ECONOMIC MONITOR UZBEKISTAN - German Economic Team
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ECONOMIC MONITOR UZBEKISTAN Issue 3 | June 2020 Overview • 2020: positive growth of 1.5% despite COVID-19 • Without the pandemic, growth would have been 6.0% • Strong increase in government spending to support the economy • Agriculture hardly affected by quarantine measures, growth of 2.6% expected • Slight decline of inflation • Sum depreciated by 6% against the USD in January-May 2020 as exports and remittances declined • High international reserves of USD 31.3 bn (May 2020) - 14 months of import coverage • Current account deficit expected to rise to 9.6% of GDP in 2020 • FDI inflows will fall to 1.2% of GDP in 2020, after 3.9% in 2019 • Budget deficit will increase to 5.6% of GDP in 2020 Topics • Agriculture. Dominance of Dekhan farms and most recent reforms • Energy. Too much focus on base load generation in the 2030 investment plan • Support for SME. Recommendations for the strategy of the newly established SME support agency • COVID-19. Development of cases, domestic measures, economic support, int. financial support © Berlin Economics
Basic indicators
Uzbekistan Kazakhstan Belarus Ukraine Russia
GDP, USD bn 57.8 179.3 63.1 153.8 1,699.9
GDP/capita, USD 1,725 9,640 6,658 3,648 11,587
Population, m 33.5 18.6 9.5 42.1 146.7
Source: Countries‘ statistical services, 2019
Trade structure
Exports Imports
CIS 34% | Switzerland 18%* | UK 17%* | China 15% | EU 1% |
CIS 33%| China 21% | EU 13% | Other 33%
Other 15%
Others Others
Textiles 6% Energy and fuels
13% 14%
Machinery Gold 4%
3% 34%
Foodstuffs
Chemical products 9% Machinery
6% 48%
Metals
Foodstuffs Other metals 10%
11% 9%
Chemical
Energy and fuels products
18% 15%
Source: National Statistics Office, 2019; note: trade in goods;
*based on mirror statistics Source: National Statistics Office, 2019; note: trade in goods
© Berlin Economics 2Economic growth
Real GDP growth
GDP 2019
% yoy • Growth of 5.6% und thus quite high
8 Pre-Covid forecast • Main driver on the demand side:
7 − Investment: +46% yoy
6
5 − Very high share of investment to GDP ratio of
4 36.2% in 2019
3 GDP 2020
2
1
• Strong negative impact of COVID-19 crisis on the
0 economy
2017
Source: IMF; *forecast
2018 2019 2020* 2021*
• IMF reduced growth forecast from 6.0% to 1.5%
• Reason: lower growth of GDP components:
Contribution to growth
20
− Private consumption from 10.4% to 0.3%
%
15 − Investment from 8.0% to 4.5%
10 − But: Strong increase of public spending by 12.7%
5
0 ➢ Despite pandemic, positive growth for 2020
-5 expected
-10
-15
2017 2018 2019 2020* 2021*
Net exports Inventories and stat. discrepancies
Investments Consumption
Source: IMF
© Berlin Economics 3Sectoral perspective
Agriculture
Composition of GDP
Others • Very high share of 28% of GDP in 2019
21%
Industry • Growth forecast for 2020: +2.6% yoy
Construction 30%
6% Industry
Trade, • 2020: World Bank forecasts a growth of 2.1%
accommodation
and food services • Manufacturing und utility companies likely to be
7% hit by reduced demand
Transport and ICT Agriculture
8% 28% Services
Source: National Statistics Office, 2019 • Share of 36% of GDP in 2019 is low in
international comparison
Sectoral dynamics
14
% yoy
• Tourism and transportation highly affected by
12 measures to contain COVID-19
10
• Nevertheless slightly positive growth expected
8
6
➢ Growth in agriculture cushions the effects of
4
COVID-19 on the economy
2
0
2017 2018 2019 2020* 2021*
Agriculture Industry Services
Source: National Statistics Office; *forecast World Bank
© Berlin Economics 4Inflation and monetary policy
Inflation rate Inflation
% yoy
• 2019: high inflation rate of 14.5% as a result of
20 Pre-Covid forecast
strong demand and increased energy tariffs
15 • 2020: lower inflation rate of 12.9%
