Uzbekistan

In-depth country-focused analysis on Uzbekistan's economic, political and operational risk environment, complemented by detailed sector insight

Uzbekistan

Our comprehensive assessment of Uzbekistan's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Uzbekistan, as well as the latest industry developments that could impact Uzbekistan's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Uzbekistan before your competitors.

Country Risk

Uzbekistan Country Risk

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CORE VIEWS

  • The Kazakh government will prioritise aid to state companies over households in its policy response to declining public revenues from lower oil prices. Nevertheless, the pace of fiscal consolidation will fall short of eroding living standards to the extent that they destabilise the regime of President Nursultan Nazarbayev.

  • The collapse of Prime Minister Djoomart Otorbayev's cabinet in April has heightened regulatory and political uncertainty, casting a dark cloud on the country's mining sector and foreign direct investment outlook. A worsening balance of payments outlook will further ramp up downside pressure on the Kyrgyz som, which is already under pressure from weakening remittance inflows, further stoking inflation.

  • Severe summer flooding has already darkened the already subdued real GDP growth outlook for...

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Uzbekistan Operational Risk Coverage (9)

Uzbekistan Operational Risk

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Uzbekistan poses multiple risks to investors with regards to crime and security, the majority of which relate to the endemic corruption which permeates at all levels of society and the country's proximity to unstable countries such as Afghanistan, which increases the threat of terrorism. Businesses therefore face considerable costs associated with bribery and extortion, while instability along Uzbekistan's borders increases conflict risks. Uzbekistan receives a score of 31.0 out of 100 for overall Crime and Security Risk, placing it second from bottom out of 31 states in Emerging Europe.

The greatest risks facing investors in Uzbekistan are associated with the lack of transparency in government proceedings and business operations, which is reflective of both high levels of corrupt practices, a lack of regulations to combat crime and a weak rule of law. This leaves businesses highly vulnerable to bribery, fraud, and...

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Uzbekistan Crime & Security

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Uzbekistan poses a high degree of security risks to foreign business travellers, expatriates, and tourists. For the most part, the greatest risks to these groups are petty crime such as pick-pocketing and theft, rather than violent crimes. Uzbekistan's murder rate, at 3.7 per 100,000 in 2012, was significantly lower than its fellow Central Asian republics Kazakhstan and Kyrgyzstan, where the rate is around nine per 100,000. Organised crime and drug-related crime also exist in Uzbekistan, but are unlikely to affect foreigners. Corruption is a major problem in Uzbekistan, and erodes the integrity of the country's law enforcement agencies.

Terrorism poses a significant threat to the Uzbek state, and combating this is arguably the government's top security priority. The main threat has stemmed from the Islamic Movement of Uzbekistan (IMU), although a major crackdown drove its militants into neighbouring countries. Uzbekistan's adjacency to...

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Uzbekistan Labour Market

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There are significant risks to investors associated with both the labour market and the education system, with particular problems including low levels of workforce participation, low levels of secondary school enrolment and poor educational attainment by those who do attend. These disadvantages are compensated for somewhat by the benefits of a cheap and flexible workforce. We have awarded Uzbekistan a score of 45.2 for Labour Risk, putting it close to the bottom of the table when compared to regional peers; only Albania and Bosnia-Herzegovina perform worse.

Weaknesses in the availability of labour are perhaps the most disappointing element of the employment landscape in Uzbekistan, given the country's strong economic growth, low costs and flexible legal regime. Despite a good level of female employment, participation in the workforce is 54.4%, the third lowest proportion in the region. Causes include the country's low level of urbanisation...

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Uzbekistan Logistics

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BMI View: Uzbekistan's geographic location, as a double-landlocked country in the middle of Central Asia poses considerable risks to potential investors. A lack of adequate road and rail connectivity hampers supply chains and importing and exporting goods is costly and time-consuming. Although fuel and electricity costs are low, this benefit is largely offset by the extensive risk of interruptions to supply due to poor quality power infrastructure. The lack of adequate water protection is also a substantial risk, with Uzbekistan considered to be one of the world's most vulnerable states in terms of water security. Overall, Uzbekistan is a regional underperformer on the BMI ...

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Uzbekistan Trade & Investment

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Although it has enjoyed economic growth above 7% for the past three years, Uzbekistan is a challenging investment destination, with foreign direct investment (FDI) into the country faltering in recent years. Key deterrents for investors include a deeply corrupt and inefficient public administration, stifling border controls and high levels of government involvement in private economic activity. However, a stable financial system and lucrative natural resource opportunities mean investors are likely to continue to take an interest in the country.

