Caravan Moving Forward
On January 30, 2018, Uzbekistan was on holiday, celebrating Islam Karimov’s 80th birthday. His rule as the country’s first president had lasted for over 25 years, uninterrupted, before he passed away on 2 September 2016.
Samarkand, Karimov’s hometown, became the main venue for the festivities. As envisaged in his will, he was laid to rest in a specially built mausoleum near the Hazrat Khizr mosque, which is on UNESCO’s World Heritage List. In the center of the magnificent building is a tombstone of white onyx sheltered under a snowy-white dome – an embodiment of local architectural traditions decorated with gorgeous ornamentation, gilding, and precious and semi-precious stones.
At the entrance is a granite slab engraved with Uzbek and English text, reading: “This is the sacred and eternal place where the first president of the Republic of Uzbekistan, the great statesman and politician, the respectable and honorable son of Uzbek people Islam Karimov rests.”
In homage to Karimov, President Shavkat Mirziyoyev, who was democratically elected in December 2016 to succeed him as the nation’s leader, highlighted the crucial role and achievements of his predecessor in the development of the independent Uzbekistan. “A great politician and wise reformer, Islam Karimov was in many ways committed to the independence and development of our country and the well-being of its people, leaving a legacy that will live forever throughout its history,” said Mirziyoyev at the gala opening ceremony, which attracted a (reportedly) large audience, including activists, outstanding professionals, aksakals, and young people from all over the country.
The notion implied by those slightly extravagant remarks – a natural expression of an oriental mindset – is hard to dispute: Islam Karimov was a truly exceptional personality and political figure paramount to the emergence of the independent Uzbekistan. Outside observers have always failed to come to a consensus on figures of such caliber – and this case is no different.
In the early 1990s, Karimov, facing extremely harsh conditions, managed to ward off instability and maintain sovereignty, keeping his country intact and under control – which has been generally viewed as one of his most important accomplishments.
The new state had to be built against a backdrop of real economic difficulties associated with turning a planned Soviet economy into a market one – not to mention the resulting social turbulence, coupled with rising Islamic extremists and tensions across the borders with Afghanistan and Tajikistan as the latter was gripped by a civil war.
“Building the independent state of Uzbekistan and not letting it suffer the same fate as the neighboring Tajikistan was the greatest thing Islam Karimov had ever done,” says Andrei Grozin, head of the Central Asia and Kazakhstan department of the Institute of CIS Countries. “I think he did everything he could in those difficult circumstances – and quite effectively. All these mausoleums and all these public festivities to mark an anniversary of his death just go to show that Uzbeks tend to view him positively.”
While acknowledging the first president’s obvious success in state-building, some critics also point out that his approach was tough or sometimes even “unacceptable”, including restriction of civil rights and liberties, brutal and persistent suppression of any dissenting voices or religious extremism, and keeping the population under total control of law enforcement and security agencies.
“Under Islam Karimov, Uzbekistan was a highly isolated country with limited freedom for the people and vast opportunities for security agencies and various militarized organizations,” notes Igor Savin, senior fellow at the Central Asia, Caucasus, and Urals-Volga Center at the Institute of Oriental Studies of the Russian Academy of Sciences.
The most cited example of Karimov’s tough rule is the notorious spring of 2005 in Andijan, where authorities brutally crushed an uprising after guerrillas from Akromiya, an Islamic sect banned in Uzbekistan, seized a number of administrative buildings. Civilians were also caught up in the fire, as the government authorized the use of weapons. According to official statistics, 187 people died, while estimates by international human rights organizations are several times higher. However, a less biased analysis shows that the government’s response was adequate.
Going easier on the rebels could severely destabilize the country and prompt Arab Spring-like mass unrest with catastrophic consequences. “There are a lot of objective and subjective factors – for example, those related to the nation’s demography, structure of employment, or limited supply of numerous types of resources, including water, food, energy, and many others – which, combined with its economic disproportions, both overall and interregional, make Uzbekistan one of the most likely candidates to embrace such an adverse scenario. And as the Uzbek government and Karimov learned from the events in Andijan, those fears are not completely unfounded,” says Grozin. “Of course, his administration has been criticized for excessive use of force and suppressing everything but the kitchen sink. But I think it should be taken into account that sometimes the status quo forces the government to overdo this pressure, control, and so forth.”
ON ITS OWN
Islam Karimov’s economic policy, with its explicit inward focus, is also somewhat controversial. The government is proud that all those years the country had been drawing on its own internal resources to develop. Unlike its neighbors, it did not borrow from other countries, avoiding serious economic crises and maintaining robust macroeconomic stability. Uzbekistan has consistently registered a threefold budget surplus over the past 10 years and a balance of payments surplus over the past 14 years. Its foreign exchange reserves are equivalent to 24-month imports. Since 2014, its internal sovereign debt has been zero, which, as authorities proudly point out, indicates a healthy monetary and fiscal system. The country’s external debt does not exceed 18.5% of GDP, while the economy itself has been growing by about eight percent throughout these years.
All that time, the government’s role in the economy has been strong, helping save and develop production capacities that remained after the Soviet era. Under Islam Karimov, Uzbekistan managed to maintain a wide range of high-technology sites. Today, it is the only Central Asian republic to have an automotive industry. After all the ups and downs, its backbone – Uz-Daewoo Auto – became a modern company, selling cars abroad as well as domestically. Until recently, an aircraft industry also existed. And Uzbekistan has managed to retain significant potential in its military-industrial complex. Basically, its model is rather similar to the one created in Belarus by Alexander Lukashenko.
