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Home / Other / Analysis / High Guests Hit High Spots

High Guests Hit High Spots

In the context of the escalating global economic crisis, few countries have been demonstrating sustainable economic growth.

That is why the forum participants pointed out the unique model of economic development of Uzbekistan, as it ensures a stable and dynamic growth on the background of a complicated external economic situation, allows for an active investment policy and deep structural reforms, which have been effectively protecting the country from the recession challenging many developed countries.

In the next five years, the average annual GDP growth in Uzbekistan is expected to be at least 8%, industrial production - 9%, with an increase in the share of industry from 24% to 30%. The estimation was declared at the International Investment Forum. The figures are backed by specific calculations, projects and initiatives. For example, in the next few years it is planned to establish the manufacture of about 100 new product groups, including more than a thousand kinds of different products. The growth of export potential is estimated to increase by more than a half, or to $25 billion.

Launched this year, the large-scale privatization envisages that the government manages solely natural monopolies, which are considered as national property. The influx of foreign investments will eventually bring the share of industry in GDP to 40%.

The achievement and maintaining of macroeconomic stability, which primarily comes to the fundamental rates that are essential for ensuring stable and rapid economic development, is seen as a key pillar in the implementation of the economic strategy of Uzbekistan. Since 2003, the Uzbek government has not just borrowed funds from the Central Bank to support the state budget and balance of payments, but has also fully repaid the previous loans and domestic bonds held by legal entities and individuals.

Since 2014, the state internal debt in Uzbekistan has been equal to zero, suggesting a healthy monetary and fiscal system. As a result, the inflation has been at a manageable level, and has not exceeded 6-6.5% in recent years.

So today, Uzbekistan has an impressive investment capacity and is interesting for foreign investors. The availability of highly skilled human resources, professionally educated young people, rich raw material resources, developed industrial base, production infrastructure and favorable geographical location in the intersection of transport corridors in Europe and Asia suggests foreign companies to consider Uzbekistan as a beneficial country to invest in modern high-tech manufactures of competitive products.

Meanwhile, the country has long established itself as a reliable and solvent partner with an extensive system of privileges, preferences and guarantees for foreign companies that invest in its economy. Such a policy has paved the way to successful operation of more than 5,000 joint ventures, which have been established by investors from over 90 countries. Their number is likely to grow in the future, because $11.7 billion of the total number of contracts concluded at the forum will be focused on the implementation of new investment projects.

During the forum, President of Uzbekistan Islam Karimov held talks with several foreign delegations and international institutions. The state’s leader has received the World Bank Vice President for Europe and Central Asia Cyril Muller, and Vice President at International Finance Corporation Dimitris Tsitsiragos.

During the reception, the World Bank representatives spotlighted the importance of strategic programs on the follow-up reformation, structural transformation and diversification of the economy for 2015-2019, which have been approved by Uzbekistan in the current year and are aimed at continued enhancement of economic reforms and further modernization of industrial diversification, development of private property and private enterprise, as well as and decrease the role and place of the state in the economy. The guests noted the World Bank and IFC’s interest in active involvement in the processes of radical structural transformation of the Uzbek economy, and expressed their support for successful implementation of the programs adopted and joint investment projects in key sectors.

Uzbek President also held talks with First Deputy Minister of Industry, Trade and Natural Resources of the Republic of Korea Lee Hwang-sop.

As emphasized at the meeting, the participation of a representative South Korean delegation at the International Investment Forum in Tashkent demonstrated the further enhancement of the strategic partnership between the two countries, and commitment to the implementation of previously reached agreements.

The sides discussed the issues of participation of South Korean investors in the privatization of state enterprises and assets in Uzbekistan, and joint implementation of new investment projects in key industries and infrastructure.

The forum was traditionally a platform for establishing big contacts that would determine the development of the national economy for years to come. Uzbekistan Today reporters sorted out the most remarkable of them.

