Is business in Uzbekistan just not flourishing or are there other reasons why the economy hasn’t been thriving over the last several years? Uzbekistan’s economy relies mainly on commodity production, including cotton, gold, uranium, potassium, and natural gas. Despite the declared objective of transition to a market economy, Uzbekistan continues to maintain rigid economic controls, which often repel foreign investors. The policy of gradual, strictly controlled transition has nevertheless produced beneficial results in the form of economic recovery after 1995. Uzbekistan has a very low GDP per capita (US$1,320 in current dollars in 2010, giving a PPP equivalent of US$3,015), as estimated by the IMF. In turn, the nominal GDP was $37.290 billion in 2010.
By GNI per capita in PPP equivalents Uzbekistan ranks 169 among 209 countries; among the 12 CIS countries, only Kyrgyzstan and Tajikistan had lower GNI per capita in 2006. Economic production is concentrated in commodities: Uzbekistan is now the world’s sixth-largest producer and second-largest exporter of cotton, as well as the seventh largest world producer of gold, as reported by Irin News. Facing a multitude of economic challenges upon acquiring independence, the government adopted an evolutionary reform strategy, with an emphasis on state control, reduction of imports and self-sufficiency in energy. The gradualist reform strategy has involved postponing significant macroeconomic and structural reforms. The state in the hands of the bureaucracy has remained a dominant influence in the economy. Corruption permeates the society and grows more rampant over time: Uzbekistan’s 2005 Corruption Perception Index was 137 out of 159 countries, whereas in 2007 Uzbekistan was 175th out of 179 countries. A February 2006 report on the country by the International Crisis Group suggests that revenues earned from key exports, especially cotton, gold, corn and increasingly gas, are distributed among a very small circle of the ruling elite, with little or no benefit for the populace at large, as reported by the Voice of America.
According to the Economist Intelligence Unit, “the government is hostile to allowing the development of an independent private sector, over which it would have no control”. Thus, the middle class is marginalized economically and, consequently, politically. The economic policies have repelled foreign investment, which is the lowest per capita in the CIS, as mentioned in a report by the US State Department in 2011. According to EBRD transition indicators, Uzbekistan’s investment climate remains among the least favorable in the CIS, with only Belarus and Turkmenistan ranking lower. The unfavorable investment climate has caused foreign investment inflows to dwindle to a trickle. It is believed that Uzbekistan has the lowest level of FDI per capita in the CIS. Since Uzbekistan’s independence, U.S. firms have invested roughly $500 million in the country, but due to declining investor confidence, harassment, and currency convertibility problems, numerous international investors have left the country or are considering leaving.
As a result, the Uzbek market is a very poor area for businesses to invest in. While the population might be of mentionable size at 29,559,100, as measured by the Uzbek government in 2011, it is quite poor at a low GDP per capita. Plus, with the addition of a poor investment climate, trading in Uzbekistan is simply not possible for businesses looking to make a profit in the long term. However, it should be mentioned that Uzbekistan has maintained very high growth rates in the past. According to IMF estimates, the GDP in 2008 will be almost double its value in 1995 (in constant prices). According to the forecast by the Asian Development Bank, GDP in Uzbekistan in 2009 is expected to grow by 7%. Meanwhile, in 2010 the Uzbekistan GDP growth is predicted at 6.5%. But without strong protections for business property rights, their is very little chance the foreign businesses can take advantage of this growth.