10 • Main reason: reduced aggregated demand
Monetary policy
5
• Reduction of policy rate by 1pp to 15% in Apr-20
0
2017 2018 2019 2020* 2021*
• Reduction explained by reduced inflationary
Sources: IMF; *forecast; note: annual average (consumer prices) pressure due to declining demand
• However, effect of policy rate pass-through limited
Policy rate by subsidised lending (approx. 20% of loans to the
18 % p.a. economy)
16
14
➢ Inflation should decline slightly
12
➢ Central bank reacted with slight easing of
10 monetary policy
8
6
Source: Central Bank of Uzbekistan
© Berlin Economics 5Exchange rate and international reserves
Exchange rate Exchange rate
12,000
UZS/USD
• Devaluation of the sum by 6% in Jan-May 2020
“Big Bang”
10,000 • Reason for the recent devaluation
8,000 − Decreasing exports and remittances due to
crisis, which led to reduced FX supply
6,000
• Flexible exchange rate; central bank intervenes
4,000
only to smooth fluctuations
2,000
International reserves
Source: Central Bank of Uzbekistan
• Uzbekistan has high reserves of USD 31.3 bn
International reserves (May-20), which amounts to approx. 14 months
of import coverage
USD bn
30
• Represent solid buffer
28
26 ➢ Slight devaluation appropriate in light of high
inflation
24
22
Source: Central Bank of Uzbekistan
© Berlin Economics 6Current account and FDI
Current account Current account
4 % of GDP • 2019: current account deficit at 5.6% of GDP
Pre-Covid forecast
2 • 2020: deficit of 9.6% of GDP expected, driven by
0 decreasing exports and remittances
-2 • Remittances in April 2020 50% lower than in
-4 April 2019
-6 • External financing needs expected to surpass
-8 USD 4 bn (equal to 7% of GDP)
-10 • But: financing these through reserves not
2017 2018 2019 2020* 2021*
advisable as this might undermine confidence
Source: IMF; *forecast
FDI
% of GDP
Foreign direct investment • 2019: strong increase to 3.9% of GDP
4
• Investments mainly in energy sector, food
processing and textiles
3 • 2020: reduction to 1.2% of GDP due to COVID-19
crisis
2
1 ➢ Strong increase of current account deficit
0
➢ International support to cover deficit
2017 2018 2019 2020* 2021*
Source: IMF; *forecast
© Berlin Economics 7External trade
% yoy
External trade 2019: Strong increase of external trade
50
Exports Imports • Export growth mainly driven by gold; 34% of total
40 exports
30
• Target countries: Switzerland and United Kingdom
20
10
2020: Decrease of external trade
0 • Exports: -15%; imports: -12% (4M2020)
-10 • Export: natural gas (-51%), textile fibres (-54%),
-20 fruit and vegetables (-35%)
2017 2018 2019 4M2020
Source: National Statistics Office; note: trade in goods
• But: gold (+27%)
➢ Increase in gold exports cannot offset decline in
Exports by countries other sectors
Other
EU
1%
7%
Switzerland*
Trade with the EU
Turkey
8%
18% • EU sees conditions for GSP+ trade preferences
fulfilled, official request submitted
Other CIS
8% United • UZB to receive status probably in autumn 2020;
Kingdom* preferences from Jan 2021
17%
Kazakhstan ➢ GSP+ status should increase the importance of
10% the EU as an export market in the medium-term
China Russian
15% Federation
16%
Source: National Statistics Office, 2019; note: trade in goods;
*based on mirror statistics
© Berlin Economics 8Public finances
% of GDP Budget balance Budget balance
0 • 2019: deficit amounted to 3.9% of GDP and was
thus much higher than expected
-1
-2
• Main reason: overruns in lending to state
enterprises by Fund for Reconstruction and
-3
Development
-4
• 2020: deficit expected to reach 5.6% of GDP due
-5
Pre-Covid forecast to pandemic
-6
2017 2018 2019 2020* 2021*
Assessment
Source: IMF; *forecast • Despite high deficit, public debt expected to
reach moderate 34.5% of GDP in 2020
Public debt • The temporary widening of deficit is not a threat
40 % of GDP to fiscal sustainability
