Economy of Uzbekistan

Mother Earth Travel > Country Index > Uzbekistan > Map Economy History

For several years now, the Government of Uzbekistan has stated that it is committed to a gradual transition to a free market economy. Very recently, the government signed an agreement with the IMF to move toward current account convertibility. If implemented, these steps will move Uzbekistan toward a market economy, although much structural reform is needed, particularly in the area of improving the investment climate for foreign investors and in freeing the agricultural sector from smothering state control. Until now, continuing restrictions on currency convertibility and other government measures to control economic activity have constrained economic growth and led international lending organizations to suspend or scale back credits.

The government has made some progress in reducing inflation and the budget deficit, but government statistics understate both, while overstating economic growth. There are no reliable statistics on unemployment, which is believed to be high and growing. The economy is based primarily on agriculture and agricultural processing; Uzbekistan is a major producer and exporter of cotton. It also is a major producer of gold with the largest open-pit gold mine in the world and has substantial deposits of copper, strategic minerals, gas, and oil. The government is taking some modest steps to reduce the barriers that constrain the nascent private sector.

GDP and Employment
The government claims that the GDP rose 4.5% in 2001. Unemployment and underemployment are very high, but reliable figures are difficult to obtain, as no recent credible surveying has been done. Underemployment in the agricultural sector is particularly high--which is important given the fact that 60% of the population is rural-based. Many observers believe that employment growth and real wage growth has been stagnant, given virtually no growth in output.

Labor
Literacy in Uzbekistan is almost universal, and workers are generally well-educated and trained. Most local technical and managerial training does not meet international business standards, but foreign companies engaged in production report that locally hired workers learn quickly and work effectively. Foreign firms generally find that younger workers, untainted by the Soviet system, work well at all levels. The government emphasizes foreign education and each year sends about 400 students to the United States, Europe, and Japan for university degrees, after which they have a commitment to work for the government for 5 years. Some American companies offer special training programs in the United States to their local employees.

With the closure or downsizing of many foreign firms, it is relatively easy to find qualified, well-trained employees, and salaries are very low by Western standards. Salary caps, which the government implements in an apparent attempt to prevent firms from circumventing restrictions on withdrawal of cash from banks, prevent many foreign firms from paying their workers as much as they would like. The threshold for the maximum income tax rate of 33% is 245,000 soum ($363) per year. Labor market regulations in Uzbekistan are similar to that of the Soviet Union, with all rights guaranteed but some rights unobserved. The only known case of workers striking since independence was of Turkish construction workers striking against their Turkish employer over working conditions.

Prices; Monetary/Fiscal Policy
Since the fall of 1996, Uzbekistan's national currency, the soum, has not been freely convertible. The government sets three level exchange rates, all highly overvalued, but most businesses and individuals are unable to buy dollars legally at these rates, so a widespread black market meets the unmet demand. President Karimov repeatedly pledged to restore convertibility in 2000, but failed to do so. As a result the IMF closed its office in Tashkent in the spring of 2001. On November 1, 2001, the government devalued the official exchange rate to a level nearly equal to the so-called "commercial" rate of approximately 693 soum/$ and eliminated the use of this "official rate" for all but accounting purposes.

In March 2002, the government devalued the exchange booth rate from approximately 920 to about 1,300, much closer to the curb market rate. The Staff Monitored Program, signed by the Uzbek Government and the IMF, envisions lowering the gap between the so-called official and commercial rates and the curb rate to no more than 20% by the end of June 2002. Outstanding external debt reached $4.5 billion as of end of 2001, and tax collection rates remain high, due to the use of the banking system by the government as a collection agency. Implementation of the SMP would likely cause tax revenues to fall, however, and the government has few traditional tools to conduct open market operations in the area of monetary policy. In April, a new decree was promulgated which allows for the Central Bank to sell bonds, essential to the conduct of monetary policy. Technical assistance from the World Bank, Office of Technical Assistance at the Treasury Department, and from the UNDP is being provided in reforming the Central Bank and Ministry of Finance into institutions which conduct market-oriented fiscal and monetary policy.

Agriculture and Natural Resources
Agriculture and the agroindustrial sector contribute more than 40% to Uzbekistan's GDP. Cotton is Uzbekistan's dominant crop, accounting for roughly 45% of the country's exports (gold is second at 22%). It also produces significant amounts of silk, fruits, and vegetables. Virtually all agriculture involves heavy irrigation. Agricultural workers receive very low wages, because the government uses the difference between the world prices of cotton and wheat and what they pay the farmers to subsidize highly inefficient capital intensive industrial concerns, such as factories producing automobiles, airplanes, and tractors.

Consequently, agricultural productivity is low, with many farmers focusing on producing fruits and vegetables--for which supply and demand determine the price--on small plots of land, as well as smuggling cotton and wheat across the border with Kazakhstan and Kyrgyzstan in order to obtain higher prices.

