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Weekly Update: September 28-October 5

Weekly Update: September 28-October 5

Tamerlane Newsletter
October 06, 2022

Top News

U.S. Department of Labor finds Uzbekistan made “significant advancement” in eliminating the worst forms of child labor in 2021 and removed Uzbek cotton from its list of goods produced by child or forced labor, paving the way for Uzbek cotton exports to the US. The Labor Department pointed to new legislation, harsher punishments for child labor, and awareness campaigns as the reason Uzbekistan was one of only nine countries to record “significant advancement” in fighting the worst forms of child and forced labor.

First Vice President of the European Bank for Reconstruction and Development (EBRD) Jürgen Rigterink suggests Uzbekistan should postpone privatization of banks for at least six months to one year. The EBRD is working closely with the Uzbek government on the planned privatization of Sanoat Qurilish Bank (SQB Bank) and Asakabank, and it approved a USD 50 million convertible loan to SQB Bank in February 2022.

The World Bank increased its forecast for Uzbekistan’s growth to 5.3% from 4.3% in 2022 but lowered the outlook for 2023 from 5.3% to 4.9%. For 2024 the World Bank forecasts Uzbekistan’s GDP will grow 5.1%, the second highest behind Armenia among countries of Europe and Central Asia. The IFI also noted remittances accounted for 13% of Uzbekistan’s GDP in 2021.

Uzbekistan and Hungary pledge to raise bilateral trade turnover to USD 500 million during President Shavkat Mirziyoyev’s visit to Budapest. Mirziyoyev and Hungarian Prime Minister Viktor Orban signed 15 partnership agreements and the Uzbek President invited Hungarian business leaders to invest in Uzbekistan. Minister of Investments and Foreign Trade Jamshid Khodjaev also suggested the creation of special economic zones for Hungarian companies and pledged to support joint Uzbek-Hungarian projects. Additionally, the National Bank of Uzbekistan opened a EUR 50 million credit with Hungarian Eximbank to finance projects and trade with Hungarian companies.

Local Markets

First futures contracts trading launched on Republican Currency Exchange in a joint presentation between the exchange and the Central Bank of Uzbekistan. Futures trading was originally supposed to begin on the Currency Exchange in 2021.

Trading volume on the Republican Currency Exchange increased 81% yoy in the first eight months of 2022. The Currency Exchange registered UZS 424.3 trillion (USD 38.5 billion) in transactions, with nearly half coming from foreign exchange trading. The volume of local treasuries increased 4x yoy from UZS 13.7 trillion (USD 1.2 billion) to UZS 58 trillion (USD 5.3 billion) as the government increasingly taps the local debt market with longer term issues. Individuals and non-residents of Uzbekistan have been allowed to purchase government securities since February 2022. Trading volume on the Republican Currency Exchange’s money market rose 77.4% yoy.

DEG and Triodos Investment Management increased their stakes in Ipak Yo’li Bank from 12% to 15.59% each. Ipal Yo’li Bank plans to use the capital to offer financial services for SMEs and micro business as well as individual entrepreneurs. German development finance institution DEG and Triodos’ Microfinance Fund invested nearly USD 25 million in Ipak Yo’li Bank in August 2020

Almalyk Mining and Metallurgy (AGMK) reported 9M 2022 production results, with UZS 23.5 trillion (USD 2.1 billion) worth of marketable materials produced. The copper and gold miner, which is a potential IPO candidate, reported flat copper production but the processing of gold ore increased 1%.

The State Assets Management Agency (UzSAMA) to sell over 100 buildings and structures of Uzagokimyomaya and regional affiliate via online auction. Uzagokimyomaya, established in 2016 to coordinate the industrial production of fertilizer and plant protection products, has been in the process of liquidation since May 2021.

Macroeconomics

Inflation in September fell to 12.2% yoy from 12.3% in August, primarily driven by a fall in inflation for services. However, inflation for foodstuffs rose 0.3% yoy to 16.6%, while non-food product inflation remained flat at 10.9%. Steep rises in the costs of cereals and meat products fueled the growth in foodstuffs prices.

