Economy of Uzbekistan

Economy of Uzbekistan
Economy of Uzbekistan
Fixed exchange rates 1 som (UZS) = 100 tiyin
Fiscal year Calendar year
Trade organisations CIS and ECO; observer status in WTO
GDP PPP: $72.55 billion (2008)
Rank: 79th (2007 est.)[1]
GDP growth 7.3% (2006)
GDP per capita PPP: $2,200 (2007 est.)
GDP by sector agriculture (24%), industry and construction (27%), services (49%) (2006)
Inflation (CPI) 3.7% (2004), 7.8% (2005), 6.8% (2006)
below poverty line
33% (2004 est.)
Labour force 14.8 million (2006)
Labour force
by occupation
agriculture (28%), industry and construction (21%), services (51%) (2006)
Unemployment 0.8% officially, plus another 20% underemployed (2007 est.)
Main industries textiles, food processing, machine building, metallurgy, natural gas, chemicals
Ease of Doing Business Rank 166th[2]
Exports $6.4 billion (2006)
Main export partners Russia 23.7%, Poland 11.6%, China 10.4%, Turkey 7.6%, Kazakhstan 5.9%, Ukraine 4.7%, Bangladesh 4.3% (2006)
Imports $4.4 billion (2006)
Main import partners Russia 27.6%, South Korea 15.1%, China 10.3%, Germany 7.8%, Kazakhstan 7.2%, Ukraine 4.7%, Turkey 4.5% (2006)
Public finances
Public debt 24.1% of GDP (2007 est.)
Revenues $6.584 billion (2007 est.)
Expenses $6.652 billion (2007 est.)
Economic aid $172.3 million from the U.S. (2005)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars

Since independence, the Government of Uzbekistan has stated that it is committed to a gradual transition to a market-based economy. The progress with economic policy reforms has been cautious, but cumulatively Uzbekistan has registered respectable achievements. The government is yet to eliminate the gap between the black market and official exchange rates by successfully introducing convertibility of the national currency. Its restrictive trade regime and generally interventionist policies continue to have a negative effect on the economy. Substantial structural reform is needed, particularly in the area of improving the investment climate for foreign investors, strengthening the banking system, and freeing the agricultural sector from state control. Remaining restrictions on currency conversion capacity and other government measures to control economic activity, including the implementation of severe import restrictions and sporadic closures of Uzbekistan's borders with neighboring Kazakhstan, Kyrgyzstan, and Tajikistan have led international lending organizations to suspend or scale back credits.

The government working closely with IMF has made considerable progress in reducing inflation and the budget deficit. The national currency was made convertible in 2003 as part of the IMF-engineered stabilization program, although some administrative restrictions remain. Agriculture and manufacturing industries contribute equally to the economy, each accounting for about one-quarter of GDP.[3] Uzbekistan is a major producer and exporter of cotton, although the importance of this commodity has declined significantly since independence. Uzbekistan is also a major producer of gold with the largest open-pit gold mine in the world and has substantial deposits of copper, strategic minerals, gas, and oil.


GDP and employment

This is a chart of trend of gross domestic product of Uzbekistan in constant prices of 1995 estimated by the International Monetary Fund with figures in millions of som.[4] The chart also shows the consumer price index(CPI) as a measure of inflation from the same source and the end-of-year U.S. dollar exchange rate from the Central Bank of Uzbekistan database.[5] For purchasing power parity comparisons in 2006, the U.S. dollar is exchanged at 340 som.[6]

Year GDP (constant prices) US Dollar Exchange CPI (2000=100)
1992 330,042 1 som 0.07
1995 302,790 36 som 20
2000 356,325 325 som 100
2003 402,361 980 som 166
2006 497,525 1,240 som 226
Uzbekistan: Growth of GDP in constant prices 1992-2008.[6]

Uzbekistan's GDP, like that of all CIS countries, declined during the first years of transition and then recovered after 1995, as the cumulative effect of policy reforms began to be felt. It has shown robust growth, rising by 4% per year between 1998 and 2003 and accelerating thereafter to 7%-8% per year. According to IMF estimates,[6] the GDP in 2008 will be almost double its value in 1995 (in constant prices).