35 • Adopted measures to support businesses and
households are justified
30
• Financing the deficit requires external financing
25 by IFIs as the domestic market is small
Pre-Covid
20 forecast • Goal: USD 1.6-3.1 bn (ca. 2.6-5.0% of GDP)
15
2017 2018 2019 2020* 2021*
Source: IMF; *forecast
© Berlin Economics 9Bilateral trade between Germany and Uzbekistan
German trade with Uzbekistan German exports
EUR m
• 2019: goods worth EUR 877 m exported to UZB,
1,000
strong growth of 28% yoy
800
600 • Main exports are machinery, vehicles and
400 chemicals
200 • 3M2020: EUR 148 m of exports, decrease by 28%
0 yoy due to special effect in last year
-200
2017 2018 2019 3M2020
− 3M2019: Export of airplanes
German exports German imports German imports
Source: German Federal Statistics Office, note: trade in goods
• Positive dynamics
German exports to Uzbekistan − 2019: +16% yoy; 3M2020: +9% yoy
Others
18% • But amount of imports still quite small;
Machinery
2019: EUR 31.6 m
Foodstuffs
3% 38% • Granting GSP+ preferences could lead to import
Electrotechnology growth
4%
Chemicals
12% ➢ Positive trade dynamics, effects of crisis not
visible so far
Motor vehicles and parts
25%
Source: German Federal Statistics Office; note: trade in goods in 2019
© Berlin Economics 10Agriculture: sectors and producers
Agriculture by sector • Agriculture accounted for 28% of GDP in 2019
Forestry Fisheries
• Of which 49% is in crop and 48% in livestock
2% 1% production
• There are two main types of producers
Crops • About 5 m dehkan farms (primarily self-
Livestock
49% sufficiency):
48% − Average 0.2 ha of land; primarily grow
vegetables and keep livestock
• 92.6 thousand large farms
Source: National Statistics Office, 2019
− Average 45 ha of land; primarily grow grain
and cotton
Value added by producer type
• Dehkan farms account for the main part of
Other
agricultural production (70%)
3% − 92% of livestock production
− 48% of crop production
Big farms
27% Dekhan ➢ Dominance of dehkan farms despite small size
farms
70%
Source: National Statistics Office, 2019
© Berlin Economics 11Agriculture: historical growth and growth expectations
Growth in agriculture • Low growth of 1.3% in 2017-2019 compared to
8 % yoy 6.2% in 2005-2016
7
6
6.2%
• Main reason: decline in arable land due to
5 irrigation problems
4 • An estimated 37% of water is lost in canels
3
2 1.3%
− Approx. 60% of canals and 80% of large
1 pumping stations require repairs
0 • Government strategy envisages growth of 5%
p.a. over the next 10 years
Source: National Statistics Office • An ambitious but realistic goal in view of low
Size of the total sown area in 1000 ha productivity and reforms
• Example: cotton and wheat are cultivated on
2015 2016 2017 2018 2019 67% of the area, fruits would be worth 10 times
more on the same area
Sown arable area 3,694 3,707 3,475 3,396 3,320 • However, investments in infrastructure, research
of which
and services are necessary
perennial crops
394 411 387 432 n/a ➢ Decline in growth only temporary, provided
(fruit, vineyards, that necessary investments and reforms are
etc.) made
Source: World Bank, 2020
© Berlin Economics 12Agriculture: reforms in cotton production
Cotton growing area • Reduction of the state-allocated cultivable land,
1,600 In 1000 ha but allocation of land remains in place until 2023
1,400 − Hokyms (local authorities) no longer
1,200
decide which type of cotton is cultivated
1,000
800 − Abolition of production targets since 2020
600
400
• Increase of state procurement price for cotton
200 − Since 2019 market prices (export parity
0 prices)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
• Promotion of private investments through so-
Source: National Statistics Office called “cotton-textile clusters”
State procurement price for cotton − 75 clusters in 2019: 63% of the cotton area
