When it comes to human rights and Uzbekistan, the news is usually bad.
The U.S. State Department’s 2015 Trafficking in Persons Report, published on July 27, does not buck that trend, but it is notable in recognizing what it says are efforts by Tashkent to reduce forced child labor.
That has prompted the American government to promote Uzbekistan from Tier 3 to Tier 2 on its watch list — a move that has stunned the Cotton Campaign advocacy group.
Cotton Campaign, which has as it aim the end of forced child and adult labor in Uzbekistan’s cotton industry, says the upgrade lets Tashkent off the hook.
“The Uzbek government continues to operate one of the largest state-orchestrated systems of forced labor in the world,” the group said in a statement.
Nadejda Ataeva, president at the Association for Human Rights in Central Asia, said in comments carried on the Cotton Campaign statement, that the United States “has effectively sent a message to Uzbek authorities that forced labor of millions of its citizens is cost-free.”
The U.S. State Department paints a grim picture, but offers some ostensibly consolatory remarks in passing:
“Government-compelled forced labor of adults remains endemic during the annual cotton harvest. In 2014, despite a central government-decree banning all participation of those under age 18 in the cotton harvest, local officials mobilized children in some districts. In addition, across much of the country, third-year college and lyceum students continued to be mobilized, an unknown number of whom were not yet 18 years old.”
The World Trade Organization has approved terms for Kazakhstan to join, paving the way for Central Asia’s leading economy to become a full member toward the end of the year after nearly two decades of “challenging” talks.
Speaking in Geneva after signing the accession protocol with WTO Director-General Roberto Azevedo on July 27, President Nursultan Nazarbayev hailed the imminent accession as a sign that Kazakhstan’s economy is opening up to the world.
“In improving the investment climate, we are giving priority to the diversification of our economy,” he said in remarks quoted by state news agency Kazinform.
Astana sees accession as crucial to its bid to wean Kazakhstan’s economy off its dependence on oil and gas. To that end, Nazarbayev reminded investors that Kazakhstan has devised perks for those putting money into the non-extractive sectors.
The government has indicated that it aims to complete the ratification process by October 31 and hopes Kazakhstan will be a full member once the next WTO ministerial conference comes around in mid-December.
Kazakhstan’s accession negotiations have lasted 19 years and been among the most “challenging” the global body has faced with any country, the WTO said in a statement issued when talks were finally completed last month.
It made it clear that the process had been substantially set back by Kazakhstan joining the Russia-led Customs Union (a regional free trade zone) in 2010, which evolved into the Eurasian Economic Union (EEU) this year.
Kazakhstan’s accession process slowed after Russia first said the Customs Union members would negotiate as a bloc to join, before proceeding to join alone in 2012.
After months of pressure on Kazakhstan’s currency, the central bank has moved to allow the tenge to slide – but avoided the large snap devaluation that doomsayers have long been predicting.
On July 15, the National Bank eased the corridor within which the tenge trades to allow it to drop by 5%, to 198 to the U.S. dollar.
Chief central banker Kayrat Kelimbetov explained, in remarks quoted by Tengri News, that the measure was adopted as the tenge was pushing the upper margin of the corridor of 170-188 tenge to the dollar that the bank had previously committed to enforcing.
There were no immediate signs of panic over the mini-devaluation in Kazakhstan, where the National Bank maintained its exchange rate at 186.8 tenge to the dollar and the currency closed at 187.05 on the Kazakhstan Stock Exchange on July 15. In exchange offices, the tenge was trading at around 187.5 to the dollar after the central bank’s announcement.
Financial analysts predict the slide will be gradual.
“The scenario of a sharp devaluation is not being considered, and in principle that’s correct,” economist Olzhas Khudaybergenov, a former adviser to Kelimbetov, wrote on his Facebook page.
Khudaybergenov predicted a slow depreciation of 0.5-1 tenge per month, with the currency reaching the upper limit of the new corridor (198 tenge) in about a year.
The calm with which the news was received contrasted with the last devaluation in 2014, when the tenge lost nearly 20% of its value in a single day, sparking public anger that escalated into small-scale unrest in Almaty.