We have given Uzbekistan a score of 40.8 out of 100 for Trade and Investment Risks in our Logistics Risk Index. This is low by regional standards, putting Uzbekistan ahead only of Kyrgyzstan and Tajikistan. Uzbekistan's poor performance results from a number of factors, with a government policy of discouraging and replacing imports probably the most serious issue facing the country, particularly as it...

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Uzbekistan Industry Coverage (6)

Autos

Uzbekistan Autos

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BMI View:  BMI's outlook on auto production and sales in Kazakhstan and Uzbekistan remains positive, despite a slowdown in sales figures in the first eight months of 2014. Both countries boast solid macroeconomic fundamentals and both are seeing strong demand for cars from their citizens.

Turning to production first, Kazakh auto production looks set for strong growth over BMI's five-year forecast period to 2017. This reflects new production plans by carmakers  Toyota Motor and Russia's AvtoVAZ and Kazakh AutoBIPEK.

Kazakh auto production looks set for strong growth over BMI's forecast period to 2018. We estimate...

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Defence & Security

Uzbekistan Defence & Security

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BMI View: Kazakhstan's determination to develop a solid domestic defence manufacturing base has been exemplified in its strong push to setting up numerous joint ventures and partnerships with key foreign industry players as well as its efforts to organise its own international exhibition of weapons and military equipment - KADEX. With a somewhat unstable regional environment, Kazakhstan will see to its defence expenditure being increased over our forecast period in an effort to be ready to combat any potential breaches in security. However, BMI believes that if it is to truly excel in this field and achieve its goal of creating a strong...

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Oil & Gas

Uzbekistan Oil & Gas

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BMI View: Our outlook for Uzbekistan's gas sector remains positive as the gas production and export figures are forecast to soar in 2015 and 2016. However, the country's oil sector is expected to continue on a downward slope rendering the country increasingly more dependent on refined fuels imports and subjecting it to potential fuel shortages.

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Headline Forecasts (Uzbekistan 2013-2019)
2013 2014 2015f 2016f

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Petrochemicals

Uzbekistan Petrochemicals

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Russia's economic problems stemming from its trade war with the West are having a negative impact on the Central Asian petrochemicals market with Kazakhstan's imports dropping sharply in 2014. BMI's latest Kazakhstan and Uzbekistan Petrochemicals Report anticipates further falls in imports as both states prepare for a surge in capacity in 2016.

Both Kazakhstan and Uzbekistan will have sufficient production to cover domestic needs with a surplus likely to stimulate polymers conversion and boost exports. The Central Asian market is robust and growing fast, providing a sound basis for new petrochemicals capacities.

Most consumption will be focused on finished products with a lack of domestic plastics converters to fulfil demand. This could change as domestic petrochemicals capacities evolve, enabling local sourcing of cheap raw material for the manufacturing of end products.

  • The ongoing...

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Pharmaceuticals & Healthcare

Uzbekistan Pharmaceuticals & Healthcare

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BMI View: Weaker remittances inflows from expats working in Russia will reduce households' disposable incomes in Uzbekistan, and we expect this will impact out-of-pocket pharmaceutical spending. Nevertheless, the expansion of healthcare spending by the government will provide continued support to growth in pharmaceutical sales growth over the medium term.

Headline Expenditure Projections

  • Pharmaceuticals: UZS2,111.9bn (USD915mn) in 2014 to UZS2,611.9bn (USD0.96bn) in 2015; 23.7% in local currency terms and 10.4% in US dollar terms. Forecast unchanged from last quarter.

  • Healthcare: UZS8,109.0bn (USD3.5bn) in 2014 to UZS9,544.2bn (USD3.7bn) in 2015; 17.7% in local currency terms and 5.1% in US dollar terms. ...

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Telecommunications

Uzbekistan Telecommunications

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BMI View: State interference and political risk remains the most important risk of doing business in the Central Asian region. This was again amplified as government involvement became a key theme over the first six months of 2015. In Turkmenistan, a new state-owned company was created to spur competition, in Kyrgyzstan, state-owned Kyrgyz Mobile Company was sold to state-owned Mega C om and in Uzbekistan, state-owned Uzmobile launched a GSM network to better compete in the mobile market. This therefore does not appear to be a risk that is going to end in the short or long term. Kazakhstan is the most attractive of the region and its ascension to the WTO in June 2015 should lead to wide-...

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