I’ve been here before. The main hall at Berlin’s European School of Management and Technology was standing room only by the time the first speaker was introduced at the German-Uzbek Business Forum held on January 14.
This was the first event in a week of talks that culminates in the arrival of the new-era president of Uzbekistan, Shavkat Mirziyoyev, at the end of this week. In late 2016, he became the second ever president of the post-Soviet young country after former president Islam Karimov passed away. In power since before the country became independent, Karimov turned the most populous Central Asian republic into a hermit state with his old school dictatorial tactics and a throttling grip on the largely agrarian economy.
Mirziyoyev has changed all that. In little more than a year the World Bank has Uzbekistan as one of the world’s top 10 most active reformers and there was a buzz in the hall as delegates mingled wearing nametags that identified a host of Germany’s most powerful companies and banks.
It reminded me of Belarus’s first attempt at an international roadshow in November 2008 in London, which I had the pleasure of chairing (the organizers told me bne IntelliNews was the only western publication that actually covered Belarus).
Minsk was on the road to entice foreign investors to come to that small northern republic. The difference was Belarus’s timing was awful. London was reeling from the aftermath of the Lehman Brothers collapse a few weeks earlier and the global financial system was in meltdown. Still, 400 City bankers turned out to hear what the delegation from Minsk had to say. Talking to the Ministry of Economy in Minsk six months later, they were bitterly disappointed as there was almost no follow-up.
Bit more luck with timing
The Uzbeks, at least, have had a bit more luck with their timing and the German side has gone all in to make them welcome as if Uzbekistan can pull things off then it truly is a great investment opportunity. The audience was listening keenly as of all the European countries to go to, Germany gets it best when it comes to Eastern Europe investments. Berlin is definitely a better choice to hold an investment summit than London.
"The City of the Dead" in Samarkand, Uzbekistan
That was apparent from the speakers and panels. The event was organised by the Osteuropaverein der Deutschen Wirtschaft, and despite the pariah status that was given Karimov’s republic there were still plenty of Germans to put on the panel with real experience of working in Tashkent.
MAN Truck & Bus AG has had a joint venture in Uzbekistan to build trucks and buses for more than a decade. The representative of Commerzbank says his institution has been working in Uzbekistan since Soviet days, but adds that recently it has become “easier” to offer credits and the bank is increasing its mandate focusing on SMEs and micro businesses.
A host of sectors are on offer and all need investment. The keynote speaker was Prime Minister and Chairman of the State Committee for investments Suhrob Kholmuradov who gave a polished performance as he ticked off the sectors that were on offer.
Top of the list was tourism and the names of Uzbekistan’s legendary cities of Samarkand, Bukhara and Khiva were mentioned by nearly everyone. The country is awash in history and beautiful scenery. Alexandria Eschate, “Alexandria the furthest,” was founded by Alexander the Great at the southern end of the lush Fergana valley in Uzbekistan, and the virgin Scheherazade enticed King Shahryar with her 1,001 Arabian Nights stories in the Uzbek city of Samarkand to stop him cutting her head off.
“The tourism sector has great potential but we lack the infrastructure,” Kholmuradov told the audience. “If any of you come and build a hotel then the state will partially reimburse the investors.”
This was a hard sell. The Uzbeks at the end of last year eased visa restrictions on 45 countries and on January 15 introduce a visa-free regime for German tourists visiting Uzbekistan for 30 days. According to the State Committee for Tourism of Uzbekistan, 4,890 German citizens visited Uzbekistan in 2016, 7,200 in 2017 and 18,090 in 2018. This trend is bound to continue.
But there were plenty of more serious sectors on offer including pharmaceuticals, agriculture, food processing, engineering, and Uzbekistan already has a well developed automotive sector thanks to the former joint venture with Korea’s Daewoo in Andijan, as well a moderate oil and gas sector represented at the summit by the national champion Uzbekneftegaz. The speakers downplayed Uzbek’s cotton production, which has traditionally been the republic’s bread and butter (and features prominently in the national emblem) and the gold fields. They were subject to an early investment by US firm Newmont mines that went badly wrong.
