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Uzbekistan’s remarkable resurgence is a tale of growth, reform, potential

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In an era characterized by global turbulence and uncertainty, there are few stories as compelling as that of Uzbekistan. A country that has weathered geopolitical and economic challenges, Uzbekistan’s remarkable journey of transformation and resilience has set it on a path of sustained growth that’s captured the attention of the world. Emerging from a history of self-isolation, Uzbekistan made a bold move in 2016 by opening its doors to international engagement.

The heart of Uzbekistan’s success story lies in its demographic dynamics. Over the past three decades, the nation’s population has nearly doubled, reaching almost 36 million people.

By the middle of the current century, projections suggest it will exceed 50 million. From an economic perspective, the contemporary demographics and age structure of Uzbekistan’s population are favorable. With high fertility rates, the age pyramid is expansive meaning that a big part of the population is young and middle-aged. This demographic composition contributes to economic growth, especially considering that the labor force is relatively cost-effective.

But it’s not just the numbers that set Uzbekistan apart; it’s the quality of education that has paved the way for its rise. The country boasts almost 100% literacy, a testament to its commitment to knowledge and human development. Impressively, education represents 22% of the state budget – a figure that surpasses education budget allocations in the United States (13%), China (11%), and Europe (10%). Collaborations with foreign universities further underscore Uzbekistan’s dedication to nurturing an educated populace and positioning itself as an educational hub in the region.

A defining feature of Uzbekistan’s economic resilience is its unique approach to reforms. Unlike many post-Soviet states that embraced “shock therapy” during the 1990s, Uzbekistan opted for a more measured strategy. The nation retained a significant state sector and pursued an active industrial policy. This approach resulted in a GDP trajectory that experienced a modest decline followed by remarkable growth after 1996. The resilience was further demonstrated as Uzbekistan navigated through the 2008 financial crisis and the challenges of the COVID-19 pandemic. Over the past twenty years, Uzbekistan’s real GDP has grown by 6.8 times.

Central to Uzbekistan’s transformation is President Shavkat Mirziyoyev’s visionary leadership. His reforms, initiated in 2017, set the nation on a trajectory of openness and economic reformation that was unheard of during the 30-year rule of his predecessor, Islam Karimov. Export restrictions were dismantled, currency exchange was liberalized and customs duties were significantly reduced, simplifying trade procedures and inviting foreign investment.

In the field of taxation, VAT has been reduced from 20% to 12% and the corporate income tax rate has also been lowered from 20% to 12%. Foreign investors’ income in the form of dividends from shares is exempt from corporate income tax for 3 years. These measures collectively laid the foundation for a business-friendly environment that catalyzed growth.

Another strategic axe of the reforms is the shift of the economy from the public to the private sector. By 2025, the privatization of six major state banks will be completed. The initial step was selling 75% of the government’s stake in “Ipoteka-Bank” to Hungary’s OTP Bank.

Continuing these privatization reforms, in March 2023, Mirziyoyev approved a new program that will proceed in three directions: selling shares of 1,000 enterprises, auctioning 1,000 real estate properties, and organizing IPOs for major enterprises like NGMK, AGMK, and Uzmetkombinat. To implement this program and prepare companies for privatization, global consultants from the BIG 4 are being hired.

Due to these transformations, the role of the private sector has significantly increased in Uzbekistan’s economy. Companies, which previously progressed step by step under substantial constraints, have rapidly grown into large industrial holdings that significantly support the real sector of the country’s economy. One notable example of such a transformation is the Orient Group, which combines assets in development & construction, logistics, FMCG retail, metal constructions, and agriculture. In recent years, business transparency has improved for potential investors in terms of legal structuring, transparency relating to ultimate beneficial ownership (UBO), and the presence of IFRS reporting and audits conducted by the BIG4 firms.

Despite being a landlocked country with complex logistics due to its lack of direct access to the World Ocean, Uzbekistan is actively engaging in regional and Eurasian infrastructure projects such as the “Belt and Road Initiative.” Additionally, the country is focusing on exporting innovative services. Through the launch of the IT Park project, the export of IT services has grown by a factor of 82 over the last five years, reaching nearly $300 million annually. IT Park currently hosts around 1,500 companies, with 213 of them having foreign capital, including major players like EPAM, Exadel, East Games, and more.

Uzbekistan’s commitment to progress transcends economic boundaries; it’s a nation aware of its environmental responsibilities. By 2030, Uzbekistan aims to increase the share of renewable energy sources in its electricity production up to 25%. As a result, the ESG agenda is becoming increasingly relevant for the country and is being controlled at the state level. Collaborations with global players have led to the establishment of solar power plants that promise a greener future.

Notable among these are a 100 MW solar photovoltaic station built by France’s Total Eren in the Samarkand region, a 200 MW solar power plant by Phanes Energy Holding III B.V. from the Netherlands in the Navoi region, as well as three solar power plants by Masdar (UAE), which will be commissioned in the Surkhandarya (456.6 MW), Jizzakh, and Samarkand (both 220 MW) regions by the end of the current year. These projects, along with the prospective nuclear power plant project, will help avoid power cuts that occurred during the severe cold of January and the unprecedentedly hot July of 2023. Starting from June 1st, 2023, Uzbekistan has begun implementing a “green certificates” system based on requirements to limit environmental impact in production processes.

From January 1, 2024, a modern Monitoring, Reporting, and Verification system will be established in the climate change sector, covering all greenhouse gases.

The central theme of Uzbekistan’s story is one of transformation through foreign investment, transparent reforms, and an unyielding commitment to growth. Administrative reforms have streamlined processes for investors, making Uzbekistan an attractive destination for foreign capital. In the span of a year, around 100,000 enterprises were established and foreign investments tripled, signaling a burgeoning economy.

In July, Mirziyoyev announced the introduction of positions for investment managers within the structure of the Ministry of Investments, Industry, and Trade. These managers will directly report to the minister and will oversee the largest investors. Additionally, the president has allocated around $200 million for the construction of infrastructure to accelerate the launch of 89 regional investment projects, including 110 km of roads, 480 km of power transmission lines, 90 km of water supply and sewage networks, as well as 96 substations and transformers.

This offers a glimpse into the unfolding chapter of a new Uzbekistan. It’s a story of resilience, innovation, and determination – a story that paints a picture of a nation not confined by challenges, but propelled by them.

As Uzbekistan continues to carve its destiny, it stands as an inspiring testament to the potential for growth and progress, even in the face of global uncertainty.

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CEO of Orient Group – one of the largest private holding companies in Uzbekistan with interests in real estate development & construction, logistics, retail, and downstream steel production. He previously held various executive roles in international metals and mining companies with locations in Belgium, France, Italy, Canada, Russia, and Ukraine.

In an era characterized by global turbulence and uncertainty, there are few stories as compelling as that of Uzbekistan. A country that has weathered geopolitical and economic challenges, Uzbekistan's remarkable journey of transformation and resilience has set it on a path of sustained growth that's captured the attention of the world. Emerging from a history of self-isolation, Uzbekistan made a bold move in 2016 by opening its doors to international engagement.

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