Uzbekistan Weekly Roundup

With the closure of Zeromax and its many related affiliates; the failure to pay debts to German and other investors; the raid and closure of some 50 Turkish companies; and seizure of the assets of British Oxus Gold, a decided chill has been placed over the business climate in Uzbekistan for foreigners.

Yet less visible is how the climate for free enterprise has diminished for local small and medium enterprises in Uzbekistan. Government policies such as new excise taxes on imports have hurt local enterprise dependent on imported goods, and now the government has taken a number of other actions to further rein in the private sector.

In the West, bloggers and their readers endlessly argue about whether a flat tax would work. In Uzbekistan, we get to see how: the government has rammed through a flat tax on small business, supposedly in an effort to stimulate enterprise. In fact, it has had the opposite effect. The Unified Tax Payment for all businesses with less than 100 workers went into effect last month, and some enterprises found themselves with a much higher tax that essentially crushed them, EurasiaNet reports. For example, uznews.net estimated that a small business with $400 in monthly revenue would end up with a monthly tax bill of about $160. The ill-conceived measure will force many to close, with a devastating effect on employment, since small and medium enterprises make up more than 50 percent of the businesses in Uzbekistan. As with other excessive tax and registration measures, the move will likely force more business into the black market as well, leaving merchants vulnerable to arrest.

To be sure, authorities simplified business registration procedures and granted small business owners -- no longer just large, state-owned companies -- the right to bid for government contracts. Yet then they increased their inspections manyfold, from as many as 12 different government agencies. And with more inspections come more opportunities for corrupt officials to demand kickbacks or bribes.

Uzbek authorities have also used a heavy-handed approach to controlling business that disregards due process. When Turkish businesses were shuttered last year, on charges ranging from tax evasion to religious extremism, or when local businesses are closed, rather than getting a notice for lawyers to deal with, merchants find themselves facing police raids.

On July 16, masked special forces armed with machine guns burst into the Urgench Trading House in Khorezm, a marketplace for small businesses, Radio Ozodlik, the Uzbek service of Radio Free Europe/Radio Liberty reported. The director of the trading house was arrested and all the jewelry on display from various merchants in the complex was confiscated. The police were so rough that two people were hospitalized after fainting on the scene. According to a police source who requested anonymity, documentation and licenses required for selling jewelry were missing, and there were allegations of tax evasion. The operation was similar to raids made by armed masked agents against Turkish companies earlier this year and against a religious book-sellers market – both independent commerce and Muslim religious activity outside of state bounds have been increasingly and ruthlessly pursued by officials.

Local government administrators also view businesses in their district as available to provide free goods and services for the state. The celebrations planned for the 20th anniversary of Uzbekistan’s independence, like regular state holidays, has proved a case in point. Business owners in Tashkent and other cities report that officials are pressing them to provide free construction and labor for model residential areas to be built in competitions to show off the ostensible living standards of the Uzbek people. Merchants are also asked to buy expensive banners and posters with the president’s sayings to boost national pride. Those whose fix is already in with local bureaucrats have been spared the forced donations.

An officer of the Uzbek National Security Service says the Islamic Movement of Uzbekistan (IMU) has terrorist training camps in Turkey, Afghanistan, and Pakistan, with the largest of them in Pakistan, centralasiaonline.com reports. In Pakistan, some mosques are said to provide cover for ideological training to Uzbeks seeking to overthrow their government and establish an Islamic state.

Artur Temerlanov, an officer of the Uzbek National Security Service, said there are at least 5,000 members of the IMU, making it the largest group of foreign fighters in Pakistan. It is not clear if the numbers are growing, as the figure given by Temerlanov is at the high end of the range of between 50 and 5,000 estimated by analysts for the last decade, although it is more than the 2,000 often cited a decade ago when the IMU's leaders, who fought alongside the Taliban, were first said to be killed by US forces.

Viktor Mikhaylov, a counter-terrorism analyst, told centralasiaonline.com that the IMU was seeking university graduates with information technology skills, as the terrorist group has widely used the Internet in its propaganda campaigns and to recruit new supporters. A young man who said his family was educated expressed horror that his brother had joined the IMU, centralasiaonline.com reported. The Uzbek government has often invoked the IMU as an excuse to crack down on devout Muslims and rein in any type of civil society independent of the state.

A mufti loyal to the state appeared on state television to warn the faithful not to be wasteful during Ramadan and to be sincere about charitable acts. The reference is to traditional family outings at restaurants during the month-long ritual. “Any charitable deed done not for the sake of Allah is not accepted even if one invites millions of people,” cautioned the mufti. But his main message seemed to be to alert Muslims to be grateful for what conditions for worship they did have under President Islam Karimov. He thanked the dictator for his decree on Ramadan events, and implied his authoritarian rule was responsible for stability. “"Thanks to this peace and calm, Uzbekistan's people, especially Muslims, currently have an opportunity to worship and do charitable deeds in peace and calm," the chief cleric said, no doubt mindful of events in the Middle East and North Africa.

Given heavy state control over non-governmental organizations, the news that Uzbek greens are suing a plant on allegations of toxic waste have to be taken with a grain of salt. The Ecological Movement of Uzbekistan of the Sukhandarya region is filing suits in international courts calling on the Tajik state company Talco, an aluminum company, to compensate for damages alleged to have been caused to the environment and people's health. While the aluminum plant may indeed pollute the environment, the case seems engineered by the Uzbek government as part of its propaganda war against neighboring Tajikistan, which it says is harming the environment – and Uzbekistan’s much-needed water-supply – with plans to construct a hydroelectric power plant on the Amu Darya river.