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Uzbek miracle: Lessons for Ukraine

Author : Georgiy Kuhaleyshvili

Source : 112 Ukraine

Recently, the international press and experts are increasingly paying attention to Uzbekistan, once one of the most authoritarian and closed countries of the former Soviet Union
21:50, 8 April 2020

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Recently, the international press and experts are increasingly paying attention to Uzbekistan, once one of the most authoritarian and closed countries of the former Soviet Union. After the death of first President Islam Karimov in September 2016, former Prime Minister Shavkat Mirziyoyev let the Central Asian republic. He is often portrayed in the media as an effective manager and reformer. British newspaper The Economist named Uzbekistan country of the year 2019 in terms of economic liberalization and political reform.

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Japanese outlet The Diplomat referred to the founder of the Uzbek analytical center "Knowledge Caravan" Farhod Talipov, who believes that the evolution of the political and party system of Uzbekistan has occurred. Yevgeniy Pushchuk, executive director of the Naftaenergo Engineering Kazakhstan company, compared Uzbekistan to Qatar in terms of dynamics of reforms, development, and attraction of investments. It is worthwhile to find out whether Uzbekistan under Mirziyoyev really became a more efficient state.

Old fashioned reformer

The formation of Shavkat Mirziyoyev as a statesman began during the Soviet times. He was never a dissident, an opponent of the socialist system, a political emigrant, he did not receive higher education in the West. A descendant of prosperous Uzbek peasants from the Jizzakh region, Mirziyoyev made a career as a scientist at the Tashkent Institute of Irrigation and Land Reclamation, and then in the late 80s joined the Communist Party and was elected to the post of a deputy of the Supreme Council of the Uzbek Soviet Socialist Republic. After Uzbekistan gained independence in August 1991, the politician joined the People's Democratic Party, which became the successor to the local Communist Party. Mirziyoyev was twice re-elected to the post of deputy.

President Islam Karimov, who ruled the republic since Soviet times, entrusted Mirziyoyev with the leadership of the Jizzakh and Samarkand regions, which are strategically important in economic terms. Mirziyoyev served as prime minister of Uzbekistan since 2003, right up to the death of Karimov, he was the second person in the country in terms of the power execution. He even began to lead the republic a couple of months before his victory in the early presidential election in December 2016. According to the legislation of Uzbekistan, the president of the Senate, Nigmatilla Yuldoshev, was to act as president, but he voluntarily refused this mission and transferred the authority to Mirziyoyev. In the presidential election, he walked as a candidate from the Liberal Democratic Party, where Karimov had previously been. Over 88% of the population voted for him.

Party liberalization did not occur in Uzbekistan, as the country continues to be governed by the same political forces as under Karimov. In the last parliamentary elections in Uzbekistan in 2019, the coalition of the Liberal Democratic Party and the Democratic Party won, where Mirziyoyev was in 2008-2016. A multi-party system in Uzbekistan was nominal. Only five parties were allowed to participate in the parliamentary elections. The Adolat, People’s Democratic Party, and Ecological Party parties, which are a managed but not real opposition, went to parliament. Under Mirziyoyev, the non-systemic opposition parties Erk and Birlik did not register dissident Muhammad Salih, who lives in Turkey, and did not allow independent candidates to participate in the elections. Civil society has not formed in Uzbekistan. It is problematic to register a non-governmental organization. Uzbekistan remains an authoritarian country, although the president himself argues that liberalization is necessary to improve the standard of living of the population.

A manifestation of liberalization in Uzbekistan was a ban on the use of child and forced labor, a policy of publicity, amnesty for some political prisoners. Independent experts appeared in the country, the media began to raise such topical problems as poverty among the population, the development gap between cities and villages. At the initiative of Mirziyoyev, an electronic portal was created through which any citizen can report on his problem (more than a million applications have been received). Exit visas were canceled.

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In January 2017, the Law on Combating Corruption was signed. According to Transparency International, in 2019, Uzbekistan ranked 153 out of 180 places in terms of susceptibility to corruption (Ukraine in 126th place). Employees of the local traffic police began to take fewer bribes. However, progress is negligible. Since 2016, Uzbekistan has moved only three points in terms of susceptibility to corruption.

According to Centre1.com, the fight against corruption in Uzbekistan is symbolic, since an anti-corruption bureau has not been created, mostly small officials are being planted, and bribes continue to be taken at medical facilities in Uzbekistan, including maternity hospitals.

Related: Uzbekistan threatens Ukraine with sanctions

Reforms of Mirziyoyev

Liberalization mainly affected the economic and tax spheres. In 2018-2019, Mirziyoyev conducted a tax reform taking into account Georgian experience. Former Prime Minister of Georgia Nika Gilauri from the team of ex-President Mikheil Saakashvili participated in the preparation of the reform concept. Before the reform, Uzbekistan had a high tax burden for enterprises and complex tax rules. Uzbek citizens had to pay more taxes: income tax from 7.5% to 22.5%, which was calculated individually, deductions to the pension fund in the amount of 8% and a single social payment from 15% to 25% depending on the size of the enterprise.

