By: Melik Kaylan/Forbes
Should we be concerned with the fate of Uzbekistan, a landlocked country forgotten by the world in recent decades, overshadowed by great powers such as Russia and China, until recently utterly isolated and beset by crushing environmental and economic hardships? The answer is emphatically yes – we must be concerned for multiple reasons. It borders Afghanistan and can influence that country and the region’s stability. It has the potential to act as a game-changer in the strategic alignments of the world simply by changing the way Moscow and Beijing relate to Central Asia, their back yard. And, unexpectedly in a few short years, Uzbekistan has come charging out of its long sleep to set an example to all the ‘Stans roundabout on how to usher in a new era. In many ways, it is returning to its historical role as the hub of the Silk Road.
For evidence of Uzbekistan’s sudden renaissance, if any were needed beyond the astonishing statistics (see below), one could refer to the distinctly impressive speech by its (relatively) new President at the recent UN General Assembly. A genuinely historic occasion as all the speeches were conducted remotely for the first time ever due to Covid. It must be rather a surprise for Uzbek citizens to witness their head of state speaking so cogently and making such a mark on the world. Later, we can dwell on what they were accustomed to in the past but the current President Mirziyoyev spoke rather forthrightly of concrete goals. He listed the categories the country is focusing on: gender equality, rule of law, democratic transformation, anti-corruption, youth employment, relations with Afghanistan and much else. He did so credibly, which is a remarkable achievement for any leader’s speech at the UN. Why credibly? Because it’s rare for national leaders to admit, by implication, such a long list of shortfalls that need improving. And because he has already made enormous progress in all the categories he cited (number of women in the national assembly doubled; trade with nearby countries increased five-fold ). But let us begin at the beginning.
In the history of civilization the Silk Road functioned as a lifeline between global poles, essentially between west and east, for overland exchange of goods, ideas, technology, language and above all culture. It was for centuries, even millenia, the central artery, the pivot, of the world. At its heart lay the area that is now Uzbekistan with its legendary oasis cities. Weary travelers and merchants trekking in human caravans through deserts from east or west would dream of the moment when a kind of mirage rose up on the horizon, shimmering fortifications threading a scarcely believable bubble of greenery, soft moist air, fruit trees and flowering bushes. Bokhara, Khiva, Samarkand. Names almost mythological, synonymous with sumptuous wealth and ancient practices. Mulberry, silk and pomegranate. The earth’s most luscious melons. Sublime fabrics. Gem bazaars and ornate jewelry. Philosophy, music, mathematics, exquisite miniaturist art. Down the ages Uzbekistan had an ineradicable place in the world’s consciousness. It may yet re-attain that identity.
The life there always oscillated between multilingual cosmopolitanism and defensive insularity depending on the regime and era. Under the sway of Moscow for some 150 years, Central Asia was forced to align into the Russo-sphere and sealed off from everyone else. Uzbekistan became a comparative backwater, especially during the Soviet period when it served essentially as a cotton colony. The Soviets dissolved in 1991, but the for a quarter century Uzbekistan had the misfortune to be ruled by a truly unpleasant post-Soviet despot, Islam Karimov. A wholly repressive fortress-mentality prevailed while the population grew ever poorer, political persecution abounded and child labor in cotton fields was commonplace. Environmental deterioration accelerated as the Aral Sea evaporated while irrigating Uzbek cotton fields. One achievement alone might be cited – however brutally, President Karimov succeeded in keeping contained the fundamentalist strife leaking across the border from Afghanistan. Karimov died in late 2016 and his Prime Minister Shavkat Mirziyoyev took over as President.
Considering Mirziyoyev had occupied topmost senior positions under Karimov, not much change was anticipated. Astonishingly, Mirziyoyev defied universal expectations. He launched a totally new direction. He initiated a change so wholesale, so radically restorative, one might call it “the Uzbek Spring”. Back in July, 2019 I wrote a column about how the country was suddenly, and convincingly, open for business. I’d attended a Capital Markets seminar where (often youthful) Uzbek bankers and industrialists pitched to Wall Street institutions about the virtues of investing early in the new conditions.
I interviewed a young American-educated Director for Capital Markets and Development Agency (CMDA, Uzbekistan’s SEC equivalent), Atabek Nazirov, who astonished me with his candor and realism – a most refreshing attribute for a minister-level official, one indicating a palpable revolution in Uzbekistan’s governance. (Even Frank Muradov, an official US-based adviser to Nazirov and the CMDA commented that he was impressed by the presentations made on the value-proposition of Uzbek companies for the US investors in attendance.) In that column, I also mentioned how the new President Mirziyoyev had raced out of the starting line to visit a score of countries, not least all his neighbors with whom relations had remained frosty for years. Investment has indeed poured in – all manner of Western brands now dot the commercial landscape from Nestle and Coke to Peugeot and Volkswagen.