Given the growing economy, the total number of employed rose from 8.5 million in 1995 to 10.5 million in 2006.[3] This healthy increase of nearly 25% in the labor force lagged behind the increase in GDP during the same period (64%, see chart), which implies a significant increase in labor productivity. Official unemployment is very low: less than 30,000 job seekers were registered in government labor exchanges in 2005-2006 (0.3% of the labor force).[3] Underemployment, on the other hand, is believed to be quite high, especially in agriculture, which accounts for fully 28% of all employed, many of them working part-time on tiny household plots, but no reliable figures are available in the absence of credible labor surveys.

The minimum wage, public-sector wages, and old-age pensions are routinely raised twice a year to ensure that base income is not eroded by inflation. Although no statistics are published on average wages in Uzbekistan, pensions as a proxy for the average wage increased significantly between 1995 and 2006 both in real terms and in U.S. dollars. The monthly old-age pension increased in real (CPI-adjusted) soms by almost a factor of 5 between 1995 and 2006.[3] The monthly pension in U.S. dollars was around $20–$25 until 2000, then dropped to $15–$20 between 2001 and 2004, and recently rose to $30. The minimum wage was raised to $14.6 in November 2007.[7] Assuming that the average wages in the country are at a level of 3-4 times the monthly pension, we estimate the wages in 2006 at $90–$120 per month, or $3–$4 per day. This conservative estimate should be compared with President Karimov's public declaration that the average wage in December 2007 (including both the private and the public sector) was equivalent to US$210.[8] The true average wage is probably somewhere between these two numbers.

According to the forecast by the Asian Development Bank, GDP in Uzbekistan in 2009 is expected to grow by 7%.[9] Meanwhile, in 2010 the Uzbekistan GDP growth is predicted at 6,5%.[9]


Literacy in Uzbekistan is almost universal, and workers are generally well-educated and trained. Most local technical and managerial training does not meet international business standards, but foreign companies engaged in production report that locally hired workers learn quickly and work effectively. The government emphasizes foreign education and each year sends about 50 students to the United States, Europe, and Japan for university degrees, after which they have a commitment to work for the government for 5 years. Reportedly, about 60% of the students who study abroad find employment with foreign companies on their return, despite their 5-year commitment to work in the government. Some American companies offer special training programs in the United States to their local employees.

In addition, Uzbekistan subsidizes studies for students at Westminster International University in Tashkent—the only Western-style institution in Uzbekistan. In 2002, the government "Istedod" Foundation (formerly as "Umid" Foundation) is paying for 98 out of 155 students studying at Westminster. For the next academic year, Westminster is expecting to admit 360 students, from which Istedod is expecting to pay for 160 students. The education at Westminster costs $4,800 per academic year.

With the closure or downsizing of many foreign firms, it is relatively easy to find qualified, well-trained employees, and salaries are very low by Western standards. Salary caps, which the government implements in an apparent attempt to prevent firms from circumventing restrictions on withdrawal of cash from banks, prevent many foreign firms from paying their workers as much as they would like. Labor market regulations in Uzbekistan are similar to those of the Soviet Union, with all rights guaranteed but some rights unobserved. Unemployment is a growing problem, and the number of people looking for jobs in Russia, Kazakhstan, and Southeast Asia is increasing each year. Uzbekistan's Ministry of Labor does not publish information on Uzbek citizens working abroad, but Russia's Federal Migration Service reports 2.5 Uzbek migrant workers in Russia and there are indications of up to 1 million Uzbek migrants working illegally in Kazakhstan.[10] Uzbekistan's migrant workers may thus be around 3.5-4 million people, or a staggering 25% of its labor force of 14.8 million.[3] The U.S. Department of State also estimates that between 3 million and 5 million Uzbek citizens of working age live outside Uzbekistan.[11]

Prices and monetary policy

Uzbekistan experienced galloping inflation of around 1000% per year immediately after independence (1992–1994). Stabilization efforts implemented with active guidance from the IMF rapidly paid off, as inflation rates were brought down to 50% in 1997 and then to 22% in 2002. Since 2003 annual inflation rates averaged less than 10%.[6]