As a result of the tax reform, a single tax was introduced at a rate of 25% on personal income. The authorities reduced income tax for legal entities from 14% to 12%, for banks - from 22% to 20%. The income tax rate on dividend and interest payments was reduced to 5%. Small businesses, like owners of outlets, were exempted from VAT. Instead, entrepreneurs pay a single tax payment of 4%. Tax reform was supposed to contribute to the growth of salaries in Uzbekistan.

However, according to journalist Yuri Chernogaev, half of the economy of Uzbekistan continues to be in the shadows, and many workers get paid in envelopes. Salaries in Uzbekistan are negligible. In 2019, the average salary was $ 235, and the minimum wage was $ 67. Over the year, the average salary increased by less than 8%. Uzbek economist Yuli Yusupov believes that the lack of reform is a too large gap in the tax burden between general and simplified taxation regimes. General regime enterprises evade taxation and split up a business.

Related: Mirziyoyev officially takes charge as Uzbek President

Uzbekistan has over 20 free economic zones with tax incentives and preferences for foreign investors, including a reduction in income tax by the amount of money spent on the construction of new buildings to expand the main production, modernization, technical and technological re-equipment. There is a reduction in the income tax rate for exporting enterprises from 30% to 50% depending on sales volumes. Newly created enterprises are exempt from paying property tax for legal entities for up to two years. Investors are exempted from customs duties on imported property. Special preferences are given to manufacturers of electronics, building materials, light industry products, products, and poultry farms. They are exempt from paying part of taxes for a period of 3 to 7 years, depending on the volume of investments.

Mirziyoyev introduced a free currency exchange in the country, a “floating rate” of the sum, canceled the requirement of the obligatory sale of foreign exchange earnings. The president promotes the privatization of state-owned enterprises.

Reforms of Mirziyoyev improved the investment climate in the republic. From 2016 to 2019, the influx of foreign investment in Uzbekistan increased from $ 1.7 to $ 4.2 billion. Last year, over 3,200 investment projects were underway, including in the energy and chemical industries. One of the most promising projects is the construction of an Uzbekistan GTL synthetic liquid fuel plant with the participation of investors from China, South Korea, and Russia. In early March, The Economist reporters, along with colleagues from other Western publications, including Reuters, Les Echos, Energy Inelligene, and Petroleum Economist, visited the construction site at the invitation of the Ministry of Energy of Uzbekistan and the Uzbekneftegaz state company. It is planned to implement another 101 investment proposals worth 892 million dollars in the field of mining, pharmaceuticals, and tourism in seven regions of Uzbekistan.

Related: First president of Uzbekistan Karimov was buried in Samarkand

Geopolitical factor

A significant factor that forced Mirziyoyev to carry out economic reforms and make Uzbekistan more open to foreign investors is the state’s limited position at the junction of Central Asia and the Middle East, at the intersection of the interests of Russia, China, the United States, and Turkey. Moscow is interested in the entry of neutral Uzbekistan into the Eurasian Economic Union and the CSTO. In Uzbekistan itself, there is no unequivocal attitude to this issue. On the one hand, cooperation with the Eurasian Economic Union is interesting, since Russia is the main trade and economic partner, more than 2 million Uzbeks go there to earn money, 80% of Uzbek goods transit through other member countries.

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On the other hand, Uzbeks fear to lose their self-sufficiency. Under Mirziyoyev, Uzbekistan’s foreign policy has changed from Karimov’s chaotic rush between Russia and the West to pragmatic equidistant cooperation with various centers of power. Mirziyoyev established relations with neighbors and settled a long-standing dispute with Tajikistan over the Rogun hydroelectric power station. Commissioning of the facility could leave Uzbekistan without water. Instead, two other hydroelectric power stations will be built on the Zarafshan River in Tajikistan. Mirziyoyev considers the possibility of joining the Eurasian Economic Union only if he does not have to turn off the course of reforms. Such a situation is not beneficial for Moscow since in this case, the demand for liberalization in Russian society will grow.

With the help of reforms, Mirziyoyev expects to prepare Uzbekistan for accession to the WTO and earn the location of the West and China, to use rapprochement with them as a counterweight to Russia's influence. Last year, the United States allocated $ 100 million to Uzbekistan as economic assistance and plans to allocate another $ 2 billion. Americans see Uzbekistan as a foothold in Central Asia, since other countries in the region, apart from Turkmenistan, which is closed to the outside world, are already in orbit Moscow's influence as a member of the Eurasian Economic Union or CSTO. China sees Uzbekistan as a partner in implementing the investment initiative and the One Belt, One Way network of transport corridors. The engine of reform in Uzbekistan is foreign policy uncertainty.

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