Statistical and Analytical Review for 2006 by ulm13840

VIEWS: 399 PAGES: 113

									  “UZBEKISTAN
   ECONOMY”
Statistical and Analytical
     Review for 2006




        Tashkent 2008
                           Published in February 2008. Distribution is free-of-charge. 100 copies

               This review was written by the Centre for Economic Research with the assistance of USAID’s
“Economic Policy Reform Project in Uzbekistan”. The findings, conclusions and interpretations expressed in this document are
                 those of the authors alone and should in no way be taken to reflect the policies or opinions
                                    of the Centre for Economic Research and/ or USAID.
Editorial Board:
Turaev B.                                       Section Coordinators:
Shoabdurakhmanov R.
Olimov U.                                             Muradova Kh.                             Introduction
                                                      Gaibnazarova М.                          (Major Economic Events)

Project Coordinator:                                  Sharovatova А.V.                         (section 1.1)
Muradova Kh.                                          Inamkhodjaev К.                          (section 1.2)
                                                      Nabikhodjaev А.A.                        (section 1.3)
                                                      Usmanov Sh.                              (section 2)
Coordinator Assistants:                               Mirzaev М.М.                             (section 3.1)
Gaibnazarova M.                                       Bekov B.                                 (section 3.2)
Ruziev M.                                             Sultanova L. Sh.                         (section 3.2
                                                      Gaysina А. A.                            (section 4.1)
                                                      Rebenko L.V.                             (section 4.2)
                                                      Vakhidova L.D.                           (section 4.3)
Advisors:                                             Yaushev R.I.                             (sections 5.1, 5.2)
D. Martin                                             Baturina V.V                             (section 5.3)
(Economic Policy Reform Project in Uz-                Malkina N.I.                             (section 6.1)
bekistan/ USAID)                                      Elfimova Е.N.                            (section 6.2)
                                                      Ismailov J.N.                            (section 6.3)
Mardonov B.                                           Tuychiev А.Х.                            (section 6.3)
(Economic Policy Reform Project in Uz-                Elfimova E.N.                            (sections 6.4)
bekistan / USAID)                                     Haitmuratov S.                           (section 7)
                                                      Abduganieva U.Т.                         (section 8)
Project Manager:                                      Akhmedov Т.М.                            (section 9)
M. Mirzakhmedov
(Economic Policy Reform Project in Uz-
bekistan / USAID)



                           Translators:                                              Proofreading:

         Balgabaeva Z.                                           Kondrateva I.

         Kondrateva I.
                                                                 Hakimov O.
         Kolokolova T.



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                                           For further information please contact:


            USAID /Economic Policy Reform Project in Uz-
                      bekistan administered                              Centre for Economic Research
                        by Bearing Point                           Address: Uzbekistan, Tashkent city, 100070,
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                     Tel: (+ 998 71) 152 14 60
                                                                        CONTENT



                                                                       Content

  INTRODUCTION............................................................................................................................................ 6

  MAJOR ECONOMIC EVENTS...................................................................................................................... 8

INFORMATIONAL AND ANALYTICAL PART .................................................................21
  1. THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH.................................................... 21
     1.1. ECONOMIC GROWTH ............................................................................................................................ 21
     1.2. INVESTMENTS ...................................................................................................................................... 23
     1.3. PRICES AND INFLATION ........................................................................................................................ 25

  2. PUBLIC FINANCE................................................................................................................................... 28

  3. FINANCIAL MARKETS ........................................................................................................................... 32
     3.1. MONETARY POLICY AND BANKING SECTOR ........................................................................................... 32
     3.2. STOCK MARKET ................................................................................................................................... 35

  4. FOREIGN EXCHANGE MARKET AND FOREIGN TRADE ................................................................... 43
     4.1. MONETARY POLICY .............................................................................................................................. 43
     4.2. TRADE BALANCE, EXPORT AND IMPORT ................................................................................................ 45
     4.3. ENTERPRISES WITH FOREIGN INVESTMENTS .......................................................................................... 47

  5. INSTITUTIONAL AND MARKET TRANSFORMATIONS....................................................................... 53
     5.1. NATIONALIZATION AND PRIVATIZATION, TYPES OF OWNERSHIP .............................................................. 53
     5.2. REAL ESTATE MARKET ......................................................................................................................... 55
     5.3. SMALL BUSINESS ................................................................................................................................. 57

  6. SECTORS OF ECONOMY ...................................................................................................................... 64
     6.1. INDUSTRY ............................................................................................................................................ 64
     6.2. CONSUMER GOODS MARKET ................................................................................................................ 67
     6.3. AGRARIAN SECTOR .............................................................................................................................. 68
     6.4. DOMESTIC TRADE AND SERVICES ......................................................................................................... 74

  7. DEMOGRAPHIC SETTING, EMPLOYMENT AND LABOR MARKET .................................................. 85

  8. INCOME AND EXPENDITURE OF THE POPULATION ........................................................................ 89

  9. REGIONS................................................................................................................................................. 94

ANALYTICAL PART .......................................................................................................104
  LISTED BANKS – ANALYSIS OF CURRENT TENDENCIES ................................................................. 104

  IMPROVEMENT OF RESOURCE BASE OF FRUIT AND VEGETABLE PROCESSING
  INDUSTRY OF UZBEKISTAN .................................................................................................................. 108




UZBEKISTAN ECONOMY                                                                                                                                             5
                                               INTRODUCTION



                                              Introduction
Analytical review of “Uzbekistan Economy” for 2006 showed intensified reforms in areas such as: macro-
economic stabilization, production, institutional development, foreign economic activity, and social and re-
gional development.

Macroeconomics and economic growth. In 2006, observed GDP growth was 7.3%. High economic growth
was mainly ensured by dynamic development of industrial, agricultural, transport and communication, and
services sectors of the economy. Capital investments in 2006 accounted for UZS 3838.3 billion. In compari-
son to 2005 capital investments increased by 9.1%. In 2006, investments into private sector increased by 3.6
percent points (p.p.) and it counted for 67.4% of the total capital investments. Approximately 50 % of total
investment expenditures were spent of renovation and modernization of manufacturing equipments. In 2006,
prices of consumer goods increased by 6.8%. Stable consumer goods’ prices positively impacted overall
inflation level of the economy.

Public finance. The central government budget made up 20.7 % of GDP in 2006 vs. 22.6% in 2005. This
indicates that, in 2006, tax burden significantly decreased. In 2006 several tax rates were lowered. For ex-
ample corporate income (profit) tax rate was lowered from 15% to 12%. Similarly, tax rate on dividends and
interests was lowered from 15 % to 10 %, and the rate of social insurance contribution was lowered from
31% to 25%. Environmental tax was cancelled.

We have to note that, these tax cuts and simplifications significantly and positively effected to the production
of goods (works, services), strengthening of payment discipline, improved tax administration, and further ex-
pansion of the revenue base of the State Budget. The official statistics show that, the revenues of state
budget were 5.2% higher then expected level, and final budget surplus was 0.5% of GDP whereas approved
State Budget forecasted a deficit of 1% of GDP. The share of expenditures for social and social protection
projects of population in total expenditures of the State Budget accounted for 50.8%.

Financial markets. On 15 July, 2006 the refinancing rate of the Central Bank was reduced by 2 % and set
at the level of 14% per annum. Over 2006, assets of commercial banks grew by 28% and as of 1st January
2007 they accounted for UZS 7207.5 billion. Commercial banks increased loans, in national currency, to fi-
nance various sectors of economy by 48 % and reached UZS 1625.1 billion. The total loan portfolio of the
banks accounted for UZS 4095.4 billion. In 2006, bank deposits of population increased by 51%, and as of
1st January 2007 they amounted to UZS 678.3 billion. Total capital of banks increased by 15%, and as of 1st
January 2007 it amounted to UZS 1070.1 billion.

The government of Uzbekistan established Fund for Reconstruction and Development of the Republic of Uz-
bekistan. During 2006, revenues of this fund were more than USD 501 million.

Total turnover of corporate stocks accounted for UZS 342.1 billion. Compare to previous year, total turnover
of corporate stock market increased by 6%. Sale of shares of joint-stock companies in 2006 amounted to
UZS 330.8 billion, which exceeds the previous year figure by 2.6 times. Government short-term and medium
term debt obligations increased by 19.7%. The total amount of issued government debt securities did not
exceed 0.5 % of GDP. Secondary bids turnover increased by 68%. 13 issues of GSDO and 20 issues of
GMDO were retired.

Foreign exchange market and foreign trade. In 2006, the nominal exchange rate of UZS against US Dol-
lar depreciated by 5.1%. Commercial bank exchange rate decreased by 3.8 %. The real effective UZS ex-
change rate appreciated by 1%.

Foreign trade turnover accounted for over USD 10.78 billion or 113.5% to 2005 level. Foreign trade balance
amounted to about USD 2 billion, which 1.5 times exceeds the level of 2005. Exports have exceeded the
forecast parameters and reached the record-high level since 1991. the total level of exports were USD 6.4
billion, which makes 118% to 2005. Compare to 2005 exports of goods grew by 34.3%, and exports of ser-
vices – by 17.3%. Total level of imports accounted for USD 4.4 billion.

Institutional and market transformations. During 2006, 673 production facilities and social infrastructure
institutions were transformed into private ownership, which makes 68.7% vs. 2005. During 2006, 19 joint-
stock companies and 55 limited liability companies were established, including 15 joint-stock companies and
41 limited liability companies in the fourth quarter. The majority of privatized entities, 599 companies, were
entirely privatized. State-owned and earlier unplaced packages of shares of 88 joint-stock companies and
stakes in statutory funds of 110 limited liability companies were sold at the stock exchange, auction and ten-

6                                                                                     UZBEKISTAN ECONOMY
                                               INTRODUCTION


der bids. During 2007, State Property Committee collected UZS 70.5 million from sale and leasing of state-
owned property. Additionally, revenues from sale of government property to foreign investors for hard cur-
rency amounted USD 48.7 million. This indicator was 2.1 times larger than in 2005.

The development of small entrepreneurship increased and its share in GDP reached 42.1% or increased by
3.9 p.p. compared with 2005. This considerable increase was ensured mainly by increase in the share of
micro-firms in GDP to 18.1% (increase by 3.1 p.p.) and sole entrepreneurs - 18.6% (increase by 1.9 p.p.)

Development of sectors and industries of the economy. Annual growth of industrial sector, in 2006, was
10.8%. Compared to previous year, the share of industrial sector in total GDP increased 0.9% and reached
22.1%. High results were achieved in mechanical engineering, chemical and petrochemical, food, building
materials industries.

Agricultural output grew by 6.2%. In 2006, about 190 thousand private farms that employed 1.4 million peo-
ple were operating in the country. In 2006, farms produced over 86 % of raw cotton, 75% of spiked grain
crops. In 2006, food production grew by 20.6% and reached UZS 4069.7 million. Compare to previous year,
the share of non-food items increased from 55.6 % to 58.2 % . Retail trade turnover in 2006, in comparison
with 2005, went up by 14.8 % and amounted to UZS 7460.8 billion. Growth rate of service sector was 19.5
%.

Employment and labor market. Compare to 2005, total number of the employed people in the economy
increased by 270.7 thousand people and growth rate of employment was 2.6%. The number of employed
people of non-production sector grew by 3.0%, where goods production sector employment grew at the
2.5%. It worth to note that, the number of employed people in non-production sector, grew by 98.3 thousand
people. (i.e. 36.3% of total increase in employment) As a result, the share of the employed in non-production
sectors went up from 32.9% to 33.1 %, and in production sectors it correspondingly decreased from 67.1%
to 66.9%.

Income and expenses of population. Nominal monetary income in 2006 grew by 33.2% and reached
UZS 12954.9 million. Increase in monetary income was ensured by increasing salaries and income from en-
trepreneurial activities. In the structure of monetary income of households, the share of labor wages ac-
counted for 29.4% (vs. 27.8% in 2005), entrepreneurial income – 55.1% (vs. 56.5% in 2005), social transfers
15.1% (vs. 15.5% in 2005). Per capita monetary income of population increased in nominal terms by 32.6%.
Strategic steps of the government significantly impacted the per capita income of households. In 2006, the
government improved the compensation system of public education, healthcare sectors, and small busi-
nesses. In 2006, total income of population exceeded expenses, which indicates increase in monetary as-
sets.

Regions. In 2006, the Republic of Karakalpakstan, 12 regions and Tashkent city had relatively high growth
rates on important macroeconomic indicators. All regions of Uzbekistan showed a sustainable growth of their
Gross Regional Product (GRP). Growth rate of the country’s GDP accounted for 7.3%, and growth rates
above this rate were registered in the city of Tashkent (108.9%), Samarkand (108.9%), Surkhandarya
(108.6%), Tashkent (108.2%), Andijan (108.0%) and Namangan (107.7%). Economic growth in those re-
gions was mainly a result of dynamic development of industry and services sector.

Analytical articles. Present analytical review includes articles devoted to: (i) the issues of improving the raw
materials basis of fruit and vegetable processing industry of Uzbekistan; (ii) listed banks, analysis of current
trends.

This review was written based on official data from State Statistics Committee of the Republic of Uzbeki-
stan, the Central Bank, the Ministry of Finance, and the State Property Committee, information from national
and foreign press as well as development, assessments, experimental computations and graphical illustra-
tions developed by the authors.




UZBEKISTAN ECONOMY                                                                                           7
                                         MAJOR ECONOMIC EVENTS


                                    Major Economic Events
January
5 January, 2006. The President of Uzbekistan signed the Decree "On Measures for Stimulation of
Expansion of Cooperation among Large Industrial Enterprises and Rendering Services from Home". This
Decree was intended to increasing efficiency of operations of large industrial enterprises through
organization of production of selected parts and finished goods using home labor, specifically in garment,
silk, furniture and electronic sectors.

Construction of a new facility for production of liquefied gas has begun on unitary subsidiary of
“ShurtanNeftGas" in Kashkadarya region. The construction will be finished in 2010 and has three stages.
The first stage is planned to complete by the end of 2006 by launching a capacity for production of 45
thousand tons of liquefied gas a year.

9 January, 2006. President of Uzbekistan signed the Decree “On Measures for Deepening of
Economic Reform in Fruit and Vegetable Growing and Vine production". This Decree determined the
main development priorities for these sectors and it aims on: improving quality of output, adding higher value
on integrated basis and creating favorable condition for export.

12 January, 2006. The State Property Committee called a meeting and the main agenda of this meeting was
an announcement of new tender for sale of severeal government companies’ stocks to foreign investors. The
officials announced that stocks NavoiAzot (49.0% of shares), Takhiatash Power Plant (38.9%), Uzbekistan
Pochtasi (25.4%), Toshkent Eg-Moi Combinati (10.0%) should be sold through tender to foreign investrs.

17 January 2006. The Cabinet of Ministers of the Republic of Uzbekistan passed the Resolution "On
Selected Issues of Implementation of the Project of Improving Urban Water Supply in Gulistan, Jizzak and
Karshi" with cooperation of Asian Development Bank.

President of the Republic of Uzbekistan Islam Karimov participated in the meeting of Inter-State
Council of Heads of States – participants of EurAsEC in Saint Petersburg. At the summit, Uzbekistan
has become an official member of this organization, Strategic goals of this organization consist from
development of further cooperation among the counties in all spheres of social and economic development.

February
09 February, 2006. The Central Depository of Securities of Uzbekistan and the National Depository Center of
Russian Federation signed a Memorandum of Cooperation. The memorandum stipulated major areas of
future cooperation directions between these two organizations.

From 9th to 12th February, the Center for Coordination and Control over Stock Market Operations jointly with
Toshkent Stock Exchange and stock market infrastructural organizations arranged an international
seminar "Issues of Enhancing Liquidity of Securities and their Placement at Foreign Stock
Exchanges”. Delegation from Russian Federation and representatives of more than 140 large joint stock
companies of the country including commercial banks, participated in the event.

11 February. Meeting of the Cabinet of Ministers was conducted where results of the social and
economic development in 2005 were reviewed and priorities for economic reform in 2006 were established.
The key priorities included:
   1. Ensuring stably high growth of the economy, sustainable and balanced macroeconomic indicators.
   2. Further intensification and expansion of structural reforms and modernization of the economy.
   3. Large-scale expansion of private sector, enforcement of guarantees and forming favorable business
       environment.
   4. Ensuring employment as a key precondition for increase of income and enhancement of well-being
       of the population
   5. Comprehensive encouragement of exports and ensuring saving of foreign currency resources and
       their effective and efficient use.
   6. Intensification of municipal and public utilities sector reforms
   7. Energy saving, primarily in power intensive sectors – chemical, non-ferrous metallurgy, power indus-
       try and other.

Expanded meeting of the Goevrnemnt Propety Committee (GPC) of Uzbekistan took place on 18th February,
2006. Its agenda included review of the outcomes achieved over 2005 in course of implementing the
program of “Denationalization and Privatization and measures for post-privatization support of enterprises
and improvement of corporate governance”.
8                                                                                    UZBEKISTAN ECONOMY
                                         MAJOR ECONOMIC EVENTS



Navoi Mining, Smelting Factory (Uzbekistan) and TekhSnabExport JSC (Russia) signed the agreement on
joint mining of uranium deposits of Uzbekistan. TekhSnabExport is one of the largest companies in the
world dealing with supply of uranium fuel. The estimated share of the company in the world market of
nuclear fuel is 35%.

International Business Center of Tashkent, supported by Chamber of Trade and Industry, hosted a video
conference for foreign investors. This conference was dedicated to presentation of investment potential
and new prospects in industrial, construction material production, and furniture sectors of the country.

Ministry of Foreign Economic Relations, Investment and Trade organized a presentation of resource
potential of domestic oil and gas sector in the Aral Sea area. Information on the created consortium of
investors including UzbekNefteGas, Korea National Oil Corporation, Lukoil Overseas (Russia), Petronal
Carigali (Malaysia) and CNPC (China) was presented.

Senate of of Uzbekistan approved Laws “On Ratification of Agreement Between Uzbekistan and
Russia on Allied Relations” and “On Ratification of Protocol on Joining of Uzbekistan to the
Agreement on Establishment of Eurasian Economic Community of 10 October 2000". Delegates of
Senate noted that, joining to Eurasian Economic Community will facilitate further integration of Uzbekistan to
the developing system of world economic networks.

March
The 7th International Exhibition “Construction and Interior, Heating and Ventilation – UzBuild 2006” was
opened at UzExpoCenter. The participants of this exibition presented new construction technologies.

In Tashkent, Russian organization “ZAO MSFER” officially opened the International Center of Financial and
Economic Development (ICFED). The pivotal objective of the center was active participation in the process
of implementation of economic and social reforms in Uzbekistan, offering wide array of services and
products, and encouraging employment through capacity building.

International Exhibitions Agro-2006 and World Food-2006 took place at UzExpoCenter. Approximately 50
companies from almost 20 countries presented their products and equipment.

The Republican Coordination Council on Stimulation and Development of Small and Private
Entrepreneurship called a meeting. The agenda included the following: results of implementation of
regional programs for development of small and private entrepreneurship in 2004-2005 in Karakalpakstan
and Khorezm region and regional programs for development of ensuring employment, support and
development of entrepreneurship and competition in 2006-2007.

Specialized exhibition of energy saving technologies and equipment for production of energy from renewable
sources, its transformation and distribution was conducted in Tashkent under the title “Clean Energy. Energy
Saving". The exhibition presented state of the art achievements of foreign and domestic technologies on all
kinds of renewable sources of energy, small-scale power, system of accumulation and transformation of
energy, as well as equipment for production and processing power from local types of fuel.

Business forum for business entities of Uzbekistan and Kazakhstan was organized within the
frameworks of state visit of President of Kazakhstan Nazarbaev to Uzbekistan. The forum stressed the
necessity of enhancing the trade and economic relations in all areas.

The Law of Uzbekistan “On Amending Selected Legal Acts of the Republic of Uzbekistan due to Decrease in
Number of Inspections of Business Entities and Improvement the System of Inspections” was passed on 23rd
March, 2006.

During the state visit of the President of Uzbekistan Islam Karimov to Korea, the president discussed
important issues of further deepening of Uzbek-Korean relations. Additionally the president discussed
issues of development of trade and economic cooperation, interaction in other areas of bilateral relations,
and relevant regional and international problems of mutual interest. As a result of meetings several
documents, including "Joint Declaration of Strategic Partnership" were signed.

Representative office of the World Bank in Tashkent arranged conference dedicated to findings of the
research “From Desintegration to Reintegration: Eastern Europe and FSU Countries in International Trade".
The World Bank experts focused on issues of integration development and foreign trade and presented
recommendations for addressing the existing problems for the next 10 years.

UZBEKISTAN ECONOMY                                                                                         9
                                         MAJOR ECONOMIC EVENTS



In order to create necessary legal and economic environment to increase the number of peasant entities and
private farms engaged in cattle breeding, the President of Uzbekistan on 23 March 2006 signed the
Resolution "On Measures for Stimulating Increase in the Cattle Population in Dekhkhan and Farming
Entities”.

April
Association of Banks of Uzbekistan, together with the commercial banks of Uzbekistan, organized a Round
Table to discuss the “Taxation of Commercial Banks”. This roundtable discussed possible proposals for
the draft of the new edition of the Tax Code. The urgency of the topic has arisen from the intensification of
the budget and tax reforms in the country. The purpose of the new Tax Code is to provide a taxation stimulus
to improve the profitability of enterprises and progress investment-attractiveness of commercial banks.

The government of Uzbekistan approved the programm of measures for the implementation of the
agreements achieved in the course of the state visit of the President of Kazakhstan to the Republic of
Uzbekistan This program was based on directions of the Decree of the President of Uzbekistan “On the
Implementation of Integration Processes and Measures for Increasing the Two-way Trade Turnover with the
Republic of Kazakhstan”. The program guidelines were aimed at further improvement of the legal base,
expansion of mutually beneficial bilateral cooperation in trade, investment, financial, and other spheres of the
economies of both countries.

In accordance with the Decree of the President of the Republic of Uzbekistan dated 21 April 2006 "Оn
Measures for the Improvement of the Financial Situation of Textile Industry Enterprises and Enhancement of
the Sale Mechanism of Cotton Fiber", all textile enterprises exporting finished products for foreign currency in
the amount of 80% or more of their total output are exempted from the property tax. The tax exemption
period was from 1 May , 2006 – 1 January 2009.

In accordance with the Decree of the President of the Republic of Uzbekistan, the program of primary
objectives of Uzbek-Korean realtions was approved. This programm guidelines were based on approved
Uzbek-Korean summit (28-30 March 2006) results. During this summit, list of investment projects presented
for realization by direct Korean investment.

On 26th April 2006, the President of Uzbekistan signed the Decree “On Measures for the Improvement
of the Activities of the State Property Committee of the Republic of Uzbekistan”. This decree was
aimed to enhance privatization processes, strengthen the system of corporate management, and
development of securities markets of Uzbekistan. A new edition of the regulations of the State Property
Committee and new structures of the Central Apparatus and regional subdivisions of the State Property
Committee, as well as for the Center on Coordination and Monitoring of the Securities Market, were also
approved.

Specialists of several agricultural machiery companies of Uzbekistan held a meeting with
representatives of the Open Joint-Stock Company “Agromash-Holding” (Russia). During the meeting parties
agreed on necessity of the expansion of cooperation on several issues, including supply of modern tractors
to the country. Additionally, parties agreed on realization of number of joint projects. These projects aimed at
increasing the current potential of domestic producers of agricultural machinery. In particular, Russian and
Uzbek specialists decided on the organization of the assembly of caterpillar tractors and grain harvester
combines through the capacities of the Tashkent Tractor Plant.

At the Fergana Petroleum Refinery, the gas fractionation plant has been put into operation, which is very
important from an ecological point of view. This plant will enable additional output of liquefied gas to be
obtained from waste gases.

OJSC “Foton” specialists completed work on the creation and launching into serial production of
energy-saving light fixtures. The development of miniature luminous lamps powered with a small voltage
built-in adapter will enable users to reduce energy consumption significantly.

UzRTSB organized a workshop for representatives of textile and cotton-processing enterprises. This
workshop mainly discussed the highlites of the resolution of the President of the Republic of Uzbekistan “On
Measures for the Improvement of the Financial Situation of Textile Industry Enterprises and the
Enhancement of the Sale Mechanism of Cotton Fiber". According to guidelines of this decree, it envisages
more active involvement of the Commodity and Raw Material Exchange of the Republic of Uzbekistan
(UzRTSB) in the process of supplying cotton to textile enterprises/exporters of finished products, Within the
framework of this workshop, new conditions for the purchase of cotton fiber through UzRTSB were

10                                                                                    UZBEKISTAN ECONOMY
                                         MAJOR ECONOMIC EVENTS


discussed, as well as the efficiency of the proposed payment scheme for cotton purchased at exchange
sales.