The severe inflationary pressures that characterized the early years of independence inevitably led to a dramatic depreciation of the national currency. The exchange rate of Uzbekistan’s first currency, the “notional” ruble inherited from the Soviet period and its successor, the transient "coupon som" introduced in November 1993 in a ratio of 1:1 to the ruble, went up from 100 rubles/US$ in the early 1992 to 3627 rubles (or coupon soms) in mid-April 1994. On July 1, 1994 the "coupon som" was replaced with the permanent new Uzbekistani som (UZS) in a ratio of 1000:1, and the starting exchange rate for the new national currency was set at 7 som/US$, implying an almost two-fold depreciation since mid-April. Within the first six months, between July and December 1994, the national currency depreciated further to 25 som/US$ and continued depreciating at a fast clip until December 2002, when the exchange rate had reached 969 som/US$, i.e., 138 times the starting exchange rate eight and a half years earlier or nearly 10,000 times the exchange rate in early 1992, soon after the declaration of independence.[5] Then the depreciation of the som virtually stopped in response to the government's stabilization program, which at the same time dramatically reduced the inflation rates. During the four years that followed (2003–2007) the exchange rate of the som to the US dollar increased only by a factor of 1.33, from 969 som to around 1300 som in January 2008.

From 1996 until the spring of 2003, the official and so-called "commercial" exchange rate – both set administratively by the Central Bank – were highly overvalued. Many businesses and individuals were unable to buy dollars legally at these "low" rates, so a widespread black market developed to meet hard currency demand. The spread between the official exchange rate and the curb rate widened especially after the Russian financial crisis of August 1998: at the end of 1999 the curb rate stood at 550 som/US$ compared with the official rate of 140 som/US$, a gap by nearly a factor of 4 (up from a factor of "only" 2 in 1997 and the first half of 1998).[12] By mid-2003, the government's stabilization and liberalization efforts had reduced the gap between the black market, official, and commercial rates to approximately 8% and it quickly disappeared as the som was made convertible after October 2003. Today, four foreign currencies—the U.S. dollar, the euro, the pound sterling, and the yen—are freely exchanged in commercial booths all around the cities, while other currencies, including the Russian ruble and the Kazakh tenge, are bought and sold by individual ("black market") money changers, who are allowed to operate openly without harassment. The foreign exchange regime since October 2003 is characterized as "controlled floating rate".[13] Liberalization of the trade regime remains a prerequisite for Uzbekistan to proceed to an IMF-financed program. In 2011, "black market" rate is again significantly higher than official rate, 2450 som/US$ vs. 1709 som/US$ (as of mid-June 2011). This curb rate is often referred to as 'bazar rate', because money changers operate at or near 'bazars' - large farmer markets.

Outstanding external debt reached $4.7 billion at the end of 2002. Tax collection rates remained high, due to the use of the banking system by the government as a collection agency. Technical assistance from the World Bank, Office of Technical Assistance at the U.S. Treasury Department, and UNDP is being provided in reforming the Central Bank and Ministry of Finance into institutions capable of conducting market-oriented fiscal and monetary policy.


Agriculture in Uzbekistan employs 28% of labor force and contributes 24% of GDP (2006 data).[3] Another 8% of GDP is from processing of domestic agricultural output.[14] Cotton, once Uzbekistan's star cash earner, has lost much its luster since independence as wheat began to gain prominence from considerations of food security for the rapidly growing population. Areas cropped to cotton were reduced by more than 25% from 2 million hectares in 1990 to less than 1.5 million hectares in 2006, while wheat cultivation jumped 60% from around 1 million hectares in 1990 to 1.6 million hectares in 2006. Cotton production dropped from 5 million tons annually in the pre-independence decade to around 3.5 million tons since 1995, but even at these reduced levels Uzbekistan produces 3 times as much cotton as all the other Central Asian countries and Azerbaijan combined. Cotton exports tumbled from highs of around 45% of Uzbekistan's total exports in the early 1990s to 17% in 2006. Uzbekistan is the largest producer of jute in West Asia and it also produces significant quantities of silk (Uzbek ikat), fruit, and vegetables, with food products contributing nearly 8% of total exports in 2006. Virtually all agriculture requires irrigation, but because of budgetary constraints there has been practically no expansion of irrigated area since independence: it remains static at 4.2 million hectares, the level reached by 1990 after rapid growth during the Soviet period.

