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Uzbekistan - Economy and industry overview 2016/2020

Обновлено: 23 февр. 2022 г.

Economy is largely driven by mining sector and oil and gas extracting. We expect those sectors to expand within the industrial production. Energy and commodity prices will favor the Uzbek economy be keeping the economy growth at levels above 5%.

In January- June 2018, nominal GDP amounted to UZS152,533bn and in real terms expanded by 4.9%. Construction performed the most and increased by 9.7% followed by the industrial production that grew 6.1% in the period. Agriculture expanded by 2.7%. Mining industry output increased its share in industrial production by 25.1% in 1H2018 while its volume expanded by 34.3%. Manufacturing started to shrink from 72.5% in 1H2017 to 66.8% in 1H2018. Manufacturing output increased by 0.9% evidencing decrease vs. 1Q2018 when it increased by 1.8%. Production of services shared 45.3% (-4%% yoy) of GDP structure in 1H2018 and registered the lowest growth rate 1.7% yoy.

Figure 1 GDP growth in Uzbekistan in 2010-2021.

Source: CSU, company’s calculations

Production of services contributed the most to GDP growth in 2017, expanding by 6.9% yoy. Construction increased by 5.6% yoy while industrial production grew by 4.6% yoy. Agricultural production increased by 2.0% yoy. Structural analysis of GDP evidenced expansion of mining industry from 15.2% in 2016 to 19.6% in 2017. Manufacturing lost 3.4% of its share in GDP compared to the previous year and accounted for 71.4%.

Forecast: We believe that the economy will expand by 5.2% in 2018 and will slow down to 4.9 % in 2021. We base our projections on the assumption that the economy should not only be adjusted to liberalization and changes in monetary policy but also should be aligned with the market mechanism of the economy since some spheres still state regulated. Global restructuring of the economy takes time and the overall performance of the economy is dependent upon success of this process. Along with the structural changes the changes management of the economy should take time. We observe expansion of mining industry output within GDP structure. Uzbekistan increases gold production and export of the precious metal in Switzerland. We believe that the expansion will continue in the future leading to further concentration of exports by product. Amounts of 70 and 90 tons of gold (38% and 44% of exports) exported to Switzerland in 2016 and 2017 is an absolute record of the country within 2001-2017. Gold quotes will show slight decrease until 2020 and will be slightly below USD1,300 per t. oz and 2021 will be above it providing enough pickings for implementation of reforms in the country.


The government seeks for new investments by improving investment climate in the country. Currently investments mostly go into the mining industry. The largest energy projects (nuclear plant, CASA1000 project, Kambarata-1 hydropower plant) will make Uzbekistan the largest energy hub in Central Asia.

Total fixed capital investments in 1H2018 increased by 13.1% yoy and amounted to UZS 41,239bn (USD5,1bn). Fixed capital investments show continuous expansion within GDP structure from 25% in 1H2017 to 27% in 1H2018.We expect the ratio will level at this level in the forecast period. The investments mostly went in Tashkent (24%), Bukhara region (11%) and Navoiy region (10.7%).

Figure 2 Local and foreign investments, USDbn in Uzbekistan

Source: CSU, company’s calculations

Breakdown of Investments in fixed capital by object was the following: building and construction works 54.1%, acquisition of machinery and equipment 34% and other capital investments made up 11.9%. Most of the investment (local and foreign) went to manufacturing 23.3% while in mining and quarrying went 15.8%. In transportation and storage were invested 8.4% while in electricity and steam and gas supply went 6.2%. Retail and whole sale accounted for 5.9% of total investments.

Figure 3 Foreign investments in 2017 by sector Figure 4 Foreign investments in 1H2018 by sector

Source: CSU, company’s calculations Source: CSU, company’s calculations

Total foreign investments (FI) and foreign loans (FL) amounted to UZS8,595.5bn or 26.4% of total capital investments in the period. Investment to GDP ratio in 1H2018 declined and made up 3.3%, decline was 1.9%. Most of the capital investments were directed in crude oil and natural gas production 36.1% of the total FIs and FLs. The second large sector was manufacturing with 31.2% of investments and was followed by electricity, gas and power supply with 15%. The rest sectors received 3.1% to 3.8% of the investments in 1H2018. Annual investment analysis for 2017 evidenced that bulk of the investments went into mining and quarrying 57% while in manufacturing went 13% of the investments.