Astana is slashing growth expectations and cutting its budget revenue forecasts as Kazakhstan eyes its gloomiest economic outlook for years, sources in parliament report.
The government intends to cut this year’s GDP growth forecast to 1.5 percent (against its previous forecast of 4.8 percent) and reduce budget spending by a whopping $7 billion, sources in the ruling Nur Otan party told Vlast.kz following a presentation to parliament by National Economy Minister Yerbolat Dosayev on January 16.
Such growth would represent a significant slowdown on last year’s 4.3 percent, and would be Kazakhstan’s lowest since 2009, the height of the global credit crunch.
As President Nursultan Nazarbayev acknowledged last week, Kazakhstan is facing a litany of economic problems, from low prices for oil and metallurgical output to the knock-on effect of Western sanctions against Russia and pressures on the tenge as a result of the ruble’s precipitous fall.
The government is cutting the oil price on which its budget is based from $80 to $50 in its revised budget (which will have to be approved by parliament), Dosayev confirmed, after global prices dipped below $50 this month.
Russia's ruble became worth less than a Kyrgyz som for the first time on December 12. (xe.com)
The Russian ruble crossed a psychological barrier in Kyrgyzstan on December 12, becoming worth less than the som for the first time. Across Central Asia, the ruble’s slide is pushing local currencies to new lows. But they can’t seem to fall fast enough to keep a competitive advantage.
Central Asian economies are deeply dependent on Russia as an export market. When the ruble is weak, Central Asia’s exports are relatively expensive for Russian consumers. So, weaker local currencies benefit the region’s producers. Of course falling currencies also mean inflation, as the price of imported goods from outside the region shoots up—as does the cost of servicing foreign debt. The World Bank projects inflation in Kyrgyzstan this year to top 10 percent. In Tajikistan, food prices rose 10.5 percent in November alone, according to a Deutsche Welle report.
In terms of statistics, unless they are the rosy government sort, Tajikistan often appears to be on the edge of an abyss. But somehow the poorest country to emerge from the Soviet Union chugs on.
So a grim World Bank report out this week probably does not indicate imminent collapse. But it is unnerving to see that almost every macroeconomic indicator suggests trouble ahead. And Tajikistan’s latest predicament coincides with a push from Moscow to join Russia’s new Eurasian Economic Union.
Tajikistan’s economic dependence on Russia is, as economists have long warned, a liability—and not only because it gives Moscow enormous influence. “The possible spillover effect from the Russian slowdown onto the Tajikistan economy is estimated to be one of the largest in the [Europe and Central Asia] region: a 1 percentage point reduction in the growth of Russia’s GDP would reduce growth in Tajikistan by the same amount,” says the October 27 report, “Tajikistan: Moderated Growth, Heightened Risk.”
For starters, over a million Tajiks, or about one-half of working-age Tajik men, labor in Russia, usually in menial jobs. Their transfers are worth about half of Tajikistan’s GNP, making it the most remittance-dependent country in the world.
But as the Kremlin sacrifices Russia’s economy for its Ukraine policy, which has caused a new low in relations with the West, the resulting downturn is hurting the ruble and Tajikistan’s economy at large. An ailing ruble buys fewer dollars to send home.
From the EBRD report: “The chart shows that Belarus, Armenia and Tajikistan (the latter predominantly through remittance flows) have the highest overall economic exposure to Russia. Such exposures are also significant for the Kyrgyz Republic, Moldova and Ukraine.”
As Russia’s economy goes, Central Asia’s follows. So it is no surprise that the current downward drift in Russia will hurt the region, potentially for years to come. Remittance-dependent countries like Kyrgyzstan and Tajikistan should be especially worried, the European Bank for Reconstruction and Development, a multilateral lender, says in a new report.
In its September regional assessment, the EBRD forecasts growth in Russia will come to a “standstill” in the coming months. Already pronounced, Russia’s economic slump is being exacerbated by the war in Ukraine and Western sanctions. The EBRD said Central Asia, and formerly communist countries more broadly, can expect “significant spill-over effects.”
New sanctions by the EU and U.S., which will dampen growth in Russia, “will negatively affect growth in the Central Asian countries.”
