In the Face of Grim Challenges, Uzbekistan Forges Ahead on Privatisation

Hyatt Regency Hotel scheduled for 100 percent privatisation

Hyatt Regency Hotel scheduled for 100 percent privatisation

Despite a pandemic, a European war involving its closest trading partner and the growing threat of a global recession, Uzbekistan is forging ahead with a privatisation program which, it’s hoped, will power its economy into middle-income status.

The challenges couldn’t be clearer. Covid-19 was just as much a public health nightmare as anywhere. Nonetheless Uzbekistan was one of the rare nations which managed economic growth in 2020 (1.6 percent in GDP according to the World Bank), followed by a robust 7.4 percent in 2021.

The war in Ukraine has left Uzbekistan confused and worried, albeit as it sticks to its refusal to take sides in the conflict. In normal times, officials would have expected roughly a quarter of all capital inflows, either in equity or debt, to come from neighbouring Russia. That prospect has been largely dashed by the West’s sanctions, although some government insiders think a continuing influx of Russian businesses and entrepreneurs may partly offset the decline.

Then there is the global economy to contend with. The IMF is projecting a sharp deceleration world-wide for this year and next – to roughly 3.6 percent growth in 2022 and 2023. The Fund, the World Bank and EBRD are all projecting a sharp slowdown for Uzbekistan, to 3.6 percent growth according to the World Bank. Yet the Uzbekistan Statistics Committee is reporting Q1 2022 growth of 5.8 percent.

All and all, Tashkent, under the presidency of Shavkat Mirziyoyev, is starting to gain confidence in its capacity to surprise international analysts. Mirziyoyev’s predecessor, the authoritarian Islam Karimov, tried a major privatisation programme in 2007. It failed dismally. In essence, state assets were put up for sale on an as-is basis, with few pretences concerning corporate governance or financial probity. The Karimov regime may or may not have felt privatising state-owned companies could be good for the economy, but it was eager for cash. In the end only a few minor assets attracted any interest. All the big enterprises stayed firmly in state hands.

Things are different this time. Major government reforms have been underway since 2016, when the current president was first elected. The privatisation programme and roadmap were unveiled in detail in 2021. Since then, big steps have been undertaken — a new securities regulator, new agencies responsible for saleable assets, and a series of changes to capital market rules. Meanwhile, managements of the leading state companies have been going through a quiet revolution, with internationally trained technocrats and ex-bankers inserted to help them navigate through unfamiliar waters.

The process has been remarkably uncontentious, unlike in India where a parallel privatisation programme recently led a local analyst to observe: “Every political party, when in government, promotes privatisation — and opposes it when in the opposition.”

The National Bank of Uzbekistan is aimed for partial privatisation

The National Bank of Uzbekistan is aimed for partial privatisation

In all, an eyebrow-raising 620 state-owned enterprises will be put up for sale in whole or in part over the next three years or so. Of these, about 15 are widely regarded as world-class companies, from Navoi Mining, owner of the world’s largest gold mine, to Uzbekneftegaz, the nation’s oil and gas flag carrier and contributor of 15 percent of Uzbekistan’s GDP.

But it has not been solely about auctioning off shares. The Ministry of Finance is seeking to build all the infrastructure needed for a functioning capital markets ecosystem. So, for instance, some of the flotations will be undertaken domestically at first before being taken global. That is in part to give the companies time to organise the internal reforms and restructuring needed. But it is also to attract domestic capital and to raise local liquidity. Foreign banks are being permitted to participate in domestic IPOs without licensing.

Even so, some of the coming IPOs will have to occur abroad, most likely in London. There is simply too little domestic capacity.

The Finance Ministry is eager to improve the situation, particularly through the development of an institutional investor base. This will take time. Persuading domestic investors to switch from term deposits to shares or bonds will not be easy, but some companies are already conducting domestic road shows with this in mind.

A key part of the infrastructure is the domestic banking industry, heavily dominated by state-owned banks. The goal is to reduce state ownership in banking from 60 percent currently to 15 percent. Deals for 75 percent of Poytaxt Bank and 100 percent of Ipoteka Bank are already in negotiation and full or partial privatisations are expected on at least five other major banks, including the largest, National Bank of Uzbekistan, by 2025.

Throughout the sector, new managers are being recruited and international standards adopted.

The same can be said of the nation’s heavily state-dominated energy sector. International consultants are actively pitching for work. For instance, oil and gas giant Uzbekneftegaz, planning a primary share placement in 2023, has engaged:

  • Rothschild & Cie – financial consulting
  • EY Global – international audit
  • White & Case – legal
  • PricewaterhouseCoopers – corporate governance
  • Boston Consulting Group – strategy development

Although the most high-profile of assets are yet to be auctioned, many smaller transactions have already taken place. Control of Coca-Cola Bottlers Uzbekistan, for example, the largest beverage bottling company in Uzbekistan was acquired late last year by a Turkish bottler. Majority control of the largest cement producer, Qizilqum Cement, was bought recently by a Cyprus-registered but Central Asia owned shareholder group.

In other words, while the primary aim of Uzbekistan’s privatisation programme isn’t necessarily to fatten state coffers, the Uzbekistan treasury is in fact benefiting from the programme, even now, before the biggest selloffs begin. In the first half of this year alone, the state is expected to gain at least three trillion SOM ($270 million) from small-scale sales, including of about 5,300 hectares of vacant land.

About the Author

A professional journalist, Fred Harrison is a Managing Director at Belgrave Strategic Communications, a London-based consultancy, and has worked with Uzbekistan for the past three years.

Major Privatisation Prospects

Navoi Mining

  • Leading gold miner
  • 2020 revenue $4.4 billion

UzAuto Motors

  • Auto manufacturer
  • 2020 revenue $2.6 billion


  • Oil & gas flagship
  • 2020 revenue $2.3 billion

Almalytk Mining

  • Copper, gold, silver and zinc reserves
  • 2020 revenue $2.2 billion

JSC Uzmetkombinat

  • Leading iron & steel producer
  • 2020 revenue $527 million

National Bank of Uzbekistan

  • Largest universal bank
  • Assets approximately $8.3 billion

Source: Bluestone Investment Bank

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