Forecast: We believe that investments will largely went in mining and quarrying. Manufacturing that requires hefty initial capital investments and has a longer recoupment period will be less preferable. At the same time, we believe that sector of services will be attractive, especially tourism since it has the most preferable tax regime as well as exemption from taxes if an enterprise is SME-size. We believe that nominal growth of capital investments in 2018-2021 will average 18.8% and will share nor less than 25% of GDP structure.


Inflation began to subside but risks remain on the side of demand pulled inflation as well as cost pushed one. Slight devaluation of the national currency will support inflationary pressure on the economy.

Current inflation in Uzbekistan is the aftermath of the devaluation that occurred in September 2017. Devaluation was accompanied by money supply expansion (+44.4% yoy in the end of 2017) as well as by credit expansion in the country. Monetary as well as non-monetary factors sent consumer prices upwards urging economy to adjust to new conditions of openness and liberalization. The CBU switched to the policy of inflation targeting and set the national currency to free float.

In the very beginning, the major driver of the inflationary pressure in the country was food inflation that surged as high as 22.2%, leaving non-food inflation and payable services inflation as low as 11.5%-11.9%. Food prices hit the ceiling at 26.8% in January of 2018 and subsequently started to subside to 19.4%.

Figure 5 Consumer price inflation by component, %

Source: SCU, company’s calculations

In 1H2018, non-food and payable services prices started to gain momentum and as of March 2018, it reached 19.5% while payable services prices hit 13.7% in May and subsided in June to 12.9%. Obviously in 2H2018, payable services prices (though some of them are state managed) will largely contribute to inflationary pressure upon the economy while food inflation will level or will be on downside. Current data show that non-food inflation slowed to 17.7%.

Current situation with consumer prices gives a feeling that economy has adjusted itself to new monetary policy of the Central Bank and devaluation impetus slowly started to fade away. Along with the real sector adjustment, we observe money market adjustments. Foreign currency channel that contributed most to the inflation in the beginning reached its equilibrium and current FX rate dynamics shows appreciation of the national currency that in its turn minimizes its influence on inflation. However, we envisage the probability of inflationary pressure over the economy on the following assumptions and our observations of the economy:

1. Expansion of aggregate demand supported by credit expansion (+37.4% in 1H2018) as well as by money inflows from the Russian Federation (+14% yoy) and wage growth by 23.4% yoy might contribute to economy overheating in the future. That, to our opinion, will be the major factor that will build up inflationary pressure over the economy on side of consumption, i.e. demand pulled inflation is highly likely. The current lending structure evidence that most of the credits issued under the

2. Energy prices are on upside and that will set transportation charges up in the country as well as charges of production. Cost pushed risks of inflation still stand tall and will support payable services prices at the current levels.

3. We exclude the import of inflation from the major trade partners since the countries run inflation that is a mile lower than in Uzbekistan. Thus, in the Russian Federation inflation leveled at 2.5% yoy, in Kazakhstan at 5.9 yoy and in China at 2.1%. Thus, we do not expect import of inflation though trade channels. However, we expect it on behalf of exports from Uzbekistan. Export of agricultural products is preferable for the local producers since the equilibrium between local and external prices for food has not been reached yet. Thus, it might cause local deficit of food products sending prices up.

Figure 6 CPI projections 2010-2021, %

Source: IMF, SCU, company’s calculations

We use afore-mentioned assumption in our inflation projection model and results evidences that inflation will remain high and average 16.3 -17.8% in 2018-2021. We do not expect refinance rate to decrease this year from current 14% since the uncertainties related to inflationary pressure will persist. We are pessimistic that the NBU will curb inflation to 15% this year.

FX rate

National currency is getting stronger supported by capital inflows, robust trade and money transfers from abroad but widening current account deficit along with stronger US dollar will weaken USDUZS in 2019-2021

In the fall of 2017, the NBU (National Bank of Uzbekistan) had set the national currency in free float. Under the framework of “Primary measures of foreign currency liberalization” the NBU devalued the national currency from USDUSZ 4,210 to USDUZS8,100. The level at USDUZS8,100 was chosen since the proceedings from external trade operations were exchanged at such a level at that time. It took circa 6 months for the currency to devalue to its lowest level at USDUZS8,188 in March 2018 and then it started to appreciate to US dollar despite the restrictive monetary policy of US financial authorities in 2017-2018. Currently USDUZS exchange rate strengthened to USDUZS7,783-7,790. Foreign capital inflow, trade balance surplus as well as copious inflows of migrant workers from the Russian Federation and non-residents are the major factors that make the national currency to strengthen under the current economic conditions. Besides, the country has accumulated GIR at USD27.4bn that is comfortably enough to cover 8 months of imports. According to the NBU’s available data, current account in 1Q2018 made up with USD532.6m.

