ECONOMIC MONITOR UZBEKISTAN - German Economic Team
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ECONOMIC MONITOR UZBEKISTAN Issue 2 | February 2020 Overview • GDP grew in 2019 by robust 5.6%; in 2020-2021, GDP growth will accelerate to 6% • Key driver on the demand side: investment; drivers on the supply side: industry and services ➢ Investment-led growth • Decline of current account deficit to 3.3% of GDP in 2019, also due to strong exports • FDI at 1.8% of GDP in 2019 and set to increase to 2.7% of GDP by 2021, mirroring reform agenda • This will contribute to financing the current account deficit in 2021, forecast at 4.7% of GDP ➢ FDI attraction of key importance • In 2019, international reserves grew to USD 29.2 bn; the Sum depreciated by 12.3% vs the US dollar • High inflation in 2019 (15.2%), also due to higher energy tariffs; disinflation expected (2021: 9.1%) • Moderate budget deficit (2019: 1.6% of GDP) and low public debt (end 2019: 23.3% of GDP) ➢ Stable fiscal policy, but inflation remains an issue Special topics • Pharma park and cluster. Roadmap presented to government • Reform of state-owned enterprises. Important future reform area • Energy sector. Investment in infrastructure and energy generation needed • Doing Business Index. Progress in improving investment and business climate • SME support. Rethinking of SME funding policy necessary © Berlin Economics
Basic indicators
Uzbekistan Kazakhstan Belarus Ukraine Russia
GDP, USD bn 60.5 170.3 63.1 150.4 1,637.9
GDP/capita, USD 1,832 9,139 6,659 3,592 11,163
Population, m 33.0 18.6 9.5 41.9 146.7
Source: IMF, Belstat, German Economic Team; estimates for 2019
Trade structure
Exports Imports
CIS 37% | Switzerland 23%* | China 19% | EU 3% | Other 18% CIS 33%| China 23% | EU 14% | Other 30%
Other Other
Wool 15% Energy and oil 14%
2% products
Machinery Gold
4%
3% 34%
Foodstuffs
Chemical 8% Machinery
products 49%
6% Foodstuffs
11% Metals
10%
Energy and oil
Other metals
products Chemical products
9%
21% 14%
Source: National Statistics Office, 11M2019; note: trade in goods;
*based on mirror statistics of Switzerland Source: National Statistics Office, 11M2019; note: trade in goods
© Berlin Economics 2Economic growth
Real GDP growth • GDP growth develops dynamically:
7 % yoy – 2019: 5.6%
6
5
– 2020/2021: 6%
4 • Growth drivers on the demand side:
3
– Investment (9M2019: 46%), especially
2
public investment
1
0 – Private consumption (9M2019: 5.8%)
2017 2018 2019 2020* 2021*
• As public investment is expected to grow
Sources: IMF; Ministry of Finance of Uzbekistan; *forecast
slower in the future, e.g. through planned
Investment and private consumption reforms in the banking sector, the focus
50
% yoy should be more on private investment
40
Conclusion
30
• High and stable growth of 5.6%-6% p.a. in
20 the period of 2019-2021
10 • Investment remains growth driver, but
stronger focus on private investment
0
2017 2018 9M2019 needed
Private consumption Investment
Source: National Statistics Office
© Berlin Economics 3Sectoral perspective
Composition of GDP • Agriculture 28% of GDP, out of which
Other
21% – Crop production (incl. cotton): 49%
Construction Industry 30% – Livestock production: 48%
6%
• Share of agriculture significantly higher than in:
Trade,
accommodation
– Ukraine: 12%
and food services
7%
– Kazakhstan: 4.6%
Transport and ICT Agriculture – Russia: 3.5%
28%
8%
• Industry 30% of GDP, out of which
Source: National Statistics Office, 2019
– Manufacturing industry: 71.6%
14 % yoy Sectoral dynamics – Mining: 21.5%
12
• Growth potential in various services sectors
10
8
• Dynamics: strong development in industry and
services; less dynamics in agriculture
6
4
2 Conclusion
0 • Prominent role of agriculture and industry;
2017 2018 2019*
altogether almost 60% of GDP
Agriculture Industry Services
Source: National Statistics Office; *preliminary data
© Berlin Economics 4Exchange rate and international reserves
International reserves International reserves
USD bn
30 • Uzbekistan has very high reserves:
28
USD 29.2 bn (Dec 2019)
26
• After a decline in 2018, reserves have
risen by USD 2.1 bn in 2019
24
• High import coverage: ca. 13 months
22
Exchange rate
• Exchange rate is more and more subject
Source: Central Bank of Uzbekistan; end of month
to market forces
Exchange rate • At the same time: still close involvement
UZS/USD
of the Central Bank
10,000 „Big Bang“
• Devaluation by 12.3% vs USD in 2019
8,000
6,000
4,000 Conclusion
2,000 • High currency reserves are a stability
factor; Sum devaluated slightly in 2019
Source: Central Bank of Uzbekistan; end of month
© Berlin Economics 5Current account and FDI
Current account Current account
% of GDP
4 • In 2019, the current account deficit narrowed to
2 3.3% of GDP according to preliminary estimates,
0
after 7.1% in 2018
-2
• This development was supported by strong
growth of exports, in particular gold
-4
• In 2020, the deficit will rise again and amount to
-6
5.6% of GDP
-8
