Weekly Update: September 14-21

Special Report: Shanghai Cooperation Organization Summit

As world leaders gathered in Samarkand for the annual summit of the Shanghai Cooperation Organization (SCO), all eyes were on the Russian President Vladimir Putin and his tense interactions with China’s Xi Jingping and India’s Narendra Modi, who publicly expressed concerns about Russia’s ongoing war in Ukraine. Iran also looks set to join the organization after multiple unsuccessful attempts.

Amid the backdrop of war and rising geopolitical tensions, Uzbekistan’s chairmanship of the SCO showcased the country’s growing international leadership and cemented its role as a key player in regional security and economic development. Uzbek President Shavkat Mirziyoyev hailed the “Samarkand spirit” of cooperation, mutual understanding and friendship, and emphasized the need to maintain the SCO’s “non-bloc status.” Avoiding entanglements with geopolitical conflicts between the West, Russia, China, and Iran is a key priority for Central Asian members of the SCO, and many observers judged the summit a success for the host country. Ulugbek Khasanov, an academic at the University of World Economy and Diplomacy in Tashkent, noted, “Central Asia is at the heart of this organization...and if you want to work with the region, you must listen to Uzbekistan’s ideas and proposals.”

Highlights of the summit:

• Uzbek President Shavkat Mirziyoyev and Chinese President Xi Jingping signed 15 cooperation and trade agreements worth up to USD 15 billion covering areas such as green energy, mining, digital economy, construction, and communications. Xi Jingping hailed a “new era” of cooperation and development between China and Uzbekistan, with plans announced to hold regional exchange forums by the end of the year.

• Representatives from Uzbekistan, Kyrgyzstan, and China agreed to continue the development of the long-mooted China-Kyrgyzstan-Uzbekistan railway by setting up and funding a railroad construction feasibility study for Kyrgyzstan.

• State-owned telecommunications provider Uzbektelekom signed contracts worth USD 506.8 million with Chinese telecoms companies Huawei and ZTE to expand coverage, develop 5G connectivity in regional centers, and provide transportation networks with high-speed mobile internet.

• Russian President Vladimir Putin and Uzbek President Shavkat Mirziyoyev signed a declaration of “strategic partnership,” including investment projects covering the chemical, petrochemical, engineering, and geological sectors worth up to USD 4.6 billion. The two countries agreed to undertake further partnerships in the textiles, pharmaceuticals, and electronic industries, and President Mirziyoyev was awarded the Russian Order of Alexander Nevsky.

Local Markets

Fitch Ratings assigned Uzbek Steel (Uzbek Metallurgical Plant or Узметкомбинат) its first international credit rating of “BB-” with Stable Outlook. The ratings agency pointed to “strong ties” between the company and the Uzbek state, with most of its debt either guaranteed by the state (25%) or provided by state-owned banks. Uzbek Steel is expected to offer shares on the Republican Stock Exchange Toshkent through an FPO in Q4 2022/Q1 2023. 

The State Assets Management Agency (UzSAMA) announced the privatization of UzGASHKLITI LLC through a sale of 100 percent of shares to SG Engineering and Development for UZS 133.7 billion (USD 12.2 million). UzGASHKLITI (the State Design Research Institute of Engineering Surveys in Construction, Geoinformatics and Urban Cadastre) was put for sale by UzSAMA in January 2022. SG Engineering and Development was established in November 2021.

Fitch Ratings affirmed Uzagrosugurta’s “BB-” rating with Stable Outlook. State-owned Uzagrosugurta is the primary insurer for Uzbekistan’s agricultural sector and . The Uzbek government reportedly plans to offer a minority stake in Uzagrosugurta by the end of 2023, likely to a strategic investor.

UzSAMA announced its intention to privatize 100% of Angren Pipe Plant, a copper pipe producer with a projected annual production capacity of 8,000 tons. Portfolio Investments is acting as lead consultant on the privatization. UzSAMA is accepting expressions of interest until October 20, 2022.

