About  |   Contact  |  Mongabay on Facebook  |  Mongabay on Twitter  |  Subscribe
Rainforests | Tropical fish | Environmental news | For kids | Madagascar | Photos

Uzbekistan - ECONOMY

Uzbekistan - The Economy


Chief among the causes of dissension and despair in Uzbekistan is the country's economic situation. According to United Nations (UN) figures, in 1994 Uzbekistan was one of the poorest of the developed countries in the world, with the average monthly wage less than US$50. But vast natural resources suggest the potential for Uzbekistan to become one of the most prosperous countries in Central Asia, provided the necessary reforms can be made to unleash that potential. At the end of the Soviet era, Uzbekistan was rated as one of the least industrialized Soviet republics. Government reform, with the theoretical goal of achieving a market economy, moved cautiously and unevenly in the directions of industrialization and market reform in the early 1990s. By the mid-1990s, signs indicated a more serious reform effort.

<>Labor Force
<>Postcommunist Economic Reform
<>Structural and Legal Reform
<>Banking and Finance


Uzbekistan - Gold


One of Uzbekistan's most abundant and strategic resources is gold. Before 1992, Uzbekistan accounted for about one-third of Soviet gold production, at a time when the Soviet Union ranked third in world gold production. The Muruntau Gold Mine, about 400 kilometers northwest of Tashkent in the Qizilqum Desert, is estimated to be the largest gold mine in the world, and other gold reserves are located in the Chadaq area of the Fergana Valley, on the southern slopes of the Qurama Mountains. In 1992, a reported 80 tons of gold were mined in Uzbekistan, making it the eighth largest producer of gold in the world. Fluorospar, the most important source of fluorine, is mined at Tuytepa between Olmaliq and Tashkent. In the region of Olmaliq, southeast of Tashkent, are deposits of copper, zinc, lead, tungsten, and molybdenum that are used in the well-developed metallurgical processing industries centered in northeastern Uzbekistan. Uranium is mined and processed on the slopes of the Chatkal and Qurama ranges that surround the Fergana Valley.


Uzbekistan - Energy


Uzbekistan is also rich in energy resources, although it was a net importer of fuels and primary energy throughout the Soviet period. The republic was the third largest producer of natural gas in the former Soviet Union behind Russia and Turkmenistan, producing more than 10 percent of the union's natural gas in the 1980s. In 1992 Uzbekistan produced 42.8 billion cubic meters of natural gas; although this output was used mostly within the republic in the Soviet period, pipelines to Tajikistan, Kazakstan, and Russia exported increasing amounts of natural gas to those countries in the early 1990s. Gas reserves are estimated at more than 1 trillion cubic meters. Deposits are concentrated mainly in Qashqadaryo Province in the southeast and near Bukhoro in the south-central region. Bukhoro gas is used to fuel local thermoelectric power plants. The biggest gas deposit, Boyangora-Gadzhak, was discovered in southeastern Surkhondaryo Province in the 1970s.

Uzbekistan also has small coal reserves, located mainly near Angren, east of Tashkent. In 1990 the total coal yield was 6 million tons. Oil production has likewise been small; Uzbekistan has relied on Russia and Kazakstan for most of its supply. Oil production was 3.3 million tons in 1992. But the discovery in 1994 of the Mingbulak oil field in the far northeastern province of Namangan may ultimately dwarf Uzbekistan's other energy resources. Experts have speculated that Mingbulak may prove to be one of the world's most productive oil fields. Located in the central basin of the Fergana Valley, the deposits could produce hundreds of millions of dollars worth of oil in the late 1990s. Qoqdumalaq in western Uzbekistan also has rich oil and natural gas deposits, reportedly containing hundreds of millions of tons of oil.

The coal deposits on the Angren River east of Tashkent and the natural gas deposits near Bukhoro are prime fuels for Uzbekistan's thermoelectric power plants. The well-developed hydroelectric power generating system utilizes the Syrdariya, Naryn, and Chirchiq rivers, all of which arise to the east in the mountains of Kyrgyzstan. Agreements with Kyrgyzstan and Tajikistan, through which the Syrdariya also flows, ensure a continued water flow for Uzbek power plants.


