
China remains Uzbekistan’s most important trade partner, but turnover with its ancient partner has still not regained pre-pandemic levels, whereas trade with the other Central Asian republics and Turkey has surpassed 2019 levels, the last year of strong growth.
Uzbekistan’s trade with the other CIS countries in the first nine months of this year was up 28.7% y/y, while
its trade with non-CIS countries further afield is down by 9.1% in the same period, and trade with these other countries make up almost two thirds (61.6%) of the republic’s trade, according to the state statistics service.
To improve the balance of payments equation the government is fully focused on investing into adding
value to production. Uzbekistan’s biggest export item is now textiles, which is a reflection of the state’s new policy of aggressively targeting value added exports following the complete ban on raw cotton exports, which has forced cotton growers
to invest into textile production.
Textile exports were worth $2.1bn in the first nine months of this year. The ban on raw cotton exports has worked, with textile exports soaring by 58.3% y/y in the first three quarters. Moreover, new trade deals are opening up new markets: in April Uzbekistan won
the coveted preferential trade status with the EU that allows it to export textiles to Europe with no duties and no quotas, allowing volumes to more than double in less than a year.
The banks are being prepared for sale, but Fitch warns there is still a lot of work to do.
“Uzbek banks have a significant proportion of unseasoned exposures
as a result of lending growth as well as loan [moratoria] granted in 2020 to alleviate pressure on borrowers caused by the pandemic. The sector’s longer- term performance will depend on asset quality trends, operating environment stability and how successfully the state- owned banks targeted for privatisation can shift from directed lending to a more commercial focus,” Fitch said.
Long neglected under the rule of the former president Islam Karimov, who ran a tightly controlled de facto centralised economy with strict currency and cash controls, the banking sector has flourished since Uzbek President Shavkat Mirziyoyev took over 2016.
However, that has also introduced new problems as loan growth – particularly retail loan growth – has since boomed.
“The sector’s asset quality risks mainly stem from rapid loan growth at most state-owned banks in recent years
and a high share of foreign currency
Uzbekistan's banks used to be a tool of the centralised economy but since the government removed its controls the sector has flourished. But that has brought a new set of problems.
Uzbek banking sector faces increasing asset quality risks
Ben Aris in Berlin
The Uzbek banking sector faces increasing asset-quality risks due to rapid lending growth, high balance-sheet dollarisation and an increased reliance on external funding, Fitch Ratings said in a report released on October 8.
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Uzbek banks are in the limelight as the sector that is most advanced in the government’s reform and privatisation drive. One bank, mortgage specialist Ipoteka Bank, has already been sold
to Hungary's OTP bank, and several more are to be put on the block soon.