Uzbek Leader Mirziyoyev Wins More Time For Reforms

Five years just was not enough. After being elected in a landslide in the fall of 2021 to a second five-year term, just two years later, the president of Uzbekistan Shavkat Mirziyoyev decided to change the constitution. Five years would be extended to seven years. He held a new election to see if people would go for it. And they did. He won again with 87% of the roughly 15 million voters, giving him seven fresh years.

Uzbekistan is following in the footsteps of neighboring Kazakhstan, which has been modernizing and opening up to Western capital under two consecutive leaders. The fact that China has had big plans for the region in its old Silk Road initiative, known as One Belt, One Road, helped Kazakhstan attract new money from abroad. Uzbekistan is next. Mirziyoyev is the first president elected in the country (2016) since the fall of the Soviet Union. Prior to him, Islam Karimov kept the country rather staid and old school, complete with the usual issues of human rights matters.

Since taking over, he has visited the White House once under President Trump and has developed closer ties with Washington. Like Kazakhstan, the country’s politics are fairly non-aligned. Russia is one of its biggest trading partners on the export side. For imports, China is No. 1.

“The re-election effectively cements the ongoing partnership between the two countries. With a seven-year term ahead of him, Shavkat Mirziyoyev will be able to roll out a new set of reforms and continue implementing his liberalization goals, signaling that investment from China will keep coming into the country,” wrote Mikhail Karpov, an associate professor at the School of Asian Studies at the Russian Higher School of Economics in the South China Morning Post on Aug. 9. “Uzbekistan has the foundation to become a regional economic powerhouse.”

Trade between Uzbekistan and China has doubled in recent years, reaching nearly around $9 billion in 2022. The country’s economic output that year was valued at just over $83 billion, according to the World Bank.

Uzbekistan’s exports to China have increased by around 14% from the start of the century and are shifting now from raw materials to raw materials and manufactured goods.

China is a nice foundation for Uzbekistan in terms of capital and economic growth, but it will not be enough.

Uzbekistan is not considered an emerging market. So far, it is rarely in any portfolios other than a handful of frontier market funds, usually trading in the country’s BB- rated bonds. But it is the second recipient of corporate investment in Central Asia after Kazakhstan. In comparison, in 2016, Mirziyoyev’s first year, foreign direct investment there was behind that of Turkmenistan, a country on almost no investor’s radar.

Global investors seem to like him and the country. I have written about famed investor Jim Rogers “poking around Uzbekistan” before and he likes it. I wanted to give him a break from commenting on this one now that Mirziyoyev went from having two years left to seven.

So I asked Quinn Martin, president of Bluestone, a boutique investment bank focused on Central Asia. He now lives full-time in the old-world city of Tashkent, the Uzbek capital.

“It’s a lovely place,” he tells me. “We are very happy here.”

Uzbekistan: Promises, Promises

If there is one thing developed countries hungry for capital are good at, it is talking about “reforms”. It usually means a better judicial system and legal rights for corporations, and increased access for foreign investors looking to buy land, securities, set up companies and joint ventures with some.

“Shavkat Mirziyoyev has steered the ship 180 degrees in a new direction,” Martin tells me. “He has repaired relations with all of the country’s neighbors, liberated civil society, and is racing ahead with a program to make the economy open and modern. There are still loads of challenges, but the progress to date is quite remarkable.”

Privatization is still cherished. It got a bad rap in the late 90s in Latin America during the Washington Consensus years, sputtered out and died along with words like “deregulation”. But in Central Asia, there does not seem to be much in the way of public outrage against privatization.

The Hungarian bank OTP bought Ipoteka Bank, a state-owned bank there, back in 2022. The State Assets Management Agency (SAMA) of Uzbekistan sold their 57% stake in the local Coca-Cola KO franchise to Coca-Cola Icecek of Turkey in 2021; SAMA also sold its position in the Hyatt hotel in Tashkent, which opened in 2016, and was acquired by the Abu Dhabi Development Fund in 2022 and a Singaporean conglomerate, Indorama, took Uzbekistan’s largest fertilizer producer Kokand Superphosphate off the government’s hands in 2019.

“Lots of smaller assets have been sold to local investors,” Martin says.

The next wave of privatizations is dubbed the “People’s IPOs.” The government plans to sell small stakes – up to 2% of the total equity – of a wide range of companies to local retail investors via shares. Uzbek gold mine, Novoi, and the copper producer, Almalyk, are both on the list for this share offering to the local retail investor. “These are world-class assets. Our international investor clients will likely only be able to buy shares in the secondary market,” Martin says.

Mirziyoyev’s new privatization plan, announced in March, implies selling 1,000 state-own enterprises in different regions, 1,500 acres of land and more than 10 million square feet of real estate.

According to the International Monetary Fund, state-owned enterprises still account for more than half of Uzbekistan’s economic output and dominate key sectors.

Chris Weafer, CEO of Macro Advisory, an investment research firm focused on Russia, Eastern Europe and Central Asia, has an office in Tashkent, too. Weafer has been involved in this neck of the woods since the fall of the Soviet Union, having worked for one of Russia’s first investment firms, Troika Dialog, and later as a chief strategist for Sberbank, a state-owned Russian bank. He left there prior to all the Russia drama, in late 2013, to go on his own with Macro Advisory. He says Mirziyoyev has been a success story for Uzbekistan but is pushing back against traditional politics and policies left over from Soviet times.

“I think he has lost patience with the lack of progress and is also blaming the bureaucracy for stalling the process,” he tells me.

Last December, Mirziyoyev announced a major change to the perma-state apparatus to reduce headcounts and convert the bureaucracy into one more focused on investment, growth, and investment promoter. Mirziyoyev replaced the Mayor of Tashkent and initiated an investigation into corruption and inefficiency.

“This election allows him to show that he has full public backing for his plans,” says Weafer. “He intends to pursue them more aggressively now.”

Investments from the U.S. are also rising, namely in commodities.

In May, industrial gas producer Air Products and Chemicals of Allentown, PA announced $1 billion investment deal with Uzbekistan’s government to acquire a processing unit of state-owned energy company Uzbekneftegaz.

In January, the American Soybean Company reportedly agreed to invest more than $300 million in growing soybean in Uzbekistan on previously unused lands and process them for soyoil and soymeal.

For Weafer, these next few years will be crucial to maintaining public trust. Uzbekistan will have to deliver. “People are going to expect the same fast pace of reform as before,” he says.