2017 2018 2019* 2020** 2021** • Reason: robust development of domestic
Source: World Bank; *own estimation based on 9M2019; demand and imports
**forecast World Bank
• 2021: Slight decline of deficit to 4.7% of GDP
Foreign direct investment
3 % of GDP
FDI
• Positive dynamics in 2019 is set to continue in
2020 and 2021, mirroring the reform agenda of
2 the government
Conclusion
1 • Reduction of the current account deficit in 2019
positive, even if not permanent
0
• Higher FDI inflows crucial, also for financing
2017 2018 2019* 2020* 2021* future current account deficits
Source: World Bank; *forecast
© Berlin Economics 6Inflation and monetary policy
Inflation rate Inflation
% yoy
20
• Inflation remains high: 15.2% in Dec 2019
15 • Necessary increase in energy tariffs
contributed to high inflation
10
• Decline of inflation rate expected in
5 2020/2021, but a number of factors speak
against a fast decline
0
2017 2018 2019 2020* 2021* • Move to inflation targeting with a single-digit
Sources: IMF; Ministry of Finance of Uzbekistan; *forecast; note: end of year target from 2021 onwards planned
(consumer prices)
Monetary policy
Policy rate
• Central Bank has raised the policy rate in
18
% p.a. 2017/18 in order to slowly bring inflation
16 under control again
14 • From 9% in 2017 to 16% in 2018
12 Conclusion
10 • Inflation remains in double digits in 2020; no
8 quick decline expected
Source: Central Bank of Uzbekistan
© Berlin Economics 7Public finances
% of GDP Budget balance Budget balance
0.0
• Decline of budget deficit in 2019 to 1.6% of
-0.5
GDP according to the broad definition (taking
-1.0 into account “quasi-fiscal“ activities)
-1.5 • Deficit will remain on this level: 1.8% of GDP in
-2.0 2020/2021
-2.5 Public debt
2017 2018 2019* 2020* 2021*
Source: World Bank; *forecast; note: broad budget balance definition • Public debt with 23% of GDP in 2019 very low
in international comparison
• Slight increase to 25% of GDP in 2020/2021
Public debt expected
% of GDP
25
• As expected, the government‘s Eurobond
24 emission in 2019 (rating: BB-/ stable) was used
23
by (state-owned) enterprises as a base for own
emissions
22
• Uzbek Industrial and Construction Bank
21 (Uzpromstroybank): emission of USD 300 m
20 Conclusion
2017 2018 2019* 2020* 2021*
• Continuation of prudent fiscal policy
Source: World Bank; *forecast
© Berlin Economics 8External trade
% yoy
External trade • Strong increase of external trade in 2019
60
Exports Imports
50
– Exports: +53% (11M2019)
40
– Imports: +29% (11M2019)
30 • Rise in exports driven by higher prices and
20
quantities
10
• However, high export concentration on
relatively few commodities and destinations
0
2017 2018 11M2019 • Next to the declared goal of WTO accession,
Source: National Statistics Office; note: trade in goods
the possibility of joining the EAEU is on the
Exports by countries agenda
Other
9% Switzerland*
23% Conclusion
EU
3%
• Strong expansion of external trade against
Other CIS
the backdrop of a difficult global
9% environment very positive
Kazakhstan
China
• Setting the strategic course on trade policy
12%
Turkey 19% remains a focus of decision-makers
9%
Russia
16%
Source: National Statistics Office, 11M2019; note: trade in goods;
*based on mirror statistics of Switzerland
© Berlin Economics 9Bilateral trade between Germany and Uzbekistan
German trade with Uzbekistan German exports
EUR m
1,000 • In the course of 2019 very dynamic development
800 of exports:
600
– Increase of 28% compared to previous year,
400 e.g. aircrafts worth EUR 120 m
200
– Share of motor vehicles, machinery and
0
chemicals in total exports: 75%
-200
2017 2018 2019 • Close relationship with strong investment, also in
German exports German imports regard to the structure (classic investment goods)
Source: German Federal Statistics Office, note: trade in goods German imports
German exports to Uzbekistan • So far, almost no imports from UZB
Other
– 2019: EUR 31.6 m
18%
• Much room for development, e.g. in textile
Foodstuffs Machinery sector
3% 38%
• Depends on GSP+ status with the EU
Electrotechnology
4% Conclusion
• Encouraging development of German exports
Chemicals
12% • Support of economic modernisation
Motor vehicles and parts
25%
Source: German Federal Statistics Office; note: trade in goods in 2019
© Berlin Economics 10Road map for pharma park and cluster
Background
Road map for the development of a pharma park
and cluster in the capital region • As part of an industrial policy initiative, a pharma
park is to be developed in the capital region and
1. Preparatory stage integrated into a cluster
• Establish steering structure
• Needs and cluster anlysis
• Feasibility study
• The park is to be geared towards innovation-
• Stakeholder consultations oriented projects and to assume a hub function
for foreign investors
2. Conception stage
• Development concept park
Challenges
• Marketing concept
• Organisational &
• Considerable synergy potential between park and