As in 2009, during the financial crisis, migrants and their dependents back home will be the first to feel the pain. Remittances from Russia to Central Asia fell in the first quarter of 2014 compared with the previous year, “for the first time since 2009, primarily due to the slowdown in Russia,” the EBRD said. “Particularly vulnerable are [the] Kyrgyz Republic and Tajikistan, where even a small drop in remittances from Russia is substantive, as remittances make up 29 percent and 49 percent of GDP respectively.”
A fall in remittances “may significantly dampen consumer demand in lower-income countries in the region.”
Chevrolet is having a hard time satisfying demand in Uzbekistan.
Though the country's flagship industrial enterprise, a General Motors plant, recently produced its two-millionth unit since opening in 1996, that’s not enough to go around in Uzbekistan, where the economy is tightly controlled and high tariffs push imports out of most people’s reach. Adding to the shortages, many of the cars, produced under a joint venture with the hard currency-strapped Uzbek government, are sold in Russia and Kazakhstan.
So GM, which took the joint venture over from Daewoo in 2008, enjoys something of a monopoly in the country and yet fails to satisfy local demand.
Demand spilled into chaos this week when potential buyers of the Chevrolet Matiz, Nexia and Cobalt stampeded a dealership in Tashkent, a video shared by Olam.uz (and above on YouTube) purports to show.
Acquiring a car in Uzbekistan is not a simple process: Much like in the era of Soviet shortages, buyers must queue and leave an 85-percent deposit to get on a list. At that Tashkent cash collection point (oh yeah, and the cars, in practice, can only be purchased for dollars) on August 7, fears of yet another shortage lead to the chaos (and the bloodcurdling screaming), reported Olam.uz.
Though it’s unclear if anything other than Tashkent’s image was hurt, the Uzbek government may wish to think if exporting its limited supply of cars (and gas…) is worth these kinds of scenes.
Making sense of Uzbek economic figures is a difficult task. With no way to verify official data, observers must parse the limited information Tashkent drips out. And those official stats often appear more like a wish than reality.
So take the following in that spirit.
Citing parliamentary budget committee papers, the Novyy Vek newspaper reports that Tashkent posted a budget surplus worth 0.4 percent of GDP in the period from January to March this year.
The surplus stood at 86.7 billion sums ($41.6 million at the official exchange rate) in the first quarter of 2013, Novyy Vek said on June 4. Budget revenue was $2.58 billion (24.8 percent of the first quarter GDP) and expenditure totaled $2.53 billion (24.4 percent). The newspaper did not provide budget figures for 2012, but said the 2013 national budget was approved with a deficit of $575.5 million, or 1 percent of GDP.
"The main factors increasing the state budget's revenue … are the expanding tax basis and increasing tax collection," Novyy Vek reported, citing the parliamentary documents.
While local income and corporate tax rates have stayed largely unchanged over the past year, Tashkent increased the petrol tax by 20 percent in 2013 and has slapped unpopular new excise and customs duties on a wide range of imports, sparking inflation fears.
With foreign trade already under tight government control, Uzbekistan increased customs duties on a number of foodstuff imports from May 1.
The Novyy Vek newspaper reports that, according to a government resolution signed by President Islam Karimov last week, the import duty on meat products rose from 50 percent previously to 70 percent; on pasta it rose from 20 to 30 percent.
Tashkent, a major supplier of produce to CIS countries, slapped a 50 percent duty on imports of fruit and vegetables (up from 30 percent) and a duty ranging from 10 to 30 percent on fresh vegetables.
The duty on imported beer increased to 100 percent of declared customs value, up from 70 percent. The duty on imported cigarettes jumped from about $18 to $40 per 1,000 smokes.
The new taxes are probably attempts to reverse a trend by encouraging Uzbek shoppers to buy local. According to official figures from the State Statistics Committee, food imports increased by about 19.5 percent to $1.2 billion last year, while food exports fell by 55.9 percent to $884 million.
Food already makes up a substantial chunk of the average Uzbek household’s income. The Korzinka.uz chain of supermarkets prices domestic beef at about $8.50 per kilo and domestically produced sausages at between $6.20 and $8.60 per kilo (at the black-market exchange rate). The average monthly salary is believed to be about $200.