600 USD/t
under clusters
500 − 90 clusters in operation by the 2020
400
harvest
300
• Abolition of systematic forced labour
200 − Hokyms no longer responsible for harvest
100 − Government provides loans to pay pickers
0 ➢ Important steps to increase productivity and
2016 2017 2018 2019
growth on large farms
Source: Ministry of Finance
© Berlin Economics 13Energy sector
2030 generation capacity investment plan GET modelling of 2030 power generation
GW
35
Hydro
• Gov wants generation capacity to more than
30
Gas-fired new
double until 2030 as demand rises
4
25
11
Gas-fired old • Focus: nuclear, gas and renewables
20
Coal-fired
15 1 Solar
• GET assessed cost-efficiency of 2030 plan
2 2
10 3 5 Wind – Result 1: Large baseload (nuclear & gas)
5 7 3
2
Nuclear implies inefficient dispatch and high costs
0 1 1 Gas peaker
2020 2030 – Result 2: Lower costs if renewables and
Source: Ministry of Energy flexible gas peakers partly replace baseload
Optimal hourly dispatch of UZB electricity system in 2030 • Renewables: 2019 first successful tender of
14
GW
Nuclear 100 MW solar as public-private partnership
12
10
Hydro • Emirati company awarded with competitive 2.7
8 Coal USDcts/kWh bid
6
CCGT
4 ➢ Inefficient generation investment plan with
OCGT
2 focus on conventional baseload generation
0 PV
➢ Promising results of first solar tender
2:00
0:00
4:00
6:00
8:00
10:00
12:00
14:00
16:00
18:00
20:00
22:00
Wind
Source: Own calculations
© Berlin Economics 14SME support
Tasks and instruments of a modern SME promotion
agency based on the 4-pillar model • The new ministry for Economic Development
and Poverty Reduction has initiated the state
Business development SME promotion agency
Financial services
services
• First task: developing a modern strategy for
• Information • Loans
the agency's activities
• Business plan competition • Credit Guarantees
• Development training for • Mezzanine capital Our recommendations:
founders • Grants • Short term: focus on reputation building for
• Further training SME agency (credibility, reliability,
• Consulting & Coaching accessibility)
• Medium-term: focus on efficiency, i.e.
relationship between reach and use of
Support infrastructure Research & Policy Advice
resources
• Foundation Network • SME monitoring • Long-term: expansion and differentiation of
• Startup Center • Political Consulting the portfolio
Technology Park Comments on proposed
• •
legislation
• Efficient work sharing models with external
• Incubator/Accelerator
service providers
• cluster management
• Involvement of the chambers, all
stakeholders and IFIs
Source: Own composition
© Berlin Economics 15COVID-19: overview of cases
Cumulative COVID-19 cases Domestic perspective
4000
3500 • Containment measures led to a decrease in
3000 active cases
2500
2000 • After relaxation of measures, increase of cases,
1500 but at a low level
1000
500 International perspective
0
26 Feb 11 Mar 25 Mar 8 Apr 22 Apr 6 May 20 May
• Number of cases and mortality low
Total Recovered Active Deaths • However, also lower number of tests, indicating
Source: Johns Hopkins University a higher number of unreported cases
Absolute numbers Per 1 m population
Total Cases Deaths Recovered Active Total Cases Deaths Active Tests
Uzbekistan 5,730 19 4,166 1,545 171 0.6 46 22,379
Kazakhstan 15,877 100 10,065 5,712 846 5 304 66,024
Kyrgyz
2,657 31 1,933 693 408 5 106 24,973
Republic
Tajikistan 5,279 51 3,762 1,466 554 5 154 n/a
Turkey 184,031 4,882 156,022 23,127 2,183 58 274 33,478
Russia 561,091 7,660 313,963 239,468 3,845 52 1,640 107,445
Germany 190,050 8,944 174,100 7,006 2,269 107 84 60,038
France 158,641 29,603 73,887 55,151 2,431 454 845 21,214
Source: Worldometer, data as of 18 June 2020, Note: latest available data; Data for tests are updated infrequently
© Berlin Economics 16COVID-19: containment measures