12 April, 2006 the Law of the Republic of Uzbekistan “On Private Housing Owners’ Associations” was
adopted. The objectives of this law were coordination of relations in the operation of private housing owners’
associations in apartment buildings. According to this law, apartment owners can open voluntary
associations for the mutual management and maintenance of housing resources.

On April 12, Cabinet of Ministers of the Republic of Uzbekistan adopted the resolution “On Further
Measures for the Development of Private Housing Owners’ Associations and the Formation of a Real
Market of Housing Services”. This resolution aimed to significantly improve the formation process of the
real market for services of management and maintenance of housing resources, increase the interest of the
people in the maintenance of their apartments, and stimulate the organizational and financial independence
of such associations as private housing owners’ associations.

On 17 April, the Resolution of the President of the Republic of Uzbekistan “Оn Measures for the
Intensification of the Development of the Service Sector in the Republic of Uzbekistan during 2006-
2010” was adopted. The main objectives of this resolution were to improve the share of services in the
economy, increase the number of people employed in the service sector, growth of the population’s income,
and saturation of domestic markets with high quality services.

May
Decree of the President of the Republic of Uzbekistan “On Creation of Joint Stock Commercial Bank
MicroCreditBank” was signed on 5 May 2006. According to decree, assigned main functions of this institution
were facilitation of microcredit instruments, rendering wide spectrum of banking and consulting services to
small and private businesses. Additionally this institution should help private entrepreneurs and microfirms to
strengthen, expand and support their operations.

The President of the Republic of Uzbekistan signed the Decree “On the Establishment of a Fund for
the Reconstruction and Development of the Republic of Uzbekistan”. The main functions of this fund
were to support the realization of projects on modernization and technical re-equipment of leading sectors of
the economy, to achieve the dynamic and well-balanced social and economic development of the country,
and to realize an effective structural investment policy.

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan (as of 01 May 2006) “On Additional
Measures to Increase the Stimulating Role of Benefits for Enterprises with Foreign Investments” was
adopted. Measures for the regulation and streamlining of tax benefits and other compulsory payment
benefits were envisaged in this Resolution. In particular, a mechanism of exemption was introduced not for
certain individual companies but for enterprise with foreign investment by sectoral type. At the same time,
the principle of perpetuity for fringe benefits on compulsory payments was abolished – they will be given for
a specified time only.

Central Bank of Uzbekistan jointly with the Association of Banks of Uzbekistan, Chamber of Commerce and
Industry of Uzbekistan and Banking and Finance Academy of Uzbekistan organized a special seminar on
“Services on Microfinance”. During this seminar, participants discussed important aspects of
microfinancing such as capability developemnt, growth of employment and government support of the
vulnerable sections of the population and ect.
The representative office of World Bank held a Round table discussion on the transformation of the
financial sector. The Round table participants discussed issues of attraction of the assistance of
international organizations, foreign investors, commercial banks, and public-financial organizations.

Cabinet of Ministers of Uzbekistan, on 22 May 2006, signed the Resolution “On Amending Selected
Decisions of the Government of Uzbekistan (Decree of the President of Uzbekistan of 21 September 2005,
No PO-186 "On Decrease in the Number and Simplification of Licensing Procedures for Entrepreneurial
Activity”)”;

On 24 May 2006 President of Uzbekistan signed the Resolution “On Introduction of Notification
Procedure of State Registration and Accounting of Business Entities”.

During 25-26 May of 2006, Council of the Heads of the Authorized Bodies for Coordination and Control of
the Stock Markets under the Integration Committee of EuroAsES held 7th annual meeting in Almaty
(Kazakhstan). The responsible officials representing the Center for Coordination and Control over the Stock


UZBEKISTAN ECONOMY                                                                                         11
                                        MAJOR ECONOMIC EVENTS


Market under the State Property Committee of Uzbekistan took part in the meeting in the framework of
preparation for accession to the Agreement of Cooperation of the member states of the EuroAsEs.
The Chamber of Commerce and Industry of Uzbekistan jointly with the Association of Business Incubators
and Technological Parks held a seminar on issues of the creation of zones of industrial and
technological development in Uzbekistan. According to the results of the seminar, specific proposals and
recommendations were prepared on the creation of fundamentally new structures to stimulate innovations
and their industrial application.

The Resolution of the President of the Republic of Uzbekistan “On the Introduction of a Notification
System for the State Registration of Entrepreneurship Subjects” was issued. According to this
resolution new system of state registration of entrepreneurship will be set up from 1 September 2006.

The 10th international exhibition and conference “Oil and Gas of Uzbekistan” (OGU - 2006) was held
in “UzExpoCenter”. Leading companies presented modern oil and gas equipments, and latest technologies
for the intensification of oil and gas recovery and processing of hydrocarbon raw materials. More than 120
companies from 16 countries including Germany, Iran, Kazakhstan, China, Russia, USA, Turkey, Ukraine,
France, Czech Republic and Sweden participated in the exhibition. Within the framework of this event there
was an international conference: “Silk Road of XXI Century: Role of the Oil-and-Gas Sector in the Integration
of the Countries of Central Asia”. The participants of this conference discussed the current problems of the
industry, and considered the different aspects of cooperation of oil-and-gas companies of the Central-Asian
region and the development perspectives of the oil-and-gas sector of Uzbekistan.

The Resolution of the President of the Republic of Uzbekistan dated 30 May 2006 “Оn Further
Improvement of Management Organization in the Fat-and-Oil and Food Industries” has been issued.
In accordance with this resolution, the Association of the Fat-and-Oil and Food Industry was founded on the
base of the merger of the associations “Maslojirtabakprom” and “Pischeprom.”. Measures for the
improvement of the management structure of the fat-and-oil and food industry were aimed at the
acceleration of modernization processes and the technical re-equipment of industrial enterprises, as well as
the attraction of foreign investments and the further development of the market sales mechanism.

The third specialized exhibition of the Islamic Republic of Iran was held in “UzExpoCenter”. This
event was organized by the Ministry for Foreign Economic Relations, Investments and Trade in cooperation
with the Chamber of Commerce and Industry of Uzbekistan. The products and services of 45 companies and
firms representing the province Aroq were exhibited; goods made of aluminum, glass, ceramics and plastics,
as well as pharmaceuticals and chemicals, heating, cooling and packaging equipment, carpets, building and
sanitary engineering materials were demonstrated.

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated 17 May 2006 “On the
Establishment of a National Center for Rehabilitation and Prosthetics for the Disabled” was adopted,.
This resolution aimed to improve the system of social protection for the disabled, increase the efficiency of
medical, social and professional rehabilitation, facilitate integration in society and providing good-quality
prosthetics and orthopedic goods, increase the effectiveness of the medical services.

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated 30 May 2006 “On
Additional Measures for the Improvement of the System of Supplying Secondary Schools with
Textbooks” was adopted. According to this resolution, starting from the 2006-2007 academic year, a new
mechanism for shaping the portfolio of orders for the publishing of textbooks and methodological literature
for general secondary schools should be implemented. The annual predictive quota for the production and
sale of textbooks will be determined from the results of the annual specialized books fair, with the
participation of teachers, and parents, as well as the inventory of the library stocks of non-secondary
schools.

The only enterprise in the entire Central Asian region producing hearing aids for the disabled started
its operation in Fergana.

The President of the Republic of Uzbekistan visited the Navoi region and learned about the activities of a
number of enterprises. Particularly, the Mining and Smelting Factory, Navoi airport and others.

June
The Committee on Foreign Policy jointly with the Committee on the Budget and Economic Reforms of the
Senate of the Republic of Uzbekistan, with the participation of the Chamber of Commerce and Industry of
Uzbekistan, held a Round Table discussion on “Issues of the Development of Foreign Economic
Relations and the Improvement of the Legislative Base of Trade, Economic and Investment Relations
of the Republic of Uzbekistan”. The purpose of the Round Table discussion was to identify problems and
12                                                                                  UZBEKISTAN ECONOMY
                                         MAJOR ECONOMIC EVENTS


work out specific proposals in order to attract domestic and foreign capital to the development of the
economy of the country.

21 June 2006. The Law of the Republic of Uzbekistan "On Microfinancing” was passed. The law regu-
lated relations in the area of microfinance services, market development, supply of microfinance funds, and
services for facilitation of business activities among nationals and micro businesses. According to definions
of the law, banks, credit unions, micro-credit organizations, pawnshops and other credit organizations can
provide microfinance services.

On 23 June 2006 in Bishkek the 15th regular meeting of the Council of the Heads of the Central
(national) Banks of the member states of EuroAsEs took place. One of the main issues discussed in the
course of the regular meeting of the Council was the signing of the Protocol on the introduction of alterations
and amendments to the Agreement of the Council in connection with the accession of the Republic of
Uzbekistan to full membership in the Eurasian Economy Community. In addition, the participants discussed
issues concerning the policy of the foreign currency exchange rate and the choice of currency regime in the
member states of the EuroAsEs, and considered the following proposals: to implement the main aims of
cooperation in terms of banknotes production, to develop the numismatic market, to issue souvenir and
collector’s coins, to struggle against counterfeit money, to work out a list of common indicators of the status
of the financial markets of the EuroAsEs countries and to form a unified information base.

The business forum of the business circles of Uzbekistan and Finland was organized by the Chamber
of Commerce and Industry of Uzbekistan jointly with the Center for International Marketing Services of
Finland. The event took place in Tashkent. The business forum aimed at arranging direct partnership
between the entrepreneurs of the two countries. Additionally, issues connected with the prospects for
mutually beneficial cooperation were also discussed. At the present time, the Uzbek-Finnish joint-venture
“Scan-Mix-Samarkand,” which produces building materials, and the Representation Office of the “Sandwick
Mining Corporation,” which specializes in the sphere of marketing and the supply of spare parts for
equipment, are functioning successfully in Uzbekistan.

The Chamber of Commerce and Industry of Uzbekistan, jointly with the UN Project Development Program,
held a joint session on improving tax legislation and tax policy for small business and private
entrepreneurship. This joint session participants identified the most urgent problems in the sphere of
business environment. During this session government officails and enterpreneurs engaged in coherent
constructive dialogue and exchanged their thoughts.

The Resolution of the President of the Republic of Uzbekistan “Оn Establishment of the Uzbek State
Planning Institute for Power, Oil-and-Gas Refining, Chemical and Heavy Industries” was adopted.
The main goal of the resolution was to improve the coordination of provision of scientific-technological and
project support to ongoing structural transformations. Moreover this resolution facilitate high-level
preparation and high-quality maintenance of the implementation of large investment projects on the
construction, reconstruction and modernization of the enterprises of basic industries,

Scientists of the Mirzo Ulugbek National University of Uzbekistan and the Institute of Chemistry and Polymer
Physics of the Academy of Sciences of the Republic of Uzbekistan constructed an electric moisture meter
with heightened sensibility and precision measurement. The meter is designed for humidity control in raw
cotton bales.

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan “On Measures for the
Foundation of a Center for the Development of Multimedia Programs of General Education under the
Ministry of Public Education of the Republic of Uzbekistan” was adopted on 7 June 2006. This
resolution aimed to implementation measures the efficient application of privileged credit from the
Government of Korea. This credit line was directed to Computerization Project of the General Secondary
Schools of the Republic of Uzbekistan,

The Decree of the President of the Republic of Uzbekistan dated 9 June 2006 “Оn an Increase of
Wages, Pensions, Scholarships and Welfare Payments as of 1 July 2006” was issued. In connection
with this, from 1 July 2006, wages for the employees of public institutions and organizations, all types of
pension and welfare payments, and scholarships for students of institutions of higher education and students
of secondary specialized schools were raised 1.2 times. From July 2006 the minimum ammount of monthly
benefits was set as follows: minimum wages were set at the amount of UZS 10800 per month; retirement
pensions – UZS 21395 per month; welfare payments for the congenitally disabled – UZS 21395 per month;
welfare payments for aged and disabled citizens lacking the necessary work record – UZS 12960 per month.


UZBEKISTAN ECONOMY                                                                                         13
                                           MAJOR ECONOMIC EVENTS


The Uzbek-Russian joint venture “2-F Technology group,” for the processing of rubber resin and the
production of rubber goods, started operations in Kokand.

July
The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan No 145 was issued on 21st
July. This resolution approves the new rules of the Regulation “On the procedure for denationalization and
privatization of state-owned facilities”. It specifies the terms and conditions for the privatization of enterprises
and facilities, together with the land plots on which they are located, and improves the mechanism of after-sale
preparation and sale of privatization facilities.

On 21st July the President of the Republic of Uzbekistan signed the resolution “On staff and issues of
organization of activities of some republican committees and councils”. This resolution provided new
guidelines to the State Committee tender auctions for sale of state-owned property to foreign investors”. The
resolution simplifies procedures of sales of state-owned assets to strategic investors. Additionally, it
strengthens the role and importance of the pre-sale preparation of objects.

The Resolution of the President of the Republic of Uzbekistan (27.07. 2006) “On measures for the
further expansion of education for graduates” was issued. This resolution ends old 10 year education system
and ensures full provision for 9th grade graduates in academic lyceums and vocational colleges. It was
established that starting from the 2007-2008 school year in Tashkent city and in regions where all graduates
of the 9th grade are provided further study in academic lyceums and vocational colleges, the enrolment of
pupils in the 10th grade will be stopped.

In Navoi region, an investment project has been implemented pursuant to the governmental resolution
“On measures to arrange domestic production of liquid chlorine, chlorine products and hydrate of sodium in
the Republic of Uzbekistan”. Earlier, these were imported annually for about USD 9 million.

Company Spentex Industries LTD (India) has bought the state-owned spinning company Toshkent
Toytepa-Textil’ LC in Uzbekistan. This deal was the largest purchase in the textile industry.

Five grant contracts were signed in Tashkent under the program of gratis aid from the Government of
Japan to small-scale social projects. The grant contracts on the project “Provision of modern medical
equipment” were singed between three medical institutions of Uzbekistan and the Government of Japan. The
First and the Central hospitals of Surkhandarya regions will receive equipment in the amount of USD 85.6
and USD 63.8 thousand, respectively. The Tashkent perinatal center No.1 will be equipped for the amount of
USD 76.3 thousand.

In the realization of Russian-Uzbek agreements in the oil and gas sector, Lukoil Overseas has started
production drilling at Dengizkul gas deposit in South-West Uzbekistan.

In order to further deepen the processes of denationalization and privatization of leading sectors of the
economy, increase the role of private property, and attract direct foreign investments to develop and
modernize industrial enterprises, the Resolution of the President of the Republic of Uzbekistan was
issued on 10 July 06 “On Deepening the Processes of Denationalization and Privatization in 2006-2008”.

August
Cabinet of Ministers of Uzbekistan (07.08.2006) passed the Resolution “On Amending the Cabinet of
Ministers Resolution of 20 August 2003 No 357 “On Radical Improvement of the System of Registration
Procedures for Organization of Business Activity”.”

The State Property Committee of Uzbekistan announced a tender to select international consulting
companies to assess the value of 51% of the shares of the second largest bank of the country – Asaka
bank. This resolution was an important step towards the realization of the state program of privatization and
denationalization for 2006-2008, foreseeing the privatization of Asaka bank with the help of tender auctions.

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan “On measures to regulate
fermentation of tobacco raw materials and production of tobacco products” was issued. This resolution
introduces licensing requirements for activities related to the fermentation of tobacco raw materials and
production of tobacco products.

The meeting of the club of the national association “Investment Institutions” was held. The major
issue was the consideration of the possibility of attracting foreign investors to the securities and real estate
markets. The business people stated current problems and made proposals to eliminate them.


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                                          MAJOR ECONOMIC EVENTS


The resolution of Cabinet of Ministers of the Republic of Uzbekistan (10.08.2006) “On Amending the
Regulation on Procedure of Development, Expert Assessment and Approval of Documentation for
Investment Projects" was passed. The need to make changes and additions to the Regulation on the
procedure for the development, examination and approval of documentation of investment projects results
from the creation of the Fund for Reconstruction and Development of the Republic of Uzbekistan and the
Uzbek State Institute for Design in electrical engineering, oil and gas processing, chemical and heavy
industry.

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan “On the Sale of State-owned
Interest in Quarts JSC to Foreign Investors” was issued. 53% of the shares of Quarts JSC, purchased by
Carlton Group LLC (USA), According to resolutions purchaser of stocks should complete the payment and
fulfill the investment liabilities.

In order to strengthen the role of science in the social and economic development of country, to liberalize the
management of scientific and technical progress, to raise the level and quality of scientific research, to
promote technological and engineering developments, and to establish conditions for their efficient use, the
Resolution of the President of the Republic of Uzbekistan (07.08.2006) “On Measures to Improve the
Coordination and Management of Science and Technology Development” was issued. The Committee for
the Coordination of Development of Science and Technology was established under the Cabinet of Ministers
of the Republic of Uzbekistan, and its main objectives, stffing were approved. The main mechanisms for the
organization and funding of fundamental, applied research and innovation works were specified.

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan on 7th August 2006 approved the
State program of training and retraining mass media personnel. This state programm helps to satisfy
needs of society and the government for highly skilled journalists and to introduce democratic standards in
the county’s mass media. Additionally it helps to meet international standards, and also to fulfill priority tasks
on democratization and the renewal of society, and the reform and modernization of the country.

In accordance with the Resolution of the President of the Republic of Uzbekistan dated 8th August “On
Measures to Improve the Organization of the UzTransGas Joint-stock Company” and of 17th August 2006
“On Measures to Improve the Activity of the Uzbek Agency Uzkommunkhizmat and the Financial
Rehabilitation of Enterprises of the Municipal Sector” the main objectives of the Uzbek Agency
UzKommunKhizmat, and the mechanisms for the financial rehabilitation of heat and water supply
enterprises of the country were determined (their exemption from annually conducted reassessment of
fixed assets, the write-off of penalty and fine amounts and the use of funds released for current and major
repairs of network and equipment in the municipal system).

The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan of 8th August 2006 approved the
Program of Installing Cold and Hot Water Meters. This government program requires the completion of
installation of hot and cold water meters by 1st July of 2008.

The UzBelDiesel JV, producing diesel engines, was established in Uzbekistan, jointly by the “Tashkent
tractor plant” JSC and “Motorniy Zavod” JSC. The Uzbek and foreign partners from Belarus and Russia – UA
“Minsk Tractor Plant” and “Nogiski Plant of Fuel Fittings” JSC participate in the JV on an equal footing. As
soon as in the medium term, it is planned to bring the capacity of the enterprise to 20 thousand engines per
year.

The Uzbek-Swiss “Bakht Textil” JV, specializing in yarn production, was established in Navoi region. Upon
reaching full capacity, the joint venture will be able to produce up to 12 thousand tons of yarn annually.

In order to form a single policy in the area of building and maintaining gas-distributing networks, to establish
an efficient system for managing the transportation and sale of natural gas to domestic consumers, to use
natural gas efficiently, and to strengthen payment discipline, the Resolution of the President of the
Republic of Uzbekistan (08.08.2006) “On Measures to Improve the Organization of Activity of UzTransGas
Joint-stock Company” was issued.

The Kungurat soda plant started its activity in the Republic of Karakalpakstan. Planned production
capacity of the palnt is 100 thousand tons of soda ash per year. Design and “turn-key” construction of
the technological part of the plant was carried out by Citic Pacific Ltd (China) on a contract with UzKhimprom
State Joint-Stock Company. Launch of the plant will not only solve the problem of the full satisfaction of the
domestic demand for soda ash but also increase its export considerably.



UZBEKISTAN ECONOMY                                                                                            15
                                         MAJOR ECONOMIC EVENTS


The Resolution of the President of the Republic of Uzbekistan (21.08.2006) “On Measures to Improve
Organization of the Activity of the National Holding Company UzbekNefteGas” was issued. This resolution
helps to form an efficient system of management of the oil and gas sector and accelerates exploration works.
One of the objectives of the structural reorganization being carried out by UzbekNefteGas NHC is to ensure
a single technical policy in the industry and large-scale attraction of foreign investments.

September
The Resolution of the Cabinet of Ministers of the Republic of Uzbekistan “On Issues of Licensing
Activity for the Production of Jewelry Made of Precious Metals and Gems” was issued. The main objective
of this is to define the procedure for licensing activity for the production of jewelry made of precious metals
and stones.

In accordance with the Resolution of the Government of the Republic of Uzbekistan “On the Sale into
Private Property of State-owned Interest in the Enterprises of “TashAvtobusTrans” JSC” (07.06.2008), a
new leasing company “Asaka – Trans – Leasing” was established

The Association of Leasers held the first international conference in the hotel “Dedeman Silk Road
Tashkent” on “Leasing in Central Asia”. The conference was arranged in order to cover trends in the leasing
services market, share experience and attract foreign investments into the promising leasing market of the
country.

Leaders of the State Property Committee of Uzbekistan met with representatives of the delegation of
Business Council of Shanghai Organization for Cooperation from China on 12 September. The guests were
briefed on purposes and specifics of the Program of Denationalization and Privatization of State Property for
2006-2008.

The Law of the Republic of Uzbekistan “On Microcredit Organizations” was adopted on 20
September 2006. The law regulates creation and operations of microcredit organizations.

On 25th September, during the state visit of the Prime Minister of the Republic of Korea to Uzbekistan, a
Memorandum of understanding and cooperation was signed between the State Property Committee of
the Republic of Uzbekistan and the Ministry of Commerce, Industry and Energy of the Republic of Korea.

On 27th September the Resolution of the President of the Republic of Uzbekistan “On Measures for the
Further Development of the Securities Markets” approved the Program of Development of the Securities
Market for 2006-2007. It contains a set of measures aimed at further stock market development,
improvement of its infrastructure and strengthening its logistics base and improvement of corporate
governance in joint stock companies as well.

International conference was held in Tashkent on 29 September with the agenda: Stock Market in
Uzbekistan and Central Asian Countries: Opportunities for Issuers and Investors”. Specialists from Russia,
Kazakhstan, Kyrgyzstan and Tajikistan shared experience regarding the formation of the securities market in
these countries, and discussed problems and directions for the further development of this market.

The Resolution of the President of the Republic of Uzbekistan of 7th September 2006 approved the
Program of measures for further strengthening the targeted nature of social protection and social
servicing of the elderly, pensioners and disabled living alone in 2007-2010, foreseeing: a) further
improvement of the system of social servicing of the disabled and elderly living alone; b) broader coverage
and better quality of treatment and prophylactic services; c) strengthening the logistics base of Sakhovat and
Muruvvat nursing homes and sanatoriums; d) the introduction of new forms, methods and technologies of
social services.

The Law of the Republic of Uzbekistan of (05.09.2006) “On Micro-financing” was passed. This law
regulated relations in the area of the developing market of micro-financial services. Furthermore it
helps to satisfy the needs of households and entrepreneurs for financial resources and services to increase
their business activity.

On 21st September of 2006 the Law “On Tax Consulting” was passed. This law provides the main
concepts and principles of tax consulting, covering mandatory terms and conditions of signing an agreement
on rendering tax consulting services. Additionally, it defined the authorized state body in the area of tax
consulting, described the rights and responsibilities of tax consultant organizations, and qualifying
requirements and conditions for termination of qualification certificate, etc.


16                                                                                   UZBEKISTAN ECONOMY
                                         MAJOR ECONOMIC EVENTS


REKA-MEDFARM JV with limited liability was established in Sirdarya region. The JV plans to produce
infusion solutions, glucose and sodium chloride (1200 bottles / hour of various solutions).

“Ekosan” environmental organization held an international meeting in Tashkent “The problem of Aral
and the Aral sea area – the imperative for international cooperation” with the participation of scientists-
specialists from Central Asian countries and international organizations.

The Government of the Republic of Uzbekistan and the Consortium of investors signed an
Agreement on the division of production in the area of exploration works with further development of
newly opened deposits of hydrocarbons in the Uzbek section of the Aral sea. The Consortium includes
UzbekNefteGaz NHC, LUKOIL Overseas Holding, Petronas Carigali Overseas (Malaysia), CNPC
International (China) and Korea National Oil Corporation.

“SamKOCAuto” JV signed a contract with a new investor – the Japanese company “ITOCU Corporation”
for the production of modern trucks and buses on a Japanese Isuzu chassis. The contracts for the supply of
the first auto componentry have come into force.