financing concept cluster development, e.g. in the development of
value chains
3. Implementation stage
• Setting up cluster and park management • However, in order to use this potential, the
• Planning / construction of on- / off-site
infrastructure, buildings and facilities service offering and organisational model must be
• Promotion of the park and cluster coordinated
Conclusion
Source: German Economic Team
• For success, it is important not only to invest in
the “hardware” – i.e. land and infrastructure – but
also to provide the necessary “software”
• This applies in particular to platforms and
advisory services that support cooperation and
innovation transfer
© Berlin Economics 11Reform of state-owned enterprises
Formal employment by type of employer Background
Entrepreneurs • State-owned enterprises (SOEs) dominate
6%
SMEs strategic sectors of the Uzbek economy
37%
SOEs – about 2,100 enterprises
11%
• Active in:
Large private – mineral extraction, energy
12%
– banking
Administration
34% – telecommunications and transportation
Source: IMF • SOEs conduct significant quasi-fiscal
Liabilities of public corporations activities, with associated risks
60
% of GDP • Comprehensive reforms needed:
45
– restructuring of different functions
30 – governance changes
15
– privatisation
0
Conclusion
• New reform area
Financial SOEs Non-financial SOEs
Source: IMF, 2016
© Berlin Economics 12Energy sector
Electricity final consumption Background
TWh
75 • Most existing power plants are more than 40
years old
70
• High losses in electricity transmission and
65 distribution networks
60 • Regular blackouts in 2019 after repair works
at two thermal units reduced generation
55 capacity
2016 2017 2018 2019
Source: National Statistics Office
• GDP and population growth indicate rising
demand for electricity
Electricity generation by source • Production of natural gas, Uzbekistan’s prime
Coal
4.0%
Oil energy source, is declining while export
0.3%
Hydro obligations (mainly to China and Russia) are
13.6%
increasing
• Government plans: construction of the
country’s first nuclear power plant (2.4 GW)
and wind and solar plants (more than 6 GW)
Conclusion
Natural gas
82.1% • Investment in generation capacity and grid
Source: IEA, 2017 needed to meet rising demand
© Berlin Economics 13Doing Business Index of the World Bank
Rank of Uzbekistan Background
100
87 87 • Support and expansion of the private sector
80 74 76
69 is a declared goal of economic reforms
60 • For this a good investment and business
climate is a necessary condition
40
• Uzbekistan improved a lot over the past
20
years; 4 important reforms passed in 2019
0 – strengthening the protection of minority
2015 2016 2017 2018 2019
shareholders
Source: World Bank; comparison of 190 states
– improving tax payments
Rank: international comparison – improving cross-border trade
80
– facilitating contract enforcement
69
64 • Progress needed in particular in these fields
60
49 – cross-border trade (rank 152)
40 – construction permits (rank 132)
25 28
20
Conclusion
• Progress in the field of investment and
0 business climate evident, as shown by the
Kazakhstan Russia Belarus Ukraine Uzbekistan
Source: World Bank; comparison of 190 states
World Bank’s Doing Business Index
© Berlin Economics 14SME support
Regional distribution of SMEs (numbers) Background
Tashkent • SME sector underdeveloped:
32%
– Micro-businesses dominate
Other
44% – Little value added / little innovation
– Small export share
• So far, SME policy mostly as social policy:
start-ups as subsistence enterprises
• Support so far: one-dimensional based on tax
advantages and subsidised loans, not very
efficient
Fergana
9% • Medium-sized enterprises not defined and
Samarkand
8% Andijan not supported
8%
• Our recommendations:
Source: National Statistics Office
– Introduce modern SME definition and
reliable SME statistics
– Differentiate SME policy, e.g. subsistence
economy vs. growth-oriented SMEs
Conclusion
• Rethinking of SME funding policy necessary
© Berlin Economics 15About the German Economic Team
The German Economic Team (GET) advises the governments of Ukraine, Belarus, Moldova, Georgia and
Uzbekistan regarding the design of economic policy reform processes and a sustainable development of
the economic framework. As part of the project we also work in other countries on selected topics.
In a continuous dialogue with high-level decision makers of the project countries, we identify current
problems in economic policy and then provide concrete policy recommendations based on
independent analysis.
In addition, GET supports German institutions in the political, administrative and business sectors with
its know-how and detailed knowledge of the region’s economies.
The German Economic Team is financed by the Federal Ministry of Economic Affairs and Energy. The
consulting firm Berlin Economics has been commissioned with the implementation of the project.
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