For example, a significant package of agreements has fallen on the domestic rail industry. The French company of Alstom and Uzbekistan Railways signed a memorandum of understanding on the establishment of the production of asynchronous traction engines in Uzbekistan. The document provides for joint efforts of the parties in exploring opportunities for the creation of such a manufacture at one of the enterprises of Uzbekistan.

The project should become a serious impetus for the Uzbek economy through the modernization of production facilities and creation of new jobs. Besides, it would strengthen the country's export capacity and enhance its role as a key transport hub in Central Asia and the Middle East.

It is envisaged that the new manufacture will produce engines for different types of rolling stock, including electric and diesel locomotives, as well as suburban and diesel trains. The engines will be operated by a technology that has not yet been introduced in CIS markets. That would allow reducing the cost of service, simplify the production cycle and increase the energy efficiency of rolling stock.

“As a world’s leader in solutions for the transport sector, Alstom is ready to transfer the latest technologies to the Uzbek engineering industry, and considers the project as the first step in developing long-term partnership relations with Uzbekistan,” commented to UT the Alstom Senior Vice President for CIS Martin Vaujour.

Besides, the national railway carrier of Uzbekistan signed a contract for the purchase of two high-speed trains from a Spanish company Talgo. It is planned that they will run on the high-speed railway line Tashkent-Bukhara to be launched next September. Its construction is estimated at more than $400 million. It will reduce the time of passengers and cargo transportation by almost two hours, and cut operating costs by more than 30%.

Representatives of the two parties did not specify the cost and schedule of delivery of trains. However, as previously noted by the company’s First Deputy Chairman Davron Dehkanov, the trains will be manufactured in accordance with the requirements of the Uzbek side.

Today, the domestic railways are operated by four head and 18 passenger cars of the Spanish company of Talgo. Called in honor of the ancient city of Samarkand, high-speed trains Afrosiyob ply the route from Tashkent to Karshi.

The Finnish company Outotec is going to build a plant for the production of sulfuric acid for the domestic industry’s flagship Navoi Mining and Smelting Plant. The parties signed a corresponding memorandum in Tashkent. The establishment of a new plant is entailed by the need to further expand the NMSP capacity, and increase the production of non-ferrous metals.

The construction cost of the plant might exceed $130 million, $102.5 million of which is proposed by NMSP, and another $30 million – by the Fund for Reconstruction and Development of Uzbekistan.

This is not the first project of this kind by the Finnish company in Uzbekistan. In June 2015, it has launched a sulfuric acid plant for another giant - Almalyk Mining and Smelting Plant with the capacity of 500,000 tones of sulfuric acid. The project cost makes up $80.2 million. Outotec is also involved in the study on the development of the Tebinbulak titanomagnetite ore deposit in Karakalpakstan. It is planned to commission a mining and processing plant and a metallurgical complex for the production of pig iron there by the end of 2020.

A Turkish consortium of Dal Engineering Group is planning to build a new cement plant in Sherobod district of Surkhandarya region. A memorandum was signed with the Almalyk Mining and Smelting Plant.

The approximate cost of the new facility is estimated at $225 million, $90 million of which will be allocated by the Fund for Reconstruction and Development of Uzbekistan, $24.4 million - by Almalyk MSP, and about $110 million will be channeled by commercial banks as loans. After commissioning in 2018, the plant will produce up to 1.5 million tons of Portland cement annually.

This is not the first project of the Turkish side in Uzbekistan. One of the consortium’s members Dal Teknik Makina Tigaret Ve Sanayi A.S launched a cement plant in Zafarobod district of Jizzakh region in March 2014. The project’s total cost exceeded $114 million.

The second stage of the project is currently underway. It envisages increasing the capacity of the Portland cement production line from 760,000 to 1 million tons. The completion of technological expansion of the cement plant is scheduled for September 2016. The total cost of the second stage is $35.8 million.