October
The President of Kyrgyz Republic Kurmanbek Bakiev has officially visited our country on 3rd
October. After the meetings President Karimov and President Bakiev signed joined statement and bilateral
Agreement and Program on Economic, Research and Development and Humanitarian Cooperation for 2007-
2011years. Delegations of the two countries also signed inter-state agreement on cooperation in the area of
government communications, interstate agreement on traveling of the nationals, interagency agreement on
cooperation in the area of tourism and interagency agreement on legal assistance and cooperation.

The Law of the Republic of Uzbekistan (04.10.2006) "On Mortgage” was passed. This law regulates relations
arising from pledging of real estate.

With the purpose of ensuring efficient participation of Uzbekistan in activities of Eurasian Economic
Community and in accordance with the Protocol on Joining by the Republic of Uzbekistan to the Agreement
on Founding the Eurasian Economic Community, on 12 October the Resolution on Permanent
Representative of the Republic of Uzbekistan at the Eurasian Economic Community was passed.

On 13th October a Law of the Republic of Uzbekistan “On Uzbekistan’s accession to the Agreement on
Customs Union and Common Free Market Zone signed in Moscow as of 26 February 1999” was passed.

The Law of the Republic of Uzbekistan (13.10.2006) “On Uzbekistan’s Accession to the Convention on
Privileged and Immunities of Eurasian Economic Community signed in Minsk as of 31 May 2001” was
passed.

Uzbekistan Airways on 14th October signed a code-sharing agreement with Air Baltic (Latvia) envisaging
mutual recognition of shipment documents. Due to partnership achieved by air carriers of the two countries,
passengers would be able to use services of the both airways against single ticket.

The Cabinet of Ministers passed a Resolution (16.10.2006) "On Measures for Ensuring Efficient Governance
of Enterprises with the State Interest and Proper Accounting of the State Property". This resolution ensures
efficient use of government property, and creates conditions for attraction of foreign investments,

20 October 2006 the Government convened to comprehensively discuss outcomes of social and
economic development of the country over the first nine months of 2006. During this convention
governemnt bodies determined additional measures for ensuring achievement of targets of the current year
and building of solid foundation for dynamic functioning of the economy in 2007. The meeting was chaired by
the Prime Minister of Uzbekistan Mirziyoev Sh. It was stated, that priorities set forth by President Islam
Karimov at the Government meeting on 10 February 2006 for acceleration of market reforms and
implementation of measures for further liberalization of the economy and integrated programs of major
sector development and creation of additional conditions for increasing living standards of the population
made a positive impact on rates of social and economic growth of the country in January-September 2006.

21 October under TACIS program EUR 1.4 million were assigned for implementation of the project on
creation of land cadastre in Uzbekistan. The key component of the program is adjustment of the system of
land registration in the regions to contemporary market economy which would be necessary for land
privatization. The Project envisages creation of specialized agencies which will register titles of land owners
for their parcels.

UZBEKISTAN ECONOMY                                                                                         17
                                         MAJOR ECONOMIC EVENTS



On 21 October the ADB approved new investment strategy for Uzbekistan. The program for 2006-2010
envisages investment in more than 10 priority projects in agriculture, secondary education, drinking water
supply, small business and private sector support.

Meeting of the Board of the State Tax Committee of Uzbekistan took place on 24th October.         At
the meeting outcomes of tax agencies’ operations over the first nine months of 2006 were summed up and
current objectives were selected. The emphasis was made on addressing urgent tasks specified by the
leader of our country for tax authorities.

Enlarged session of Committee for Budget and Economic Reforms took place on 26th October where
draft Government budget for 2007 was reviewed. Deputies, representatives of ministries and agencies,
State Tax Committee and the Central Bank participated in the meeting. First Deputy Minister of Finance B.
Ashrafkhanov in his report presented forecast indicators for execution of the government budget for 2006
and planned major parameters for 2007. It was stated that in this year expenditure and revenue parts of the
budget are balanced. Revenue surplus facilitates timely and full funding of all expenditure items.

UzAvtoSanoat signed a Memorandum with ITOCU Corporation (Japan) on 28th October for delivery of
components for assembling of minibuses at SamKocAvto JV.

November
Resolution of the President of Uzbekistan (08.11.2006) “On funding of priority projects for development of
agricultural production within the framework of Food for Progress Program” was passed.

New Regulation on Licensing of Microcredit Organizations was initiated in Uzbekistan from
10.11.2006 The Regulation specifies the list of documents necessary for obtaining the license, minimum
charter capital for such subjects of financial activity and conditions for creating branches.

On 11th November, joint-stock commercial bank Hamkorbank and International Financial Corporation
signed an agreement on assigning additional USD 3 million financing for lending to small and private
businesses. On 8th November the National Bank of Uzbekistan and Daewoo International (Republic of
Korea) signed the agreement on sale of Fergana Textil and incorporation of new company Daewoo Fergana
Textile.

From 12th to 16th November in Vienna, Austria business forum with participation of government
representatives and business circles of Uzbekistan took place. Leaders of the State Property Committee of
Uzbekistan also participated in the forum and made presentation on the topic "Opportunities for Participation
of Austrian Investors in Privatization of Enterprises of Uzbekistan".

On 14th November Uzbek-Russian Joint Venture TTZ-Altay was established in Tashkent for
production of caterpillar tractors. Designed capacity of the enterprise with authorized capital of USD 460
thousand would be about two thousand units of agricultural machinery a year. At the initial stage the JV
located at Tashkent Tractor Plant will be assembling tractors from components and parts produced in
Rubtsovsk, Russia. And subsequently -- from components produced under localization program at
enterprises of UzSelkhozMash-Holding Company.

With the purpose of creation optimal conditions for production, procurement, processing and sales of fruit
and vegetables, as well as expansion of their exports in 2007 the Cabinet of Ministers on 15 November
passed a Resolution “On Forecasted Parameters of Production and Use of Fruit and Vegetables, Potatoes,
Melons and Grapes in 2007".

In order to further deepen economic reform in silk breeding sector, creation of favorable conditions for
attracting foreign investment in the silk sector and creation of new production facilities, increase in volume
and expansion of the range of finished goods competitive at the world market, the President of the
Republic of Uzbekistan on 15 November signed a Resolution "On Measures for Further Reforming of the
Silk Sector".

Resolution of the Cabinet of Ministers (20.11.2006) "On Measures for Implementation of Agreement on
Exploration Works at Investment Blocks of the Republic of Uzbekistan" was passed.

In order to further deepen economic reforms in agriculture and to implement the Program of Transformation
of Loss Making Agricultural Cooperatives (Shirkats) into Farms, the President of Uzbekistan signed the
Resolution (21.11.2006) "On Measures for Transformation of Agricultural Enterprises in Farming
Entities in 2007”.
18                                                                                   UZBEKISTAN ECONOMY
                                        MAJOR ECONOMIC EVENTS



23 November – Government Development Bank of China with assets worth more than USD 250 billion
signed the Cooperation agreement with the Fund of Reconstruction and Development of Uzbekistan.
This bilateral document envisages co-financing of investment projects implemented in base sectors of the
economy.

Mission of the International Monetary Fund (IMF) visited Uzbekistan from 30 November to 13 December
2006. The main objective of this mission was discussions with the Government within the framework of
consultations in accordance with the Article IV. The mission was led by Deputy Director of Department of
Middle East and Central Asian Countries Ms Sena Eken.

The State Committee of the Republic of Uzbekistan on Demonopolization, Support of Competition and
Entrepreneurship (GosComDemonopolization) summed up the outcomes of its activities for liquidation and
restructuring of loss making and bankrupt enterprises over the first fine months of the current year.

30 November. New Uzbek-British JV Kuitosh Koni was put into operation in Gallya-aral district of Jizzakh
region.

December
The Central Bank adopted the Resolution (09.12.2006) “On Amending the Resolution “On Enforcement of
the Regulation on Procedure of Mandatory Sale of Foreign Currency Proceeds from Export of Cotton Fiber
by Companies with Foreign Investment, as well as Issuing of Bank Guarantees and Opening of Standby LCs
under Cotton Fiber Export Contracts".”

11 December. Representatives of the IMF visited the State Property Committee and were briefed on
progress of privatization and attraction of investments for their development. The guests got information
materials on outcomes of privatization over the last three years and new privatization program.

In accordance with the Resolution of the Senate of Oliy Majlis of Uzbekistan of 30 November 2006 No 256-I
"On the Government Budget of Uzbekistan for 2007” the President of Uzbekistan on 18 December signed
the Resolution "On Forecast of Major Macroeconomic Indicators and Parameters of the Government Budget
of Uzbekistan for 2007".

In order to ensure sustainable development of the banking system, increase the level of capitalization in
banking sector, and imporve the participation of banks in investment processes and structural
transformations of the economy, the President of Uzbekistan signed the Decree (19.12.2006) “On
Measures for Stimulating Increase in the Level of Capitalization of Commercial Banks”.

On 21st December an official ceremony of signing sales agreement for buildings and premises with the land
plot between the State Property Committee of the Republic of Uzbekistan (GPC) and the Embassy of Fed-
eral Republic of Germany took place in the conference hall of GPC. The Embassy is planning to build its
new building on this plot of land.

Ministry of Finance signed the Resolution (25.12.2006) "On Approval of the Regulation on Determining the
Cost Structure in the Process of Forming Mandatory Contributions of Owners of Premises for Maintaining
Common Property, Land Plot and Property of Home Owners Associations and Introduction of Marginal Rate
of Return for Services of Contractors Engaged in Servicing and Repair of Housing”.

The President of the Republic of Uzbekistan signed the Resolution of 26 December “On Approving
the Budget of the Foundation for Development of Children Sports and Targeted Program of Con-
struction of Children Sports Facilities in 2007. This resolution helps to further develop children’s sport
and improve health and spirits of growing generation. This resolution addresses issues of construction, re-
construction and equipment of children’s sport facilities and closely connected with National Program for De-
velopment of School Education for 2004-2009,

On 26th December, Tashkent Aircraft Company launched construction of new short-range aircraft Ilyushin
114-300.

27 December. President of the Republic of Uzbekistan signed the Resolution on Accession of the Republic
of Uzbekistan to several international treaties, envisaging the accession to Eurasian Economic Community
treaties.

To ensure efficient operations of the Tax Code (29.12.2006) the Law "On Making Changes and Amending
the Tax Code of the Republic of Uzbekistan” was passed.
UZBEKISTAN ECONOMY                                                                                       19
                                       MAJOR ECONOMIC EVENTS



The Cabinet of Ministers of the Republic of Uzbekistan with the purpose of establishing close links between
producers of consumer goods and trade companies, including organization of regular national, regional and
international exhibitions-fairs passed the Resolution of 29 December “On Additional Measures for Expanding
Uzulgurjisavdoinvest company activities in the area of organization of exhibitions and fairs of consumer
goods.

Ministry of Finance, Ministry of Economy and Uzbek Agency UzKommunHizmat passed the Resolution
“On National Standards of Audit Reporting”.

Participants of the Consortium of Investors including UzbekNefteGas, CNPC International Ltd., KNOC
Aral Ltd., Lukoil Overseas Aral Ltd., and Petronas Carigali Overseas SDN. BHD in order to implement
Production Sharing Agreement (PSA) concerning Uzbek part of the Aral Sea signed the Agreement “On
Joint Activities” and the Agreement “On Single Operator”. The PSA was expected to come into effect in the
end of January 2007 after accomplishment of all preliminary conditions in accordance with the Agreement
and signing the Protocol of Coming into Effect between the Government of Uzbekistan and the Consortium.

On 30 December the Resolution of the President of Uzbekistan (10.07.2006) No 407 “On Deepening of De-
nationalization and Privatization Processes in 2006-2008” was signed. According to this resolution “Asaka
Motor Tamirlash (part of UzAgroMashService)” privatized and sold to private investors.

Cabinet of Ministers passed the Resolution (30.12.2006) “On Approval of the Regulation on Construc-
tion of Individual Housing". The resolution guidelines were based on the Law of the Republic of Uzbeki-
stan “On Mortgage” and Decree of the President of Uzbekistan of 14 June 2005, No 3618 "On Measures for
Acceleration of Implementation of Priorities in the Area of Deepening of Market Reforms and Further Liber-
alization of the Economy".




20                                                                                UZBEKISTAN ECONOMY
                          THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH



INFORMATIONAL AND ANALYTICAL PART
1. The Macroeconomic Situation and Economic Growth
1.1. Economic Growth
Over 2006, priority reforms and integrated sector development programs determined by the President suc-
cessfully implemented. This resulted in acceleration of economic growth rates. Gross Domestic Product of
the country, compared to 2005, increased by 7.3% (in 2005 by 7%), industrial output -- by 10.8% (7.3%),
investment – by 9.1% (7%), contracted construction works -- by 12.8% (7.8%), agriculture -- by 6.2% (5.4%),
trade -- by 14.8% (8.2%) and services -- by 19.3% (15%).

Among the CIS countries, Uzbekistan's annual GDP growth rate was higher than that of Russia (6.7%),
Moldova (4.6%), Kyrgyzstan (2.7%), Ukraine (7%) and Tajikistan (7%). In 2006, Uzbekistan ranked third in
terms of growth of industrial output (10.8%) after Azerbaijan (36.6%) and Belarus (11.3%).

GDP growth rates were                     Table 1.1.1 The Key Macroeconomic Development Indicators
significantly higher than                                  (in % of the previous year)
population growth rate.                                       2000      2001      2002     2003        2004        2005       2006
From 2000 to 2006, the           GDP                         103.8     104.2     104.0    104.2       107.4       107.0      107.3
growth of GDP amounted           GDP per capita              102.4     102.9     102.7    103.0       106.2       105.8      106.1
                                 Number of population        101.4     101.3     101.2    101.2       101.2       101.2      101.2
39.2%, whereas popula-
                                 Industrial Output           105.9     107.6     108.5    106.2       109.4       107.3      110.8
tion growth was only 7.4%.
                                 Agricultural Output         103.1     104.2     106.1    105.9       110.1       105.4      106.2
Time trend of growth rates       Export of goods and
shows the trend of diver-                                    100.9      97.1      94.3    124.6       130.3       111.5      118.1
                                 services
gence. In 2005 1% popu-          Investments in basic
                                                             101.0       104     103.8    104.5       105.2       107.0      109.1
lation     growth    corre-      capital
                                 Level of state budget
sponded to 5.8% of the           execution (% of GDP)
                                                               -1.0      -1.0      -0.8    -0.4         -0.4           0.1     0.5
GDP growth. In 2006 this         CBU refinancing rate (in
                                                              32.3      26.8      34.5     27.1        18.8           16.0    14.0
indicator was more than          %)
6%. Compared to 2005,            Inflation (to the previous
                                                              28.2      26.6      21.6      3.8          3.7           7.8     6.8
per capita GDP in 2006           December), increase
                                 Unemployment level
grew by 6.1%.                    (end of the period, in %)
                                                                0.4       0.4       0.4     0.3          0.4           0.3     0.3
                                 Source: State Statistics Committee of Uzbekistan
The key economic growth
factors included the following:
a) Improvement of business climate due to measures for economy liberalization and development of small
business;
b) Growth in personal income of the population;
c) Favorable investment climate facilitated high investment activity of economic entities and increase in in-
vestment by UZS 1.03 trillion in 2006 (9.1% as opposed to 7% in 2005) and increase in contract construction
works by 12.8% (against 7.8%).
d) Targeted foreign trade policy, which ensured increase in foreign trade turnover by 13.5%, including ex-
ports -- by 18.1%.
e) Further development of market infrastructure, ensuring efficient operation of goods and capital market.

In addition, acceleration of economic growth in 2006 was also effected by balanced and efficient monetary
and fiscal policies. The public budget was executed with surplus, which equaled to 0.5% of GDP. Tax bur-
den on producers has been reduced considerably. Tight monetary policy and control over money supply
growth ensured decrease in inflation rates up to 6.8 per cent.

             Graph 1.1.1. Dynamics of Macroeconomic Indicators (in % to the previous year)
                        GDP            Industry          Agriculture        Investment            Retail trade turnover
        20

        15

        10

         5

         0
                 2000           2001              2002         2003          2004         2005                 2006

      Source: State Statistics Committee of Uzbekistan

UZBEKISTAN ECONOMY                                                                                                              21
                                    THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH



The fastest development rates were registered in service sector (8.5%), compared to 2005, while manufac-
turing of goods increased by 6.8%. The highest rates were observed in growth of transportation and commu-
nication services (12.2%) and trade (10.8%). Among the manufacturing sectors, the fastest growth rates
compared to the previous year were recorded in industry and construction.

        Graph 1.1.2. Growth in Value Added of Sectors of the Economy (in % to the previous year)
       GDP                                      Agriculture                               GDP                               Argiculture
       Industry                                 Transport&communication                   Industry                          Transport&communication
       Construction                             Trade&public catering                     construction                      Trade&public catering
       Others                                                                             Others
 115                                    113.1
                                                                                       115                              112.2 112.8
           107.0                                 107.8 108.5                                                                          110.8
 110               106.2
                            104.2                                                      110       107.3
                                                               104.1                                     106.2 106.2
 105                                                                                                                                          105.1
 100                                                                                   105

  95                                                                                   100
                                        2005                                                                            2006

Source: State Statistics Committee of Uzbekistan

 Graph 1.1.3. Dynamics of Input of Selected Sectors of                                        Analysis of sectoral input to GDP growth in-
      the Economy in GDP Growth (increase, %)                                                 dicated that the greatest contribution was
                                                                                              made by agriculture, industry and services.
                       net taxes                               2005         2006              However while the industry and services in-
                                                                                              put is increasing the input of agriculture is
                          others                                                              decreasing. Intensification of market reform
                           trade
                                                                                              and promotion of investment activity ensures
                                                                                              favorable structural transformations in the
   transport&communication                                                                    economy.
                   construction
                                                                                              In production structure of GDP the industry
                      agriculture                                                             share continued to grew steadily (from 21.2%
                        industry                                                              in 2005 to 22.1% in 2006) as well as that of
                                                                                              service sector (from 37.1% to 39.3% respec-
                           GDP                                                                tively) while the shares of agriculture and
                                                                                              taxed decreased (by 2.1 percent point and
                                    0            2        4            6           8
                                                                                              1.2 percent point respectively).
Source: State Statistics Committee of Uzbekistan
Until 2006, over the last 6 years, the share of private consumption in GDP declined. In 2006, compared to
2005, the share of private consumption in GDP increased from 48.4% to 49.5%. This increase was mainly
triggered by increase in household income.

As a result of measures for accelerated development of export potential and strengthening of national econ-
omy competitiveness undertaken by the government, the net exports continued to grow in the structure of
GDP. The share of export revenues exceeded the share of import expenses by 9.1% as opposed to 7.7% in
2005. It indicates that, foreign trade balance surplus has increased significantly.

                                        Table 1.1.2. Growth and Production Structure of GDP
                GDP growth in % of                                                     Production structure of GDP, %
                 the respective pe-
    Period
                riod of the previous        Industry                       Agriculture         Construction            Services           Net taxes
                         year
  2000                        103.8                14.2                            30.1                  6.0                   37.2               12.5
  2001                        104.2                14.1                            30.0                  5.8                   38.2               11.9
  2002                        104.0                14.5                            30.1                  4.9                   37.9               12.6
  2003                        104.2                15.8                            28.5                  4.7                   37.3               13.7
  2004                        107.4                17.5                            26.4                  4.8                   37.2               14.1
  2005                        107.0                21.2                            26.3                  4.8                   37.1               10.6
  2006                        107.3                22.1                            24.1                  5.1                   39.3                9.4
  Source: State Statistics Committee of Uzbekistan




 22                                                                                                                      UZBEKISTAN ECONOMY
                            THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH


                                        Table 1.1.3. Structure of Using GDP (%)
                             Expenses for final consumption                        Gross accumulation
       Period                                                          Investments in basic                           Net export
                              Private                Public                                    Change in stock
                                                                             capital
 2000                                 62.0                    18.6                    24.0                  -4.4            -0.2
 2001                                 61.6                    18.4                    27.9                  -6.8            -1.1
 2002                                 60.2                    18.0                    22.1                  -0.9             0.6
 2003                                 55.6                    17.4                    21.6                  -0.7             6.1
 2004                                 51.9                    16.2                    23.5                   1.0             7.4
 2005                                 48.4                    15.9                    22.0                   6.0             7.7
 2006                                 49.5                    16.6                    21.5                   3.3             9.1
 Source: State Statistics Committee of Uzbekistan

If we analyze the GDP components from the end-users side, we can determine the size and aggregate de-
mand components, which made a dominant impact on economic growth in mid-term perspective. Analysis of
contribution of selected elements of aggregated demand shows that, GDP growth was facilitated by in-
creased consumer demand, external sector, and growth in investment activity.

However, export’s contribution in GDP growth demonstrates a declining tendency. In 2004 the economic
growth largely was pushed by introduction of free convertibility of the national currency.

     Table 1.1.4. Input of Selected Elements of Aggregate Demand to GDP Increase (in per cent)
                                                2000          2001        2002        2003        2004        2005        2006
 Gross Domestic Product                            3.8          4.2         4.0         4.2         7.4         7.0         7.3
  Private Consumption                              5.2          4.2         2.3         4.7         3.6         3.7         6.3
  Consumption of Public Administration
                                                   0.3          0.3         0.6         0.4         0.3         0.8         0.3
  Bodies
  Investments in basic capital                     0.2           1.0        1.0          1.0        1.6         1.3          2.0
  Exports                                          0.2          -0.8       -1.8          2.8       10.8         6.5          5.1
  Other Demand Elements                           -2.2          -0.4        1.9         -4.7       -8.9        -5.3         -6.4
 Source: State Statistics Committee of Uzbekistan

1.2. Investments
The Government’s policy aimed at intensification of economic reforms, stimulation of private sector develop-
ment, and modernization of economy in 2006 has helped achieving stable high economic growth rate. Thus,
business and investment activities in various sectors of economy intensified. In 2006, capital investments
amounted to UZS 3838.3 billion. Compared with 2005 capital investments have increased by 9.1%.

Stable high economic growth rates enabled to further modernize and re-equip various sectors and increased
profitability of businesses. Increased profitability and incomes in economy resulted in rising trend of invest-
ment demand.

In 2006, an active implementation of the Program of denation-                     Table 1.2.1. Capital Investment Break-
alization and privatization and investment projects in private                      down by Form of Ownership (%)
sector, the share of investments directed into non-state-owned                                               2005           2006
sectors grew by 3.6 percent point (p.p.). Non-government sector                   Capital Investments         100.0          100.0
attracted 67.4% of total capital investments. (Table 1.2.1).                       Public Property              36.2          32.6
                                                                                   Non-Public Property          63.8          67.4
Due to introduction of market mechanisms, the funding source                      Source: Uzbekistan State Statistics Committee
of investment projects was changed. The share of centralized
funds in total investments has reduced by 0.9 p.p. i.e. down to 22.5% vs. 23.4% in 2005. The share of funds
provided from state budget has decreased by 2.1 p.p., and the share of foreign loans borrowed against gov-
ernment guarantees – by 1 p.p., which accordingly made 10.7% and 5% of total investment made in 2006.
The major increase in non-centralized investments was ensured by increase in direct foreign investments,
own funds of enterprises and bank lending.

Own funds of enterprises remained to be main sources of funding capital investments. Their share in total
investments accounted for 48.3% (Graph 1.2.1.). Measures undertaken by the government to rehabilitate
economically insolvent enterprises and liquidate enterprises having no future helped improving financial sus-
tainability of enterprises.

In order to further develop market mechanisms, regulate the economic activity, improve institutional struc-
tures, the government of Uzbekistan passed number of acts. Important acts of 2006 were: “On additional
measures to stimulate increase in production of ready consumer goods by the enterprises with foreign in-
vestments”, “On additional measures to strengthen legal protection of direct foreign investments”, “On addi-

UZBEKISTAN ECONOMY                                                                                                             23
                        THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH


tional measures to stimulate attraction of direct foreign investments”, foreign investors strengthened their
activities. In 2006, direct foreign investments and loans in total capital investments made 14.1%. It signifies
that, compare to 2005, foreign sources of capital investment grew by 0.9 p.p.