This economic statism, however, has proved a double-edged sword. “State patronage indeed saved a significant part of those production capacities that remained in Uzbekistan after the Soviet collapse. But at the same time, it curbed initiative and limited the opportunities to attract foreign direct investment. Actually, it cooled down the country’s growth and development potential – or created a quite adverse climate for global investors,” says Grozin.
Furthermore, an unbiased expert will likely question the official data on nominal GDP growth. If it was right, says independent expert Yuly Yusupov, Uzbekistan would have achieved Western living standards. Apparently, that is not the case. “In 2015, for example, Uzbekistan’s per capita income was $2,132, while the global average stood at $10,112. Among the 188 countries ranked by the World Bank, our country placed 134th, which is hardly admirable,” adds Yusupov.
But even if the actual growth was below the official estimates, which is likely, something was more important: Not everyone was getting their slice of the pie. “Most of the population didn’t see any benefits from that growth. People just didn’t feel it,” comments Igor Savin. According to him, the situation’s ambiguity is evident from the mere fact that about two million Uzbek citizens permanently work abroad. “It suggests a limited labor market, which, in turn, suggests limited investment in industrial development.”
REFORMS, UZBEK STYLE
Obviously, the Uzbek government has been well aware that the economy’s structural issues, including an overregulated market and an excessive role of the authorities, were an increasingly serious threat to progress. “By the end of Karimov’s rule, Uzbekistan’s economic development had come to a dead end. Its growth and development potential was exhausted by a nationally tinted model of state capitalism. In many aspects, the country was falling into recession,” notes Grozin.
Between 2012 and 2014, Islam Karimov made his first attempts to liberalize the economy. For example, the government was trying to put an end to the simultaneous existence of multiple foreign exchange rates – an official rate, a rate for legal entities, a rate for global investors, and a black market rate. But for a number of reasons, the mission was not completed. The authorities did what they knew best, choosing to act and protect the social stability.
President Mirziyoyev, an experienced manager moving up the ranks after 13 years as the prime minister, has put liberal reforms back on the government’s agenda. The changes will affect a number of important areas – social life, government structure, and the economy will all be transformed to become more flexible, advanced, and efficient. Among those to enjoy improvements are the armed forces and law enforcement and security agencies, including the Ministry of Internal Affairs, the Ministry of Emergency Situations, the National Security Service, the Prosecutor General’s Office, and the judiciary. Last September, foreign exchange liberalization was launched, paving the way for an open currency market and allowing citizens to buy and sell dollars at local banks.
Another focus is governance optimization. In January, a three-year strategy to develop an e-government system was announced, while in February, President Mirziyoyev ordered to prepare, before 1 September, a legal framework for cryptocurrencies.
Finally, a broad set of economic reforms has been introduced to make state-owned enterprises more efficient and the business climate more favorable. A separate goal is transforming the automotive industry to increase output and local content.
In a notable attempt to revive the economy, Mirziyoyev has virtually abolished one of the three key principles of Uzbekistan’s government policy – self-reliance (the other two being secularism and non-participation in multilateral organizations). Attracting foreign investment is becoming an utmost priority for the state. The president ordered to develop new investment laws that will provide solid protection for the rights and interests of investors. An Investment Code will be introduced soon. In March 2017, the State Investment Committee was established.
Just a year into its mission, the committee has already delivered some noticeable results. For example, it managed to break the long chain of shrinking foreign investment inflows. Over the five years to 2016, they had almost halved from $3.3 billion to $1.9 billion, according to the data presented last November at an investment climate round table in Tashkent. “Until 2017, Uzbekistan heavily relied on its internal resources and followed a conservative investment policy. This made our practices obsolete. Moreover, the government wasn’t informed of investors’ problems, since there was no feedback mechanism,” said the committee’s chairman, Azim Akhmedkhadjaev at the round table. Things have changed. In the first three quarters of 2017, the country attracted $4.2 billion, including around $3 billion in foreign direct investment, according to Akhmedkhadjaev.
All of the above should help restructure the Uzbek economy, which has been dragged down by the relatively low productivity of its agriculture – a sector still accounting for a significant part of the nation’s GDP. “Uzbekistan clearly needs a major revamp, as its economy is mostly agricultural. But in order to develop, it needs highly productive capacities. Not just fruits and vegetables but manufacturers who would process raw materials and create finished products,” notes Igor Savin.
The government is planning to achieve precisely that: increase the share of services and advanced manufacturing to spur economic growth and create new jobs.
Uzbekistan’s liberal reforms have a long way to go. Experts are unanimous that shock therapy is not acceptable to the government – instead, it will proceed with great caution, mitigating the social impact of unpopular measures. That’s what it did last September devaluing the som. External conditions forced the authorities to almost halve the official rate in one day, from 4,210 to 8,100 som per dollar. Nevertheless, the government exerted every effort to prevent a surge in prices for basic goods, making the impact on the lowest-income groups much less severe.
Although slowing down reforms, such measures help avoid social instability – again, a reasonable concern for Tashkent. And they seem perfectly justified. “Such slowness has evoked some criticism aimed at the government. Many observers, especially in other countries, have been expecting Mirziyoyev to take some brisk, radical steps to revamp the economy or even the political system. But that would be completely against the country’s traditions. Impetuosity is not the Uzbek way,” says Grozin.
Whatever the case, one thing remains clear: Uzbekistan, like a caravan, is already on its way, perhaps not so rapidly but steadily progressing forward – through all headwinds and noises.