Government intervention in agriculture is reflected in the persistence of state orders for the two main cash crops, cotton and wheat. Farmers receive binding directives on the area to be cropped to these commodities and are obliged to surrender their harvest to designated marketers at state-fixed prices. The incomes of farmers and agricultural workers are substantially lower than the national average because the government pays them less than the world prices for their cotton and wheat, using the difference to subsidize capital intensive industrial concerns, such as factories producing automobiles, airplanes, and tractors. Consequently, many farmers focus on production of fruits and vegetables on their small household plots, because the prices of these commodities are determined by supply and demand, not by government decrees. Farmers also resort to smuggling cotton and especially wheat across the border with Kazakhstan and Kyrgyzstan in order to obtain higher prices.

The government's discriminatory pricing for the main cash crops, cotton and wheat, is apparently responsible for the exceptionally rapid growth of the cattle herd in recent years, as the prices of milk and meat, like those of fruits and vegetables, are also determined by market forces. The number of cattle increased from 4 million head in 1990 to 7 million head in 2006, and virtually all these animals are maintained by rural families with just 2-3 head per household.[3] Sales of own-produced milk, meat, and vegetables in town markets are an important source for augmenting rural family incomes.

The Soviet practice of using "volunteer labor" to help gathering the cotton harvest continues in Uzbekistan where schoolchildren, university students, medical professionals, and state employees are driven en masse out to the fields every year.[10] A recent article posted by a domestic news agency (admittedly with strong anti-government leanings) describes Uzbekistan's cotton as "riches gathered by the hands of hungry children".[15]

Natural resources and energy

Minerals and mining also are important to Uzbekistan's economy. Gold, alongside cotton, is a major foreign exchange earner, unofficially estimated at around 20% of total exports.[11] Uzbekistan is the world's seventh-largest gold producer, mining about 80 tons per year, and holds the fourth-largest reserves in the world. Uzbekistan has an abundance of natural gas, used both for domestic consumption and export; oil used for domestic consumption; and significant reserves of copper, lead, zinc, tungsten, and uranium. Inefficiency in energy use is generally high, because the low controlled prices do not stimulate consumers to conserve energy. Uzbekistan is a partner country of the EU INOGATE energy programme, which has four key topics: enhancing energy security, convergence of member state energy markets on the basis of EU internal energy market principles, supporting sustainable energy development, and attracting investment for energy projects of common and regional interest.[16]

External trade and investment

Uzbekistan exports in 2006

Uzbekistan's foreign trade policy is based on import substitution.[11] The system of multiple exchange rates combined with the highly regulated trade regime caused both imports and exports to drop each from about US$4.5 billion in 1996 to less than US$3 billion in 2002.[3] The success of stabilization and currency liberalization in 2003 has led to significant increases in exports and imports in recent years, although imports have increased much less rapidly: while exports had more than doubled to US$6.5 by 2006, imports had risen to US$4.5 billion only, reflecting the impact of the government's import substitution policies designed to maintain hard currency reserves. Draconian tariffs, sporadic border closures, and border crossing "fees" have a negative effect on legal imports of both consumer products and capital equipment. Uzbek farmers are deprived of seasonal opportunities to sell legally their popular tomatoes and vegetables for good prices in Kazakhstan. Instead, they are forced to dump their produce at reduced prices on local markets or alternatively continue "exporting" by paying stiff bribes to border guards and customs officers.[17] Uzbek consumers are deprived of access to low-cost Chinese goods that cross the border from Kyrgyzstan in normal times. Uzbekistan's traditional trade partners are the CIS countries, notably Russia, Ukraine, and Kazakhstan, which in aggregate account for over 40% of its exports and imports.[3] Non-CIS partners have been increasing in importance in recent years, with Turkey, China, Iran, South Korea, and the EU being the most active. As of 2006, Russia remains the main foreign trade partner for Uzbekistan.