In 2016-2020, Asian Development Bank and the World Bank are intending to implement projects totaling more than $12 billion jointly with the government of Uzbekistan. The preparation and approval of new strategies of five year cooperation with the leading international financial institutions is nearing its completion. To date, the portfolio of joint projects of Uzbekistan with ADB has made $13 billion, and $6 billion with the World Bank. They cover privatization, financial sector development, modernization of agriculture, power, infrastructure, health and education.

South Korean investors, the long-standing strategic partners of Uzbekistan, have demonstrated the highest activity in the forum. Companies from the Land of Morning Calm signed 24 agreements and memorandums on the purchase of state assets in the oil and gas, chemical, electrical, mechanical engineering, food, construction materials and infrastructure industries at a total of $220 million.

For instance, the South Korean Daewoo International Corporation is planning to buy a state's share of the two largest Uzbek exposition areas: Uzexpocentre National Exhibition Center and International Business Center. Another giant – Samsung - is intending to get involved in the construction of a pyrolysis plant on the basis of Ustyurt Gas Chemical Complex.

Another important project will be implemented with the participation of the German company of HeidelbergCement, the world's leader in cement industry, which has signed a memorandum of intent for the purchase of a stake in the leading Uzbek cement plant Kyzylkumcement.

“The document envisages the first stage of work on the acquisition of 35.9 percent of the company’s stake. This is a kind of action plan of the German and Uzbek sides for the near future. The further processing of purchasing a stake will be build thereupon,” said the HeidelbergCement CEO for Central Europe Andreas Kern.

Uzbekistan is seen as a very attractive market, said the source, as the most populous country in Central Asia with big and rapidly growing construction market. The vicinity of Afghanistan with the anticipated boost of construction works in the coming years ranks among the main export advantages.

Uzbek products might occupy a significant share of the market owing to the well-built logistics. For instance, a direct railway would significantly reduce transport costs, and hence the cost of cement, noted Andreas Kern.

The company’s strategy is simple - at the first stage it envisages staff training, and modernization and improvement of product quality in the future, if necessary. Introduction of energy efficient technologies in the production and use of alternative energy sources will rank among the priorities.

With regard to the prospects, Andreas Kern noticed that in the next five years the cement consumption per capita in Uzbekistan might reach 500-600 kg, while today it makes up 250 kg per year.

Such needs require the increase of capacity. However, according to Andreas Kern, the German company has not yet decided whether it wants to increase the production at Kyzylkumcement or build a plant in another region of the country.

“With our support, Kyzylkumcement promises to join the ranks of the most advanced cement plants in Central Asia in the next 15 years,” he emphasized.

The government came up with an interesting statement. According to First Deputy Prime Minister of Uzbekistan Rustam Azimov, it is planned to reduce the tax burden on the economy from 20 to 19% next year, as part of the two-decade policy, which has reduced the tax burden on the economy from 45 to 20%, thus releasing funds of enterprises and investing them in the upgrade, creation of new capacities, and increase of real incomes of the population.

Over the last decade, Uzbekistan has managed to minimize its gross external debt and increase the volume of foreign exchange reserves to the level that can cover more than 24 months of imports.

According to the First Deputy Prime Minister, that was achieved through a very balanced and cautious policy of external borrowings, based on three principles.

“Firstly, Uzbekistan will never take loans for consumer purposes, that is, their consumption. Secondly, the country will not borrow money, unless it is sure that it can return them on time and in full amount. And thirdly, foreign borrowings are channeled solely for investment purposes, implementation of strategic projects in the real economy, as well as for the development of basic, industrial and social infrastructure,” said Rustam Azimov.

Most importantly, he believes that all the loans disbursed, excluding loans for education and health, generate cash income by themselves to repay their commitments.

As a result, Uzbekistan has been maintaining a triple surplus for many years, including a surplus of the national budget, the current account and payment balance, which was actually converted into the formation of the Fund for Reconstruction and Development.

(As part of the social order of the Public Fund for Support of NGOs and Other Civil Society Institutions under the Oliy Majlis).

 

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