Minerals and mining also are important to Uzbekistan's economy. Gold is most prominent; Uzbekistan is the world's seventh-largest producer, about 80 tons p.a., and holds the fourth-largest reserves. Uzbekistan has an abundance of natural gas, used both for domestic consumption and export; oil almost sufficient for domestic needs; and Uzbekistan has significant reserves of copper, lead, zinc, tungsten, and uranium. Inefficiency in energy use is extremely high, given the failure to use realistic price signals (tariffs) to cause users to conserve energy and failure of domestic producers and the government to reap potential revenues from the energy sector.

Trade and Investment
Uzbekistan has adopted a policy of import substitution reflected, for example, in its strong focus on increased wheat and oil and gas production. Given the multiple exchange rate system and the highly over-regulated trade regime has led to both import and export declines since 1996, although imports have declined more than exports, as the government squeezed imports to maintain hard currency reserves. Most "legal" import growth has been in capital equipment related to investment projects. Currency convertibility restrictions have severely constrained trade and new investment. Uzbekistan's traditional "trade" partners are NIS states, notably Russia, Ukraine, Kazakhstan, and the other Central Asian countries. Non-NIS partners have been increasing in importance in recent years, with the U.S., Korea, Germany, Japan, and Turkey being the most active.

Uzbekistan is a member of the IMF, World Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development. It has observer status at the World Trade Organization and is a member of the World Intellectual Property Organization. It is a signatory to the Convention on Settlement of Investment Disputes Between States and Nationals of Other States, the Paris Convention on Industrial Property, the Madrid Agreement on Trademarks Protection, and the Patent Cooperation Treaty. In 2002, Uzbekistan was again placed on the special "301" Watch List for lack of intellectual copyright protection. Although Uzbekistan has patent, copyright, and trademark laws dating from 1996 and compiled with technical assistance from experts, nonenforcement has caused the country to again be placed on the Watch List.

Uzbekistan's lack of currency convertibility has caused foreign investment inflows to dwindle to a trickle, in fact Uzbekistan has the lowest level of FDI in the CIS. Since Uzbekistan's independence, U.S. firms have invested roughly $500 million in Uzbekistan. Large U.S. investors include Newmont, reprocessing tailings from the Muruntau gold mine, Case Corporation, manufacturing and servicing cotton harvesters and tractors; Coca Cola, with bottling plants in Tashkent, Namangan and Samarkand; Texaco, producing lubricants for sale in the Uzbek market; and Baker Hughes, in oil and gas development. No large new investments have taken place from the U.S. in the last 5 years.

GDP: purchasing power parity - $60 billion (2000 est.)
GDP - real growth rate: -1% (1999 est.), 2.1% (2000 est.)
GDP - per capita: purchasing power parity - $2,400 (2000 est.)
GDP - composition by sector:
agriculture: 27%
industry: 27%
services: 46% (1997 est.)
Inflation rate (consumer prices): 29% (1999 est.)
Labor force: 11.9 million (1998 est.)
Labor force - by occupation: agriculture and forestry 44%, industry 20%, services 36% (1995)
Unemployment rate: 5% plus another 10% underemployed (December 1996 est.)
Budget:
revenues: $4.4 billion
expenditures: $4.7 billion, including capital expenditures of $1.1 billion (1997 est.)
Industries: textiles, food processing, machine building, metallurgy, natural gas
Industrial production growth rate: 6% (1999 est.)
Electricity - production: 43.47 billion kWh (1998)
Electricity - production by source:
fossil fuel: 85.2%
hydro: 14.8%
nuclear: 0%
other: 0% (1998)
Electricity - consumption: 41.327 billion kWh (1998)
Electricity - exports: 5.1 billion kWh (1998)
Electricity - imports: 6 billion kWh (1998)
Agriculture - products: cotton, vegetables, fruits, grain; livestock
Exports: $2.9 billion (1999 est.)
Exports - commodities: cotton, gold, natural gas, mineral fertilizers, ferrous metals, textiles, food products, automobiles
Exports - partners: Russia 15%, Switzerland 10%, United Kingdom 10%, Belgium 4%, Kazakhstan 4%, Tajikistan 4% (1998)
Imports: $3.1 billion (1999 est.)
Imports - commodities: machinery and equipment, chemicals, metals; foodstuffs
Imports - partners: Russia 16%, South Korea 11%, Germany 8%, United States 7%, Turkey 6%, Kazakhstan 5% (1998)
Debt - external: $3.2 billion (1998 est.)
Economic aid - recipient: $276.6 million (1995)
Currency: Uzbekistani som (UKS)

SOURCES: The World Factbook, U.S. Department of State

Mother Earth Travel > Country Index > Uzbekistan > Map Economy History