Uzbekistan's Post-Soviet Rebranding
Turmoil in Ukraine prompted me to take a look at the entrepreneurial health of some other post-Soviet nations in the region. This week, we take a look at Uzbekistan.
Tashkent, the capital city of Uzbekistan, reflects the many stages of economic history the country has undergone. Modern buildings are juxtaposed along historic ones with Islamic and Central Asian designs or Soviet-style apartment blocks.
Since Uzbekistan gained its independence in 1991, market reforms have only been incremental. As of 2012, Uzbekistan's government was still designing plans to sell off almost 500 state assets, and faced numerous complaints from foreign investors who reported harassment by business interests close to the ruling elite. As Uzbekistan finds its feet in the post-Soviet era, the International Monetary Fund (IMF) constantly reminds the country’s leaders of the importance of profound institutional and economic reform, including diversification and market freedom. Not surprisingly, it is still unclear which direction Uzbekistan is leaning in when it comes to a proven but disruptive source of economic growth: entrepreneurship.
President Islam Karimov, who has held power since the late 1980s, proclaimed on the 20th anniversary of the Republic of Uzbekistan’s independence, that 2011 would be the Year of Small Business and Private Entrepreneurship, raising hopes of new opportunities for entrepreneurial growth. The vision was for small enterprises to continue to contribute to growth. In 2010, small businesses reportedly produced 52.5 percent of the country’s gross domestic product (GDP), up from 30 percent at the onset of the millennium. Encouraged by the government, women and the rural class continued to raise the statistic, as they joined the formal economy.
It is important to note that agribusiness is key for the country’s future since about 50 percent of the population still lives in rural areas. Uzbekistan is a leading cotton producer and heavily dependent on exports of natural gas, oil, gold, and uranium. Unfortunately, the government administers prices of many basic staples, such as natural gas, utilities, and bread.
The government has measured success in promoting an entrepreneurial middle-class largely in terms of loans to private enterprises and increased number of registered entrepreneurship entities. In December 2013, the chief economist of the Central Bank of the Republic of Uzbekistan, Mr. Otabek Tadjiddinov, reported that commercial banks had issued UZS 6.5 trillion in loans, about 1.3 times more than the previous year.
The international community in turn has followed its progress in implementing regulatory reforms and raising standards of living. In its 24 years of independence, the national economy has nearly quadrupled while per capita real incomes have multiplied sevenfold, according to the Asian Development Bank. Progress is undeniable, yet the road ahead is still very long.
Despite several regulatory reforms to date, the overall regulatory framework still represses entrepreneurial activity. While starting a business now takes only four procedures and there is no minimum capital requirement, completing licensing requirements still takes over 200 days and is subject to corruption, as reported by the latest Index of Economic Freedom. Transparency International ranks Uzbekistan 168th out of 175 countries surveyed in its most recent Corruption Perceptions Index.
The continuous tight regulation of the economy is reflected in the fact that only in December 2012 did the Cabinet of Ministers pass a resolution allowing trade fairs of local manufacturers. Such a measure is healthier than others taken to foster local manufacturing that can substitute the large-scale importing of goods. In January 2013, exchange regulations received widespread attention regarding new import rules requiring burdensome amounts of paperwork. Interpreted as a way to allow some local manufacturers to catch up, the import-dependent sector of the economy was hit hard.
The key to enabling local manufacturers to compete with imports lies in “Tashabbus”, which means innovation, and the government is not oblivious to this. In March 2013, the United Nations Development Program reported on a Tashabbus competition, organized by the Chamber of Commerce and Industry of Uzbekistan, the Association of the Farmers of Uzbekistan, the Hunarmand Craftsmen Association, and a number of ministries and agencies. The competition, attended by over 7000 entrepreneurs, was reported to show the productivity and creativity that fuels the growth of Uzbekistan’s business sector. Abdulkhoshim Ismoilov won in the “Best Entrepreneur” category for his company that manufactures and exports a range of clothing and rubber products while employing 92 people. The “Best Woman Entrepreneur” award went to 22-year old Dilnoza Turapova, whose company makes a range of pottery products and trains people in her craft.
The creativity of the Uzbeks, and the country’s progress in job creation through small enterprises should inspire the nation to continue fostering an entrepreneurial spirit among its people. Uzbekistan should continue to build an enabling entrepreneurship ecosystem, leveraging its strategic location at the crossroads of Central Asia to allow its businesses to scale.
There are signs that the government is willing to share the driving seat in some initiatives. For example, students at Karakalpak State University and the Kamolot Civic Youth Movement have been collaborating in youth initiatives by the government. The government-led Chamber of Commerce of Uzbekistan has also recently jointly launched a new project called "Startup Mixer," together with Brand.uz with the goal of providing an opportunity for aspiring entrepreneurs to find investors or get advice from successful business people.
Uzbekistan will be represented at the upcoming Global Entrepreneurship Congress, which I will chair in Moscow from March 17-20, 2014. Uzbek-born entrepreneurs worldwide have already been recognized, such as Al Goldstein who was named in 2013 as “Ernst and Young Emerging Entrepreneur of the Year”. It is time for his success and recognition to serve as a shining example for all entrepreneurs throughout Uzbekistan as they connect to the grid of global entrepreneurship.