The share of loans extended in total capital              Graph 1.2.1. Capital Investment Breakdown
investments increased by 0.5 p.p. and ac-                         by Source of Funding, (%)
counted for 3.4%.
                                                     Loans extended by commercial                      2005   2006
Extra-Budgetary Funds (Republican Road                          banks
Fund, Fund for Development of Children's
                                                     Foreign investments and loans
Sport and School Education and others) be-          against government guarantees
came more active, which ensured growth by
2.2 p.p. or 6.9% in total capital investments.
                                                             Extra-budgetary funds
In 2006, investment demand of basic sectors
of the economy (industry, transport, communi-                         State budget
cation) determined the share of investments
directed into production sphere at the level of
                                                              Savings of population
68.3% vs. 65.3% in the previous year. Redis-
tribution of investment flows secured increase
                                                      Direct foreign investments and
in the share of capital to develop agriculture by
                                                                   loans
1.4 p.p. or to 4.6%, to develop transport and
communication by 0.5 p.p. or to 20.7% (Table
                                                               Funds of enterprises
1.2.2.).

Investments to develop the basic sectors of                                         0   10 20 30 40 50 60
the economy grew with stable rates. The share     Source: Uzbekistan State Statistics Committee
of basic sector in total capital investments
reached 51.1%. This indicator signals about further strengthening of production capacity, increase of invest-
ment attractiveness, and acceleration in forming market infrastructure.

During 2006, large production facilities such as Kun-         Table 1.2.2. Capital Investment by Sector
grad Soda Plant, Tupalang Hydroelectric Power Station                        of the Economy (%)
were put into operation. Commercial production of                                                 2005   2006
coiled strip and its alloys launched at “Uzmetkombinat”                   Total                   100.0  100.0
APO. The first stage of gas utilization at “Kokdumalak”    Production, including                   65.3   68.3
JV put into operation and construction of gas fractiona-    Industry and Construction              27.2   30.4
tion plant at Fergana petroleum refinery was completed.     Agriculture                             3.2    4.6
Additionally, gas-pipeline Gazli-Sarymay, 11 investment     Transport and Communication            20.2   20.7
projects in the textile sector, and large investment pro-   Other Sectors                          14.7   12.6
jects in several basic industries were completed. It       Non-Production                          34.7   31.7
worth to note that, majority of these projects were co-    Source: Uzbekistan State Statistics Committee
financed with the Fund for Reconstruction and Devel-
opment of the Republic of Uzbekistan, established in 2006.

Additionally, large investments projects such as re-       Table 1.2.3. Capital Investment into Fixed Capi-
construction of railway lines Navoi-Uchkuduk-              tal by Sector of Economy and Construction (%)
Sultannizdag-Nukus, construction of railway Tash-                                                     2005     2006
guzar-Baisun-Kumgurgan, modernization of Tashkent         Industry and Construction                   100.0    100.0
thermoelectric power station, reconstruction of airport     Fuel and Energy                            40.8     48.3
of Navoi city, construction Rezaksay and Khangaran          Metallurgy                                 23.2     17.4
water reservoirs and other facilities was continuing.       Chemical and Petrochemical Industry         7.2      7.3
                                                            Mechanical Engineering                      3.4      4.1
Foreign capital also actively participated in the proc-     Light Industry                             16.9     11.6
esses of modernization and development of eco-              Food Industry                               4.8      6.9
nomic infrastructure of the economy. 84.3% of total         Building Materials                          3.6      4.4
foreign investments were directed into production
                                                          Source: Uzbekistan State Statistics Committee
sphere, of which 30.9% - into development of trans-
port and communication. Foreign capital also participates in financing facilities of non-production infrastruc-
ture, which is indicated by 1.9 p.p. increased in their share in total foreign investments compared with 2005.

The foreign investment injected in agricultural sector increased to 5.2%, i.e. by 2.8 p.p. Industry and con-
struction continue to remain main object of foreign investments. Their share in total foreign investments
made 42.7% (Table 1.2.4.).

24                                                                                        UZBEKISTAN ECONOMY
                         THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH


As a result of implementation of large investment pro-        Table 1.2.4. Foreign Capital Investment by
jects with participation of foreign investors, the share of             Sector of the Economy (%)
capital investments injected into fuel and power industry                                        2005     2006
grew more than twice and accounted for 43.1% of total                     Total                   100.0   100.0
foreign investments into industry. Increase in foreign in-  Production, including                  86.2    84.3
vestments into chemical and petrochemical industry and       Industry and Construction             48.4    42.7
food industry was observed too (Table 1.2.5.). Consider-     Agriculture                            2.4     5.2
able increase in foreign investments in these industries     Transport and Communication           30.2    30.9
was related with establishment of joint ventures, under-     Other Sectors                          5.1     5.5
taking of technical re-equipment in accordance with re-     Non-Production                         13.8    15.7
alization of programs to accelerate development of sec-     Source: Uzbekistan State Statistics Committee
tors. The investment phase was completed and com-
mercial production was launched on 53 projects with participation of direct foreign investments.

Major factors of increase in foreign investments, compared                Table 1.2.5. Foreign Capital Investment
with 2005, were simplification of procedures of registration             into Fixed Capital by Industry Sector (%)
of import contracts financed from loans extended by the in-                                              2005         2006
ternational financial institutions, application of mechanism of         Industry and Construction         100.0        100.0
“joint division of produce” on projects in oil and gas industry,          Fuel and Energy                  21.1         43.1
 realization of program of modernization and technical re-                Metallurgy                       16.6          2.9
equipment of industrial enterprises.                                      Chemical and Petro-
                                                                                                             0.9         2.5
                                                                          chemical Industry
Completion of considerable amount of works to develop                     Mechanical Engineering             1.7         1.3
production and social infrastructures in 2006 related with                Light Industry                   38.3         27.1
realization of investment projects foreseen by sectoral de-               Food Industry                      5.4        16.0
velopment programs, helped to increase building and as-                   Building Materials                 3.5         0.5
sembly works in technological structure of capital invest-                Other                            12.4          6.6
ments by 3.5 p.p. or to 50.5% (Table 1.2.6.). The share of              Source: Uzbekistan State Statistics Committee
investments directed at purchasing machines and equip-
ment reduced by 1.3 p.p. and accounted for 37.5% of total investments.

A serious step to increase efficiency of realization of in-             Table 1.2.6. Technological Structure of
vestment resources is establishment the Fund for Recon-                        Capital Investments (%)
struction and Development of the Republic of Uzbekistan.                                                  2005           2006
Over 2006, 14 investment projects were selected for fund-            Total                                 100.0          100.0
ing from the Fund for Reconstruction and Development of               Building and Assembly                 47.0           50.5
the Republic of Uzbekistan.                                           Machines, Equipment, Tools            38.8           37.5
                                                                      Other Costs                           14.2           12.1
Activities on construction of social facilities continued.           Source: Uzbekistan State Statistics Committee
Construction and extensive reconstruction of 446 schools
completed, including 61 schools were newly built and 385 schools - extensively reconstructed. 162 children
sport facilities have been commissioned, including 19 new facilities, 35 reconstructed facilities and 108 gym-
nasiums were added to schools.

1.3. Prices and Inflation
                                                Table 1.3.1. Main Inflation Indicators (2001-2006)
                                       (price appreciation in % to the correspondent period of last year)
The level of inflation of con-       Years
                                                Consumer Price Index
                                                                            Foodstuffs      Non-foodstuffs           Services
sumer goods was 6.8%. (to                         (CPI) (aggregated)
                                    2001                        27.4               27.9              21.1                 36.9
December of the previous
                                    2002                        27.6               28.0              19.3                 41.3
year). Stabilization of price       2003                        10.3                 5.4             13.9                 30.9
levels of fee-based services        2004                         1.6                -4.7              6.3                 23.6
made a positive impact on the       2005                         6.4                 4.2              4.9                 17.1
general inflation level (26.7%      2006                         8.7                 7.4              8.0                 14.6
in 2003, 22.1% in 2004, 13.5%       05/I                         4.2                 0.5              4.5                 19.2
in 2005 and 15.4% in 2006)          05/II                        6.8                 5.0              3.9                 18.2
(Tables 1.3.1, 1.3.2, Graph         05/III                       7.2                 5.8              4.2                 17.4
1.3.1).                             05/IV                        7.2                 5.6              6.9                 14.2
                                    06/I                        10.0                 9.6              7.3                 16.0
                                    06/II                        7.9                 7.9              7.5                 14.1
                                    06/III                       9.4                 8.0              9.5                 14.1
                                    06/IV                        6.9                 4.4              7.6                 14.2
                                    Source: State Statistics Committee of Uzbekistan


UZBEKISTAN ECONOMY                                                                                                          25
                             THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH



                                     Graph 1.3.1. Price Appreciation
          (December of the current year compared to December of the previous year, 2002-2006)
      Years                             Aggregated CPI                       Food commodities
                                        Nonfood commodities                  Services
   40                                   CPIPP
   30
   20
   10
                                                                                                                         %
      0
  -10           2002                    2003                  2004                    2005                    2006


Source: State Statistics Committee of Uzbekistan

The price level grew up during 2006 for: sugar - by                       Table 1.3.2. Inflation Level (2005-2006)
53.1%, petrol - by 38.0%, meat – by 20.0% and public                              (increase in prices, %)
utilities - by 23.8%. During the period, natural gas                                     Monthly average
                                                                                                              By December of the
prices increased by 57.6%, public bus tariffs – by                                                               previous year
                                                                                            2005     2006      2005        2006
36.4%, long-distance train tariffs – by 35.6% and city
electric transport tariffs – by 24.8%.                               CPI                      0.6      0.5         7.8         6.8
                                                                      Foodstuffs              0.5      0.3         6.7         3.9
During 2005-2006, there was a significant sugar price                 Non-food stuffs         0.6      0.6         6.9         8.0
growth in the world that could be explained by the fol-               Services                1.1      1.2        13.5       15.4
lowing reasons:                                                      Source: State Statistics Committee of Uzbekistan
 - after natural calamities happened in sugar producing countries (Thailand, India, China, Pakistan and
     Cuba) in 2005, world market faced a sugar deficit at the estimated level of 1.5-3.0 million tons;
 - WTO took a decision to reduce, starting from 22 May 2006, subsidized export volumes of sugar from 7.0
     to 1.3 million ton. This step has been already followed by the price growth in the sugar markets from
     USD 220-240 to USD 400-500 per ton;
 - the global growth in oil prices gave many countries an impetus to actively use alternative energy
     sources, therefore ethyl cane alcohol got very much demanded in the international market.

The consumer goods prices, across the regions, were                     Table 1.3.3. Inflation Level in the Republic
high in regions Tashkent city (8.08%), Khorezm                             of Uzbekistan by Region (2006, %)
(7.84%), Andijan (7.82%) and in Bukhara (7.81%). In                          Regions           Price appreciation Monthly average
some regions, Namangan (5.13%) and Jizzakh (5.23%)                   R. of Uzbekistan                      6.78             0.55
inflation rate of consumer goods were lower. The higher               R. of Karakalpakstan                 6.53             0.53
                                                                      Andijan                              7.82             0.63
rates of the inflation in the leading regions can be ex-
                                                                      Bukhara                              7.81             0.63
plained by the outrun growth of food and service prices
                                                                      Jizzakh                              5.27             0.43
(tariffs). Thus, for example, the foodstuffs got by 5.8%              Kashkadarya                          6.05             0.49
more expensive in Tashkent city and by 2.0% in Na-                    Navoi                                4.25             0.35
mangan region. The same indices for services are                      Namangan                             5.13             0.42
17.0% and 11.3%, respectively.                                        Samarkand                            6.41             0.52
                                                                      Surkhandarya                         5.62             0.46
During 2006, excluding food items, overall level of infla-            Sirdarya                             6.14             0.50
tion was equal to 11.8%. Analysis of inflation factors                Tashkent region                      7.08             0.57
show that factors such as cost-increase (32.4%), mone-                Fergana                              5.46             0.44
tary (30.6%), devaluation of the national currency                    Khorezm                              7.84             0.63
(27.8%), wage increase (16.3%) and inflationary expec-                Tashkent city                        8.08             0.65
                                                                     Source: State Statistics Committee of Uzbekistan
tations (8.1%) played significant role. (Table 1.3.4)

                                                                Table 1.3.4. Factor Analysis of Inflation Level
                                                                          in Consumer Sector (2006)
                                                                     (fruit and vegetables are excluded)
                                                                                                Impact on CPI (%)       % to total
Like in the previous years, growth of producers’          All factors                                      11.84            100.0
price level was exceeding the growth of con-               Inflation expectations                           0.96               8.1
sumer price level. On average, wholesale-                  Over-the-counter exchange rate                   3.29             27.8
industrial producer prices increased by 1.8%               Labor cost                                       1.93             16.3
and retail consumer prices – by 0.5%.                      Cost-push inflation                              3.84             32.4
                                                           Monetary factor                                  3.62             30.6
                                                           Other factors                                   -1.80            -15.2
                                                          Source: Ministry of Economy of Uzbekistan

 26                                                                                                 UZBEKISTAN ECONOMY
                       THE MACROECONOMIC SITUATION AND ECONOMIC GROWTH



                                                         Table 1.3.5. Factor Analysis of Inflation Level
The factor analysis of industrial producer prices                     in Real Sector (2006)
demonstrated that the most visible impact on                                             Impact on CPI (%)    % to total
inflation in the real sector in 2006 was made by    All factors                                     24.22         100.0
increase in prices (tariffs) on energy sources       Lifting of energy tariffs                       9.55          39.4
(39.4%) and labor costs (22.7%). The aggre-          Over-the-counter exchange rate                  2.21            9.1
gated low inflation level was achieved as result     Labor cost                                      5.46          22.5
of some measures undertaken in the banking           Transportation costs                            1.85            7.7
and financial sector and budget execution with a     Other factors                                   5.15          21.3
surplus (0.4% of GDP).                              Source: Authors' esimates



                                                                 Table 1.3.6. Inflation Level in CIS
                                                                   (January-December 2006, %)
The level of CPI in CIS countries in 2006 ranged             Countries           Price Increase       Monthly Average
from 5.1% in Kyrgyzstan to 14.0% in Moldova          Azerbaijan                             11.5                     0.9
(Table 1.3.6). Among Central Asian countries,        Armenia                                  5.4                    0.4
this indicator was 8.3% in Kazakhstan and            Belarus                                  6.9                    0.6
13.1% in Tajikistan.                                 Georgia                                  8.7                    0.7
                                                     Kazakhstan                               8.3                    0.7
                                                     Kyrgyzstan                               5.1                    0.4
                                                     Moldova                                14.0                     1.1
                                                     Russia                                   9.0                    0.7
                                                     Tajikistan                             13.1                     1.0
                                                     Uzbekistan                               6.8                    0.5
                                                     Ukraine                                11.8                     0.9
                                                    Source: Statistics Committee of CIS countries and author’s estimates




UZBEKISTAN ECONOMY                                                                                                   27
                                                           PUBLIC FINANCE


2. Public Finance
Government’s fiscal policy positively influenced to economic growth and household incomes. Uzbekistan’s
government policy aimed to deepen structural reforms on liberalization of activities of economic entities, in-
crease in well-being of households, reduction of tax burden, state financial support to priority industries, rise
in salaries, social benefits, and pension reforms. The results of these policies were stable increase in pro-
duction of goods (works, services), strengthened payment discipline, improvement in tax revenues. The
State budget revenues were 5.2% higher than predicted level and budget surplus was 0.5% of GDP. Pre-
liminary prediction of budget deficit was 1% of GDP.

                                       Revenues of the State Budget
In 2006, revenues of the state budget in relation to GDP accounted for 20.7% vs. 22.6% in 2005, which
shows a significant reduction of tax burden on the economy in the reporting period. This trend was observed
on all sources of revenues of the budget. The share of direct taxes reduced by 0.5% of GDP (6.0% in 2006
vs. 6.5% in 2005), indirect taxes – by 0.8% of GDP (9.7% in 2006 vs. 10.5% in 2005) and resource pay-
ments – by 0.9% (3.6% in 2006 vs. 4.5% in 2005).

Reduction in the share of direct taxes in GDP took place mainly due to reduction of their rates. For example,
income tax rate was reduced from 15 % to 12%, the rate of tax on dividends and interest income – from 15%
to 10%, Personal income taxes were reduced for the second and third tax brackets by one percent. The
share of indirect taxes also was also lowered.

As a result of cancellation of environmental tax from 2006, the share of resource payments fell considerably.
It should be noted that, significant GDP growth, increased the tax revenues and actual tax proceeds ex-
ceeded their forecast by 11.0%.

                                   Table 2.1. Revenues of the State Budget (in % to GDP)
                         Indicator                     2001       2002             2003              2004        2005       2006
        Revenues– total                                  26.0       25.2             24.2              22.5        22.6       20.7
         1.Direct taxes                                   7.7        7.3              6.8               6.4         6.5        6.0
         2.Indirect taxes                                13.5       13.8             14.0              12.6        10.5        9.7
         3.Resource payments and property tax             2.4        1.9              2.3               2.6         4.5        3.6
         4.Other revenues                                 2.4        2.2              1.1               0.9         1.1        1.4
        Source: Ministry of Finance of the Republic of Uzbekistan

                                   Graph 2.1. Revenue Composition of the State Budget
                            28.8                         47.0                  17.5           6.7        1.Direct taxes
          2006
                           28.7                       46.4                       20.8          4.1
          2005
                          28.2                            56.0                     11.5        4.3       2.Indirect taxes
          2004
                         28.0                              57.8                         9.5    4.7
          2003
                          29.3                            54.6                      7.5       8.6        3.Resource payments and
          2002                                                                                           property tax
                          29.8                           51.8                      9.3        9.1
          2001
                                                                                                         4.Other revenues
                 0%              20%          40%               60%          80%               100%
        Source: Ministry of Finance of the Republic of Uzbekistan

Changes occurred in the structure of                      Table 2.2. Direct Taxes Composition
revenues of the State budget in 2006                                  2002    2003   2004   2005                                     2006
were mainly the result of cancellation of Direct taxes                100.0   100.0  100.0   100.0                                   100.0
the environmental tax. Although direct Corporate income (profit)       31.9    32.0   28.2    28.5                                    28.4
tax rates continued to lower, their share tax                   1
in total revenues remained the same. Tax on gross income
                                                       2
                                                                           -       -   8.0     7.3                                     7.3
Proceeds on indirect taxes accounted Unified tax                       12.1    13.2    9.6     9.4                                     9.1
for 47% of total revenues and increased Personal income tax            42.3    43.8   43.4    44.0                                    43.9
slightly and the share of resource pay-    Fixed tax on entrepreneu-
                                                       3                6.4     4.8    4.8     4.6                                     3.7
                                           rial income
ments reduced by 3.3 p.p. and made Social infrastructure devel-
17.5%.                                                                  7.3     6.2    6.0     6.2                                     7.6
                                           opment tax
                                                      Source: Ministry of Finance of the Republic of Uzbekistan

1 Tax on gross income of trade and public catering companies
2 Unified tax from micro-firms and small enterprises applying unified taxation system
3 Fixed tax on income of legal entities and individuals engaged in entrepreneurial activities

 28                                                                                                             UZBEKISTAN ECONOMY
                                                          PUBLIC FINANCE


Over 2006, there were no considerable changes in the structure of direct taxes. Major part of direct tax reve-
nues still comes from personal income tax (43.9%). As it was noted above, the rate of corporate income tax
were reduced. However, the budget losses were compensated through tax on windfall profit on copper and
increase in production. Increase in taxable base is also confirmed by increase in the share of infrastructure
development tax, where tax base is net corporate profits.

Regarding indirect tax revenues, there                   Table 2.3. Indirect Taxes Composition
were changes on VAT and exercise                                          2002      2003       2004   2005   2006
taxes. In 2006, the share of VAT pro- Indirect taxes                      100.0     100.0       100.0  100.0  100.0
ceeds in total indirect taxes increased   Value added tax                  43.9       39.6       42.5   51.1   54.1
by 3 % compared with 2005 and ac-
                                          Excise tax                       48.3       51.3       48.2   37.7   33.2
counted for 54.1%. At the same time
                                          Custom duty                       2.9         3.0       3.6    4.7    4.9
the share of excise tax reduced by
                                          Unified custom payment
4.5%, and amounted to 33.2%. The          from individuals
                                                                            2.4         3.3       2.5    2.1    3.3
reason of this decline was the reduc-     Income from individuals on
tion of excise tax rate on taxable pro-                            4        2.5         2.8       3.2    4.4    4.4
                                          consumption of gasoline
duce made within the country.         It Source: Ministry of Finance of the Republic of Uzbekistan
should be noted that the share of cus-
tom payments has increased by 1.4 p.p. as a result of increase in their rates and improved payment disci-
pline.

                                     Expenditures of the State Budget
In 2006, the State Budget expenditure was equal to 20.2% of GDP. Compared to previous year state budget
expenditures (respect to GDP) declined by 2.3%. While decreasing the budget expenditures, salaried paid
from government budget increased by 1.44 times. Salaries of education and healthcare sector significantly
improved and new labor remuneration tariff scale was introduced. These steps enabled to increase salaries
of education and healthcare sector by 1.3 times. Reduction in the share of expenditures in GDP almost in all
budget sectors (except for healthcare) can be explained only by significant increase in GDP, as approved
parameters of expenditures in all budget sectors were fulfilled.

Expenditures on social and social protection of population amounted for 50.8% of total expenditures (1.1 p.p
increase compare to 2005). The share of expenditures on education, in total expenditures, was increased by
0.6%. Increase in education expenditures were related with expansion of network of institutions of secondary
special and trade education under National program of training staff, and accelerated rise in salaries due to
introduction of improved labor remuneration system in the establishments of public education. The share of
expenditures for healthcare increased both in GDP (2.5% in 2006 vs. 2.4% in 2005), and in total expendi-
tures of the State budget (11.6% vs. 10.6%). This can be explained by introduction from 1st January 2006 of
improved medical labor remuneration scale, which enabled to increase salaries of medical labor in acceler-
ated manner compared with other budget sectors. In 2006, due to implementation of the Program “Year of
Medical Staff and Sponsors” considerable funds were assigned to develop this sector.

         Table 2.4. Expenditures of the State Budget, (in of GDP)            Although expenditures for the
           Indicator                2001      2002      2003      2004       economy ensured operation
                                                                             2005      2006
Expenditures– total                  27.0       26.1      24.6     22.9      and the necessary material
                                                                              22.5      20.2
 Social sector                       10.2        9.8       9.3      9.1      and technical development of
                                                                               9.5       9.0
 Social protection                    2.1        2.0       2.1      1.8      water industry facilities and
                                                                               1.8       1.7
 Expenditures for the economy         2.3        2.3       3.0      3.1      infrastructure of inhabited lo-
                                                                               3.0       2.6
 Expenditures to fund central-                                               calities, their share in total ex-
                                      5.0        4.7    2.73.3  2.4    1.9
 ized investments                                                            penditures reduced (12.8% in
 Public administration, gov-                                                 2006 vs. 13.5% in 2005). Ex-
                                      0.6        0.5    0.60.5  0.5    0.5
 ernance and judiciary bodies
 Other expenditures                   6.8        6.5    5.66.4  5.0    4.5
                                                                             penditures for centralized in-
                                                                             vestments also decreased
Source: Ministry of Finance of the Republic of Uzbekistan
                                                                             (9.4% vs. 10.8%). Commis-
sioning of facilities (trade colleges, academic lyceums, rural ambulances, provision of rural inhabited locali-
ties with water etc.), envisaged by the Investment Program for 2006 was ensured.

Deficit (Surplus) of the State Budget. Compare to 2005, positive budget surplus of 2006 increased signifi-
cantly. Surplus of the State budget accounted for 0.5% of GDP. Ensuring stability of revenue proceeds re-
sulting from undertaken steps aimed at development of the economy and improvement of tax policy led to
balanced revenues and expenditures of the budget.



4 Tax from individuals on consumption of gasoline, diesel fuel and gas for transport vehicles

 UZBEKISTAN ECONOMY                                                                                            29
                                                PUBLIC FINANCE



Regional Finance. Out of 14 regions of the             Graph 2.3. Deficit of the State Budget, (in % of GDP)
country in 6 regions (the Republic of Karakal-                                 Deficit (-); Surplus (+)
pakstan, Andijan, Jizzakh, Namangan, Surkhan-               1
                                                                                                                  2006
darya, Khorezm regions) revenues of the local             0,5
budgets (with taking into account the standard
                                                            0                               2003                 2005
contributions from national taxes) did not cover
their expenditures. The share of subsidies in to-        -0,5
                                                                                 2001
tal expenditures of local budgets was main-                                                               2004
                                                           -1
tained. At the same time in some regions it de-                                         2002
                                                         -1,5    1999     2000
creased (the Republic of Karakalpakstan, Jiz-
zakh and Namangan regions), and in other sub-              -2     1998
sidized regions it slightly went up.
                                                         -2,5

Considering changes in world market that posi-            Source: Ministry of Finance of the Republic of Uzbekistan
tive for Uzbekistan, in the environment of rising
export potential and incomes of population, main directions to improve fiscal policies for the forthcoming pe-
riod could be measures to reduce further the direct tax rates, especially the rate of personal income tax, tax
on profit of legal entities and unified tax for micro-firms and small enterprises. It is also necessary to continue
activities concerning optimization of budget expenditures, first of all their optimization through restructuring of
inefficiently operating network of budgetary institutions. Inter-budgetary relations need further improvement
towards strengthening the revenue base of local budgets and working out clear and transparent criteria for
assigning financial assistance to subordinate budgets.




