Landing in Tashkent in 2019 is a markedly different experience from what it was a few years ago. Welcome greetings have replaced the stern faces of immigration officers at passport control. Citizens from dozens of countries can now access the country visa-free, representing a historic change after the years of isolation that followed independence from the Soviet Union in 1991.

The queues and byzantine customs forms of the past are nowhere to be seen. There is even an exchange bureau converting hard currency into Uzbek sums at a widely accepted official floating rate so that travellers and locals alike no longer have to rely on the black market to get a better deal for their dollars.

Target: FDI

All of these are iconic changes marking out the new Uzbekistan of president Shavkat Mirziyoyev, a former prime minister who assumed his role in 2016 following the death of his predecessor, Islam Karimov. Despite these early achievements, Mr Mirziyoyev’s reform process remains in its infancy but is gearing up for another milestone: the privatisation of the country’s many state-owned companies (SOEs).  

“We want to reduce the government share in the economy by bringing in FDI – strategic investors who can bring in capital and know-how and make those SOEs and privatised companies more efficient and able to compete in the global market,” says Zafar Zakhidov, first deputy director of the Tashkent-based National Assets Management Agency, which is in charge of the privatisation programme. “Today, many of these SOEs are cumbersome, too bureaucratic, decision making is slow, and in some cases there is even graft. A lot of that will be cured once they go in private hands.”

The private sector today generates about 50% to 60% of Uzbekistan's GDP, the EBRD said in a 2016 country report. The remainder is in the hands of SOEs fully or partly controlled by Tashkent, a very high level by international standards. For example in China, which is often touted as a heavily state-controlled economy, SOEs’ share of GDP has fallen from 50% to 25% in the past 15 years.

Privatisation rush

The Uzbek government issued a decree in early 2019 that identified the assets to be sold, some 29 of them by the end of the year. The largest companies will be valued by international advisers, which the National Assets Management Agency is in the process of selecting, and sold through international tenders, private sales or IPOs on the local market.

“Across all the sectors, the profitability of SOEs is low and depletion of assets is high, which creates the need for a lot of investment and new technology. We need to bring in a lot of international capital. However, we don’t want new owners to come in, fire people and do asset stripping. We want investors coming in with a long-term view, who are coming in as a partner for the government and as a good social citizen. We are not force-sellers, the government debt-to-GDP [ratio] is very low, but we want to bring in the efficiencies and the foreign capital,” says Mr Zakhidov.

SOEs active in the resources sectors look set to be of the greatest interest to foreign investors. State oil company Uzbekneftegaz is currently undergoing a major restructuring programme to divide oil and gas upstream assets from refining and distribution assets, as well as dismissing non-core assets. The management is “not excluding” some level of privatisation of Uzbekneftegas itself in the future, according to the company's chairman, Bakhodirjon Sidikov.

Fresh investor interest is raising expectations over the future of the reform programme. The government of Mr Mirziyoyev will have to keep up with the pace of changes it unleashed, or risk falling victim to its own success.