The national emblem of Uzbekistan. The national colours blue, white, and green replace the Soviet motto "Workers of the world, unite!" where the red ribbon previously stood.
But these sectors are not the real appeal of the country. Its most attractive resource is its people – something that the new leadership seems to understand.
With more than 30mn citizens, Uzbekistan is by far the most populous republic in Central Asia, and it is a young, fast-growing population, which remains an exception in the former Soviet Union. At current expansion rates the size of the population is due to overtake Poland in the next two decades to make Uzbekistan the second most populous country in the former Soviet bloc and it's the only one of the five 'Stans to share a border with all the others. That makes it a natural production and distribution centre for the whole region.
Kholmuradov laid out many of these opportunities, but like the Belarusians before him most of what is on offer remains just potential. Of the speakers on the panels several already had a toe in the water, but after two and half decades of being locked up the republic is only at the very start of the process of opening the door.
However, unlike Belarus, Mirziyoyev has already wracked up a string of real reforms to show he is serious about change. In addition to the more liberal visa regime, Tashkent has just introduced private ownership of land, albeit only for buildings and not agricultural land, that also gives a foreign owner an automatic residency visa. This reform lays the basis for a real estate boom, which is usually one of the first sectors to take off in the early days of a transition.
The government is also in the process of easing rules pertaining to the ownership of banks and could spark a wave of acquisitions such as Kyiv saw in 2005 and 2006 when international banks rushed in with their eye on the large domestic market for financial services, paying crazy x6 book value for bank licences until the first Maidan revolution popped the bubble. The London-listed TBC bank from Georgia is already planning to enter the market with mobile-only banking services.
Most importantly of all, one of the first things Mirziyoyev did was to liberalise the exchange mechanism in September 2017. Until recently Uzbekistan was one of the very few former Soviet Union (FSU) countries that still had a black market currency exchange rate. The liberalisation reforms are ongoing.
First flush of enthusiasm
I was in Tashkent in 1995 when it went through its first flush of investor enthusiasm. All the above reasons to invest were there then too and the capital was full of companies and entrepreneurs hoping to cash in on Uzbekistan’s promise. The locals were plying “suitcase trading”, flying off to buy hard to find goods brought back as airline baggage and sold at a huge mark-up. the Turks had moved in with the first supermarkets.
But then Karimov got the bill and gave a famous speech. “We are not going to waste $1bn of our precious hard currency reserves to pay for [imported] chewing gum.” He clamped down on exchange and within six months, unable to get their hands on dollars and repatriate profits, all the investors were gone.
This time round it will be easier. Neighbouring Kazakhstan, Uzbekistan’s regional rival, has flourished and as bne IntelliNews reported recently the heatmap of per capita GDP and average wages shows the Kazakh economy and average incomes at a three times higher level than Uzbekistan. It's now obvious what needs to be done. Mirziyoyev even intends to go one step further and is currently in talks with his neighbours to create a “Silk Visa” that would effectively untie the whole region into a single economic union and create an even bigger market.
Kazakh President Nursultan Nazarbayev (left) is mulling introducing a "Silk Visa" regime with his counterpart Uzbek president Shavkat Mirziyoyev
The UzRoadShow was off to a good start. Part of the summit included a string of contract signing ceremonies and the Finance Ministry hopes foreign direct investment (FDI) will increase from $1.68bn in 2018 to more than $4bn by 2020. The country is currently hot. The number of enterprises with foreign capital operating was up by a third last year (33.8%) y/y to 7,371 as of 1 December 2018. Mirziyoyev’s arrival next week will surely lead to more deals and agreements, but there is still a long way to go.
Mirziyoyev has a very ambitious plan. The Uzbek government’s investment programme for 2019 is set to include 3,000 projects worth $16.6bn, Podrobno.uz news agency reported on January 9.
Still, Uzbekistan’s very backwardness coupled with its clear commitment to make a change, on display in Berlin this week, makes it a convincing proposition. The country’s debut eurobond expected in the first quarter of this year will be the next acid test of how big the renewed enthusiasm is.