The security of Central Asia partly depends on the ability of these countries to transition from the state-controlled and inefficient command economic systems they inherited from the Soviet Union to more dynamic free-market economies, which can more easily attract foreign investment and generate employment and economic growth. These enhancements could reduce potential sources of domestic alienation and provide their governments with more resources to support regional security initiatives in Afghanistan and elsewhere. The Silk Road strategies of the U.S. and other countries also would achieve greater success if the Central Asian countries were more dynamic and better integrated into global economic processes. Uzbekistan and its recently announced economic reforms is a case in point.
BACKGROUND: See 10/17 issue of the CACI Analyst [1]) But Lukoil, the largest foreign direct investor in Uzbekistan, is eager to help develop the country’s natural gas industry. According to Uzbekistan’s government, only one fourth of the country’s total hydrocarbon resources have been extracted. Lukoil’s four concessions in Uzbekistan (Southwest Gissar, Aral, Kungrad and Kandym-Khauzak-Shady) account for 54 percent of Lukoil's total marketable gas output outside Russia. The company recently announced a major discovery at its Shurdarye field. Another constraint on Tashkent regarding Moscow is the presence of a large number of Uzbek migrant laborers in Russia, who are vulnerable to persecution and expulsion.
In June, the Russian and Uzbekistani governments signed a memorandum of understanding on Uzbekistan’s accession to the CIS free trade zone that was established by most former Soviet republics on October 18, 2011. According to the latter document, Tashkent would close negotiations on its accession to the free trade zone by the end of 2012 and join the zone from 2013 on. Uzbekistan’s central geographical location makes the country of key importance for current Russian efforts to promote economic integration in the post-Soviet region. Without Uzbekistan’s participation, Russia cannot develop direct economic ties with Tajikistan and Kyrgyzstan, which have already expressed their intention to join the Russian-Belarusian-Kazakh Customs Union.
The World Bank ranks Uzbekistan 166 out of 183 in terms of “ease of doing business.” Although some Doing Business scores are increasing, Uzbekistan is making slower progress than many other countries. Many structural difficulties result from Uzbekistan’s relative geographic isolation as a doubly landlocked country and the structural distortions from its gradualist government-led development strategy. Pending further diversification, moreover, Uzbekistan is vulnerable to a decline in the world prices for its cotton, copper, gold, and energy exports as well as constraints on the remittances from its migrant workers, which constitute a large share of Uzbekistan’s national GDP.
CONCLUSIONS: Uzbekistan’s economy could perform better if the government modernized the national infrastructure more rapidly, improved all levels of education, allowed for a freer flow of information, developed a sound insurance market, relaxed its rules on currency conversion, did not require a 100 percent prepayment for all purchases, made it easier to secure long-term visas for foreign employees, further developed its banking sector, increased transparency of government procurement and regulatory processes, permitted foreign firms to repatriate more profits, and reduced formal and informal barriers to trade with neighboring countries. Other challenges to Uzbekistan’s socioeconomic development include maintaining security in the country despite the turmoil in neighboring Afghanistan, averting regional conflicts over access to water and energy resources such as by using both resources more efficiently, ending child labor, and raising national productivity and the delivery of essential public services in rural areas.
AUTHOR’S BIO: Dr. Richard Weitz is a Senior Fellow and Associate Director of the Center for Future Security Strategies at the Hudson Institute.