Uzbekistan Facing An Uncertain Future

After nearly a week of doubt, it became clear that long time leader Islam Karimov of Uzbekistan had finally died. Since independence in 1991 from the former Soviet Union, he ruled the predominately secular country with an iron hand. Karimov had maintained sway over this Central Asian nation, since his appointment to power by the communist leadership in 1989.

President Karimov has dominated the political arena in Uzbekistan for 27 years. Despite a two term constitutional limit, he was returned to office in 2000, 2007 and 2015. This was made inevitable, because the government restricted opposing political activity. In addition, it has been claimed that dissenters were subjected to psychiatric treatment and even torture.

Last year he was re-elected with near 90% of the vote, in clearly rigged proceedings.

The governmental abuse of human rights, is well documented by a number of reputable organizations. In 2005 for example, security forces gunned down demonstrators in the city of Andijan. Independent media is still banned. It has been estimated that some 10,000 political prisoners remain in prison. Worse yet, torture seems to be endemic as part of the criminal justice system.

Diplomatic relations with the West have been complicated. President Karimov cooperated in the pursuit of terrorists. He even agreed to allow the United States military to use one of it airports and fly over the country’s airspace. However at the same time, the security forces inside Uzbekistan were rounding up Muslims that opposed the government, using claims of terrorism as an excuse. Many of the detained individuals were subject to torture.

The corruption of his rule reaches into his own family. The former heir apparent, his eldest daughter Gulnara, has been accused of acquiring close to $1 billion USD (United States Dollar) in bribes.

She accepted the funds from foreign telecom firms, attempting to enter the Uzbekistan market. It is no mere coincidence that users inside the country, pay among the highest rates in the world for mobile phone service.

Gulnara has been under house arrest since 2014. Her exclusion from the line of succession leaves the possibility that her sister Lola could gain power, but she does not seem to be part of the present ruling circle.

It is probable that more authority will fall to either the Prime Minister Shavkat Mirziyoyev, or the head of the National Security Service, Rustam Inoyatov. Either of them could also engineer the rise of another individual, to assume the office of the presidency.

Relations with Russia have always created a shadow over politics in Uzbekistan. This is unlikely to change in the post Karimov era. President Putin, will move quickly to protect his country’s interest in the former Soviet republic, especially if it looks like the country is moving away from the Russian orbit.

One can also assume that there will be a power struggle between a number of factions. The various clans that have amassed wealth over the preceding quarter of a century, will be eager to preserve their gains. There may already be some semblance of a deal.

Outside influence cannot be underestimated either. In addition to Russia, China has gained increasing economic sway as a result of the trade in natural gas, which Uzbekistan has in abundance.

Uzbekistan has been bestowed with great mineral wealth. As a result, mining has become a mainstay of the economy. The country has become the world’s 7^th largest gold producer, with an output near 80 tons annually. This one commodity provides near 20% of all exports. It is estimated that the nations holds the 4^th largest gold reserves globally.

The Uzbeks also have significant reserves of copper, lead, tungsten, uranium and zinc. The further development of these resources, will be of vital importance to the future of Uzbekistan.

Uzbekistan is the most populous of the former Stans that were folded into the now defunct Soviet Union. At 31 million, the country had sufficient demographic strength to become the leader of Central Asia. The nations of Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan are far less populated. They are recorded at 17.8 million, 6 million, 8.7 million and 5.5 million respectively.

It is important to note, that 88% of the population follow the teachings of Islam.

The GDP (Gross Domestic Product) of Uzbekistan was worth $66.73 USD in 2015. The economy has been expanding between 7% to 8% over the last few years, due to abundant natural resources.

GDP per capita is at a low of $1,856 USD. In Purchasing Power parity (PPP) this equals $5642.82 USD. This is just 32% of the world average.

As aforementioned, substantial gas reserves provide enough energy for domestic consumption as well as for export. In contrast, the oil produced throughout the country is mostly used internally.

