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World economies

July 02, 2018

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UZBEKISTAN, a secular unitary constitutional republic, located on the ancient Great Silk Road between Europe and Asia is the most populous country in Central Asia.

It gained independence after the collapse of Soviet Union in 1991 but the political system remained highly authoritarian and the government has largely maintained its Soviet-style command economy.

Subsidies, production, prices and access to foreign currency are tightly controlled by the state. The agriculture and manufacturing industries contribute 18.5 per cent and 34.4pc to the GDP. The service industry accounted for 47pc of GDP.

Uzbekistan has a strong agricultural base. Although the importance of cotton has declined significantly since the country’s independence, it still ranks the world’s second-largest exporter and fifth largest producer of cotton. Other main agricultural products included vegetables, fruits, grain, and livestock.

The country also produces silk and wool and is attempting to diversify its agriculture towards fruits and vegetables. Manufactured products include textiles, food processing, machine building, metallurgy, mining, hydrocarbon extraction, and chemicals.

The country is also rich in gold, coal, zinc, copper, tungsten, uranium, and silver, gas and oil. It is a big producer of gold and operates the largest open-pit gold mine in the world.

With the gigantic power-generation facilities of the Soviet era and an ample supply of natural gas, Uzbekistan became the largest electricity producer in Central Asia. Renewable energy constitutes more than 23pc of the country’s energy sector with hydroelectricity and solar energy having 21.4pc and 2pc share respectively.

After independence, however, the Uzbek government chose a strategy of gradual reform and import substitution, aimed in particular at achieving energy self-sufficiency. A deliberate government policy of economic diversification, export development and investment delivered results.

In an effort to improve the investment climate, the government took incremental steps to reform the business sector and address impediments to foreign investment in the country. In 2016, economic growth slowed to 6pc as estimated by the IMF while the government estimated 7.8pc growth during that year.

The rise of former prime minister Mirziyoyev to power opened up the economy. In 2017, the government devalued the official currency rate by almost 90pc, making it fully convertible at market rates.

A loosening of fiscal and monetary policies, along with price and foreign exchange liberalisation caused inflation to pick up which reached 13pc. But the country’s external position remains strong.

At the same time, growth of domestic employment remained below 1pc and unemployment rate was steady at 4.9pc. The Central Bank of Uzbekistan expects the economic growth between 5.5-6pc in 2018 and 2019. The ADB predicts Uzbek economy to grow by 5.6pc in 2018 and 2019.

For 2018, the authorities plan to restrain additional on-lending operations and save about half of the expected additional revenue from improved tax administration while adjusting social safety net spending and public wages for actual inflation. If firmly implemented, these measures would reduce the augmented fiscal deficit in 2018 to only 1.25pc of GDP.

The Uzbek government is looking to expand opportunities for small and medium enterprises and prioritises increasing foreign direct investment. The country remains highly centralised and nationalised. Levels of corruption remain high.

Kazakhstan

Kazakhstan is geographically the largest of the former Soviet republics, excluding Russia. It gained its independence following the collapse of the Soviet Union in 1991. Its economy is the largest in Central Asia.

Besides enormous oil reserves, estimated at 30bn barrels, it possesses minerals and metals such as uranium, copper, and zinc and has considerable agricultural potential, featuring livestock and grain and well developed space infrastructure. The industrial sector rests on the extraction and processing of natural resources. It also has the world’s second largest reserve of uranium and is the world’s biggest producer.

The country holds 75pc of the hydrocarbon reserves of the Caspian Sea. It could become the fifth largest oil producer in the world by 2020, once the giant field of Kashagan with 40pc of the country’s proven reserves becomes fully operational.

The growth of the economy is mainly based on oil and gas revenues which account for 35pc of GDP and 75pc of exports. Kazakhstan depends on Russia to export its oil to Europe. It also exports oil directly to China. Since independence major investment in the oil sector has brought rapid economic growth.

The agricultural sector accounts for 4.8pc of the country’s GDP and employs 18.1pc of the workforce.

Despite low yields per hectare, Kazakhstan is the 6th largest global producer of cereals, and practically self-sufficient in food production. However, the importance of this sector has been decreasing. Industry represents 34.4pc of GDP and employs 20.4pc of the workforce.

Kazakhstan’s vast hydrocarbon and mineral reserves remains the backbone of its economy. The economy suffers from an overreliance on oil and extractive industries and the government has made initial attempts to diversify its economy by targeting sectors like transport, pharmaceuticals, telecommunications, petrochemicals and food processing for greater development and investment. Despite efforts to diversify, the economy is still driven by oil exports and its economic performance is mainly dependent on oil prices.

The IMF forecasts GDP to increase by 3.2pc in 2018 and 2.8pc in 2019. FocusEconomics panellists see growth moderating to 3.6pc in 2018 and 3.5pc in 2019 due to a notable anticipated slowdown in exports and the government efforts to phase out its countercyclical fiscal policy to bring the budget deficit down to 1.1pc from 2.6pc in 2017.

Published in Dawn, The Business and Finance Weekly, July 2nd, 2018