30                                                                                         UZBEKISTAN ECONOMY
                                                             PUBLIC FINANCE



                                 Annex 2.1. Revenues of the State Budget (in % of GDP)
               Indicator             2001   2002     2003     2004       05/I     05/I-II       05/I-III    2005     06/I     06/I-II     06/I-III     2006
    Revenues – total                  26.0   25.2     24.2     22.5      29.1      28.2          24.2        22.6    28.6      27.2        23.4         20.7
     1.Direct taxes                    7.4    6.8      6.4      6.0       8.0       7.6           6.6         6.5     8.0       7.7         6.5          6.0
     2.Indirect taxes                 13.5   13.8     14.0     12.6      13.9      13.2          11.2        10.5    11.9      11.5        10.3          9.7
     3.Resource payments and
                                       2.4    1.9      2.3      2.6       5.3           5.5        4.8       4.5      5.6       5.3          4.4         3.6
     property tax
     4.Social infrastructure de-
                                       0.3    0.5      0.4      0.4       0.6           0.5        0.4       1.1      0.6       0.6          0.5         1.4
     velopment tax
     5.Other revenues                  2.4    2.2      1.1      0.9       1.4           1.4        1.2       1.1      2.4       2.2          1.7         1.4
    Source: Ministry of Finance of the Republic of Uzbekistan


                                    Annex 2.2. Direct Taxes Composition (in % of total)
                                  2001     2002     2003     2004     05/I        05/I-II        05/I-III   2005      06/I      06/I-II     06/I-III     2006
 Direct taxes                    100.0    100.0    100.0     100.0    100.0       100.0          100.0      100.0    100.0      100.0        100.0       100.0
  Corporate income (profit)
                                  39.7     34.4      34.1     29.9       28.5          27.8        28.8      28.5     29.5       32.5         30.5        28.4
  tax
  Tax on gross income                 -        -        -      8.5        7.7           7.6         7.4        7.3     6.9         6.7          7.0        7.3
   Single tax                       7.8    13.1      14.1     10.2       10.2           9.5         9.4        9.4     9.6         8.6          8.9        9.1
  Personal income tax              44.9    45.6     46.7      46.2       42.3          44.2        43.6      44.0     42.9       41.4         42.5        43.9
  Fixed tax on entrepreneurial
                                    7.6      6.9     5.1       5.2        4.3           4.6         4.7        4.6     4.0         3.6          3.7        3.7
  income
  Social infrastructure devel-
                                      -        -        -        -        7.0           6.2         6.2        6.2     7.1         7.2          7.4        7.6
  opment tax
 Source: Ministry of Finance of the Republic of Uzbekistan


                                   Annex 2.3. Indirect Taxes Composition (in % of total)
                                  2001     2002     2003     2004     05/I        05/I-II        05/I-III   2005      06/I     06/I-II      06/I-III     2006
 Indirect taxes                  100.0    100.0    100.0     100.0    100.0       100.0          100.0      100.0    100.0     100.0        100.0        100.0
   Value added tax                48.8     43.9      39.6     42.5       50.6          50.3       51.9       51.1     59.5       58.1         57.5        54.1
   Excise tax                     46.3     48.3      51.3     48.2       38.5          38.6       36.7       37.7     25.5       27.8         28.7        33.2
  Custom tax                        2.7     2.9      3.0       3.6        4.8           4.8         4.8       4.7      5.6        5.6           5.5        4.9
  Unified custom payment
                                    2.2     2.4      3.3       2.5        2.4           2.1         2.0       2.1      4.6        3.7           3.3        3.3
  from individuals
  Tax from individuals on
                                      -     2.5      2.8       3.2        4.0           4.2         4.6       4.4      4.7        4.9           5.0        4.4
  consumption of gasoline
 Source: Ministry of Finance of the Republic of Uzbekistan

                              Annex 2.4. Expenditures of the State Budget, (in % of GDP)
           Indicator              2001    2002     2003      2004     05/I            05/I-II    05/I-III    2005     06/I       06/I-II      06/I-III    2006
Expenditures– total                27.0     26.1    24.6      22.9    27.2             27.0       23.7        22.5    26.4        26.1         22.4        20.2
 Social sector                     10.2      9.8      9.3      9.1    11.5             12.4       10.2         9.5    12.0        11.5         11.5         9.0
 Social protection                  2.1      2.0      2.1      1.8     2.0              2.1         1.9        1.8     2.1         1.9           1.5        1.7
 Expenditures for the econ-
                                    2.3      2.3      3.0      3.1        3.1            3.6         3.4       3.0      3.2         3.4            3.2         2.6
 omy
 Expenditures to fund central-
                                    5.0      4.7      3.3      2.7        3.7            2.9         2.2       2.4      1.8         2.2            1.8         1.9
 ized investments
 Public administration, gov-
                                    0.6      0.5      0.5      0.6        0.6            0.6         0.5       0.5      0.7         0.7            0.5         0.5
 ernance and judiciary bodies
 Other expenditures                 6.8      6.5      6.4      5.6        6.1            5.3         5.4       5.0      5.8         5.8            4.9         4.5
Source: Ministry of Finance of the Republic of Uzbekistan

                                   Annex 2.5. Deficit of the State Budget, (in % of GDP)
                 Indicator        2001 2002 2003 2004             05/I     05/I-II 05/I-III         2005      06/I   06/I-II 06/I-III      2006
             Deficit (-);
                                   -1.0    -0.8   -0.4     -0.4    1.9          1.2        0.5        0.1      2.1     1.2        0.9        0.5
             Surplus (+)
            Source: Ministry of Finance of the Republic of Uzbekistan




   UZBEKISTAN ECONOMY                                                                                                                                      31
                                                                  FINANCIAL MARKETS


3. Financial Markets
3.1. Monetary Policy and Banking Sector
Monetary policy of the Central Bank of the Republic of Uzbekistan (CBU). In 2006, monetary policy im-
plemented by the Central Bank, was aimed at stimulation of economic growth through complete satisfaction
of monetary demand of the economy, meeting such objectives as retention of money supply in circulation
within economically justified limits, implementation of foreign exchange and interest policies, and further
strengthening of national currency.

As a result of measures undertaken and a stable increase in the positive payment balance, in 2006 the gold
and foreign currency reserves increased by 61.1 % and achieved the level covering annual imports of goods
and services.

Considerable growth in the gold and foreign currency reserves complicated Central Bank’s tight monetary
policy. In order to solve these issues the Fund for Reconstruction and Development of the Republic of Uz-
bekistan (the Fund) was established by the Decree of the President of the Republic of Uzbekistan No UP-
3751 dated 11th May 2006. It was decreed that resources of this Fund should be formed by accumulating
foreign currency proceeds as a result of high prices for precious metals in the world markets. Main objectives
of the Fund were prevention of the negative effect of external factors on domestic market, funding priority
sectors of the economy and support to economic growth in the country. In 2006, the fund accumulated more
than USD 501 million. This, in turn, allowed securing price stability on the domestic market by preventing the
unjustified rise in money supply in the amount of UZS 621 million.

Also, as a result of extensive application of market monetary policy tools such as attraction of available
funds of commercial banks to special deposit accounts, issue of bonds and deposit certificates, change in
the norms of mandatory reserves and refinancing rate by the Central Bank, the monetary indicators were
kept within the established target parameters.

                       Graph 3.1.1. Dynamics of Sterilization Transactions of the Central Bank
  billion Soum
  800
  600
  400
  200
      0
                                   May




                                                                                                                May
                       Mar




                                                                                                  Mar

                                                                                                         Apr
                 Feb




                                         Jun



                                                      Aug

                                                            Sep

                                                                  Oct




                                                                                     Jan

                                                                                           Feb




                                                                                                                                         Aug

                                                                                                                                                Sep

                                                                                                                                                       Oct
          Jan




                                                                                                                      Jun
                                               Jul




                                                                        Nov

                                                                              Dec




                                                                                                                              Jul




                                                                                                                                                               Nov

                                                                                                                                                                       Dec
                             Apr




                                          2005                                                                              2006

Source: Central Bank and Ministry of Finance of Republic of Uzbekistan

In order to prevent the impact of the rise in the gold and foreign currency reserves, in 2006 funds attracted to
Central Bank’s special accounts and government bonds increased more than twice.

In order to further implement tight monetary policy by the Central Bank in 2006 the norms of mandatory re-
serves remained unchanged at the level of 15 % on deposits of legal entities in national currency and 8 % -
on deposits in foreign currency. In order to attract free funds of population to bank deposits the deposits of
individuals are exempted from contributions to mandatory reserves which allows establishing high interest
rates. Over 2006 mandatory reserves grew by 59 %, and their balance as of 1st January 2007 accounted for
UZS 239.6 billion.

                               Graph 3.1.2. Mandatory Reserve Growth Trends in 2005-2006
  billion Soum
  250
  200
  150
  100
    50
      0
                                   May




                                                                                                                 May
                       Mar

                             Apr




                                                                                                   Mar

                                                                                                          Apr
                 Feb




                                         Jun




                                                            Sep

                                                                  Oct




                                                                                            Feb




                                                                                                                                          Aug

                                                                                                                                                 Sep

                                                                                                                                                         Oct
          Jan




                                                     Aug




                                                                                     Jan




                                                                                                                       Jun
                                               Jul




                                                                        Nov

                                                                               Dec




                                                                                                                                   Jul




                                                                                                                                                                 Nov

                                                                                                                                                                         Dec




                                           2005                                                                              2006

Source: Central Bank of Republic of Uzbekistan


 32                                                                                                                                  UZBEKISTAN ECONOMY
                                                     FINANCIAL MARKETS



As the major monetary policy tool the Central Bank of Uzbekistan controls the benchmark interest rate – the
refinancing rate. In 2006, this tool played an important role in implementing tight monetary policy. Maintain-
ing the refinancing rate at the level above the inflation rate prevented arising of excess liquidity and also en-
sured maintaining the positive real interest rates on the money market and stable operation of financial mar-
ket. At the same time, the inflation trend and maintaining the inflation expectations at stably low level as well
as lowering interest rates of the commercial banks on loans and deposits created basis to reduce the refi-
nancing rate. The Central Bank effective from 15th July 2006 reduced the refinancing rate from 16 % to 14 %
per annum.

Inter-bank interest rates. Decreasing inflation rates positively affected interest rates on loans and deposits
of commercial banks. In particular, this led to reduction in interest rates set by the commercial banks on
loans and deposits, interest rates in inter-bank market as well as on government securities. In 2006, the av-
erage weighted interest rates on loans extended by the commercial rates reduced by 1.6 %, including inter-
est rates on long term loans during the year went down from 18.2 % to 16.4 % or by 1.8 %. Accordingly in-
terest rates on deposits attracted by the commercial banks are lowered. In particular, the average weighted
rates on attracted deposits of individuals in 2006 reduced from 31.0 % to 24.2 %.

                                    Graph 3.1.3 Interest Rate Trends in 2005-2006
                                   loans                                       time deposits of individuals
     40                            inter-bank transactions                     government securities
     35                            refinancing rate
     30
     25
     20
     15
     10
      5
      0
          Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

                                    2005                                                   2006


   Source: Central Bank and Ministry of Finance of Republic of Uzbekistan

In 2006, the level of profitability of GSDO (Government short-term debt obligations) reduced from 11.6 % to
7.1 %. The average annual interest rate of money market instruments was 10.2% per annum.

Banking system and its development. In 2006, the Central Bank undertook active reforms to strengthen
stability of the banking system, improve the trust of households to the banking system by protecting interests
of depositors and creditors. Especially, to strengthen the role of financial intermediation of the banks, Central
bank encouraged commercial banks to expand their resource base. The resource bases of commercial
banks improved by broader attraction of population and enterprises’ savings into bank equities and deposits.

Assets of the commercial banks during 2006 grew by 28 % and as of 1st January 2007 accounted for UZS
7207.5 billion. Loans of the commercial banks issued in national currency to finance the real sector of the
economy grew by 48 % and achieved UZS 1625.1 billion and total loan portfolio of the banks amounted to
UZS 4095.4 billion.

Graph 3.1.4 Trends of Population’s Deposits                   Growth of Bank assets also were effected by improved
        with the Commercial Banks                             attraction of free funds from legal entities and individuals.
     billion
                                                              In particular, as a result of measures undertaken, the bal-
     Soum                                                     ance of population’s bank deposits grew by 51 % and as
 800
                                             678              of 1st January 2007 accounted for UZS 678.3 billion.
 700
 600
                             450                              Over this period the share of population’s demand and
 500
                                                              saving bank deposits increased. This resulted in increase
 400           323
 300
                                                              in total resource base of the banks and tangible increase
 200
                                                              in loans extended to finance the real sector of the econ-
 100                                                          omy.
   0
               2004         2005            2006              Capitalization of banks. In 2006, the minimum regula-
                                                              tory capital of the banks was increased stage by stage
Source: Central Bank and Ministry of Finance of Republic      and by the end of the year it reached: USD 2.5 million for
of Uzbekistan

 UZBEKISTAN ECONOMY                                                                                                    33
                                                   FINANCIAL MARKETS


private banks and USD 5 million in UZS equivalents for the rest of the banks. In 2006, the increase in total
capital of banks was 15 %, and in absolute figure terms as of 1st January 2007 it amounted to UZS 1070.1
billion.

           Graph 3.1.5 Growth Trend of Capital               Lending transactions. In order to support small
                 of Commercial Banks                         and medium businesses, commercial banks issued
           billion                                           loans amounting to UZS 384.2 billion. 63.1% of
           Soum                                              these loans were long-term loans, from own funds
   1 100                                                     of the commercial banks.
   1 050
   1 000                                         1 070
                                                             In accordance with the Decree of the President of
     950                                                     the Republic of Uzbekistan No UP-3434 dated 25th
     900                                                     May 2004 “On Additional Measures to Support Ac-
                                 931
     850                                                     tivities of Women’s Committee of the Republic of
     800                                                     Uzbekistan” several measures were undertaken to
                     824
     750                                                     support women engaged into entrepreneurial activi-
     700                                                     ties in the country. In particular, in 2006, loans
                     2004        2005            2006        amounting to UZS 29.9 billion were issued to
Source: Central Bank of Republic of Uzbekistan               women-entrepreneurs. This indicator exceeds the
                                                             similar indicator for the previous year by 73.1 %.

Transactions of commercial banks with securities. In order to develop the financial system, banking sec-
tor of issued their own securities and they were pledged by loans and other assets. During 2006, commercial
banks issued bank securities for total amount of UZS 32 billion, and deposit and saving certificates in circula-
tion amounted to UZS 28.5 billion. These issuance significantly helped to improve resource base of commer-
cial banks.

Additionally, in order to expand the non-cash operations, commercial banks issued into circulation about 1.7
million plastic cards and their total number exceeded 3.2 million. At the end of 2006, plastic cards were
served by more than 14.2 thousand terminals installed in shopping centers. Plastic card transactions grew
considerably.

In accordance with the Decree of the President of the Republic of Uzbekistan dated 5th May 2006 a new
joint stock commercial “Microcreditbank” was established on the basis of joint stock commercial “Tad-
birkorbank” . Main objectives of this bank were to help small businesses, private entrepreneurs and farmers
by provision of micro-credit services.

At the same time, passing the Laws “On Micro-financing”, “On Mortgage” and “On Consumer Loans”
strengthened the legal base regulating the lending processes in the economy which created prerequisites to
increase loans extended by the banks. Additionally, government special tax breaks created favorable condi-
tion for further development of mini-banks serving private and dekhan farmers in rural areas. The number of
mini-banks established by commercial banks in 2006 grew by 367 units and by the end of the year their total
number was 1817.

The number of customers using online banking services “Bank-Customer”, implemented to save time of the
customers, grew by 437 and reached 3094.

Development of non-bank financial institutions. Small business entities of the country get financial sup-
port not only from the commercial banks; special attention is given to the issues of developing the alternative
lending institutions.

In 2006, the Central Bank issued licenses to 11 new credit unions and their total number in the country at
present is 35. In addition, 5 pawnshops were opened, and the number of operating pawnshops reached 12.
In 2006, assets of credit unions grew by 86 % and by the end of the year total assets amounted to UZS 15
billion. In 2006, when issuing loans by credit unions in accordance with international requirements loan port-
folio not exceeding 85 % of total assets was ensured. In order to satisfy demands of credit union members,
unions provided special loans for entrepreneurial activities. In particular, in 2006, loans extended by credit
unions to their members grew 1.8 times and by the end of the year their balance accounted for UZS 14 bil-
lion.

On 4th April 2006 the Oliy Majlis of the Republic of Uzbekistan amended the Law of the Republic of Uzbeki-
stan “On Credit Unions” to improve the legal base of activities of credit unions and by doing so to improve
the mechanism for regulation and supervision of the credit union system. According to this law, credit unions

 34                                                                                    UZBEKISTAN ECONOMY
                                                   FINANCIAL MARKETS


are entitled to conduct leasing operations, establish branches on the territory of the country as well as con-
duct cash transactions in a prescribed manner based on specificity of these lending institutions. In 2006,
three legislative acts to develop micro-financing were passed.

3.2. Stock Market
Market of corporate securities. As of 31st December 2006, the State Stock Register recorded:
– 13477 issues of shares with a total value of UZS 3625.3 billion, including 113 issues worth UZS 204.9 bil-
   lion in 2006;
– 115 issues of corporate bonds from 84 issuers for total amount of UZS 63.1 billion.
   In 2006, the total turnover of corporate securities’ market (total value of shares and corporate stocks)
amounted to UZS 342.1 billion, including UZS 64.9 billion in the forth quarter of 2006. The growth rates were
106 % and 26 % compared with the respective periods of the previous year.

Graph 3.2.1. Turnover Trend of Stock Market (UZS billion)                       Over the last four years stock market ca-
                                                                                pacity increased with stable rates In 2006,
                      primary market    secondary market
  350                                                                           stock market growth was significantly
  300                                                                           higher than previous years. On average
                                                                                annual growth rate of total stock market
  250
                                                            227.2               turnover was 62%. (Graph 3.2.1) In 2006
  200                                                                           the turnover of secondary market was sig-
  150
                                            65.9
                                                                                nificantly higher than primary markets. It
  100       27.7            62.1                                                indicates that liquidity of stock market im-
                                                            114.9               proved significantly.
   50                       84.1           100.4
            59.6
    0                                                               The majority (96.7%) of corporate stock
            2003            2004            2005            2006    market turnover was generated by pro-
Source: the Center for Coordination and Control of the Stock Market ceeds from sales of shares of joint-stock
                                                                    companies. In 2006, sales reached UZS
330.8 billion, including UZS 63.5 billion in the forth quarter 2006 (Table 3.2.1. and Annex 3.2.1.), which ex-
ceeded these indicators in the respective periods of the previous year 2.6 and 1.4 times respectively.

  Table 3.2.1. Sales of Shares on the Stock Market (UZS billion)           In 2006, shares amounting to UZS
                Primary market          Secondary market              Total20.9 billion were sold in the ex-
 Period
            Amount In % of total Amount In % of total Amount In % of total change segment of the primary
QIV 2005      36.8           78.8        9.8           21.0      46.7      market, and UZS 91.7 billion – in
                                                                            100.0
2005          88.6           62.2      53.8            37.8     142.4      the OTC segment (Graph 3.2.2.).
                                                                            100.0
QIV 2006      27.4           41.3      36.1            56.9      63.5      Growth rates compared to the cor-
                                                                            100.0
2006         112.6           34.0     218.2            66.0     330.8      responding period of the previous
                                                                            100.0
Source: the Center for Coordination and Control of the Stock Market        year were 40.6% and 24.3% re-
                                                                           spectively which was result of con-
siderable rise in sales of shares of joint-stock companies (established on a voluntary basis) and state-owned
assets (by holding tender bids and signing direct agreements with investors) correspondingly in the fourth
and the first quarters of 2006.
In 2006, 17 enterprises completed primary distribution of 20.2 million shares worth UZS 2.8 billion on the
organized exchange market. At the same time, the shares of 10 out of 17 joint-stock companies were sold
3.8 times higher then their par values. It attracted additional UZS 520 million. It worth to note that, the vol-
ume of these operations was very insignificant (less than 0.1%) in total capital investments in 2006.

In the structure of the primary OTC market                          Graph 3.2.2 Sales of Shares on the Primary
turnover the percentage of stocks of privatized                             Stock Market (UZS billion)
enterprises grew considerably from 19% in
                                                                                       OTC market       Stock market
2005 to 45% in 2006. This trend resulted from
steps undertaken to strengthen further the role                                           14.9                      20.9
of private sector in the economy.

Investment funds that were established to at-                                                                           91.7
                                                                          9.0                    73.8
tract available funds of population and invest                                                             6.4
them into stock, remained inactive in purchas-
                                                                                27.8                             20.9
ing shares of joint-stock companies. This can
be explained by reduction in assets of invest-
                                                                      QIV 2005           2005           QIV 2006               2006
ment funds. As of 31 December 2006 total
value of their assets accounted for UZS 3.6                Source: the Center for Coordination and Control of the Stock Market


 UZBEKISTAN ECONOMY                                                                                                                   35
                                               FINANCIAL MARKETS


billion. Compared with the beginning of 2005 this indicator shrank by 25 %. If on results of 2004 transactions
effected by these institutions made 2.9% in the total exchange turnover, on results of 2006 this indicator
went down to 0.9% (1.8% in 2005). At the same time starting from 2005 investment funds turned into merely
sellers of stocks. Main reasons for this is restructuring of their assets (sale of low-profitable assets) as well
as transformation of these financial institutions into regular joint-stock companies where stocks are sold to
fund other directions.

Large scale sales of shares of joint-stock com-            Graph 3.2.3. Sales of Shares on the Secondary
panies to legal entities and individuals including                   Stock Market (UZS billion)
that of state-owned companies helped to in-
                                                                      Non-organized market    Organized market
crease the turnover of secondary stock market.           225
In 2006, sales of shares on the secondary mar-           200
ket amounted to UZS 218.2 billion, including             175
                                                                                                     115.5
UZS 36.1 billion in the fourth quarter (Table            150
3.2.1.). Growth rates compared to the corre-             125
sponding periods of the previous year were 4.1           100
and 3.7 times respectively.                               75                    26.3                 102.7
                                                          50                                  26.1
Sales of shares on the organized secondary                25     6.9 3.0             27.5           10.0
market grew 4.4 times or by UZS 89.2 billion.              0
On the non-organized secondary market sales                  QIV 2005         2005         QIV 2006          2006
of shares grew 3.7 times or by 75.2 billion        Source: the Center for Coordination and Control of the Stock Market
Soum (Graph 3.2.3.) Excess of the share of the
organized secondary market (52.9%) over non-organized market (47.1%) on results of 2006 compared to the
corresponding indicators of the previous year (48.8% and 51.2% respectively) is worth to note. The percent-
age of the secondary market in total sales of shares on the stock market of the country on results of 2006
accounted for 66% of total sales of shares (37.8% on results of the previous year).

In the regional context, most active on the secondary market were issuers located in the city of Tashkent
(60% of total sales), Tashkent region (17%) and Fergana region (8%). In the sectoral context the highest
transferability on the secondary market calculated as ratio of sales on the secondary market to the total au-
thorized fund was registered on shares of enterprises “Uzqurilishmateriallari”(7.8), “Uzbekturizm” (3.4), “Da-
varkhtektqurilish” (2.6). In general on enterprises of all sectors this transferability ratio accounted for 7.28%.