Uzbekistan - Agriculture


Uzbekistan has the advantages of a warm climate, a long growing season, and plentiful sources of water for irrigation. In the Soviet period, those conditions offered high and reliable yields of crops with specialized requirements. Soviet agricultural policy applied Uzbekistan's favorable conditions mainly to cotton cultivation. As Uzbekistan became a net exporter of cotton and a narrow range of other agricultural products, however, it required large-scale imports of grain and other foods that were not grown in sufficient quantities in domestic fields.

Organization of Agriculture

In the last decades of Soviet rule, the private agricultural sector produced about 25 percent of total farm output almost exclusively on the small private plots of collective and state farmers and nonagricultural households (the maximum private landholding was one-half hectare). In the early 1990s, Uzbekistan's agriculture still was dominated by collective and state farms, of which 2,108 were in operation in 1991. Because of this domination, average farm size was more than 24,000 hectares, and the average number of workers per farm was more than 1,100 in 1990. More than 99 percent of the value of agricultural production comes from irrigated land (see table 21, Appendix).

Economic Structure of Agriculture

Uzbekistan's economy depends heavily on agricultural production. As late as 1992, roughly 40 percent of its net material product (NMP--see Glossary) was in agriculture, although only about 10 percent of the country's land area was cultivated. Cotton accounts for 40 percent of the gross value of agricultural production. But with such a small percentage of land available for farming, the single-minded development of irrigated agriculture, without regard to consumption of water or other natural resources, has had adverse effects such as heavy salinization, erosion, and waterlogging of agricultural soils, which inevitably have limited the land's productivity. According to the Ministry of Land Reclamation and Water Resources, for example, after expansion of agricultural land under irrigation at a rate of more than 2 percent per year between 1965 and 1986, conditions attributed to poor water management had caused more than 3.4 million hectares to be taken out of production in the Aral Sea Basin alone. According to other reports, about 44 percent of the irrigated land in Uzbekistan today is strongly salinated. The regions of Uzbekistan most seriously affected by salinization are the provinces of Syrdariya, Bukhoro, Khorazm, and Jizzakh and the Karakalpakstan Republic (see fig. 13). Throughout the 1980s, agricultural investments rose steadily, but net losses rose at an even faster rate.


Uzbekistan's main agricultural resource has long been its "white gold," the vast amounts of cotton growing on its territory. Uzbekistan always was the chief cotton-growing region of the Soviet Union, accounting for 61 percent of total Soviet production; in the mid-1990s it ranks as the fourth largest producer of cotton in the world and the world's third largest cotton exporter. In 1991 Uzbekistan's cotton yield was more than 4.6 million tons, of which more than 80 percent was classified in the top two quality grades. In 1987 roughly 40 percent of the workforce and more than half of all irrigated land in Uzbekistan--more than 2 million hectares--were devoted to cotton.

Other Crops

In light of increasing water shortages in Central Asia and the end of the Soviet distribution system that guaranteed food imports, government leaders have proposed reducing cotton cultivation in favor of grain and other food plants to feed an increasingly impoverished population. In fact, between 1987 and 1991 land planted to cotton decreased by 16 percent, mainly in favor of grains and fruits and vegetables. But Uzbekistan's short-term needs for hard currency make dramatic declines in cotton cultivation unrealistic. Likewise, Uzbekistan's entire existing agricultural infrastructure--irrigation systems, configuration of fields, allocation and type of farm machinery, and other characteristics--is geared toward cotton production; shifting to other crops would require a massive overhaul of the agricultural system and a risk that policy makers have not wished to take in the early years of independence. Under these circumstances, continued commitment to cotton is seen as a good base for longer-term development and diversification.

