Uzbekistan was nearly closed off to foreign investors until 2016. Unlike Russia, Kazakhstan and other Soviet states, However in recent years, Uzbekistan has started to change in a big way.
In 2017 the new president started a reform program, simplifying business regulations, divesting SOEs, floating the exchange rate, allowing visa free access for tourists and business people from many countries, etc.
Capital controls weren’t removed until 2019. Given Uzbekistan opened up during a time that frontier markets are extremely out of favor there hasn’t exactly been a rush of foreign capital into the country. One source said foreigners only hold 2% of outstanding shares. There are few places less integrated into (and therefore less correlated with) the world economy that are still legal for US citizens to invest in.
Many companies listed in Uzbekistan are extremely cheap. What might function a a catalyst to increase foreign interest in Uzbekistan stocks? The upcoming privitization could be the key.
Uzbekistan never went through large scale privatization during the 1990s. It functioned like an imitation of the old soviet system and had the same president from 1989-2016. However, they recently announced a new privatization drive.
Uzbekistan will fully or partly privatize over 620 state-owned companies and properties to accelerate the Central Asian nation’s transition to a market economy, a presidential decree announced on Wednesday.
The Diplomat, in an article about a major hotel project in Taskhent, highlighted the importance of foreign investment privatization:
Privatization in Uzbekistan is heralded for two main reasons: It funnels hard currency into state coffers and it signals a fertile business environment for potential investors. The government needs to publicize both, as its currency has proved chronically weak against the U.S. dollar and the “new course” devised by President Shavkat Mirziyoyev aims to make Uzbekistan the new focus of foreign investment into Central Asia. Neighboring Kazakhstan has in fact been comparatively more successful in privatizing state assets, only because of the lack of competition in the region and the foreign investors’ focus on its natural resources.
However, investors need to be careful in Uzbekistan. The Diplomat points out shady dealings in certain foreign investment deals.
Still, foreign investment in Central Asia often looks suspiciously circular, possibly originating from the home country, re-routed through offshore companies, and re-invested in the country. These speculative moves are often used either to conceal the final beneficiary of the deal or to launder money. “Customers” in the British Virgin Islands are a major buyer of Kazakhstan and Tajikistan‘s exports; mailbox companies with one or two registered employees in offshore locations own stakes in several major enterprises across Central Asia. Until recently, a holding in Singapore connected to one of Kazakhstan’s richest men owned Almaty International Airport, the busiest airport in the region.
Uzbekistan is in the middle of economic reform the likes of which we haven’t seen in a generation. This is definitely a market to watch.
See Also:
STATE-OWNED ENTERPRISES IN UZBEKISTAN: TAKING STOCK AND SOME REFORM PRIORITIES