Active sales of shares of enterprises for hard currency continued on the secondary market. Over 2006, in-
vestors signed 964 stock-exchange deals on the secondary market with 27.8 million shares of 79 issuers
amounting to USD 61.6 million. Analysis of shares actively traded on the stock exchange shows that in 2006
enterprises producing construction materials (24.1% of total market turnover), consumer goods (10.4%) as
well as services (15.7%) were in high demand. Similar situation could be observed in 2005 too. However it is
necessary to emphasize several important aspects. Firstly as noted above total market turnover in the previ-
ous year was much lower. Maintaining leading positions of these three sectors (more than 50% of market), in
2006, indicates on their considerable influence on the stock market. Secondly, large trades in the services
sector were represented not only by bank shares but by tourist industry and communication companies as
well. Considerable percentage of turnover of shares of non-natural resources based sectors of the economy
proves greater impact of sectors with higher added value on development of stock market. This no doubt is a
positive trend to develop the national capital market.

The market of other types of securities – corporate bonds issued since 1999 by Uzbek companies with the
aim of attracting additional investment – was characterized by a decrease in business activity. In 2006, sales
of corporate bonds amounted to UZS 11.3 billion which is twice or by UZS 12.6 billion less than in the corre-
sponding period of the previous year. At the same time the initial placement of corporate bonds decreased 5
times and amounted to UZS 2.3 billion. While the volume of their circulation on the secondary market de-
creased 1.3 times and amounted to UZS 9.0 billion. The decrease in the volume of circulation of this type of
securities was due to the maturity of the large portion of earlier issued bonds by the beginning of 2007 with a
simultaneous decrease in their issue. In 2005, 22 issues of bonds amounting to UZS 11.5 billion were regis-
tered, in 2006 only 1 issue worth UZS 0.12 billion was registered.

Lowered corporate bond issuance can be explained by tight regulative requirements of Uzbekistan. In accor-
dance with the Resolution of the President of the Republic of Uzbekistan (27.09.2006) No PP–475 “On
Measures to Develop Further the Stock Market”, bond issuance procedures where tightened. According to
this resolution, only open joint stock companies with were allowed to issue corporate bonds. Additionally,
issuer’s financial solvency should be sound and sustainable. All issuers should obtain credit rating.


36                                                                                           UZBEKISTAN ECONOMY
                                                                FINANCIAL MARKETS


                   Graph 3.2.4. Ratio of the Number of Joint-Stock Companies to Total Issue
                                          Number of joint-stock companies                      Total issue (billion Soum)
   2 250       2 200                                                                                                          2 996,4     3100
                                 2 174                                                                            2 986,7
   2 200                                                                           2 910,7           2 920,5                              3000
                                                   2 143
   2 150                                                             2 114                                                                2900
   2 100                                                                               2 078                                              2800
                                                                                                      2 058
                                                                             2 787,3                                 2035
   2 050                                                   2 742,9                                                              2017      2700
                                         2 671,2
   2 000               2 628,9                                                                                                            2600
   1 950                                                                                                                                  2500
   1 900                                                                                                                                  2400
              QI 2005        QI-II 2005       9 months               2005 г        QI 2006          QI-II 2006     9 months    2 006,00
                                                2005                                                                 2006

Source: the Center for Coordination and Control of the Stock Market

The basis of stock market operation is enterprises mainly larger ones established in a form of joint-stock
companies. In 2006, the trend showed up of quality changes among issues of stocks. This expressed on one
hand in consolidation of joint-stock companies (while the number of companies decreases authorized funds
of such companies stably grows) and on the other hand in improvement of legislative and regulatory re-
quirements to issuers of corporate bonds.

   Table 3.2.2. Largest Issues of Shares in 2006                                       By the end of 2006, there were 2 017 joint-stock
           Joint-Stock Company               Issue (billion Soum)                      companies on the stock market with the total au-
UZbekneftegaz JSC                                           82.54                      thorized fund of UZS 2996.4 billion (Graph 3.2.4.).
Micnrocreditbank JSC                                        50.00                      In 2006, many joint-stock companies actively in-
Toshkent shakhar elektr tarmoklari korho-
                                                            13.89
                                                                                       creased their authorized funds. This took place
nasi OJSC                                                                              through attracting funds of new investors as well as
Angren issiklik elektr stantsiyasi OJSC                     11.39                      retained earnings of companies. The latter enables
Toshavtobustrans JSC                                         8.40                      recording the increased value of net assets of an
Uzpromstroybank JSC                                          6.60                      enterprise in balance sheets and through this to
Capitalbank JSC                                              5.00                      approximate the book value of assets with their
Aloqabank JSC                                                3.00                      market value. The largest of issues of shares are
Bukhorogips OJSC JV                                          2.31                      represented in Table 3.2.2.
Gallabnk JSCB                                                2.00
ChTZ OJSC JV                                                 1.69                      Commercial banks were the most active among
Ipotekabank JSC                                              1.65                      large issuers. Over 2006, 10 banks issued shares
Uktambank JSC                                                1.20                      amounting to UZS 72.7 billion which proves that
Samarkandbank CJSC                                           1.20                      banking sectors were seeking to increase capitali-
 "Yoshlar” TV and radio channel CJSC                         1.04                      zation. Additionally, the President’s Decree dated
"Samarkand airlines” JV CJSC                                 1.01                      19 December 2006 No UP–3831 and the Resolu-
Ipak Yuli JSCB                                               1.00                      tion of the President dated 15 April 2005 No PP–
Turon bank JSCB                                              1.00                      56) provided further support to banks and other
Source: the Center for Coordination and Control                                        stakeholders.
of the Stock Market

 Table 3.2.3. Dynamics of Valid Licenses of Investment                                         Professional intermediaries of stock mar-
      Institutions, by the End of the Period (units)                                           ket. Over the recent years, the number of
          Type of activity                     2004            2005             2006           professional intermediaries of securities mar-
 Investment intermediary                        109               94               89          kets remains stable, which indicates that the
 Investment company                                 12               12            12          institutional infrastructure of Uzbekistan secu-
 Investment consultant                              26               25            24          rities market has mainly been formed and
 Depository                                         35               36            38          meets its needs at the current stage (Table
 Registrar                                          54               47            47          3.2.3.).
 Investment fund                                    18               17            13
                                                                        At the same time, reduction in the number of
 Mutual fund                                         8                8             5
                                                                        investment intermediaries (brokers) is related
 Managing company                                   59               65            65
                                                                        with changes in license requirements. Ac-
 Nominal holder                             16            15         15 cording to new regulations, only legal institu-
 Organizer of OTC trade                      –             1          2 tions may carry out security exchange activi-
 Clearing chamber                            1             2          2 ties. Table 3.2.3 shows that, the number of
Total                                     338           322         312 clearing and registration institutions of the
Source: the Center for Coordination and Control of the Stock Market     market is rising which proves intensification
of turnover and urge of large players to minimize risks and costs on the stock exchange.

 UZBEKISTAN ECONOMY                                                                                                                              37
                                             FINANCIAL MARKETS



Government Securities Market. The market of internal debt is quite a common phenomenon in the interna-
tional economic practice. Almost all countries of the world, where financial sector has been more or less
formed or in infant stage, they issue government securities. The public debt portfolio is usually the largest
financial portfolio in a country. Sound public debt management portfolio is the catalyst for broader and more
capacious financial market. Experience proves that developed internal markets of debt instruments are able
to supplement bank financing helping countries to overcome financial constraints.

Public debt management implies establishment and maintenance of efficiently operating government securi-
ties market. An efficient government securities market equips a government with a mechanism for funding
expenditures, decreasing the need to apply to the Central Bank to cover budget deficits. In addition, by facili-
tating the development of a capacious and liquid government securities market, public administration can
decrease debt service costs by decreasing the liquidity risk premium, which is present in the yield of gov-
ernment debt instruments. When government securities have a low credit risk, their yield serves as a
benchmark for the quotation of other financial assets, which, in turn, boosts the development of capacious
and liquid money and bond markets.

Experience shows that there is no unified optimal approach to the development of an efficient government
securities market. Governments of many countries realize that a decrease in public means for funding leads
to a decrease in liquidity on the market of government debt instruments. Even if they can prematurely repay
large amounts of their debt, governments of many countries continue to issue certain debt instruments to
create or maintain liquid financial markets. Similarly, the lack of established budget deficits in some countries
does not impede the natural development of the government securities market, which stimulates the devel-
opment of the internal market with fixed returns.

To sum up, we may conclude that in most countries, the formation of a government securities market has
been a cornerstone for the creation of a liquid efficient market for internal debt instruments. On results of
2006, we may stat e that the government securities market demonstrated a positive development trend that
resulted from stable economic situation in Uzbekistan. This was also an outcome of systemic efforts of the
regulatory bodies such as the Ministry of Finance, the Central Bank and the Uzbek Republican Foreign Cur-
rency Exchange.

Over 2006, the Ministry of Finance of Uzbekistan was supporting – in line with the established market situa-
tion - rates of changes of the market portfolio of GSDO/GMDO (short-term treasury bills/medium term treas-
ury bills) in conditions of a favorable macroeconomic situation and high level of banking liquidity. The issuer
continued to increase the market duration (the weighted average maturity of a bond’s cash flows), sus-
pended the issue of GSDO, and issued GMDO in larger batches.

As analysis of the government securities yield curve shows in general for the government securities market
in 2006 fall in return on both short- and medium-term instruments was typical, which is logical in conditions of
a developing economy. Slowing down inflation rates occurring during the whole year affected positively the
changes in return.

Over the reviewed period, the range of yield fluctuations of government bonds on the primary market was 4-
5 p.p. Since the beginning of the year, the yield has been decreasing and in the end of the fourth quarter
dropped to its minimum value (7 % per annum). Thus, on results of 2006, the monetary authorities managed
to maintain the moderate yield on portfolio while keeping the market volume the same and increasing con-
siderably the maturity. The additional factors for stable functioning of the market of government securities
were the high level of banking liquidity and stability of nominal exchange rate of UZS against US dollar. This
increased the interest of market players to investments in UZS.

Changes in the structure of GSDO/GMDO holders over 2006 indicate on insufficient diversification among
investors. Over the year, the share of government bonds in the market portfolios of major banks and non-
banking organizations has increased. Increase of GMDO portfolio with high degree of concentration of some
issues in the portfolios of several conservative investors was registered. The share of non-professional mar-
ket players has remained low. According to normative documents the government securities market is still
open only for residents – legal entities.

Stability on the internal public debt market and insignificant fluctuations in the yield of government bonds dur-
ing 2006 contributed to the prolongation of internal bonded debt and, in turn, paved the way for the issue of
other medium-term instruments. There is a deficiency of instruments on the market because of the demand
for government bonds with different rates of maturity.


38                                                                                     UZBEKISTAN ECONOMY
                                                FINANCIAL MARKETS



On the primary market, the yield curve continued to                Graph 3.2.5. Government Securities in % of
decline, reflecting primarily the lack of sustainable                    GDP, by the End of the Period
inflation expectations in the long-term perspective. In
2006, in virtue of the various multidirectional factors,           2006
there was a slight increase in the liquidity risk and
                                                                   2005
interest risk. Overall, transactions on the internal pub-
lic debt market were remarkable for their low-level                2004
risk. The yield of government securities formed over
                                                                   2003
2006, which was rather low and tending to further
decline, facilitated the maintenance of the cost of                2002
debt on this segment of the Uzbek financial market at
                                                                   2001
historically minimal level.
                                                                   2000
Over 2006, the government securities market had the
following dynamics: the amount of internal public               0           0,2         0,4          0,6     0,8
                                             st
dent in the form of GSDO and GMDO as of 1 Janu-         Source: author’s computations based on official data
ary 2007 grew by 19.7 % compared with the begin-
ning of 2006. In relation to GDP government securities do not exceed 0.5% (Graph 3.2.5) and sales on the
secondary market in the current period increased considerably (by 68 %). Additionally, the par value of the
market portfolio of GSDO-GMDO remained almost unchanged, and 13 issues of GSDO and 20 issues pf
GMDO were retired (Graph 3.2.6).

The policy of the Ministry of Finance was               Graph 3.2.6 Government Securities in Circulation,
distinguished by a decrease in the number                     UZS billion, by the End of the Period
of transactions on additional sale of issues
                                                                                         GKO    GSKO
of government securities on the secondary              70
market in the total volume of attracted                60
funds. Dynamics of transactions with the
                                                       50
government securities in 2006 was also
characterized by increase in volume and                40
number of transactions on the secondary                30
market. This allows drawing conclusion on
                                                       20
the increasing liquidity of the government
securities market.                                     10
                                                        0
There is practically no credit risk in this
                                                                                                                          2006/III
                                                                                                                2006/II
                                                                                                       2006/I
                                                            2000

                                                                    2001

                                                                           2002

                                                                                  2003

                                                                                         2004

                                                                                                2005




                                                                                                                                     2006
segment of the Uzbek financial market be-
cause the issuer — the Government of the
Republic of Uzbekistan – has enjoyed a            Source: Central Bank of Uzbekistan, Ministry of Finance of Uzbekistan
public budget surplus for the last several years. The yield of government bonds was the benchmark for inter-
est rates and market risks for corporate instruments.

Government Short-Term           Graph 3.2.7 Proportion of Volumes of GSDO Owned by Investors and
Treasury       Bonds      (T-          Dealers, as of End of the Period, in UZS million (2000-2006)
bills). The market of gov-
                                60000              Bonds belonging to dealers      Bonds belonging to investors
ernment securities has
existed in Uzbekistan           50000
since 1996 – the first is-      40000
sue of government short-        30000
term bonds. The GSDO
market has become a             20000
foundation for the entire       10000
market of government                 0
securities in Uzbekistan,                2000     2001     2002      2003       2004     2005     2006     2006   2006
including its infrastructure,                                                                              (1st  (total)
legal base and players.                                                                                    half)
The aim of setting up an      Source: Central Bank of Uzbekistan, Ministry of Finance of Uzbekistan
internal public debt mar-
ket represented by GSDO was to terminate the practice of direct (issuing) lending to the Ministry of Finance
by the Central Bank. At the same time, the challenge of establishing size-wise significant government securi-
ties market that would be characterized by high liquidity and low risk was being met.


UZBEKISTAN ECONOMY                                                                                                                          39
                                                                                                                    FINANCIAL MARKETS


Over 2006, the share of government debt obligations in government securities market decreased. Due to
prolongation of internal public debt this segment of the market is steadily declined (Graph 3.2.7). In order to
control money supply, the Central Bank of Uzbekistan used its portfolio of government bonds and personal
bonds of CB.

Over 2006, the government announced only one primary market replacement auction. 219 auctions were
conducted on the secondary market. GSDO in circulation as of 1st January 2007 accounted for just 8.2% of
the similar indicator as of 1st January 2006. The share of the short-term internal debt in the total public debt
continues to decrease, with a simultaneous increase in the share of the medium- term debt. As of 1st January
2007, the share of short term and medium term debt obligations were 3.1 % to 96.9% subsequently. As of 1st
January 2006, these shares were 32% and 68%. Since 1996, the government issued 294 issues of GSDO
with different maturities. Out of 294 issues, 36 issues were with 3 months maturity, 105 issues with 6 months
maturity, 73 issues with 9 months maturity, and 80 issues with 12 months maturity. As of 1st October 2006
there were 2 issues of GSDO in circulation. Of the total volume of placed bonds more than 90% were sold at
auctions. Over 2006, 13 issues of GSDO were retired.

Government Mid-Term Treasury Bonds (Government Medium Term Debt Obligation GMDO)
GMDO in Uzbekistan had been issued since 2004. GMDO are securities issued in non-paper form by the
Ministry of Finance on behalf of the Government, and placed among banks and legal entities– residents.
Proceeds from their placement are accounted to the public budget.

The amount of internal debt in the form of GMDO by 1st January 2007 grew by more than 11 % compared to
1st January 2006. This segment of financial market continues to develop dynamically, and the volume of
GMDO market is 3 times larger than that of GSDO market. Over the analyzed period, 22 auctions for the
placement of GMDO with 546 days (18 months) maturity were conducted (Table 3.2.4). There were 234 sec-
ondary bids on the market. Turnover on the secondary market increased 1.7 times.

There were 60 issues since the start of GMDO market operations in 2004. As of 1st January 2007, the num-
ber of GMDO issues in circulation was 35. Over the 12 months of 2006, 19 issues of GMDO were retired.
The proportion of turnover on the primary and secondary markets as of 1 January of this year was 47% to
53% subsequently. Proceeds from sales of GMDO over 12 months grew by 54%. Proceeds from sales to
dealers accounted for 73%, while the share of investors was 27%.

                                     Graph 3.2.8. Share of Satisfied Bids in the Total Application Submitted
                                                  at the Primary Market of GMDO in 2006, in %

  100
   80
   60
   40
   20
    -
           11.01.2006

                        19.01.2006

                                      01.02.2006

                                                   08.02.2006

                                                                22.02.2006

                                                                             15.03.2006

                                                                                          22.03.2006

                                                                                                       05.04.2006

                                                                                                                    12.04.2006

                                                                                                                                 19.04.2006

                                                                                                                                              03.05.2006

                                                                                                                                                           10.05.2006

                                                                                                                                                                        24.05.2006

                                                                                                                                                                                     07.06.2006

                                                                                                                                                                                                  14.06.2006

                                                                                                                                                                                                               05.07.2006

                                                                                                                                                                                                                            02.08.2006

                                                                                                                                                                                                                                         13.09.2006

                                                                                                                                                                                                                                                      20.09.2006

                                                                                                                                                                                                                                                                   11.10.2006

                                                                                                                                                                                                                                                                                25.10.2006

                                                                                                                                                                                                                                                                                             10.01.2007




Source: Central Bank of Uzbekistan, Ministry of Finance of Uzbekistan

The capacity of the primary market of government securities is an indicator reflecting the number of actually
placed securities on this market. From the government standpoint, it depends on the size of the public
budget deficit and public dent. In accordance with international practice, the share of short-term liabilities in
total internal public debt does not usually exceed 20– 25%. The bulk of the internal debt (up to 80%), as a
rule, is covered by medium-term and long-term bonds. The volumes of primary issue help to regulate the
market. In particular, on developed financial markets the issuer decreases the cost of debt by narrowing the
supply with regard to demand, and this, in turn, creates a favorable environment for a revival in speculative
transactions. An increase in the volume of issues up to the level of demand decreases speculative opportuni-
ties and attractiveness of the market. So far the Ministry of Finance managed to place less than 50 % of the
declared issue of government bonds.(Figure 3.2.4.)

Analysis of the GMDO primary market showed that maximal sales were registered in the third quarter of
2006. Yield over the year decreased from 12 % to 7 % per annum (Figure 3.2.9).

Government bonds play an increasingly major macroeconomic role. Therefore, it is necessary to further de-
velop and enhance national government securities market both from the qualitative and quantitative perspec-
tive. However, the issue of advisability of mass emission of government bonds in the Uzbek market is very

40                                                                                                                                                                                                                                       UZBEKISTAN ECONOMY
                                                                                                                                          FINANCIAL MARKETS


complicated. The policy of the Ministry of Finance aimed at using the capacity of market microstructure to
increase liquidity of public debt market despite that there is no urgent need in additional borrowings.

                                                                                                             Table 3.2.4. Auctions of GMDO in 2006
                                                                                                                                                                                                                               Number of GMDO (units)                                                                  Stated Interest
                                     Number of                                    Maturity,                         Total value of                                               Total sales *,
                 Date                                                                                                                                                                                                                                                                                                  Rate, (%) per
                                    GMDO issue                                     (days)                        issue (UZS million)                                             (UZS million)                                         Stated                                   Sold                                       annum
11.01.2006        25038UMFS              546                  2000           630.64          630 640                                                                                                                                                                       630 640                                               12.50
19.01.2006        25039UMFS              546                  1000              390          788 420                                                                                                                                                                       388 420                                                  13
01.02.2006        25040UMFS              546                  1000              750          750 000                                                                                                                                                                       750 000                                                  12
08.02.2006        25041UMFS              546                  1000              600          600 000                                                                                                                                                                       600 000                                                  11
22.02.2006        25042UMFS              546                  1000              701          701 120                                                                                                                                                                       701 120                                                  10
15.03.2006        25043UMFS              546                  1100              880          880 000                                                                                                                                                                       880 000                                                  10
22.03.2006        25044UMFS              546                  2700            1 465        1 464 615                                                                                                                                                                     1 464 615                                                  10
05.04.2006        25045UMFS              546                  2200           693.45         1660479                                                                                                                                                                        693 449                                               10.00
12.04.2006        25046UMFS              546                  1800          1291.22         1291221                                                                                                                                                                      1 291 221                                               10.00
19.04.2006        25047UMFS              546                  1000           693.45           693449                                                                                                                                                                       693 449                                                9.00
03.05.2006        25048UMFS              546                  1000           554.61           554609                                                                                                                                                                       554 609                                                9.00
10.05.2006        25049UMFS              546                  2100          1712.41         2222894                                                                                                                                                                      1 712 414                                                9.00
24.05.2006        25050UMFS              546                   300           246.00           691402                                                                                                                                                                       234 285                                               12.00
07.06.2006        25051UMFS              546                  2000          1651.86         4053932                                                                                                                                                                      1 648 564                                                8.50
14.06.2006        25052UMFS              546                  3000          1200.12         3907224                                                                                                                                                                      1 200 000                                                8.50
05.07.2006        25053UMFS              546                  1400            1 053        1 612 122                                                                                                                                                                     1 052 570                                                8.50
02.08.2006        25054UMFS              546                  2000            1 149        1 903 672                                                                                                                                                                     1 116 244                                                8.50
13.09.2006        25056UMFS              546                  2100            1 858        2 240 762                                                                                                                                                                     1 828 262                                                7.00
20.09.2006        25057UMFS              546                  1700            1 210        1 590 837                                                                                                                                                                     1 190 837                                                7.00
11.10.2006        25058UMFS              546                  1000              408          791 729                                                                                                                                                                       400 000                                                7.00
25.10.2006        25059UMFS              546                  1150              996        1 209 596                                                                                                                                                                       980 996                                                7.00
22.11.2006        25060UMFS              546                   620              620          620 000                                                                                                                                                                       620 000                                                7.00
* - this indicator is calculated as a product of the volume of sold bonds by minimal price
Source: Ministry of Finance, Central Bank of Uzbekistan

                       Graph 3.2.9. Dynamics of Indicators of the GMDO Primary Market (March 2006 – March 2007)




                                                                                                                                                                                                                                                                                                                                           Return in % per annum
                       2000                                                                                                             Sales, million Soum                                                  Return in %                                                                                                              14
 Sales, million Soum




                                                                                                                                                                                                                                                                                                                                      12
                       1500                                                                                                                                                                                                                                                                                                           10
                                                                                                                                                                                                                                                                                                                                      8
                       1000
                                                                                                                                                                                                                                                                                                                                      6
                       500                                                                                                                                                                                                                                                                                                            4
                                                                                                                                                                                                                                                                                                                                      2
                         0                                                                                                                                                                                                                                                                                                            -
                              11.01.2006

                                           19.01.2006

                                                        01.02.2006

                                                                     08.02.2006

                                                                                   22.02.2006

                                                                                                15.03.2006

                                                                                                              22.03.2006

                                                                                                                           05.04.2006

                                                                                                                                          12.04.2006

                                                                                                                                                       19.04.2006

                                                                                                                                                                    03.05.2006

                                                                                                                                                                                   10.05.2006

                                                                                                                                                                                                24.05.2006

                                                                                                                                                                                                             07.06.2006

                                                                                                                                                                                                                          14.06.2006

                                                                                                                                                                                                                                         05.07.2006

                                                                                                                                                                                                                                                      02.08.2006

                                                                                                                                                                                                                                                                   13.09.2006

                                                                                                                                                                                                                                                                                20.09.2006

                                                                                                                                                                                                                                                                                             11.10.2006

                                                                                                                                                                                                                                                                                                          25.10.2006

                                                                                                                                                                                                                                                                                                                         22.11.2006




                                                                                                                                                              Date of auction

Source: Ministry of Finance, Central Bank of Uzbekistan

In conditions of poor attractiveness of direct investments into production sector, redistribution of funds
through government securities market can be an alternative to direct project finance. Government securities
market should become a channel through which the government will be able to direct resources for the ex-
pansion of investment in the real sector of the economy and secondly, use it as an instrument of non-
inflationary funding of the public budget and adjustment of cash flows. Analysis of the GSDO-GMDO market
indicated that these instruments were not well developed and cannot significantly influence on economic pol-
icy of the country. The sector development is far from its full capacity.
         In future, development of internal debt markets will be determined by solving the following issues:
              • Development of various types of securities on the market of government bonds,
              • Provision of information on directions of using the borrowed funds by monetary authorities to
                  investors,
              • Improved government debt securities’ yields,
              • Provision of government guarantees to investors. (including using full or partial insurance
                  (hedging) of investments.)