In 1991 Uzbekistan's main agricultural products, aside from cotton, were grains (primarily wheat, oats, corn, barley, and rice), fodder crops, and fruits and vegetables (primarily potatoes, tomatoes, grapes, and apples). That year 41 percent of cultivated land was devoted to cotton, 32 percent to grains, 11 percent to fruits, 4 percent to vegetables, and 12 percent to other crops. In the early 1990s, Uzbekistan produced the largest volume of fruits and vegetables among the nations of the former Soviet Union. Because Uzbekistan's yield per hectare of noncotton crops is consistently below that for other countries with similar growing conditions, experts believe that productivity can be improved significantly.


Uzbekistan - Industry


Uzbekistan's industrial sector accounted for 33 percent of its NMP in 1991. Despite some efforts to diversify its industrial base, industry remains dominated by raw materials extraction and processing, most of which is connected with cotton production and minerals (see table 22, Appendix). As illustrated especially by the domestic oil industry, in the Soviet era industrial production generally lagged behind consumption, making Uzbekistan a net importer of many industrial products. Under the difficult economic conditions caused by the collapse of the Soviet Union's system of allocations and interdependence of republics, this situation has worsened. In 1993 total manufacturing had decreased by 1 percent from its 1990 level, and mining output had decreased by more than 8 percent (see table 6, Appendix).

Heavy Industry

The Tashkent region, in the northeastern "peninsula" adjacent to the Fergana Valley, accounts for about one-third of the industrial output of Uzbekistan, with agricultural machinery the most important product. The city is the nucleus of an industrial region that was established near mineral and hydroelectric resources stretching across northeastern Uzbekistan from the Syrdariya in the west to the easternmost point of the nation. Electricity for the industries of the region comes from small hydroelectric stations along the Chirchiq River and from a gas-fired local power station.

Uzbekistan's most productive heavy industries have been extraction of natural gas and oil; oil refining; mining and mineral processing; machine building, especially equipment for cotton cultivation and the textile industry; coal mining; and the ferrous metallurgy, chemical, and electrical power industries. The chemical manufacturing industry focuses primarily on the production of fertilizer.

Two oil refineries in Uzbekistan, located at Farghona and Amtiari, have a combined capacity of 173,000 barrels per day. Other centers of the processing industries include Angren (for coal), Bekobod (steel), Olmaliq (copper, zinc, and molybdenum), Zarafshon (gold), and Yangiobod (uranium). The Uzbek fertilizer industry was established at Chirchiq, northeast of Tashkent, near Samarqand, and at several sites in the Fergana Basin. Uzbekistan is the largest producer of machinery for all phases of cotton cultivation and processing, as well as for irrigation, in the former Soviet Union. The machine building industry is centered at Tashkent, Chirchiq, Samarqand, and Andijon in the east, and at Nukus in Karakalpakstan.

Light Industry

The predominant light industries are primary processing of cotton, wool, and silk into fabric for export, and food processing. In 1989 light industry accounted for 27.1 percent of industrial production; that category was completely dominated by two sectors, textiles (18.2 percent) and agricultural food processing (8.9 percent). The nature of the Uzbek textile industry in the mid-1990s reflects the Soviet allotment to Uzbekistan of primary textile processing rather than production of finished products. Food processing has diversified to some degree; the industry specializes in production of dried apricots, raisins, and peaches. Other products are cottonseed oil for cooking, wine, and tobacco.


Uzbekistan - Labor Force


The swelling of the working-age population has led to high rates of unemployment and underemployment (see Population, this ch.). At the same time, despite relatively high average levels of education in the population, the shortage of skilled personnel in Uzbekistan is also a major constraint to future development (see Education, this ch.). Russians and other nonindigenous workers traditionally were concentrated in the heavy industrial sectors, including mining and heavy manufacturing. With the independence of Uzbekistan and the outbreak of violence in several parts of Central Asia, many of these skilled personnel left the country in the early 1990s. In 1990 as many as 90 percent of personnel in Uzbekistan's electric power stations were Russians. Because Russian emigration caused a shortage of skilled technicians, by 1994 half of the power generating units of the Syrdariya Hydroelectric Power Station had been shut down, and the newly constructed Novoangrenskiy Thermoelectric Power Station could not go on line because there was nobody to operate it. In the mid-1990s, training programs were preparing skilled indigenous cadres in these and other industrial sectors, but the shortfall has had a strong impact.


