Uzbekistan has had considerable success in attracting billions of dollars of aid, concessional debt, and co-investment, which has helped transform the economy since 2017. GDP, which dropped to USD 50 billion in 2018 (the year after the ending of the dual-currency system led to a steep devaluation of the som) is set to reach USD 94 billion this year and the President’s flagship “Uzbekistan-2030” strategy sets a target of USD 160 billion by the end of this decade.
Most of the money raised and attracted over the past six years has been for major infrastructure improvements and expansion, especially for renewable energy projects. To achieve the 2030 GDP target of USD 160 billion, and the associated target of boosting household incomes to move Uzbekistan into the high-income category, the country needs to be more successful in attracting investment into the manufacturing and service industries which can create well-paid employment and boost exports while reducing imports.
This is at the core of the Uzbekistan-2030 strategy and the focus of the current phase of economic, business, and industrial reforms. This phase started in late 2022 when Uzbekistan’s President Uze announced a major reform of the civil service and some state agencies. He followed that with more changes, such as in the Presidential Administration, in 2023. These changes directly addressed the criticism by many foreign investors and multi-nationals about the difficulty in navigating the Soviet-legacy bureaucracy to get deals done and permissions agreed upon.
Challenges and opportunities are clearer
The reform process is continuing this year with such measures as tax reforms, the start of the phasing out of fuel and energy subsidies as part of budget reforms, the setting up of a specific agency to tackle corruption and arming it with tougher legislation, and the start of a campaign aimed to tackle the grey economy which the government estimates at UZS 165 trillion.
The next phase aims to improve the business climate. The main effort will be to attract investment into manufacturing sectors (for job creation, import reduction, and export growth); into agriculture, textiles, and technology (key export growth areas and major employers); into the service sectors (to help the government deliver on its promise of better healthcare, education, housing, etc.); and into improving infrastructure.
Investment in electricity remains critical
Expanding and improving basic infrastructure remains the critical objective for Mirziyoyev’s government and the electricity sector is top of that list. Despite the huge investment already made into the country’s electricity generating capacity, especially in renewable energy sources the future program is even bigger. The country needs to generate a lot more electricity if it is to ensure an adequate and stable supply to support the ambitious economic growth and diversification program (to 2030) and it needs to significantly expand and modernize the existing distribution system. The government also plans to be a major exporter of electricity to neighboring states in the next decade.
The other major infrastructure project is to expand trade routes, especially rail and road. Several major routes have opened or have been expanded but to make a real difference, two long talked-about routes need to be built. These are the China-Kyrgyzstan-Uzbekistan (CKU) route, which would provide greater integration for Uzbekistan into the Chinese Belt and Road Initiative (BRI) network, and the Trans-Afghanistan railroad which would offer destinations in Pakistan and the Iran Gulf ports for Uzbekistan produce. After several years of debate, the CKU project has finally been approved by the three transit states, although it is unclear how long the project will take to complete. Both will need to be built and become operational if the President’s ambitious trade expansion plans are to be realized.
Water scarcity
The other major problem facing the country is the threat of water scarcity. Several estimates, including from the World Bank and government agencies, predict a significant shortfall for both drinking water and agriculture use unless remedial actions are taken now. President Mirziyoyev has declared 2024 as the transition year to deal with the looming water crisis, a crisis that would be made worse if the Qosh Tepa canal being built in Afghanistan is not managed efficiently. The threat is that, even if the canal is built properly, it may take up to 20 percent of the water from the Amu Darya river which is the main water source for Uzbekistan’s most important agricultural region. But reports and photographs suggest the canal is already leaking badly so the total water loss for Uzbekistan could be a lot more.
In terms of regional and geopolitics, Uzbekistan is in good shape and has no major concerns for investors. The Qosh Tepa canal could become a source of future conflict between Tashkent and Kabul but officials in both capitals say that pragmatic solutions will be found. Kabul needs Uzbek electricity and Tashkent wants to build a transit railway across Afghanistan.
EU and U.S. eye Uzbek critical minerals
The U.S. and EU want access to the critical minerals present in Uzbekistan – as they aim to wean themselves off Chinese and Russian supplies. They are also targeting more uranium from the country. But China and Uzbekistan have signed the “All-Weather” agreement to greatly expand investment and trade cooperation, and Russia has agreed to a major, and heavily discounted, supply of gas and oil to ensure Uzbekistan does not suffer a repeat of the energy outages experienced in recent winters and will have a fuel source for the ambitious growth planned for petrochemicals.
Uzbekistan provided the canvas for the so-called Great Game between Great Britain and Russia throughout the nineteenth century. There is a new Great Game taking place in Central Asia today, with Russia, China and the west taking the lead. But Uzbekistan has much greater control of its destiny than was the case in the nineteenth century and is in a much stronger position to take advantage of the incentives on offer from the Great Game players – incentives in the form of investment and trade deals which can help President Mirziyoyev deliver his very ambitious reforms and to make Uzbekistan the main economic and political power in Central Asia.