  UZBEKISTAN ECONOMY                                                                                                                                                                                                                                                                                                                       41
                                                    FINANCIAL MARKETS



Concluding the analysis of government debt security markets one can say that, government securities’ mar-
ket is needed to stabilize and further develop the financial sector of Uzbekistan. If monetary authorities im-
prove the management of internal debt markets, issue of government bonds may affect positively the macro-
economic situation of the country. It also increases savings of economic entities, develop banking sector,
and adjoining segments of the domestic financial market.

               Annex 3.2.1. Dynamics of Sales of Shares on Securities Market (UZS billion)
           Indicator           2000        2001        2002       2003    2004    IV/2005   2005    IV/2006   2006
   Shares sold on securi-
                                17.1        26.1        41.7       68.7   115.0    46.7     142.4    63.5     330.8
      ties market, total
  Primary market                 6.2        12.2        16.3       47.8    62.0    36.8      88.6    27.4     112.6
   Exchange market               4.6         6.8        10.5       19.7    18.5     9.1      14.9     6.4      20.9
   OTC                           1.6         5.4         5.8       28.1    43.6    27.9      73.8    21.0      91.7
  Secondary market              10.9        13.9        25.4       20.9    53.0     9.8      53.8    36.1     218.2
   Exchange market               0.6         1.1         4.6       12.5    22.8     6.9      26.3    26.2     115.5
   OTC                          10.3        12.8        20.8        8.4    30.2     2.9      27.5     9.9     102.7
  Source: the Center for Coordination and Control of the Stock Market




42                                                                                            UZBEKISTAN ECONOMY
                                FOREIGN EXCHANGE MARKET AND FOREIGN TRADE


4. Foreign Exchange Market and Foreign Trade
4.1. Monetary Policy
In 2006, the Central Bank of Uzbekistan carried out intensive monetary policy and one of the important ob-
jectives of the institution was strengthening the purchasing power of the national currency. In order to sup-
port national currency, the central bank implemented a tight monetary and credit policy and decreased the
impact of monetary factors on inflation. In order to control drastic changes in supply and demand, Central
Bank continuously adjusted gold and hard currency reserves. During 2006 these reserves increased 1.6
times.

Commercial banks were enabled to participate in Inter-bank foreign exchange transactions. These transac-
tions took place at Uzbek Currency Exchange 5 days a week, i.e. every business day. Over the period, 25
authorized commercial banks participated in the inter-bank exchange market. They purchased foreign cur-
rency for their exchange offices and business purposes. The CBU also actively participated in the currency
exchange market. Mainly the central bank’s transactions were connected with Consolidated Stabilization
Fund. Mandatory sale of hard currency revenue from centralized exports and 50% of revenue from decen-
tralized exports to the Central Bank are the key source of foreign exchange supply.

The primary exchange rate at foreign exchange market of Uzbekistan is the CBU exchange rate, which is
established on average-weighted exchange rates of interbank trade sessions at Uzbek Currency Exchange.
This exchange rate is used in accounting, statistical and other reporting and also for calculation of customs
duties in Uzbekistan. US dollar is used as a major reserve currency in establishing the exchange rate of na-
tional currency through direct quotation. The exchange rates of UZS to other foreign currencies were estab-
lished through applying the cross-rates. Commercial banks buy and sell four main currencies – USD, EURO,
GBP and JPY.

Nominal Exchange Rates. In 2006, the nominal exchange rate of UZS against USD depreciated by 5.1% in
comparison with 2005. The foreign currency cash exchange rate decreased by 3.8%.

The depreciation of the nominal exchange rate and foreign currency cash exchange rate indicate positive
expectations of market participants. It also indicates that, market demand for foreign currency was lower than
previous years. (Table 4.1.1 and Graph 4.1.1).

                                Table 4.1.1. UZS/USD Exchange Rate (2003–2006)
                        CBU exchange      Changes in comparison to      Foreign exchange cash   Changes in comparison to
          Period
                        rate (UZS/USD)    the previous period (in %)       rate (UZS/USD)       the previous period (in %)
   2003                         979.39                         26.0                    995.1                          -9.0
   2004                         1058.0                           8.0                  1062.5                           6.8
   2005                         1180.0                         11.5                   1197.6                         12.7
   2006                         1240.0                           5.1                 1242.96                           3.8
   05/I                         1080.0                           2.1                  1083.5                           2.0
   05/II                        1115.0                           3.2                  1118.1                           3.2
   05/III                       1140.0                           2.2                  1155.4                           3.3
   05/IV                        1180.0                           3.5                  1197.6                           3.7
   06/I                         1210.0                           2.5                  1224.1                           2.3
   06/II                        1224.6                           1.2                  1229.5                           0.4
   06/III                      1229.79                         0.42                  1238.84                         0.76
   06/IV                        1240.0                         0.83                  1242.96                         0.33
   Source: Bankovskie Vedomosti newspaper, the author’s calculations.

The unidirectional dynamics of UZS against other reserve currencies was characterized by the following
changes: according to the results of 2006, UZS devalued against GBP by 18.7%, against EUR – by 16.5%,
and against JPY– by 2.9%. Devaluation of UZS, as well as its higher volatility with regard to these currencies
is linked with international financial market condition and weakening of USD in 2006.

Fundamental economic preconditions of USD weakening included imbalanced foreign trade of the USA,
transition of Federal Reserve System from the middle of 2006 to support of short-term interest rates in the
USA at the same level, growth of interest rates in EURO zone, UK, Japan and other countries. Furthermore
flexible foreign exchange policy of China, from the middle of 2006, significantly impacted USD. Thus, during
2006, USD depreciated 11.5% against EUR. Similarly, depreciation rate against GBP was 12.5%, and
against JPY 0.8%.


UZBEKISTAN ECONOMY                                                                                                           43
                                                                                        FOREIGN EXCHANGE MARKET AND FOREIGN TRADE



                                                                                            Graph 4.1.1. Dynamics of Nominal Rate of UZS
                                                             Sum/USD                                                    Sum/EUR                                                         Sum/JPY                                                             Sum/GBP
      118
      114
      110
      106
      102
        98
        94
                 1/4/2005

                            2/1/2005

                                        3/1/2005

                                                     3/29/2005

                                                                    4/26/2005

                                                                                5/24/2005

                                                                                            6/21/2005
                                                                                                          7/19/2005

                                                                                                                        8/16/2005

                                                                                                                                     9/13/2005

                                                                                                                                                   10/11/2005

                                                                                                                                                                  11/8/2005

                                                                                                                                                                                12/6/2005



                                                                                                                                                                                                                1/31/2006

                                                                                                                                                                                                                                2/28/2006

                                                                                                                                                                                                                                                3/28/2006

                                                                                                                                                                                                                                                               4/25/2006

                                                                                                                                                                                                                                                                            5/23/2006

                                                                                                                                                                                                                                                                                         6/20/2006

                                                                                                                                                                                                                                                                                                         7/11/2006
                                                                                                                                                                                                                                                                                                                        8/8/2006

                                                                                                                                                                                                                                                                                                                                      9/5/2006

                                                                                                                                                                                                                                                                                                                                                   10/3/2006

                                                                                                                                                                                                                                                                                                                                                                  10/31/2006

                                                                                                                                                                                                                                                                                                                                                                                   11/28/2006

                                                                                                                                                                                                                                                                                                                                                                                                 12/26/2006
                                                                                                                                                                                               1/3/2006 г.
   Source: Bankovskie Vedomosti newspaper, the author’s calculations.

Real Exchange Rates. During 2006, inflation level slightly increased (if CPI is assumed as inflation index --
6.8% in 2006) the UZS devaluation rates (5.1% in 2006). As a result, real exchange rate of UZS slightly
strengthened in 2006. The main factors that affected the UZS rate in actual terms included the decrease in
inflation rates in Uzbekistan and the continued strengthening of EUR and RUR in the world financial market.
At the same time, stable nominal exchange rates towards major trade partners coupled with low inflation
level supported competitiveness.

                                                                                               Graph 4.1.2. Real Exchange Rate of UZS:
                                                                                            (UZS/USD) and (UZS/EUR), December 1994=100
  450                                                                                                                               Sum/USD                                                          Sum/RUR                                                               Sum/EUR
  400
  350
  300
  250
  200
  150
  100
   50
    0
                   May-95




                                                                                                                                                                              May-00




                                                                                                                                                                                                                                                                                                                                                       May-05
                                         Mar-96




                                                                                            Nov-97




                                                                                                                                                                                                             Mar-01




                                                                                                                                                                                                                                                                       Nov-02




                                                                                                                                                                                                                                                                                                                                                                                        Mar-06
        Dec-94


                              Oct-95


                                                      Aug-96
                                                                     Jan-97
                                                                                Jun-97


                                                                                                        Apr-98
                                                                                                                       Sep-98
                                                                                                                                    Feb-99
                                                                                                                                                 Jul-99
                                                                                                                                                                Dec-99


                                                                                                                                                                                            Oct-00


                                                                                                                                                                                                                            Aug-01
                                                                                                                                                                                                                                            Jan-02
                                                                                                                                                                                                                                                        Jun-02


                                                                                                                                                                                                                                                                                   Apr-03
                                                                                                                                                                                                                                                                                                Sep-03
                                                                                                                                                                                                                                                                                                               Feb-04
                                                                                                                                                                                                                                                                                                                             Jul-04
                                                                                                                                                                                                                                                                                                                                          Dec-04


                                                                                                                                                                                                                                                                                                                                                                        Oct-05



Source: International Financial Statistics (IFS), IMF; Bankovskie vedomosti, the authors’ calculations.                                                                                                                                                                                                                                                                                             Aug-06

Real Effective Exchange Rate. In 2006, the real effective exchange rate of UZS strengthened by approxi-
mately 1%. The final dynamics of the actual effective exchange rate of UZS reflected tendencies in the dy-
namics of the UZS/USD exchange rate in the domestic market as well as the currency market situation in the
main trading partners of Uzbekistan. The dynamics of differences in prices indices between Uzbekistan and
the rest of the world also became an important factor, which influenced the dynamics of the actual effective
exchange rate of UZS.

                                         Graph 4.1.3. Real Effective Exchange Rate of UZS (December 1994 =100)
      350

      280

      210

      140

        70

           0
                            May-95




                                                                                                                                                                               May-00




                                                                                                                                                                                                                                                                                                                                                 May-05
                                                   Mar-96




                                                                                                 Nov-97




                                                                                                                                                                                                             Mar-01




                                                                                                                                                                                                                                                                   Nov-02




                                                                                                                                                                                                                                                                                                                                                                               Mar-06
                 Dec-94


                                       Oct-95


                                                                 Aug-96
                                                                            Jan-97
                                                                                       Jun-97


                                                                                                              Apr-98
                                                                                                                           Sep-98
                                                                                                                                      Feb-99
                                                                                                                                                   Jul-99
                                                                                                                                                                 Dec-99


                                                                                                                                                                                            Oct-00


                                                                                                                                                                                                                            Aug-01
                                                                                                                                                                                                                                       Jan-02
                                                                                                                                                                                                                                                      Jun-02


                                                                                                                                                                                                                                                                                Apr-03
                                                                                                                                                                                                                                                                                            Sep-03
                                                                                                                                                                                                                                                                                                         Feb-04
                                                                                                                                                                                                                                                                                                                     Jul-04
                                                                                                                                                                                                                                                                                                                                   Dec-04


                                                                                                                                                                                                                                                                                                                                                               Oct-05


                                                                                                                                                                                                                                                                                                                                                                                           Aug-06




   Source: International Financial Statistics (IFS), IMF; Bankovskie vedomosti, the authors’ calculations.


 44                                                                                                                                                                                                                                                                                                                  UZBEKISTAN ECONOMY
                                 FOREIGN EXCHANGE MARKET AND FOREIGN TRADE



The strengthening of the real effective exchange rate of UZS had a positive impact on the containment of
inflation expectations and enabled to achieve targeted macroeconomic indicators, namely inflation rate of
6.8% and create favorable conditions for economic growth.

4.2. Trade Balance, Export and Import
In 2006, various measures in the sphere of foreign trade was aimed at provision of the well-balanced com-
modity turnover. Additionally these measures addressed issues such as development of export potential of
the country, provision of the export possibilities to the industrial sectors and regions, improvement of the
range and geography of the exports, and optimization of the import structure. Import structure was optimized
by using tariff regulations.

Result of these measures showed that, the foreign trade turnover exceeded USD 10.78 billion or made up
13.5% compared to 2005. The balance of foreign trade amounted to nearly USD 2 billion, which is 1.5 times
more compared to 2005 (Table 4.2.1, Annex 4.2.1). Trade with Non-CIS countries accounted for 56.8% of
active balance of trade turnover or USD 1.28 billion. The positive balance with CIS countries compared to
2005 increased 17 times and amounted to USD 714.7 million.

         Table 4.2.1. Main Indicators of Foreign Economic Activity in Uzbekistan (USD million)
                                                                                                Change in volume, %
                  Indicator                        2004         2005             2006        2005 in %      2006 in %
                                                                                              to 2004        to 2005.
  Foreign trade turnover                              8669.0      9500.1         10785.7         109.6           113.5
    CIS countries                                     3002.6      3403.4          4656.3         113.3           136.8
    Non-CIS countries                                 5666.4      6096.7          6129.4         107.6           100.5
  Exports                                             4853.0      5408.8          6389.8         111.5           118.1
    CIS countries                                     1528.4      1722.6          2685.5         112.7           155.9
    Non-CIS countries                                 3324.6      3686.2          3704.3         110.9           100.5
  Imports                                             3816.0      4091.3          4395.9         107.2           107.4
    CIS countries                                     1474.2      1680.8          1970.8         114.0           117.3
    Non-CIS countries                                 2341.8      2410.5          2425.1         102.9           100.6
  Trade balance                                       1037.0      1317.5          1993.9         127.0           151.3
    CIS countries                                       54.2        41.8           714.7          77.1        17 times
    Non-CIS countries                                  982.8      1275.7          1279.2         129.8           100.3
  Foreign trade turnover structure, %                  100.0       100.0           100.0             Х               Х
    CIS countries                                       34.6        35.8            43.2             Х               Х
    Non-CIS countries                                   65.4        64.2            56.8             х               х
  Source: The State Statistics Committee of Uzbekistan

The volume of exports exceeded the predictive parameters and reached the highest level during the years of
the independence at the amount of USD 6.4 billion, which accounted for 18% annual growth. Exports of
commodities increased by 34.3% and services – by 17.3% (compared to 2005). The volume of imports has
not exceeded the predictive parameters and amounted to USD 4.4 billion.

The structures of exports and imports dis-             Table 4.2.2. Commodity Structure of Exports (%)
play the results of the structural transforma-                                  Share in total vol-
                                                                                                     Change in volume, %
tion of the country’s economy; increase in                                     ume of exports, %
                                                      Commodity groups
                                                                                                    2005 in % 2006 in %
industrial production and in agriculture, de-                                   2005        2005.
                                                                                                      to 2004     to 2005
velopment of the service sector, small-scale     Cotton fiber                   19.1         17.2       117.9       106.2
business and entrepreneurship, further im-       Chemical products, plas-
                                                                                 5.3           5.6      123.9       124.8
provement and liberalization of the foreign      tics and plastic goods
economic activity. The growth of exports is      Non-ferrous and ferrous
                                                                                 9.2         12.8       119.5       164.2
linked with both increase in the world market metals
                                                 Machinery and equipment         8.4         10.1       126.6       142.6
prices on raw materials being traditional ex-
                                                 Foodstuffs                      3.8           7.9      110.3       245.0
port commodities of the country (energy car-
                                                 Energy carriers                11.5         13.1       103.6       134.7
riers, cotton fiber, non-ferrous and precious
metals), as well as to the increase in ex-       Services                       12.2         12.1       114.9       117.5
ports levels and expansion of the list of        Others                         30.5         21.1       102.5        81.9
commodities with high value added. The             Total                       100.0        100.0       111.5       118.1
exports of commodities is characterized by       Source: The State Statistics Committee of Uzbekistan
the increase in the export of energy carriers and the products of their processing, non-ferrous metals and the
goods made of these metals and cotton fiber (Table 4.2.2, Annex 4.2.2).

UZBEKISTAN ECONOMY                                                                                                       45
                             FOREIGN EXCHANGE MARKET AND FOREIGN TRADE


Dynamics of the export commodities with high added value (excluding cotton fiber, energy carriers, uranium,
precious metals and services), was significantly higher than average dynamic of exports. In 2006, export
volume of these products increased 47%. Additionally, the share of high value added goods in total exports
(including services) was 57.3% (versus 48.5 in 2005). The most significant increase occurred in the export
of chemical products and plastics (124.8% compared to 2005), including chemical fibers (294%), mineral
fertilizers (116.5%) plastics and plastic goods (123%), machinery and equipment (142.6%%, including cars
(168.2%), mechanical equipment (137.6%), electrical equipment (136.9%), devices and apparatus (193.8%).

As for the other commodities typical for the industries of the country, an increase was reached in the volume
of exports of silk (48% compared to 2005), goods made of cotton (21.3%), knitted fabric (123%), knitted
clothes (60.6%), textile clothes (28.6%), ceramics (134.9%), glass and glassware (224.5%), furniture
(119.6%), various finished products (320%) and a number of other products.

An increase in the volume of exports of the oilseeds (134.5%), fats and vegetable oils (36.0), fresh fruit and
vegetables (334%) and beverages (32.1%) took place in the category of foodstuffs

The major producers of the export oriented products are the joint-stock company of open type “Almalyk Min-
ing and Smelting Factory” (GMK), enterprises of the associations “Uzeltekhsanoat”, AC “Uzautosanoat”,
“Navoi Mining and Smelting Factory” (GMK), APА “Uzmetkombinat”, SAK “UZkimyosanoat” and others.

In 2006, the volume of imports made up               Table 4.2.3. Commodity Structure of Imports (%)
USD 4395.2 million or 7.4% annual                                                 Share in total
growth. The annual growth of goods’                                               volume of im-      Change in volume, %
                                                    Commodity groups                 ports, %
import was 8.9% and total amount was                                                                 2005 in %   2006 in %
USD 3993.6 million. Imports of services                                          2005      2006
                                                                                                      to 2004     to 2005
increased 8.9% (-5.5% in 2005) total          Foodstuffs                           7.0       8.1        110.1       124.4
amount was equal to USD 401.5 million.        Chemical products, plastics and
                                                                                  13.7      15.0       116.9       117.9
The commodity structure of imports re-        plastic goods
mained mostly at the level of the previ-      Non-ferrous and ferrous metals      10.3      10.4       106.7       108.9
ous years (Table 4.2.3, Annex 4.2.3).         Machinery and equipment             43.3      40.3       101.0       100.0
                                              Energy carriers                      2.5       4.3       127.9       183.1
Machinery and equipment made up               Services                            10.4       9.1       100.0        94.6
40.3% in the total volume of imports          Others                              12.9      12.8       124.0       106.5
(compared to 43.3% in 2005 ), ferrous           Total                           100.0      100.0       107.2       107.4
and non-ferrous metals - 10.4% (10.3%),       Source: The State Statistics Committee of Uzbekistan
chemical products and plastics – 15.0% (13.6%), energy carriers – 4.3% (2.5%), foodstuffs – 8.1% (7.0%)
including consumer goods – 4.8%. The products of the industrial and engineering application have the larg-
est volume in the structure of commodity imports –80.1%.

Imports of the consumer products amounted to USD 795 million, or 7.5% annual growth, mostly due to the
increase of the commodities imported by individuals. Growth of the imports of the industrial and engineering
application surpassed the growth of the imports of consumer application and accounted for 9.3%; the volume
of imports have also increased in the following commodity groups:
– Fuel and energy products- - by 92.9%, here, the most significant increase was provided by raw oil.
– Raw materials for future production – by 12.6%, here, the largest volume of imports was wood and the
wooden products, chemical products, ferrous metals and the goods made of these metals, plastic in the
original forms and goods made of plastic; paper, cardboard and goods made of them; non-ferrous metals
and goods made of them, pharmaceuticals, metal closure materials and other;
– machinery and equipment, OEM components – by 0.2%, a slight increase took place in imports of com-
pressors, liquid and air pumps and their components, transport, special equipping, grain harvesters, cold
rolling mills, spare parts for the electric power plants, transformers, digital panels, programmable controllers
and many other.

In 2006 the growth of the average world prices of commodities such as raw oil and petrochemical products,
plastics and plastic goods, raw sugar, ferrous and non-ferrous metals, and metal co-products had a certain
impact on the increase in volume of imports. The value of food items imports increased by 23.3%. The most
significant growth of imports was observed regarding the following products: raw sugar, tobacco and its sub-
stitutes, fats and vegetable oils, rice, wheat and wheat flour and other products (Annex 4.2.3.).

Increase in imports of consumer goods made up 3.6%; the volumes of motor cars, gas ovens, plates, plastic
film, signaling devices, electronics, refrigerators, air conditioners and their spare parts, pipes, polymer hoses,
plumbing products, ceramic products and other commodities increased most significantly.


46                                                                                            UZBEKISTAN ECONOMY
                                  FOREIGN EXCHANGE MARKET AND FOREIGN TRADE


Imports of certain types of mechanical equipment, computing equipment, optical devices and apparatus,
electric equipment, furniture and a number of other commodities was less as compared to the respective
period of 2005.

Due to increase in local production, the imports of such goods as white sugar, fresh and canned meat and
meat by-products, clothes, goods made of cement, concrete, stone and refractory materials decreased.

Low growth rates of imports of different type of equipment in 2006 (0.2% of the respective period of 2005.)
were linked mostly to the decrease in imports of:
– computer equipment and its components – by USD 30.4 million, which is connected to the expiry as of 1
January 2006 of the preferences envisaged by the Decree of the President for the import of computer
equipment (DP-3080 as of 30.05.2002);
– Textile equipment and spare parts (by USD 9.0 million), which is related mostly to different stages of reali-
zation of the investment projects at the enterprises of “Uzbekengilsanoat”.
Measures on realization of the localization projects and increase in domestic production output of different
types of commodities facilitated the process of import optimization.

Geographic Structure of Foreign Trade. The                                Table 4.2.4. Geographic Structure of
leading trade partners for exports of commodi-                                  Exports and Imports (%)
ties (without service) were the following coun-                                                   Share in total volume, %
tries: China, Iran, Turkey, Afghanistan, UK,                         Countries                 Exports                   Imports
Singapore, USA, France, UAE, South Korea,                                                 2005         2006        2005        2006
                                                              Total                       100.0        100.0      100.0         100.0
Germany, as for CIS countries – Russia,
                                                              CIS countries                 31.8        42.0        41.1         44.8
Ukraine and Kazakhstan (Table 4.2.4, Annex
                                                               Kazakhstan                    4.6         4.8         6.6          9.4
4.2.4).                                                        Russia                       19.0        26.0        25.3         26.5
                                                               Tajikistan                    2.5         2.7         0.5          0.4
The major importing countries in 2006 were as                  Ukraine                       1.6         5.7         6.0          5.8
for CIS countries – Russia (average weight –                   Other countries               4.2         2.9         2.7          2.7
59.2%), Kazakhstan (21%), Ukraine (12.9%);                    Non-CIS countries             68.2        58.0        58.9         55.2
among Non-CIS countries – South Korea (av-                     Afghanistan                   3.2         2.5         0.0          0.0
erage weight – 23.4%), China (14.1%), Ger-                     UK                            6.2         2.9         2.3          1.6
many (10.2%), Turkey (6.2%), USA (5.2%)                        Germany                       1.6         1.2         5.9          5.6
(Annex 4.2.5).                                                 India                         0.5         0.2         0.9          1.1
                                                               Iran                          8.0         9.7         0.7          0.9
The largest positive balance in the exchange of                South Korea                   1.0         0.7        12.5         12.9
commodities was formed with Russia, Iran,                      China                         4.2         5.6         6.3          7.8
                                                               UAE                           0.7         1.2         1.9          0.9
UK, Tajikistan, Ukraine; the negative balance -
                                                               Singapore                     1.3         1.6         0.1          0.2
with Kazakhstan, Germany and South Korea.                      USA                           2.0         1.9         3.7          2.9
                                                               Turkey                        6.4         9.0         4.3          3.4
4.3. Enterprises with Foreign                                  France                        1.6         1.4         1.1          1.0
Investments                                                    Switzerland                   2.6         0.5         0.8          0.8
                                                               Japan                         0.6         0.4         1.3          1.0
Foreign trade turnover of enterprises with                     Other countries              28.3        19.2        17.0         14.8
foreign investment (EFIs) in 2006 amounted to                 Source: The State Statistics Committee of Uzbekistan * the author’s
                                                              computations based on data from the State Statistics Committee of
USD 2973.8 million or 23.1% annual groth.                     Uzbekistan
The share of EFI in foreign trade turnover of
Uzbekistan increased from 25.4% in 2005 to 27.6% in 2006. Exports of EFIs reached USD 1133.5 million or
37.7% annual growth. Share of exports of EFIs in the total exports also increased from 15.2% in 2005 to
17.7% in 2006. (Table 4.3.1).

