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Uzbekistan’s struggling private sector

Arvind Jain's picture

Exactly one year ago, the Financial Times gave a positive gloss on Uzbekistan’s economic prospects. One of the sources for the FT’s take on Uzbekistan was Alisher Ali Djumanov, a managing partner at Eurasia Capital Management and (as the article points out) the only alumnus of Insead in the country. He had this to say:

Recent supercharged high-flyers Russia, Ukraine and Kazakhstan have now found themselves at the epicentre of the ongoing crisis in the region…Uzbekistan, the fourth largest economy in the CIS, is in better shape because of government policies which at the time were considered to be too rigid and less pro-market. There is still a question of whether this policy will be better for the economy in the long term but, in the current environment, the conservative approach will benefit Uzbekistan. We believe the long-term investment story for Uzbekistan is intact.

While Djumanov may be correct that certain sectors in Uzbekistan have good prospects, there is another side to this story. Hard data on the private sector suggest that most firms in Uzbekistan face pretty substantial hurdles. The latest results from Enterprise Surveys paint a sad picture:

  • An alarming 56% of firms report that informal payments are expected to be paid to public officials in order to get things done. This is the highest percentage in all of Eastern Europe and Central Asia.
  • Electrical infrastructure is lacking. Uzbekistan is the country with the longest power outages in the region.
  • Among Uzbek firms, external financing is the exception, not the rule. Uzbekistan is the country with both the highest level of internal financing for investments and the lowest level of bank financing in the region.

Credit

A recently published Country Note, a new endeavor from Enterprise Surveys, talks in more detail about some of the obstacles firms face, including a lack of foreign markets for manufacturing products.

However, there is one bright spot that Djumanov should be happy to hear about—the multi-year data reveal an improved business environment regarding tax regulations. Both the visits from tax inspectors and related informal payments became less frequent between 2005 and 2008.  A likely result of reforms centered on business taxes.