State Statistics Committee

Total remittances to Uzbekistan reached USD 6.5 billion in the first half of 2022, up nearly double from the previous year, with 81% coming from Russia. According to the Central Bank of Uzbekistan’s report on the country’s balance of payments and investment position, net remittances totaled USD 5.6 billion, while transfers from Russia grew 2.4x yoy.

Interest rates on soum denominated loans fall to lowest since April while deposit rates in soum rise for retail customers. Rates on foreign currency loans continued to increase, reaching highs set in May 2020.

Uzbekistan’s food imports from January-August 2022 rise 36.1% yoy to USD 2.2 billion, according to the State Statistics Committee. Kazakhstan (36.7%), Russia (23.9%) and Brazil (14.3%) led the way for sources of Uzbekistan’s food imports, with significant increases registered in imports of wheat flour (49.9% yoy), milk products (49.6%), and children’s food products (78.3%).

Business

The EBRD extends USD 15 million senior loan to Tashkent Pipe Plant for “green” production. The loan will help Tashkent Pipe Plant shift to less energy intensive production of pipes to reduce CO2 emissions. The EBRD extended a USD 10 million working capital loan to Tashkent Pipe Plant earlier in 2022.

Mareven Food Holdings to invest USD 125 million in production in the Angren Free Economic Zone. Mareven Food Holdings produces popular food products such as Rollton and Big Bon instant noodles. The new production facility will be run by the company’s new local subsidiary Mareven Food Pamir and will aim to split sales evenly between the domestic market and exports.

The EBRD launches unfunded risk sharing facility to support 50% of risk on UZS 44 billion (USD 4 million) loan from SQB Bank to consumer retailer Idea Concept Group. Idea Concept Group, one of Uzbekistan’s largest retailers, plans to use the financing to expand its existing 36 stores.

Uzbekistan Direct Investment Fund (UzDIF) to finance development of industrial zones for production of leather and footwear goods. The Cabinet of Ministers established 16 small industrial zones in the Uzbek regions as part of a broader government program to stimulate Uzbekistan’s light manufacturing industry.

Government & Politics

The Asian Development Bank (ADP) approves a USD 500 million loan to Uzbekistan’s government to support food security, social benefits, and employment. The loan will support Uzbekistan’s program to keep food prices stable, provide direct assistance to needy families, and to support the unemployed and migrant workers returning to the country.

Jurabek Mirzamakhmudov, former head of the Atomic Energy Development Agency (Uzatom) and state-owned chemical enterprise Uzkimyosanoat, appointed Energy Minister. Mirzamakhmudov was also appointed as Deputy Prime Minister for the Development of the Fuel, Energy and Chemical Industries.

The ADB is planning to provide a USD 150 million, 25-year loan to the government of Uzbekistan for water resource management in the Aral Sea Basin, as part of an earlier agreement signed over the summer. The project will be overseen by the Ministry of Water Resources.

The Ministry of Investment and Foreign Trade published its “Investment Guide Uzbekistan,” which is available in English, Russian, and Uzbek.

Regional News

President Kassym-Jomart Tokaev declared the end of “oligarchic capitalism” in Kazakhstan in a pledge to crack down on the illegal movement of capital abroad and develop corporate and social responsibility. The World Bank forecasts Kazakhstan’s GDP to grow 3% in 2022 and 3.5% in 2023.

In the first eight months of 2022, Kyrgyz population authorities registered 170,000 Russians citizens, with unofficial numbers thought to be much higher. Kyrgyzstan, with a population of six million, is dealing with the fallout of the mass exodus from Russia that has brought higher prices and rental shortages at a time when the country is experiencing rising food prices for the previous two years.

Uzbekistan sends 15 tons of humanitarian aid to Pakistan after deadly floods devastated much of the country. Uzbekistan worked with the Office of the United Nations High Commissioner for Refugees to deliver materials for temporary housing.