Uzbekistan - Postcommunist Economic Reform


With the collapse of the Soviet Union, Uzbekistan faced serious economic challenges: the breakdown of central planning from Moscow and the end of a reliable, if limited, system of interrepublican trade and payments mechanisms; production inefficiencies; the prevalence of monopolies; declining productivity; and loss of the significant subsidies and payments that had come from Moscow. All these changes signaled that fundamental reform would be necessary if the economy of Uzbekistan were to continue to be viable.

Traditionally a raw materials supplier for the rest of the Soviet Union, Uzbekistan saw its economy hard hit by the breakdown of the highly integrated Soviet economy. Factories in Uzbekistan could not get the raw materials they needed to diversify the national economy, and the end of subsidies from Moscow was exacerbated by concurrent declines in world prices for Uzbekistan's two major export commodities, gold and cotton.


Uzbekistan - Structural and Legal Reform of the Economy


From the time of independence, Uzbekistan's political leaders have made verbal commitments to developing a market-based economy, but they have proceeded cautiously in that direction. The first few years were characterized mainly by false starts that left little fundamental change. The initial stages of reform, instituted in 1992, were partial price liberalization, unification of foreign-exchange markets, new taxes, removal of import tariffs, and privatization of small shops and residential housing. Laws passed in 1992 provided for property and land ownership, banking, and privatization. Modernization of the tax system began in 1992; the first steps were a value-added tax (VAT--see Glossary) and a profits tax designed to replace income from the tax structure of the Soviet period.

In its first effort at price liberalization in 1992 and 1993, the government maintained some control on all prices and full control on the prices of basic consumer goods and energy. A wide range of legislation set new conditions for property and land ownership, banking, and privatization--fundamental conditions for establishing a market economy--but in general these provisions were limited, and they often were not enforced. International financial institutions initially were encouraged to believe that structural adjustments would be made in the national economy to accommodate international investment, but later such promises were rescinded. In 1994 the government maintained control of levels of production, investment, and trade, just as Moscow had done in the Soviet era. Several agencies, most notably the State Committee for Forecasting and Statistics, the State Association for Contracts and Trade, the Ministry of Foreign Economic Relations, and the Ministry of Finance, inherited responsibility for planning, finance, procurement, and distribution from the Soviet central state system. Economic policy making remains based on a national economic plan that sets production and consumption targets. State-owned enterprises remain in virtually all sectors of the economy. In 1994 no laws had established standards for bankruptcy, collateral, or contracts. But by 1995 Uzbekistan had made some significant movement toward reform, which experts interpreted as a possible harbinger of wider-ranging changes in the second half of the decade.


Privatization of the large state industrial and agricultural enterprises, which dominated the economy in the Soviet era, proceeded very slowly in the early 1990s. The initial stage of privatization, which began in September 1992, targeted the housing, retail trade and services, and light industry sectors to promote the supply of consumer goods.

Beginning with the 1991 Law on Privatization, a number of laws and decrees have provided the policy framework for further privatization. A state privatization agency, established in 1992, set a goal of moving 10 to 15 percent of state economic assets into private hands by the end of 1993. Movement in that direction was slow in 1992, however, with only about 350 small shops being privatized. In the same period, housing was privatized at a somewhat faster pace by outright transfers or low-cost sales of state housing properties. By 1994 about 20,000 firms in small industry, trade, and services had been transferred from state ownership to the ownership of managers and employees of the firms. Nearly all such transfers were through the issuance of joint-stock shares or by direct sale.

Agricultural privatization, which began in 1990, has moved faster. Since the state began distributing free parcels of land that could be inherited but not sold, the number of peasant farms has risen dramatically (cotton-growing lands were excluded from this process). Between January 1991 and April 1993, the number of private farms rose from 1,358 to 5,800, promising a significant new contribution from private farms to Uzbekistan's overall agricultural output (see Agriculture, this ch.). Another government program, initiated in 1993, transfers unprofitable state farms to cooperative ownership. A law permitting the transfer of privately owned land was planned for 1995.

