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September 8, 2017 www.intellinews.com I Page 3
Kazakhstan, where it grew to $9bn in 2016, after a 126% surge from 2015. Kazakh FDI last amounted to below half a billion dollars back in 1994. Fresh investment opportunities in Uzbekistan – with a population of 32mn people, and with the largest consumer market in the region — should now pose a challenge to the 18mn-strong Kazakhstan. At the same time, Uzbekistan has a high birth rate and will overtake Poland in the next decade in terms of the number of citizens to become the third most popu- lous country in Eurasia after Germany and Russia.
Even if Uzbekistan does not triumph in overtak- ing Kazakhstan as the top destination for foreign investment – it lacks the significant hydrocarbon resources of its neighbours – the country still has a lot of space for catching up after nearly 20 years worth of missed investment opportunities.
There could be a limit to the upsides of currency reform. It will undoubtedly improve the prospects for foreign investors and exporters, but importers, so far, seem unlikely to enjoy the full benefits of pre-Karimov regulation-era trade. In March, Mir- ziyoyev made it clear the country intends to keep some of its protectionist policies in place for the time being, 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 increas- ing local content in manufacturing facilities that assemble products from foreign imports. But it is not unreasonable to expect Uzbekistan to imple- ment or maintain quotas and tariffs in order to keep its own products competitive. The transition to a fully open capital account will be gradual, if it reaches that goal at all.
“[Uzbekistan’s] customs duties for imported goods range from zero to more than 100%, but the average rate is approximately 30%,” according to a 2017 update by the US export.gov website.
“Since January 2010, 5% customs duties are ap- plied to imported live animals, milk and cream, wheat, and computer hardware; 10%-30% duties
are applied to clothing, furniture, metals, food- stuffs; and more than 50% duties are applied to luxury consumer goods such as cigarettes and cars,” it added.
Inflation worries
One of the key challenges standing in Uzbeki- stan’s way is the possible impact of inflation on existing Uzbek businesses following the adoption of the floating exchange rate regime. To address this, the country announced it had $20bn in hard currency reserves in July – the first time it has re- ported its gold and foreign currency reserves. 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 International Monetary Fund (IMF) said on July 24. The gold and foreign exchange reserves of $20bn is enough to cover two years of imports – a very large reserve.
The IMF mission welcomed the Uzbek authorities' plan to frontload reforms of the foreign exchange system, it said in a statement published following a visit to Uzbekistan between July 17-24, and rela- tions with the international fund are also expected to warm as it reengages with the government after decades of minimal contact.
Before the country can proceed, it needs to solve the issue of existing double-digit inflation, which remained hidden behind the dual exchange rate mechanism. Despite official figures reporting an- nual consumer price hikes of 5-7%, independent press and economic reports from 2016 suggest the real rate of inflation is running at between 20% and 30% a year. The danger is that freeing the currency will bring this inflation out into the open.
To curtail unreported double-digit inflation, the Central Bank of Uzbekistan dramatically hiked
its refinancing rate by 5 percentage points a few months ago to 14% after barely touching the over- night rate for years.