Uzbekistan is a land almost synonymous with Oriental bazaars. Yet shoppers in Central Asia’s most populous state are hesitantly embracing the shopping mall – at least in the capital, Tashkent. The change in consumer habits seems partially connected to government efforts to pad state coffers.
Uzbekistan’s challenging economic climate and protectionist policies have hampered the expansion of retail trade, but locally-owned malls have been springing up around the capital in recent years. Like much else in this often impenetrable economy, the ownership structures of malls are opaque, though without friends in high places few businesses prosper in Uzbekistan.
The largest mall to open is Mega PLANET, the closest thing Uzbekistan has to a Western-style retail and entertainment complex. Mega PLANET launched in December 2010 in Tashkent’s Yunusobod District, a standard residential area rather than an exclusive part of town. It is clearly aimed at working-class and middle-class consumers, not Tashkent’s jet set. At midday during a recent weekday, the mall was crowded with office workers grabbing lunch in its food court and young mothers pushing buggies browsing its boutiques.
Several smaller malls have opened in recent years, including the Shedevr Shopping Complex, launched in downtown Tashkent at the end of 2011, and the Poytakht Shopping Center, opened the previous year and housing an eclectic mix of low-end boutiques side-by-side with luxury shops – one of which recently had a set of gold-plated playing cards on sale for 2.5 million sum (around $1,250 at the official exchange rate).
The popularity of malls is fuelled in part by the fact that many workers, particularly those in the public sector, get paid via debit cards that can only be used to make payments in registered shops, not to withdraw cash or shop in cash-only bazaars. This development has driven shoppers into official outlets, hitting trade at Uzbekistan’s famous bazaars. The debit-card system is designed to make it easier for officials to track transactions, and thus reap the taxes owed on those transactions. It also squeezes the black market, ensuring that transactions are conducted according to an official exchange rate that artificially inflates the value of the Uzbek sum. While the system gives state coffers a nice revenue injection, consumers are forced to pay higher prices for the goods they buy.
A decade ago, the capital of Uzbekistan had no shopping malls and only one large supermarket, Turkish-owned Demir, which now stands shuttered after its owners quit Uzbekistan in 2011 amid disagreements with the government.
Turkish investors were once prominent on Uzbekistan’s retail market, but they did not prosper. One popular Turkish-owned Tashkent store, Turkuaz, was closed in 2011, when investigators accused it of legal violations and seized $3 million of stock. The store’s Turkish managers ended up on trial for tax evasion: one was jailed for three years; seven were convicted and deported. The store, re-opened under the name Toshkent, now does a roaring trade under Uzbek management.
Such business spats involving foreign investors are common in Uzbekistan: the fate of Wimm-Bill-Dann, a Russian dairy manufacturing giant whose Uzbekistan operations were forcibly nationalized in 2010, is illustrative of the pitfalls for entrepreneurs.
Foreign companies in other sectors have also lost their businesses in what they contend are assets grabs. The UK’s Oxus Gold had its business seized in 2011 (and one staff member jailed on espionage charges). It is pursuing expropriation claims against Tashkent in international arbitration. Last year, the Russian telecom firm MTS had its license revoked and its Uzbekistan-based assets seized in a dispute the firm says cost it $1.1 billion.
The government denies expropriation, arguing that companies only face legal sanctions if they break the law.
Against this backdrop, foreign investors have been reluctant to venture into Uzbekistan’s retail trade, despite potentially lucrative pickings from Central Asia’s largest population of roughly 30 million.
The size of the market must be set against the public’s relatively low purchasing power, however. The government does not release regular data on average salaries, but last time it did, in December 2011, the mean wage stood at 921,300 sum, around $500 at the official exchange rate at the time.
Yet that figure is deceptive for several reasons. Official statistics in Uzbekistan are widely held to be unreliable; the sum is overvalued and worth far less on the black market than it is officially, making the buying power of wages smaller than it appears; and, finally, many in Uzbekistan work in low-paid spheres, such as the public sector or agriculture, earning below-average wages.
The minimum wage as of December 2012 was a mere 79,590 sum, or roughly $40 per month at the official rate. Around a quarter of Uzbeks live below the poverty line, according to the Asian Development Bank.
Big name brands are notably absent from Uzbekistan’s retail sector. Concerns about low disposable incomes and investor protection are not the only factors making foreign investors wary: protectionist economic policies also figure in their calculations.
Uzbekistan languishes near the bottom of the World Bank’s Doing Business report ranking, at 154th out of 185 countries (though this year’s report singled it out as among 10 states that had done most to ease the business environment over the previous year). Barriers to business include currency convertibility restrictions that force investors to exchange money at an unfavorable commercial exchange rate, and sometimes cause considerable delays for them to access their own funds in hard currency.
High import tariffs are another factor cited by entrepreneurs in Tashkent as an obstacle to trade. Retailers pass the expense to consumers, putting many consumer goods beyond the pocket of the average shopper.
Joanna Lillis is a freelance writer who specializes in Central Asia.