In the mid-1990s, the role of the state was gradually reduced in the productive sectors, except for energy, public utilities, and gold. The government's privatization program for 1994-95 emphasized the sale of large and medium-sized state-owned construction, manufacturing, and transportation enterprises. A set of guidelines for large-scale privatization, which went into effect in March 1994, contained several contradictory provisions that required clarification, and privatization also was slowed by the need to change the monopoly structure of state-owned enterprises before sale.

In mid-1995, the government reported that 69 percent of enterprises (46,900 of 67,700) had been privatized. Most firms in that category are relatively small, however, and all heavy industry remained in state ownership at that stage. Although the government has promised accelerated privatization of larger firms, experts did not expect the slow pace to improve in the late 1990s.

Currency Reform

According to some experts, a turning point came in late 1993 after Uzbekistan and Kazakstan were expelled from the ruble zone (see Glossary), in which Uzbekistan had remained with vague plans to adopt an independent national currency at some time in the future. Following the example of Kyrgyzstan, which already had created its own currency the previous May, in November 1993 Uzbekistan issued an interim som coupon. The permanent currency unit, the som, went into effect in the summer of 1994 (for value of the som--see Glossary). The introduction of the som was followed by an improving domestic economic situation, including some progress toward economic stabilization and structural reform. Beginning in late 1994, the national economy achieved substantial price liberalization, a reduction in subsidies, elimination of state orders on most commodities, and some freeing of state controls in the agricultural sector. In 1994 the som was one of the weaker new currencies in Central Asia; it lost two-thirds of its value in the second half of 1994. By the end of the year, however, inflation had leveled off, and the free-market exchange rate of the som stabilized by January 1995. In July 1995, the government announced plans to make the som fully convertible by the end of the year. At the beginning of 1996, the som's value was thirty-six to US$1.


Uzbekistan - Banking and Finance


Uzbekistan began a movement toward a two-tier banking system under the old Soviet regime. The new structure, which was ratified by the Banking Law of 1991, has a government-owned Central Bank wielding control over a range of joint-stock sectoral banks specializing in agricultural or industrial enterprise, the Savings Bank (Sberbank), and some twenty commercial banks. The Central Bank is charged with establishing national monetary policy, issuing currency, and operating the national payment system. In performing these operations, the Central Bank manipulates as much as 70 percent of deposits in the more than 1,800 branches of the Savings Bank (all of which are state owned) for its own reserve requirements. A National Bank for Foreign Economic Affairs, established in 1991 as a joint-stock commercial bank, conducts international financial exchanges on behalf of the government. The national bank holds Uzbekistan's foreign currency reserves; in 1993 it was converted from its initial status to a state bank.

In the mid-1990s, the banking structure in Uzbekistan was limited to only a handful of primarily state-owned banks, and, compared with Western banking systems, the commercial banking system was still in its infancy. But the establishment in the spring of 1995 of Uzbekistan's first Western-style banking operation--a joint venture between Mees Pierson of the Netherlands and other international and Uzbekistani partners--suggests that this sector, too, may have prospects for change. The Uzbekistan International Bank that would result from the new joint venture is intended primarily to finance trade and industrial projects. The bank is to be based in Tashkent, with 50 percent of ownership shares in Western hands. If successful, this and other similar ventures may reward policy makers' cautious approach to reform by establishing an infrastructure from which economic growth can begin.


CITATION: Federal Research Division of the Library of Congress. The Country Studies Series. Published 1988-1999.

Please note: This text comes from the Country Studies Program, formerly the Army Area Handbook Program. The Country Studies Series presents a description and analysis of the historical setting and the social, economic, political, and national security systems and institutions of countries throughout the world.

TRY USING CTRL-F on your keyboard to find the appropriate section of text


what's new | rainforests home | for kids | help | madagascar | search | about | languages | contact

Copyright 2013 Mongabay.com