In December 2019 The Economist named Uzbekistan country of the year, one that “has travelled furthest” in its reforms and improvements on all fronts, adding that it needed to keep improving. That has certainly happened. Child labor has been pretty much eradicated – a great concern of human rights watchers. Scores of political prisoners got released, rather a miracle in a place that compared to North Korea for a while. Efforts to stabilize nearby Afghanistan through trade have multiplied including the creation of a large free-trade center near the Afghan border. All manner of heavy-weight international talent has been recruited to help in government. Plus, according to Frank Muradov who is familiar with the expatriate community, “there’s been a large reverse-brain-drain of top-caliber Uzbek professionals going back to Uzbekistan” – which would certainly not have happened before. Above all, the economy has burgeoned apace. Uzbekistan has become the world’s number one exporter of gold. This and the recent spike in the metal’s value owing to the Covid-related increase in global demand has led to a remarkable indicator of economic health: Uzbekistan was the almost unique country not to record a recession during the Covid crisis. But the real goal was always diversification of the economy – that is, to metamorphose from exporting raw materials to manufacturing products and launching a hi-tech sector.
To do this, to sustain inflow of foreign and domestic funds backing business launches, i.e. to increase private sector participation, the standard prerequisites apply: transparency, productivity and increased privatization of state industries. To that end, the country has been working with top international institutions to generate laws and regulations in line with best universal standards – so it can join the accepted indexes such as FTSE and MSCI MSCI +0.8%. According to Nazirov, who is in charge of the process, Uzbekistan is building up its stock market robustly. What does this involve? He cites the necessary steps to make the entire enterprise investor-friendly, “strengthen protection of shareholders, especially minority shareholders especially in state-owned enterprises; publish data; establish transparency; develop new securities laws and make them comprehensible and user friendly for all investors inside and outside the country”.
It’s not the easiest undertaking in a country where equity culture scarcely existed historically. During the post-Soviet era, the system relied mostly on government banks and loans. The goal now is to create a dynamic market where private capital will be channeled into private investment through corporate bonds, stocks and other financial instruments. And it is happening at speed. Thanks, in part, to a painstakingly hospitable environment for advisory involvement by the US Treasury, the Asian Development Bank, the EBRD, the Islamic Development Bank and the IMF, to name a few top institutions. Result so far? According to Nazirov, the market value of listed companies in Uzbekistan increased from USD 3.8 billion to over USD 5 billion, in less than 2 years, due to both rise in valuations and new listings.
I say all this with some sense of wonder and disbelief, having visited the country twice as a journalist during Karimov’s dark years. And a few of the countries roundabout. As I wrote in the earlier column, the only comparable place I had witnessed was the Republic of Georgia during the Saakashvili years when a failed state was transformed into a humming economic marvel, abounding in new buildings and pipelines and exports, with multiple Western languages taught and experts from abroad occupying high advisory positions in government, youthful officials everywhere, corruption at record lows, and the like. It was a time and place where the future seemed intoxicatingly bright for the first time in a century. This arc of improvement is precisely what Uzbekistan is on course to replicate so far. In the area of corruption for example, Tashkent has cracked the whip. The government established a fierce anti-corruption agency, and within months three prosecutor-generals found themselves in jail. So exuberant is the campaign that Uzbek citizens participate by posting up evidence of corruption scandals on social media and publicly outing perpetrators. The days of automatic impunity for lazy bureaucratic self-indulgence floated by systemic bribery far from scrutiny – those days are gone.
Here we should pause a moment to broach a rather delicate, not to say controversial, issue. What some might call the elephant in the room. Namely, the rate of democratization in Uzbekistan. Sure they have a Majlis or parliament with real elections, five political parties, genuine debates and consultations – yes, but the state still monitors the choice of candidates and a great deal else. And how real are legal reforms if the judiciary isn’t totally independent? And how free is the media? And so on. We have already begun to hear this kind of background hum in international media – who were not even allowed into the country in the previous regime just four short years ago. Nor did any semblance of democracy exist. The question for Uzbekistan, in short, is how far to go how quickly.
In last year’s column, I cautioned outsiders to be patient and consider the pitfalls – with Russia and China and potentially the Taliban breathing down the country’s neck, Uzbekistan needs to align the speed of political reforms with the priorities of stability and growth. The process must of necessity be gradual. Let us not forget what ultimately happened in Georgia. The Russian invasion, the separatist enclaves seceding, large chunks of Georgian territory still being lost to outsiders. Western media spent a great deal of time lionizing then turning and criticizing Saakashvili for political imperfections despite his unequaled achievements because he tried to live up to Western standards. Now he’s gone, the world media hardly notices the country or its increasing imperfections.
The irony is that outside media worries little about destabilizing a country, whereas investors do worry about it. As a result, much of Asia has embraced the Singapore model – maximum wealth, minimum politics. It’s hardly a fool-proof ethos but it does have the virtue of a transitional stability as the population learns the responsibilities of self-government. The principle only works if corruption is kept in check and national wealth doesn’t mostly adhere to centers of political power. In this area, too, Tashkent is making astonishing strides as noted above, rather remarkable in fact considering the standards in neighboring countries. The double irony is that these days large chunks of the Anglophone west scarcely serve as a beguiling political model to the rest of the world. All the more reason for Uzbekistan to evolve its own model, its own balance between politics and wealth in a sustainable way.