A Landlocked Resource Rich Country with a Young Demography Unlocking the Development Potential of Vision “New Uzbekistan,” Islamic Finance and Credit and Investment Insurance
In many respects, the Republic of Uzbekistan has a lot going for itself. The country has a diverse economy that has witnessed wideranging markets and some political reforms to increase jobs, exports and prosperity in the past few years.
Uzbekistan benefits from abundant natural and mineral resources, a relatively low public debt, a growing workforce, and a strategic geographic position between China and Europe on the historical and now rejuvenated Silk Road. It is a landlocked country, blessed with a young demography of 36.05 million people – by far the largest and most densely populated in the region accounting for 45% of Central Asia’s total population.
The government of President Shavkat Mirziyoyev guided by its Vision “New Uzbekistan”, has invested heavily in education and human capital development over the last decade or so, which has resulted in a workforce ready and arguably most suited in the region to meet the country’s development challenges that lie ahead. The IMF projects Real GDP Growth to reach 5.3% in 2023, but if Uzbekistan’s economy outperforms in the next two years, the growth trajectory could hit between 6% to 8%, respectively.
Like in many countries, the country’s economic fortunes are beholden to the Ministry of Finance’s policy and ability in containing and fighting inflation (consumer prices), which is projected by the Fund at 11.8% in 2023. The good news is that the inflation rate has been flattening from 12.9% in 2020, with a downward trajectory reaching 10.8% in 2021, 11.4% in 2022, and projected to decrease to 6.5% in 2025.
Uzbekistan acceded to membership of the IsDB in 2003 but is a relative newcomer to the Shariah-compliant credit and investment insurance ecosystem, having become the 46th member of ICIEC only in 2019. Since 2003, the IsDB Group has approved a total of US$3.464 billion in development financing for Uzbekistan in different sectors, including transport, energy, water, sanitation, agriculture, education, finance, and health. Of this, over US$1 billion has been dedicated to the private sector and trade financing. As of 12 May 2023, the IsDB active portfolio comprises of 70 active operations for a total amount of US$1.931 billion.
To date, ICIEC has insured a total of US$758 million business activities in Uzbekistan, comprising US$495 million in trade and US$263 million investment-related transactions.
The above figures suggest that despite a huge proliferation of collaboration and financing in the last three years, the business activities and development cooperation between the IsDB Group and ICIEC with Uzbekistan, at best remains a “work in progress.” However, the bilateral and regional strategy ahead is encouraging and augurs well for near-tomedium cooperation, underpinned by close cooperation between Uzbek state agencies such as Uzbekinvest, (UZIPA), and (UzSAMA). Not surprisingly, the IsDB and ICIEC consider Uzbekistan a strategic partner that can play an essential development role in the region.
To date, ICIEC has insured a total of US$758 million business activities in Uzbekistan, comprising US$495 million in trade and US$263 million investment related transactions.
This includes Tashkent’s stated desire to put export credit and investment insurance and guarantees firmly on the credit enhancement and risk management solutions map. Equally important is the fact that President Mirziyoyev’s government has embarked on an ambitious policy to promote Islamic finance as part of its diversification of funding strategy. It has created a perfect storm for consolidating Shariahcompliant financing solutions as part of the overall financial services mix.
The future relations of the IsDB Group and ICIEC with Uzbekistan will be driven by the Group’s Member Country Partnership Strategy (MCPS) for Uzbekistan, which was launched in May 2023 on the sideline of the 2023 IsDB Group Annual Meetings in Jeddah. The MCPS for Uzbekistan is a five-year strategy document (2022-2026) which focuses on two main pillars with three cross-cutting areas:
Pillar 1 focuses on Supporting Economic Transformation:
The objective is to help Uzbekistan build a green, resilient and sustainable infrastructure that enables enhancing competitiveness, industrial and agricultural diversification of productive capabilities, supporting higher productivity, promoting exports, expanding formal-sector employment and strengthening the role of priority sectors that can generate high value added for the economy. In the implementation of this pillar, priority shall be given the supporting the private sector and promoting the business environment.
Pillar 2 focuses on Enhancing Human Capital and Enabling Environment:
The objective here is to support the economic transformation of the country by investing in human capital and improving welfare. The focusis also to improving access to healthcare and health outcomes, access to quality education in line with industry requirements, and mainstreaming the applications and use of ICT and digitalization across the board. The cross-cutting areas include i) integrating the perspectives of women and youth, ii) supporting climate change mitigation and adaptation, and iii) focusing on long-term capacity development.
Another potentially key driver is the development of a Regional Central Asia Connectivity Programme by the IsDB Group in partnership with the Asian International Infrastructure Bank (AIIB), focusing on improving intra-and inter-regional connectivity. The rationale behind the initiative is that given Uzbekistan’s landlocked geography, it is essential to boost regional integration and harmonize relevant legislation to enhance intraregional trade and investments. The aim is to leverage technological tools to help build a future promoting connectivity, competitiveness, and innovation in Uzbekistan with the region. ICIEC has repeatedly stressed the importance of investment in boosting GDP growth and enhancing development through increased productivity which are crucial for sustainable economic transformation. According to the World Bank, “investor confidence decreases when the direction of policymaking is unclear, uncertain or unpredictable.” The best indicator of investor confidence is the ease of doing business in an environment conducive to political and macroeconomic stability as well as a transparent system of corporate governance.
Since the accession of Uzbekistan in June 2019 till end June 2023, ICIEC has been steadily building its portfolio with Uzbekistan. The data is implicit.
i. Current Commitments in Uzbekistan reached US$36.81 million – 1.41% of total ICIEC Current Commitments.
ii. Exposure in Uzbekistan of US$350.161 million – 7.76% of total exposure.
iii. ICIEC Business Insured in Uzbekistan totalled US$719.36 million – 0.36% of total Business Insured, of which trade transactions accounted for US$456.21 million and investment insurance for US$263.14 million.
iv. New Commitments of ICIEC services for Uzbekistan totalled US$584.62 million – 0.5% of total New Commitments, of which trade transactions accounted for US$267.70 million and investment insurance for US$317.00 million.
v. The number of Uzbek entities that benefited from ICIEC’s services totalled 24 -0.11% of the total number of entities benefitting from ICIEC services, of which the number of Insurance Policies issued to Uzbek entities was 1 (one), and the number of Uzbek buyers and banks covered by ICIEC reached 23 respectively.
The future of Uzbekistan’s engagement with ICIEC could be greatly enhanced if it were to increase its current very low equity subscription of 0.08% to ICIEC’s capital, compared with Kazakhstan’s 2.28%and Turkmenistan’s 0.17%. One way Tashkent can do this is to commit and participate to the recent capital increase of ICIEC’s approved by its Board of Directors at the Corporation’s Annual Meeting during the 2023 IsDB Group Annual Meetings in Jeddah in May 2023.
One area ICIEC is destined to play a potentially important advisory and facilitating role is in Uzbekistan’s ambitious privatisation process. ICIEC, in this respect, has recently signed a Memorandum of Understanding (MoU) with the State Asset Management Agency of the Republic of Uzbekistan (UzSAMA), whereby the two entities will collaborate in exchanging experiences and expertise in the privatization process, including that of the banking sector.
Both parties have committed to advancing their cooperation to attract potential investors for privatized state assets in Uzbekistan. ICIEC is in contact with the PPP Development Agency and international banks to explore opportunities to support PPP projects in Uzbekistan’s energy and healthcare sectors. ICIEC is cooperating with international banks for their lines of financing to Uzbek banks and entities.