Uzbekistan is a member of the IMF, World Bank, Asian Development Bank, and European Bank for Reconstruction and Development. It has observer status at the World Trade Organization, is a member of the World Intellectual Property Organization, and is a signatory to the Convention on Settlement of Investment Disputes Between States and Nationals of Other States, the Paris Convention for the Protection of Industrial Property, the Madrid Agreement on Trademarks Protection, and the Patent Cooperation Treaty. In 2002, Uzbekistan was again placed on the special "301" Watch List for lack of intellectual copyright protection.

According to EBRD transition indicators,[18] Uzbekistan's investment climate remains among the least favorable in the CIS, with only Belarus and Turkmenistan ranking lower. The unfavorable investment climate has caused foreign investment inflows to dwindle to a trickle. It is believed that Uzbekistan has the lowest level of FDI per capita in the CIS. Since Uzbekistan's independence, U.S. firms have invested roughly $500 million in the country, but due to declining investor confidence, harassment, and currency convertibility problems, numerous international investors have left the country or are considering leaving.[11] In 2005, the Central Bank has revoked the license of the nascent Biznes Bank citing unspecified violations of local currency exchange rules. The revocation prompted immediate bankruptcy procedures, under which clients' deposits stay arrested for two month. No interest was accrued during that two-month period. In 2006, the Government of Uzbekistan forced out Newmont Mining Corporation (at the time the largest U.S. investor) from its gold mining joint venture in the Muruntau gold mine. Newmont and the government resolved their dispute, but the action adversely affected Uzbekistan's image among foreign investors. The government attempted the same with British-owned Oxus Mining. Coscom, a U.S.-owned telecommunications company, involuntarily sold its stake in a joint venture to another foreign company. GM-DAT, a Korean subsidiary of GM, is the only known U.S. business to have entered Uzbekistan in over two years. It recently signed a joint-venture agreement with UzDaewoo to assemble Korean-manufactured cars for export and domestic sale. Other large U.S. investors in Uzbekistan include Case IH, manufacturing and servicing cotton harvesters and tractors; Coca Cola, with bottling plants in Tashkent, Namangan, and Samarkand; Texaco, producing lubricants for sale in the Uzbek market; and Baker Hughes, in oil and gas development.

Miscellaneous data

Household income or consumption by percentage share:

  • lowest 10%: 2.8%
  • highest 10%: 29.6% (2003)

Distribution of family income - Gini index: 36.8 (2003)

Agriculture - products: cotton, vegetables, fruits, grain; livestock

Industrial production growth rate: 6.2% (2003 est.)


  • production: 47.7 TWh (2002)
  • consumption: 46.66 TWh (2002)
  • exports: 4.5 TWh (2002)
  • imports: 6.8 TWh (2002)

Electricity - production by source:

  • fossil fuel: 88.2%
  • hydro: 11.8%
  • other: 0% (2001)
  • nuclear: 0%


  • production: 143,300 barrels per day (22,780 m3/d) (2004 est.)
  • consumption: 142,000 barrels per day (22,600 m3/d) (2001 est.)
  • exports: NA
  • imports: NA
  • proved reserves: 297,000,000 barrels (47,200,000 m3) (1 January 2002)

Natural gas:

  • production: 63.1 billion m³ (2001 est.)
  • consumption: 45.2 billion m³ (2001 est.)
  • exports: 17.9 billion m³ (2001 est.)
  • imports: 0 m³ (2001 est.)
  • proved reserves: 937.3 billion m³ (1 January 2002)

Current account balance: $3.045 billion (2007 est.)

Exports - commodities:[3] cotton 17.2%, energy products 13.1%, metals 12.9%, machinery and equipment 10.1%, food products 7.9%, chemical products 5.6%, services 12.1%( 2006)

Imports - commodities:[3] machinery and equipment 40.3%, chemical products 15.0%, metals 10.4%, food products 8.1%, energy products 4.3%, services 9.1% (2006)

Reserves of foreign exchange & gold: $5.6 billion (Dec. 2007 est.)

Debt - external: $5.398 billion (2007 est.)

Exchange rates: UZS per USD - 1,300 (early 2008)

UZS per EUR - 1,900

Current economy growth (6 months of 2009)[19]

  • GDP growth +8,2%
  • Volume of industrial production +9.1%
  • Volume of agricultural production +4,6%


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