Figure 7 USDUZS foreign exchange projections, 2010-2021

Source: NBU, company’s calculations

Our forecast on current account is that it will remain in a surplus in 2018 and then will be in deficit that will widen to 2021. Imports will outpace exports since the economy is in need to buy expensive machinery and equipment for the manufacturing and energy sector of the country. Strengthening US dollar will also press the value of the national currency down.

External trade

Trade balance will narrow on economy becoming more open. Imports will outpace exports since the economy requires machinery and equipment to renovate its fixed assets and build the new ones. Consumer and budgetary demand will extend asking for more imports. Current account will remain in tiny surplus in 2018 will in 2019-2021 the account will become deficit and will widen to USD2,145m.

According to the State committee of Uzbekistan, external turnover in 1H2018 made up USD17,687m. Exports reached USD7,794m while imports amounted to USD9,895m. Trade balance deficit widened from USD156m to USD2,101m. In 2017, exports increased by 15.2% yoy and reached USD13,928m while imports increased by 7.6% yoy and amounted to USD13,055m. Trade balance in 2017 became positive and accounted for USD872m (in 2016, -USD42m).

Figure 8 External trade of Uzbekistan, USDm

Source: SCU, company’s calculations

The major trade partners of the country in 2017 were Switzerland 43.1% of total exports, 17.3% shared China and the Russian Federation 12.1%. Kazakhstan, Turkey and others shared 8.6% -9.7% of exports. Imports by country were less concentrated and major trade partners of Uzbekistan the Russian Federation (22.9%), China (20%), Kazakhstan (10.9%) and Republic of Korean (10.3%) represented circa 68.2% of total imports.

Analysis of exports by product in 2017 evidences that Switzerland, the largest trade partner of Uzbekistan, received mostly gold, including gold plated with platinum (99.9%). The amount of gold increased from 70 tons in 2016 to 90 tons in 2017. Silver exports amounted to 120 tons in 2017. In 2016, silver exports in Switzerland were not registered.

In 2017, China received mostly mineral fuels, mineral oils and products of their distillation; bituminous substances (44.1%), cotton (27%), copper and copper articles (8.9%), plastics and plastic articles (7.1%) and inorganic chemicals, organic or inorganic compounds of precious metals (6.6%) that totaled 93.7%.

Imports from China to Uzbekistan at 26.2% consisted of machinery, mechanical appliances, of 10.8% of electrical machinery and equipment, iron and steel 7.2%, plastics and plastic articles 7.1%, articles of iron and steel 6.5%.

The Russian Federation received mostly cotton (24%), Articles of apparel and clothing accessories (19.7%), plastics and plastic articles (12.9%), edible fruits and nuts, melons (8.2%) and vehicles (7.3%) that altogether made up 72.1% of total exports. Turkey received copper and copper articles (53.3%), cotton (14.4%), plastics, plastic articles (11.75), zinc and zinc articles (10.9%), edible fruits, and nuts, melons (5.7%).

Figure 9.Exports by country Figure 10. Imports by country

Source: UN, company’s calculations Source: UN, company’s calculations

Imports from the Russian Federation to Uzbekistan included mineral fuels, mineral oils and products of their distillation (14.6%), iron and steel (14.2%), wood and wood articles (13.4%)

Exports to Kazakhstan from Uzbekistan at 32.5% consisted of edible fruit and nuts, melons, of mineral fuels, mineral oils and products of their distillation (15.5%), edible vegetables and certain roots and tubers (10.25), plastics and plastic articles 7.7% and zinc and articles (5.0%). Afore-enumerated items totaled 70.9% of exports in Kazakhstan.

Imports from Kazakhstan to Uzbekistan shared 22.6% of iron and steel, mineral fuels, mineral oils and products of their distillation 18.9%, cereals 16.7% and products of the milling industry; malt; starches; inulin; wheat gluten (9.15), machinery, mechanical appliances 8.7% and aircraft and spacecraft 5.3%.

Therefore, external trade breakdown evidences that 44.2% of exports consist of gold and silver and mostly went to Switzerland. Cotton accounted for 10% of exports and extensively exported in the neighboring countries. Mineral fuels, mineral oils and products of their distillation that shared 9.2% of exports in 2017 has multilateral destination as well as plastics and plastic articles that reached 5.4% of exports. Copper, zinc went mostly to China. Uzbekistan is dependent upon iron and steel imports (8%), vehicles (9.2%), pharmaceutical products (5%). Machinery, mechanical appliances formed 18.8% of imports and mostly imported from China and the Russian Federation.

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