The Uzbek government currently has 1,712 state assets worth UZS 10.7 trillion (USD 975.3 million) up for sale, according to a report from UzSAMA to the Legislative Chamber Committee of the Oliy Majlis on September 15.

Macroeconomics

The Asia Development Bank (ADB) raised its forecast for Uzbekistan’s GDP growth for 2023 from 4.5% to 5%, while maintaining its outlook of 4% for 2022. For Developing Asia overall, the ADB lowered its forecast for GDP growth from 5.2% to 4.3% in 2022 and from 5.3% to 4.9% in 2023. Additionally, the ADP is set to loan Uzbekistan USD 650 million by the end of the year.

Uzbekistan’s foreign trade turnover grew 27.7% yoy to USD 32.1 billion in the first eight months of 2022, according to the State Statistics Committee. Total trade turnover with China reached over USD 6 billion, a yoy increase of 25.9%, while imports and exports with Russia totaled USD 5.7 billion (27.1%).

From January-August 2022, Uzbekistan’s auto imports increased nearly 50% yoy to 1,499 vehicles totaling USD 46.4 million. China provided 87% percent of the imported cars. In February 2022, President Shavkat Mirziyoyev halved customs duties on imported cars, although buying foreign passenger vehicles remains out of reach for most Uzbeks.

Business

Uzbek commercial banks reportedly introduced new restrictions on opening bank accounts for foreigners after a spike in Russian “bank card tourism” since war began in Ukraine. At least three major banks, including Ipak Yo’li Bank, Kapitalbank, and Asia Alliance Bank imposed requirements such as remaining in Uzbekistan for 15 days before applying for an account and increased KYC checks for non-residents. According to the Chairman of the Central Bank of Uzbekistan Mamarizo Nurmuratov, in Q2 2022, the number of bank accounts opened by foreigners reached 169,000, mostly by citizens of Russia, Belarus, and Ukraine.

In August 2022, UzAuto Motors doubled its production of cars from the previous month, reaching over 25,000, according to the State Statistics Committee. In the first half of 2022, UzAuto Motors nearly doubled its profit to UZS 1.78 trillion (USD 162.1 million) and increased sales by 80.6%.

Hackers reportedly stole USD 700,000 from Asakabank. Details remain scarce, but Asakabank confirmed the theft to local media outlets and asserted it would not affect customer deposits.

Forbes Russia published its list of the 10 most reliable banks in Uzbekistan, which was topped by the National Bank of Uzbekistan and followed by Ipoteka Bank, Sanoat Qurilish Bank (Uzpromstroybank), Xalq Banki, Asakabank, Agrobank, and others.

Elon Musk’s Starlink set to become available in Uzbekistan in 2023.

Regional News

Deadly armed clashes broke out along the border between Kyrgyzstan and Tajikistan, with 100 dead since the conflict began on September 14. Hostilities broke out in Kyrgyzstan’s Batken region after shelling from Tajikistan, which escalated throughout the week to the bombardment of multiple Kyrgyz that left more than 100,000 Kyrgyz displaced. The President of Kyrgyzstan Sadyr Japarov and President of Tajikistan Emomali Rahmon agreed to a ceasefire at the Shanghai Cooperation Organization summit that quickly broke down, although the fighting has died down since September 18. Some analysts, such as Aijan Sharshenova at The Diplomat, argue the border clashes, which have a long history between the two former Soviet republics, were a preplanned military attack on Kyrgyzstan by Tajikistan.

Kazakhstan’s parliament votes to restore Astana as the name of the country’s capital from Nur-Sultan, in a move driven by President Kassym-Jomart Tokayev.

Kazakhstan exported 3.3 million tons of wheat in the first seven months of 2022, 45% of which went to Uzbekistan.

Rosbank, purchased by sanctioned Russian oligarch Vladimir Potanin in April from Société Generale SA, opens correspondent accounts in Uzbek soum and Armenian dram. 

Republican Stock Exchange Toshkent - September 14-21

Local Treasuries Market 

Macro Indicators

Eurobonds