Business with Karimov: Uzbekistan what is important for the Russian economy

Serious illness of 78-year-old leader of Uzbekistan Islam Karimov has brought possible change of power in this country, which is a major trading partner of Russia and the largest supplier of cheap labor to the Russian market. Hong Kong Council for trade calls Uzbekistan’s largest undeveloped Central Asian market — there are around 32 million people, although Uzbekistan is still far from becoming an attractive consumer market. This is one of the poorest former Soviet republics, occupies 125-e a place on the GDP per capita (at purchasing power parity, world Bank data).

The commodity exchange is under the shadow of China

Uzbekistan is the fourth largest trade partner of Russia among CIS countries. The trade turnover between the two countries in the first half of 2016 amounted to $1.27 billion, or 29% lower than in the first half of the previous year). Exports from Russia to Uzbekistan, according to the FCS, in the first half of 2016 is estimated at $929,1 million the Most significant contribution (at cost) accounts for the supply of fuel and petroleum products ($181,9 million), ferrous metals and products from them ($160,6 million), wood ($of 118.7 million).

In recent years the volume of Russian exports to Uzbekistan decreased, said the head of chair of international Commerce, Ranepa Vladimir Salamatov. In 2014, as estimated by the Department to , Russia was the largest exporter in Uzbekistan (23%), but in 2015, dropped to second place (22%), behind China. Beijing as a whole recaptures Russia, Central Asia, and Uzbekistan is no exception to this trend. In 2015, bilateral trade of China with Uzbekistan reached us $3.5 bln (Russia — $2,84 billion), China became the largest source of foreign direct investment in the Uzbek economy, in June 2016 Beijing and Tashkent raised the status of bilateral relations to “comprehensive strategic partnership”.

Imports from Uzbekistan in Russia in recent years also falls, but in the first half of 2016, it grew 18% to $of 340.1 million Of which nearly $96 million account for cotton, $64.8 million — for clothing.

Personality standing at the head of the States, “play a very significant role,” says Salamatov, but Moscow and Tashkent, and so is “base growth and strong signal, it is advantageous to expand cooperation. Although Uzbekistan withdrew from the Eurasian economic Union in 2008, he has not ceased to cooperate with Russia, for example in the framework of the SCO, so the prospects for the growth of mutual trade there, he said.

Any serious changes in the economic relations between Russia and Uzbekistan in the change of the Uzbek President should not wait, says a leading expert of the Institute “development Center” HSE Sergey Pukhov. The reasons for lower exports to Russia from the Uzbek authorities there, he said, and the question of import substitution of own production, if Tashkent decide to take this step, will take years. The issue of relations with Russia is rather political, Pukhov adds.

The army of migrants

Uzbekistan is traditionally the largest foreign supplier of manpower into Russia (most migrants in Russia are from this country) and, consequently, the largest recipient of remittances from Russia, the statistics of the CBR. However, the economic crisis in Russia led to the fact that Uzbeks the direction is already not so attractive.

In 2013 Uzbek migrants in Russia send home money equivalent to 12% of Uzbekistan’s GDP (based on data from the Central Bank and the world Bank). In 2015, transfers from Russia to Uzbekistan in 2015 was reduced to 5% of the Uzbek GDP. According to the Bank of Russia, last year’s remittances of individuals from Russia to Uzbekistan made up us $3.06 billion — a reduction of 46 and 54% compared to 2014 and 2013 respectively. This year, remittances continued to fall during the first quarter it declined by almost half, to $378 million (compared to the first quarter of 2015). The European Bank for reconstruction and development (EBRD) predicts that economic growth of Uzbekistan will slow in 2016 to 6.5% (from 8% last year), largely due to the collapse of migrants ‘ transfers from Russia.

Since the beginning of 2015, Russia has introduced for labour migrants from the CIS the patent, giving the right to legal work. In the first half of 2016 the labour patents in General have brought to the budgets of subjects of the Russian Federation about 21 billion rubles, said on 17 August the chief of the main Directorate for migration, Ministry of internal Affairs of Russia Olga Kirillova. Last year, labor patents brought to the regional budget of 33.3 billion rubles (issued 1,732 million patents), reported at the end of 2015, the head of the FMS Konstantin Romodanovsky. Each with a work permit the migrant pays a fixed monthly amount set by the regional authorities (in Moscow in 2016 is 4200 RUB per month). According to the Moscow Department of economic policy, 43% of those who received labour patents of migrants are citizens of Uzbekistan, 30% of citizens of Tajikistan, 16% of Ukrainians. For the year to 1 August 2016, the citizens of Uzbekistan were issued 175 thousand patents, a spokesman for the Moscow Department of economic policy.

In early 2016, according to the FMS, in Russia there were 1.88 million Uzbeks, but by April 2016 (latest available data), there were 1.75 million requested from the chief of the interior Ministry on migration issues fresh data, but has not yet received a response. In 2015 in Russia arrived 74.2 thousand citizens of Uzbekistan, and left 94,9 thousand, that is, out-migration was 20.7 thousand persons, from the data of Rosstat.

In relations of Moscow and Tashkent factor Uzbek migrants working in Russia, the main, says researcher, Center for comprehensive European and international studies Marcel Salikhov. In his opinion, the number went to Russia citizens of Uzbekistan can increase dramatically, if in the case of leaving Karimov in the country will have instability. “In the case of the bloody transfer of power more people there will decide that there is nothing to do and have to go to Russia,” he explains.