Agriculture employs close to one third of the citizenry and contributes near 25% of the GDP. By far, the most important cash crop is cotton. The nation is the 5^th largest producer globally. The vast fields cultivated, are made possible by the forced labor of some 1 million Uzbeks. Since independence, wheat has gained greater prominence, largely due to the rapid expansion in population.

Uzbekistan remains the largest exporter of jute in West Asia and still produces significant quantities of silk, fruits and vegetables for the vital sector.

However, almost all the acreage under cultivation requires irrigation. Budgetary constraints has prevented a further expansion of tillage, since independence. The total area being farmed is approximately 4.2 million hectares or 10.38 million acres.

The major hurdle in agriculture is the consistent government intervention, in this segment of the economy. It is particularly the case, with the global commodities of cotton and wheat. Farmers are directed by the central authorities, on how much acreage must be devoted to these two cash crops. They are then obliged to surrender their harvest to designated marketers, at prices fixed by the state.

This also has the unintended consequence of making smugglers out of some farmers. If a way can be found to get the cotton and wheat across the border into Kazakhstan or Kyrgyzstan, it can be sold for much higher prices.

This government run scheme, pays farmers below world prices for the aforementioned output. It keeps incomes of individuals in the agricultural sector, below the national average. As a result, it provides incentive for rural citizens to focus on the production of fruits and vegetables, on their small personal plots. These items are determined by the free market, not by government decree.

The policy has also led to the rapid expansion in the size of the cattle herd, in recent years. Both milk and meat as well as their by-products, are priced according to the available supply and demand. The market sales provided by these small operations, are an important augmentation of rural incomes.

The segment of the population that remains below the poverty line is 17%. This is relatively high, since the official unemployment rate is listed at a low rate of 4.8%.

The profit derived by the government for the sale of cotton and wheat, provides the income necessary to subsidize capital intensive industries. Factorizes can then be constructed, to allow domestic production of automobiles, planes, tractors, trucks, and other modes of transportation.

The above system was implemented, because the foreign trade policy of Uzbekistan is based on import substitution. This is how the government is able to maintain hard currency reserves.

It is supplemented by high tariffs, sporadic border closures, and the unauthorized bribes that have become common at major border crossings. These practices have a negative impact on legal imports, of both consumer products and capital equipment. It severely limits the availability of low cost Chinese goods. In addition, it prevents individual farmers from selling their surpluses for higher prices abroad.

Government intervention has kept the domestic economy, largely closed to outside influences. Money derived from key industries, allow the central authorities to control the economy through investments in services, which accounts for 48% of the GDP and industry at 40% of GDP.

Over 40% of all trade is conducted with the Commonwealth of Independent States (CIS), most notably Kazakhstan, Ukraine and Russia, which remains by far the most important trade partner.

In the last decade, there has been an upswing in trade with the nations of China, Iran, South Korea, Turkey and the European Union (EU).

The investment environment remains one of the least favorable in the CIS. This has caused foreign investment to slow dramatically, to one of the lowest levels in the region. Of the international firms in operation, many have recently left or are considering an exit. There is a multitude of business difficulties that include, ongoing government interference and the lack of currency convertibility.

The current corruption and the Soviet style top down socialist economy, has hindered private sector growth and the overall development of the country. There is a lively black market. A large segment of the citizenry remains dependent on cash remittances from over 2 million migrants working abroad, mostly in Russia. However, this source of money has been curtailed, as the Russian economy struggles with a near collapse of energy prices and recession.

One bright spot for the Uzbekistan economy, is the comparative low level of government debt. At 11% it is remarkably low, in comparison to many other emerging nations. It has been below 10% since 2010 and was as high as 21.34% in 2006. Inflation is a bit high at 5.6% and has been increasing over the last two years.

A slowing global economy and a difficult world environment, along with the present political instability, will result in somewhat lower growth in the second half of 2016. Economic conditions for 2017, will be dependent on how soon a new leadership comes into existence. There is unlikely to be any real democratic reform, as the institutions that provide the foundation for this are largely lacking.