Page 69 - bne Magazine February 2023

bne February 2023 EuraEusraisaia I 69
The maximum decline among the regions of the world is in Eastern Europe (3.3%), where Ukraine saw the biggest fall and could lose some 15% of its
jobs, according to the ILO. By contrast, the biggest gains were recorded in the countries of Central Asia (up 2.5%) and the Asia-Pacific region (1.3%).
What is creating the middle class, and the shopping habits that comes with
it, has been rising incomes. Nominal wages have been climbing consistently since 2000 and the trend continued after President Mirziyoyev took over from Islam Karimov, Uzbekistan’s first and only president, after he died in 2016.
Looking at incomes in dollar terms and the story is a bit more complicated, as Karimov, shocked at the ballooning current account deficit as consumers rushed to buy imported products in the late 1990s, introduced a harsh exchange rate regime to keep most of the hard currency in the state’s coffers, and killed off international investors’ interest
in the process. However, Karimov
did manage to diversify the economy during the boom years of the noughties, which led to genuine quality of life gains in both nominal and dollar terms.
A “feel good” factor arrived in decade- long boom after the US sub-prime crisis. Both nominal and dollar-term incomes were rising by 20-50% a year, with real incomes climbing too as the Central Bank of Uzbekistan managed to hold inflation to between 3%-8% for two decades.
The pace of growth of nominal wage growth slowed in the next “teenies” decade to 15-20% a year but remained well ahead of the official inflation rate.
Everything changed after Mirziyoyev took over and began to remove the tight controls on the economy. Inflation soared in about 2017 as price controls came off, and then in August 2017
the currency controls were removed. Inflation jumped to around 20% and income in dollar terms halved, although continued to rise in nominal terms.
In 2000 the soum was trading at UZS24 to the dollar but sank a 100-fold over
the next two decades to UZS2,000 at the end of Karimov’s life.
The soum slumped in value again from UZS4,153 to the dollar at the start of August 2017 to UZS8,105 a week later after exchange rate was freed.
Since then, the soum exchange rate has become more stable but continues to depreciate slowly. It is currently hovering at UZS11,198 to the dollar as of November 21.
All in all, between 2000 and 2022 the soum has experienced a 146-fold devaluation.
The currency dynamics have had a big impact on real wages in dollar terms. At the start of the new millennium annual incomes in Uzbekistan looked relatively high, rising to around $3,600 in 2002, but this was deceptive, as without
a freely traded currency the local currency was kept artificially strong. The dollar-equivalent wages shown in the chart for the noughties should be taken with a pinch of salt as a result.
It wasn’t until the teenies decade following the US sub-prime crisis that real incomes started to significantly get better, and Uzbeks remain grateful to Karimov for the real material improvement he brought.
Under Mirziyoyev nominal annual incomes have continued to accelerate to
Uzbek nominal and dollar annual income
top UZS400mn a year – double the level they were when he took office – which has been fuelling the “feel-good” factor.
Real incomes have also risen, as in parallel to freeing the currency the CBU has also launched a successful campaign to anchor inflation and bring rates down, further improving the spending power of the average household.
Inflation has risen from a low of 9.7% in March to 12.2% in October, fed by the global food and energy crises,
but it is expected to fall back to 11% next year, according to the Asian Development Bank.
Taken together, the rising nominal incomes and falling inflation have resulted in big gains in spending power for the average household in the last few years. When Mirziyoyev stood
for re-election in 2021, he won by a landslide.
While Uzbekistan has come in for some criticism because the elections were not free and fair by international standards, with vox-popping voters on election in Tashkent, this correspondent could not find a single person who voted against Mirziyoyev: he is genuinely popular with the electorate. When asked why, all the voters had the same answer: their lives had materially and visibly improved since he came to power.
Source: State Commitee for Statistics, bne IntelliNews
www.bne.eu