Lockdown index Domestic perspective
100 • Measures
90 − Closure of the external borders and of
80
all commercial flights
70 − Closure of public transport; restrictions
on private transport
60
− Closure of schools and kindergartens
50
− Lockdown of major cities; prohibition
40
to enter or leave
30
− Closure of shops, ban on public events
20
− Prohibition for all persons over 65
10 years of age to leave the house
0 − Penalties for infringements
International perspective
Uzbekistan Kazakhstan Kyrgyz Republic
Turkey Russia Germany • Rapid adoption of very stringent measures
Tajikistan
Source: Oxford COVID-19 Government Response Tracker
Note: The stringency index aggregates policy responses related to containment,
closure and public information campaigns on a scale from 0 (lowest) to 100
(highest)
© Berlin Economics 17COVID-19: support by the government
Households Business
• Approx. USD 50 m from the • Credit guarantees up to 75% for companies with a positive
anti-crisis fund for families credit history, but not exceeding USD 10 m
in need
• Subsidy on interest payments
• Food packages for people
• Moratorium on initiation of insolvency and declaration of
with disabilities during
insolvency for companies
quarantine
• Numerous tax cuts and exemptions for various sectors,
• Postponement of payment
interest-free deferral of tax payments
of property and real estate
taxes • Tax exemptions and subsidies for the tourism sector
SME Large companies
• Tax measures e.g. • USD 140 m of grants and
− Reduction of monthly loans for SOE, e.g.
social tax for self- − Grant of USD 40 m to
employed traders Uzbekneftegaz
− Reduction of water tax − Loan of USD 40 m to
for irrigation of Uzbekistan Airways
agricultural land
Source: Government of Uzbekistan, Note: selection, measures as of 18 June 2020
© Berlin Economics 18COVID-19: international support
International assistance by IFIs/donors
Organisation Amount of support Status
IMF USD 375 m (emergency loan) Approved
USD 46 m (hospital equipment) Announced
USD 17 m (hospital equipment) Approved
Islamic Development Bank
USD 140 m (financing health protection and supporting In discussion
companies)
World Bank USD 295 m (emergency loan) Approved
USD 20.88 m (hospital equipment)
ADB Approved
USD 500 m (loan)
USAID USD 3.8 m (laboratory equipment) Approved
Source: Government of Uzbekistan, Note: selection, measures as of 02 June 2020
• Government objective: international assistance of USD 1.6-3.1 bn (2.6-5.0% of GDP) to support
the budget and finance the Anti-Crisis Fund
• Support to flow until August 2020
© Berlin Economics 19About the German Economic Team The German Economic Team (GET) advises the governments of Ukraine, Belarus, Moldova, Georgia and Uzbekistan regarding the design of economic policy reform processes and a sustainable development of the economic framework. As part of the project we also work in other countries on selected topics. In a continuous dialogue with high-level decision makers of the project countries, we identify current problems in economic policy and then provide concrete policy recommendations based on independent analysis. In addition, GET supports German institutions in the political, administrative and business sectors with its know-how and detailed knowledge of the region’s economies. The German Economic Team is financed by the Federal Ministry of Economic Affairs and Energy. The consulting firm Berlin Economics has been commissioned with the implementation of the project. C O N TA C T Woldemar Walter, Project Manager Uzbekistan walter@berlin-economics.com German Economic Team Tel: +49 30 / 20 61 34 64 0 c/o BE Berlin Economics GmbH info@german-economic-team.com Schillerstraße 59 www.german-economic-team.com 10627 Berlin © Berlin Economics
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