Difficult climate for business

The volume of Russian investments into the economy of Uzbekistan exceeded $6 billion over the past few years, said in April, President Vladimir Putin. Priority investment is energy. In Uzbekistan, the work of “Gazprom” and LUKOIL. Moreover, Gazprom imports natural gas from Uzbekistan in December 2015, the group signed a contract with Uzbekneftegaz for the purchase in 2016, he’s got 4 billion cubic meters of gas. In addition, in 2006 “Gazprom” is engaged in development of new fields in the Ustyurt region of Uzbekistan. The volume of its investments in exploration in Uzbekistan from 2006 to 2013 exceeded $383 million.

LUKoil is implementing three projects: Kandym — Khauzak — shady field development of the South-Western Gissar and exploration of the Uzbek part of the Aral sea within the international consortium. In the first two projects under production sharing agreements LUKOIL plans by 2020 to produce up to 18 billion cubic meters of gas. The LUKOIL agreement with Uzbekneftegaz on the Kandym — Khauzak — shady signed in 2004 for 35 years. And in April 2016, LUKOIL started the construction of Kandym gas processing plant in the southwest of Uzbekistan. The project will be built a gas processing plant with capacity of 8.1 billion cubic meters of gas per year, 370 km of pipelines, 160 km of roads and collection system natural gas. In General, the company’s investment in the Kandym project, expected to exceed $4.5 billion.

Russian companies mostly refrain from working in Uzbekistan — the economy is “very specific”, it is closed in itself, said Salikhov: there is a difference between the official and market exchange rate, in addition, different valued cash and cashless funds, he says. Large investments from Russia, in addition to investments of LUKOIL, almost there, the expert adds, the latter does not depend on the factor “Karimov” and in any case will not be affected. On the whole the economy in Uzbekistan attractive business from Russia can begin to invest in it, if the government will change economic policy, for example in the direction of liberalization of the exchange rate. “Russian investors did not go to Uzbekistan for a simple reason — you can come into the country and invest money, but you do not pick up”, — said Salikhov.

A change of government, which may soon happen in Uzbekistan, it is unlikely a positive impact on the Russian business in this country. “On the contrary, when the change of power risks for investors will only increase, — the Director of the analytical center of MGIMO Andrew Kazantsev. — So, in terms of redistribution of power will increase the threat of terrorism. Now the main task is not economic prosperity, and the preservation of the country”.

While Kazantsev added that Uzbekistan had gone the way of domestic industrialization, which the government tightly controls all spheres of economic life. “A foreign investor is very uncomfortable in the country, there is currency control, which withdraw funds quite difficult,” he says. — In addition, Uzbekistan has a very high level of corruption: the international investor to open a business, to the personal patronage of President Islam Karimov and his family.”

In 2013, experts of the International Institute of political expertise identify the factors of successful business in Uzbekistan. Thus, personal contact with the leadership of the country was estimated at 9.5 points on a scale. The factor “material interests of officials” had received 8 points, and the factor of “high quality products and services offered by the investor — only 5.5 points. Some study participants noted that projects worth just $5 million required approval at the highest level of the government.

Uzbekistan, which is not included neither in WTO, nor in the Eurasian economic Union is a pretty closed country for international investment, admits chief economist, Eurasian development Bank, Professor, Department of world economy at the Diplomatic Academy under the MFA of Russia Yaroslav Lissovolik. “The country’s economy focuses on internal rather than external growth drivers,” he explains.

The presence of Russian companies

Usually, authorities say several hundred Russian-Uzbek joint ventures operating on the territory of Uzbekistan. “But we know nothing about them known only to monsters like Gazprom or LUKOIL”, — says the chief editor of informational Agency “” Daniel Kislov.

found in Tashkent, the store “Sportmaster”. In addition, its products through a network of representatives in Uzbekistan sells Russian manufacturer of cosmetics Faberlic, shows the site of the company. To contact “Sportmaster” and Faberlic failed.

The participation of major international companies in corruption schemes is fraught with scandals, so they do not try to enter this country, says Andrei Kazantsev. Similar cases have happened with MTS and VimpelCom (trade brand “Beeline”), he recalls.

MTS came to Uzbekistan in 2004 through purchase of the leader of the local market, the operator Uzdunrobita”. Then the Russian operator acquired 74% stake in the Uzbek company for $121 million. the purchase Amount was distributed unevenly: over 33% of shares in MTS paid $100 million offshore Swisdorn, and 41%, only $21 million of the American International Communication Group, wrote . As it later turned out the police of the United States, the company Swisdorn could be affiliated with Rustam Madumarov, the civil husband of the daughter of the President of Uzbekistan Gulnara Karimova. Thus, the price for a U.S. seller and friendly daughter of the President of the structures differed sixfold, established investigators. In General, the U.S. justice Department counted between MTS (including its subsidiaries) and entities allegedly affiliated with Karimova, at least eight disputed transactions totaling $380 million In respect of VimpelCom have been seven suspicious transactions, which took place from January 2006 to October 2011, totaling $133.5 million

In the summer of 2012 “Uzdunrobita” was bankrupt. Two years later, MTS has agreed with the government of Uzbekistan on the establishment on parity basis of the joint venture Universal Movie Systems. However, in August this year, MTS announced the sale of its stake in the JV and about the departure from Uzbekistan.

But VimpelCom was working in Uzbekistan — moreover, in July 2016, she managed to extend the license of its Uzbek unit for 15 years. According to the company, Uzbekistan had approximately 9.5 million subscribers (in total 24 million mobile subscribers), its investment in the local market amounted to about $1 billion over ten years.

Contact a representative of MTS on Tuesday, 30 August, failed. Press service of the Russian office of the company VimpelCom did not answer questions about the prospects for their business in Uzbekistan. At the head office of VimpelCom, the question is not answered.