                            Table 4.3.1 Key Indicators of EFIs Operations in Uzbekistan
                                                                                                         Growth rates, %
                                                                       Unit         2006
                                                                                              2005 in % of 2004 2006 in % of 2005
 Number of operating enterprises with foreign investments (at the
                                                                       units        2102.0                     х                    х
 end of period)
 Foreign trade turnover                                             USD million     2973.9                124.9                123.1
  Exports                                                           USD million     1133.5                104.8                137.7
  Imports                                                           USD million     1840.3                136.7                115.5
 Share of EFIs in the total trade turnover of the republic             %              27.6                    х                    х
 Share of EFIs’ exports in the total volume of exports of the
                                                                        %             17.7                     х                    х
 Republic
 Share of EFIs’ imports in the total volume of imports of the
                                                                        %             41.9                     х                    х
 Republic
 Ratio of exports to imports                                        coefficient       61.6                     х                    х
Source: State Statistics Committee of Uzbekistan


 UZBEKISTAN ECONOMY                                                                                                               47
                                  FOREIGN EXCHANGE MARKET AND FOREIGN TRADE


Exports of industrial output of EFIs increased in 2006. Likewise, output of fuel sector in 2006 increased 2.5
times to 2005, mechanical engineering - 2 times, pharmaceutical and medicines sector - 3.7 times ,
construction - 1.7 times and so forth.

                    Table 4.3.4. Growth Rates and Commodity Structure of Imports of EFIs
                                                   Growth rates, %                        Share in total volume of exports, %
                                      2005 in % of 2004       2006 in % of 2005             2005                      2006
Total                                               104.8                   137.7                     100.0                  100.0
  Cotton-fiber                                       47.4                   627.4                        1.0                   4.7
  Chemical products                                 170.6                    48.4                        4.2                   1.5
  Ferrous and non-ferrous metals                    172.6                   323.9                        1.2                   2.9
  Machinery and equipment                           159.7                   164.9                      43.3                   51.8
  Energy carriers                                   122.8                   120.4                        4.5                   4.0
  Foodstuffs                                        103.4                   107.1                        3.5                   2.8
  Services                                          102.3                   150.4                        4.9                   5.4
  Other                                              73.0                   100.0                      37.3                   27.1
Source: State Statistics Committee of Uzbekistan

   Table 4.3.3. Growth Rates and Territorial Structure of                        In 2006, there were an increase in exports
     Exports of Enterprises with Foreign Investments                             of cotton fiber (6.3 times to 2005),
                        Growth rates,
                                          Share of the region in total exports   foodstuffs (1.2 times), ferrous and non-
                                              of EFIs of the republic, %         ferrous metals (3.2 times), machinery and
                      2006 in % to 2005
                                               2005                2006
                                                                                 equipment (1.6 times) and services (1.5
Total                             137.7             100.0               100.0    times) (Table 4.3.2).
 Republic of
                                    69.1                 0.8             0.4
 Karakalpakstan
                                                                                 In territorial context, the EFIs of Andijan
 Andijan                          169.1              41.2               50.6
                                                                                 region accounted for the bulk of exports
 Bukhara reg.                     173.6               1.1                1.4
                                                                                 (50.6% share, 169.1% increase to 2005),
 Jizzakh reg.                     346.2               0.2                0.4
                                                                                 followed by Tashkent region (16.5% and
 Kashkadarya reg.                 257.0               0.8                1.5
                                                                                 163.5% respectively) and Navoi region
 Navoi reg.                         76.2             20.1               11.1
                                                                                 (11.1% and 76% respectively) (Table
 Namangan reg.                    114.9               1.9                1.6     4.3.3).
 Samarkand reg.                   274.3               2.2                4.4
 Surkhandarya reg.                417.9               0.4                1.3     Major goods exported by EFIs included
 Sirdarya reg.                    144.8               0.6                0.7     vehicles, cotton yarn and fabrics, knitted
 Tashkent reg.                      83.0              8.6                5.2     cloth, finished garments and knitted goods,
 Fergana reg.                       76.6              7.8                4.3     construction materials (marble, bricks, ce-
 Khorezm reg.                     252.9               0.3                0.6     ments and respective goods), automobile
 Tashkent City                    163.6              13.9               16.5     services, insurance services, design and
Source: State Statistics Committee of Uzbekistan                                 construction services and so forth.

In 2006, imports of EFIs totaled to USD 1840.3 million or 15.5% annual growth, which also affected negative
balance of EFIs – USD 706.8 million. In the imports structure the share of foodstuffs increased (by 2.2 per-
cent points compared to 2005), and share of chemical production (by 1.7 percent points) and ferrous and
non-ferrous metals (by 1.1 points) increased. At the same time imports of energy carriers and services de-
creased (by 0.1 points and 1.4 points respectively), (Table 4.3.4).

                    Table 4.3.4. Growth Rates and Commodity Structure of Imports of EFIs
                                                  Growth rates, %                          Share in total volume of imports, %
            Goods
                                  2006 in % of 2005    2006 in % of II quarter 2005          2005                     2006
Total                                           136.7                         115.5                  100.0                   100.0
  Foodstuffs                                    112.2                         140.5                     9.8                   12.0
  Chemical products and plas-
                                                 125.8                           130.1                12.8                    14.5
 tic goods
 Ferrous and non-ferrous
                                                 202.2                           130.4                 8.9                    10.0
 metals
 Machinery and equipment                         136.6                           109.1                56.2                    53.1
  Energy carriers                                 94.0                            81.8                 0.4                     0.3
  Services                                       148.1                            82.0                 4.9                     3.5
  Other                                          140.8                           111.8                 6.9                     6.7
Source: State Statistics Committee of Uzbekistan

Due to growth in industrial output of the country the highest increase in imports of EFIs compared to 2005
was recorded in fuel sector (2 times), mechanical engineering (by 13%), communications (11.4%) and agri-

 48                                                                                                  UZBEKISTAN ECONOMY
                                FOREIGN EXCHANGE MARKET AND FOREIGN TRADE


culture (3 times). Taking into account location of industrial facilities, in territorial context Andijan region,
Tashkent city and Kashkadarya region accounted for the greatest shares in the total imports (33.5%, 47.5%
and 5% respectively). Growth in localized production contributed to decrease in imports of EFIs in pulp and
paper industry (96.4% compared to 2005), light industry (88.8%), flour-milling industry (26.7%), printing in-
dustry (85.3%), public utilities sector (84%) and other. Goods produced by EFIs were mainly exported to
Russia (USD 546.7 million), UK (USD 128.2 million), Turkey (USD 65 million), overall to 130 countries.

              Table 4.3.5. Foreign Trade Turnover of EFIs (CIS and other Foreign Countries)
                                            Volume, USD million        Share in total volume, %     Growth rates, 2006
                                           2005             2006         2005              2006        in % to 2005
    Foreign trade turnover                   2416.1           2973.9        100.0           100.0              123.1
      Countries of CIS                        762.5           1168.6         31.6            39.3              153.3
      Other foreign countries                1653.6           1805.2         68.4            60.7              109.2
    Exports                                   823.1           1133.5        100.0           100.0              137.7
      Countries of CIS                        436.0            707.3         53.0            62.4              162.2
      Other foreign countries                 387.1            426.2         47.0            37.6              110.1
    Imports                                  1592.9           1840.3        100.0           100.0              115.5
      Countries of CIS                        326.5            461.3         20.5            25.1              141.3
      Other foreign countries                1266.5           1379.0         79.5            74.9              108.9
    Trade Balance                            -769.8           -706.8             х              х                  х
      Countries of CIS                        109.5            245.9             х              х                  х
      Other foreign countries                -879.3           -952.8             х              х                  х
    Source: State Statistics Committee of Uzbekistan

Share of EFIs' imports from non-CIS foreign countries was 74.9% of the total imports of EFIs (Table 4.3.5).
Major importing countries included South Korea, Russia, Brazil, UK and others.




UZBEKISTAN ECONOMY                                                                                                       49
                                                           FOREIGN EXCHANGE MARKET AND FOREIGN TRADE




                                                                        Annex 4.2.1. Trade Balance (USD million)
                              Period                                               Exports                                                                                     Imports                                       Trade balance
                2000                                                                                                 3264.7                                                               2947.4                                                     317.3
                2001                                                                                                 3170.4                                                               3136.9                                                       33.5
                2002                                                                                                 2988.4                                                               2712.0                                                     276.4
                2003                                                                                                 3725.0                                                               2964.2                                                     760.8
                2004                                                                                                 4853.0                                                               3816.0                                                    1037.0
                2005                                                                                                 5408.8                                                               4091.3                                                    1317.5
                2006                                 6389.8                                                                                                                               4395.9                                                    1993.9
                Source: The State Statistics Committee of Uzbekistan



                                                          Annex 4.2.2. Commodity Structure of Exports (%)




                                                                                                                                                     Non-ferrous and ferrous
                                                                          Chem. products, plas-




                                                                                                                                                                                      Machinery and equip-
                                                                          tics and plastic goods




                                                                                                                                                                                                                                                                    Total (mill. USD)
                                                                                                                           Energy carriers




                                                                                                                                                                                                                                      Other goods
                                Cotton fiber




                                                   Foodstuffs




                                                                                                                                                                                                                                                      Total (%)
                                                                                                                                                                                                                  Services
                                                                                                                                                             metals
       Period




                                                                                                                                                                                             ment
2000                                27.5           5.4                                 2.9                            10.3                                     6.6                              3.4              13.7                 30.2          100.0         3264.7
2001                                22.0           3.9                                 2.7                            10.2                                     7.0                              3.9              14.6                 35.7          100.0         3170.4
2002                                22.4           3.5                                 3.0                                 8.1                                 6.4                              3.9              15.9                 36.8          100.0         2988.4
2003                                19.8           2.7                                 3.1                                 9.8                                 6.4                              5.9              14.4                 37.9          100.0         3725.0
2004                                18.1           3.8                                 4.7                            12.4                                     8.6                              7.4              11.8                 33.2          100.0         4853.0
2005                                19.1           3.8                                 5.3                            11.5                                     9.2                              8.4              12.2                 30.5          100.0         5408.8
2006               17.2        7.9         5.6     13.1                                                                                                   12.8                             10.1                  12.1                 21.1          100.0         6389.8
Source: The State Statistics Committee of Uzbekistan



                                                           Annex 4.2.3. Commodity Structure of Imports (%)
                                               Chem. products, plas-




                                                                                                                                                                                   Machinery and equip-
                                               tics and plastic goods




                                                                                                                                             Non-ferrous and fer-




                                                                                                                                                                                                                                                                      Total (mill. USD)
                                                                                                   Energy carriers




                                                                                                                                                                                                                               Other goods
                                                                                                                                                rous metals
                       Foodstuffs




                                                                                                                                                                                                                                                     Total (%)
                                                                                                                                                                                                             Services
     Period




                                                                                                                                                                                          ment




2000                12.3                                     13.6                                                    3.8                                  8.6                           35.4                  8.5                17.8               100.0         2947.4
2001                10.8                                     12.7                                                    1.9                             10.9                               41.2                 10.3                12.2               100.0         3136.9
2002                12.5                                     15.1                                                    1.3                                  8.0                           41.4                 10.6                11.1               100.0         2712.0
2003                     9.9                                 12.8                                                    2.7                                  7.9                           44.4                 10.2                12.1               100.0         2964.2
2004                     6.8                                 12.5                                                    2.1                             10.3                               46.0                 11.1                11.2               100.0         3816.0
2005                     7.0                                 13.6                                                    2.5                             10.3                               43.3                 10.4                12.9               100.0         4091.3
2006             8.1            15.0             4.3                                                                                                 10.4                               40.3                  9.1                12.8               100.0         4395.9
Source: The State Statistics Committee of Uzbekistan




50                                                                                                                                                                                                                                           UZBEKISTAN ECONOMY
                                                                                Annex 4.2.4. Geographic Structure of Exports (%)
                Total (mill,                   CIS coun-      Ka-                                       Other       Non-CIS             Bel-                           South    Nether-                            Switzer-     Other
   Period                         Total, (%)                             Russia         Ukraine                                                       UK      Iran                              USA      Turkey
                  USD)                           tries      zakhsta                                   countries     countries           gium                           Korea     lands                              land      countries
2000             3264.7             100.0        35.9          n
                                                              3.1             16.7           4.7        11.4          64.1               1.1          7.2     2.2       3.3       2.6            1.6       3.0       8.3        34.8
2001              3170.4            100.0          34.4         3.7           15.8           4.7           10.2          65.6           1.5           6.3     2.6        4.2         2.4         2.6       2.6       5.6        37.8
2002              2988.4            100.0          27.6         2.7           10.6           5.4           8.9           72.4           2.4           7.7     5.8        2.2         1.5         2.6       3.4       6.3        40.5
2003              3725.0            100.0          26.0         2.7           12.3           3.9           7.1           74.0           1.9           7.5     7.4        1.5         0.4         2.9       3.5       5.4        43.5
2004              4853.0            100.0          31.5         3.8           14.9           2.3           10.5          68.5           1.1           7.9     6.9        1.2         0.5         3.1       4.5       3.1        40.2
2005              5408.8            100.0          31.8         4.6           19.0           1.6           6.6           68.2           0.7           6.2     8.0        1.0         0.7         2.0       6.4       1.6        40.7
2006           6389.8          100.0       42.0      4.8                      26.0           5.7           5.6           58.0           0.4           2.9     9.7        0.7         0.3         1.9       9.0       0.5        32.7
Source: The State Statistics Committee of Uzbekistan

                                                                                Annex 4.2.5. Geographic Structure of Imports (%)
            Total (mill,                   CIS        Kazakh-                                        Other   Non-CIS                           Ger-                   South                                                      Other
 Period                    Total, (%)                                 Russia         Ukraine                                      UK                        China                USA           Turkey     France     Japan
              USD)                       countries     stan                                        countries countries                         many                   Korea                                                    countries
2000         2947.4            100.0       38.2         7.3            15.8            6.1            9.0      61.8               2.0           8.7          2.5       9.8       8.7             3.3       2.9        1.9        22.0
2001          3136.9           100.0        37.2          6.2          19.2            7.1           4.7          62.8            2.5           7.8          2.9       11.1      6.4             3.4       4.0        4.2        20.5
2002          2712.0           100.0        36.9          6.7          22.0            4.5           3.7          63.1            2.7           7.8          4.2       9.5       12.1            3.2       2.1        0.7        20.8
2003          2964.2           100.0        38.3          6.6          23.3            4.6           3.8          61.7            2.6           9.8          5.5       7.9       7.7             4.8       1.6        2.0        19.8
2004          3816.0           100.0        38.6          6.3          24.0            4.5           3.8          61.4            1.8           7.1          7.0       9.2       10.3            4.5       1.2        2.1        18.2
2005          4091.3           100.0        41.1          6.6          25.3            6.0           3.2          58.9            2.3           5.9          6.3       12.5      3.7             4.3       1.1        1.3        21.5
2006        4395.9         100.0      44.8        9.4                  26.5            5.8           3.1          55.2            1.6           5.6          7.8       12.9      2.9             3.4       1.0        1.0        19.0
Source: The State Statistics Committee of Uzbekistan



                                                                        Annex 4.3.1. Commodity Composition of EFIs Exports (%)
                                           Total, USD                  Cotton-                 Food-          Chemical          Energy         Ferrous and non-      Machinery and
                                                           Total %                                                                                                                         Services     Other
                                             million                    fiber                  stuffs         products          carriers        ferrous metals        equipment
                               2000            451.6        100.0          4.8                   7.4               1.5             3.7                     0.3               16.0              3.9      62.4
                               2001            416.9        100.0          2.4                   4.4               2.6             4.7                     0.2               21.1              4.4      60.2
                               2002            442.9        100.0          1.0                   4.1               2.1             2.9                     0.5               16.5              3.8      69.1
                               2003            564.4        100.0          3.3                   4.2               2.3             3.3                     0.8               19.4              4.4      62.3
                               2004            785.2        100.0          2.3                   3.9               2.6             3.6                     0.7               28.4              5.0      53.5
                               2005            823.1        100.0          1.0                   4.5               4.2             3.5                     1.2               43.3              4.9      37.3
                               2006           1133.5        100.0          4.7                   4.0               1.5             2.8                     2.9               51.8              5.4      27.1
                               Source: State Statistics Committee of Uzbekistan
                                                                            Annex 4.3.2. Commodity Composition of EFIs Imports (%)
                                    Total, USD                                                                           Chemical                         Energy             Ferrous and non-                 Machinery and
                                                       Total %        Foodstuffs                                                                                                                                                                Services                           Other
                                       million                                                                           products                         carriers            ferrous metals                   equipment
                     2000                  760.5           100.0           12.9                                               20.5                              0.8                      5.1                          47.4                                  1.1                     12.2
                     2001                  937.2           100.0            8.8                                               13.3                              0.6                      5.9                          62.5                                  1.0                      7.9
                     2002                  704.8           100.0           15.0                                               13.2                              0.6                      4.4                          57.5                                  1.1                      8.2
                     2003                  858.4           100.0           15.1                                               12.4                              0.4                      5.4                          55.4                                  2.8                      8.5
                     2004                1165.7            100.0           12.0                                               13.9                              0.6                      6.0                          56.3                                  4.5                      6.7
                     2005                1592.9            100.0            9.8                                               12.8                              0.4                      8.9                          56.2                                  4.9                      6.9
                     2006                1840.3            100.0           12.0                                               14.5                              0.3                     10.0                          53.1                                  3.5                      6.7
                     Source: State Statistics Committee of Uzbekistan

                                                                                   Annex 4.3.3. Territorial Structure of EFIs Exports (%)




                                                                                                                                                                                                                                                                  Fergana region
                                                                             Bukhara region




                                                                                                                                                                                                                     Sirdarya region
                                                           Andijan region




                                                                                               Jizzakh region




                                                                                                                                                                                               Surkhandarya
                                                                                                                      Kashkadarya




                                                                                                                                                                                                                                                                                                         City of Tash-
                                                                                                                                          Navoi region




                                                                                                                                                                                                                                             Tashkent re-




                                                                                                                                                                                                                                                                                           Khorezm re-
                                            Karakalpak-




                                                                                                                                                                                Samarkand
                                            Republic of




                                                                                                                                                               Namangan
                 Total. mill.




                                  Total %




                                                                                                                         region




                                                                                                                                                                 region




                                                                                                                                                                                  region




                                                                                                                                                                                                  region
                   USD




                                               stan




                                                                                                                                                                                                                                                gion




                                                                                                                                                                                                                                                                                              gion




                                                                                                                                                                                                                                                                                                              kent
 2000           451.6       100.0        0.0              13.3                 0.3             0.1                         0.0            31.9                    4.2               2.8             0.0                    5.0                 14.0                7.2                          0.2      21.0
 2001           416.9       100.0        0.0              18.6                 0.1             0.3                         0.0            29.0                    2.0               2.2             0.0                    1.0                 18.7                7.4                          0.2      20.5
 2002           443.0       100.0        0.2              14.0                 0.4             0.1                         1.6            35.9                    2.2               1.8             0.1                    0.8                 17.4               11.0                          0.4      14.1
 2003           564.4       100.0        0.1              18.4                 2.8             0.2                         2.3            28.3                    2.9               2.4             0.3                    0.8                 15.7               12.7                          0.7      12.4
 2004           785.2       100.0        0.1              26.9                 2.1             0.2                         1.9            28.0                    2.1               2.3             0.3                    0.4                 11.5               10.7                          0.4      13.1
 2005           823.1       100.0        0.8              41.2                 1.1             0.2                         0.8            20.1                    1.9               2.2             0.4                    0.6                  8.6                7.8                          0.3      13.9
 2006          1133.5       100.0        0.4              50.6                 1.4             0.4                         1.5            11.1                    1.6               4.4             1.3                    0.7                  5.2                4.3                          0.6      16.5
 Source: State Statistics Committee of Uzbekistan

                                                                                    Annex 4.3.4. Territorial Structure of EFIs Imports (%)
                Total, USD.




                                                                                                                                                                                   Samarkand
                                            Republic of




                                                                                                                                                                  Namangan




                                                                                                                                                                                                                                                Tashkent




                                                                                                                                                                                                                                                                                                            Tashkent
                                                                                                                                                 Navoi re-




                                                                                                                                                                                                Surkhan-
                                                                                                                         darya re-




                                                                                                                                                                                                darya re-




                                                                                                                                                                                                                                                                                            Khorezm
                                             Karakal-




                                                                                                                                                                                                                                                                  Fergana
                                                                             Bukhara




                                                                                                                                                                                                                      Sirdarya
                                                                                                                         Kashka-
                                             pakstan
                                Total %




                                                          Andijan




                                                                                                     Jizzakh




                                                                                                                                                                                                                                                                                                             City of
                                                          region




                                                                              region




                                                                                                      region




                                                                                                                                                                    region




                                                                                                                                                                                     region




                                                                                                                                                                                                                       region




                                                                                                                                                                                                                                                 region




                                                                                                                                                                                                                                                                   region




                                                                                                                                                                                                                                                                                             region
                                                                                                                           gion



                                                                                                                                                   gion




                                                                                                                                                                                                  gion
                    mill




2000            760.5       100.0         0.3              28.3                          1.0                    1.1                 0.3                  4.6          1.6              4.3              0.3                            0.2         8.4                      1.4                  0.1          48.1
2001            937.2       100.0         0.3              25.3                          1.0                    3.3                 5.1                  6.5          2.2              2.1              0.0                            0.9        10.3                      9.8                  1.0          32.2
2002            704.8       100.0         0.4              27.1                          2.1                    3.8                 0.7                  4.1          2.2              3.9              0.2                            0.3         5.9                      5.7                  3.8          39.8
2003            858.4       100.0         1.1              28.2                          0.8                    0.3                 0.8                  5.3          1.8              3.8              1.0                            0.1         3.8                      4.1                  0.3          48.6
2004           1165.7       100.0         1.4              27.1                          0.8                    0.2                 0.4                  6.9          2.1              2.6              0.3                            1.8         4.7                      1.4                  1.2          49.1
2005           1592.9       100.0         1.0              34.4                          0.3                    0.2                 1.9                  5.1          0.9              2.8              0.0                            0.5         3.5                      1.4                  0.3          47.7
2006           1840.3       100.0         0.3              33.5                          0.4                    0.5                 5.0                  3.8          0.8              3.4              0.1                            0.2         3.4                      0.9                  0.2          47.5
Source: State Statistics Committee of Uzbekistan
                                    INSTITUTIONAL AND MARKET TRANSFORMATIONS


5. Institutional and Market Transformations
5.1. Nationalization and Privatization, Types of Ownership
In 2006, 673 enterprises, production facilities, and social sector organizations were reorganized. During
fourth quarter 299 facilities were reorganized into private companies. (Graph 5.1.1 and Annex 5.1.1), Graph
5.1.1 shows that total number of privatized entities decreased 68.7%.

   Graph 5.1.1. Number of Privatized Enterprises               Reduction in the annual privatization indicator by
                and Facilities (units)                         almost 1/3 can be explained by several reasons.
                                                               First, after completion mass privatization program
  1,000
                                                               in 2003, the number of candidate state companies
    900
                                                               decreased drastically. Second, privatization proc-
    800
                                                               ess of several objects was cancelled. Initially,
    700                    980                                 these objects were included into the Program of
    600
                                                               Denationalization and Privatization of Enterprises
    500                                                673     for 2006-2008, approved by the Resolution of the
    400
                                                               President of the Republic of Uzbekistan dated 10
    300                                                        July 2006 No PP-4075. Thirdly, as it was envisaged
    200                                                        by the Resolution of the President of the Republic
    100       251                        299
                                                               of Uzbekistan dated 26 April 2006 “On Measures
      0                                                        to Improve Activity of the State Property Commit-
           IV 2005        2005         IV 2006        2006     tee of the Republic of Uzbekistan”, considerable
Source: State Property Committee of the Republic of Uzbekistan structural and staff-related changes occurred. This
                                                               caused a temporary slowdown in activities related
to the offering of state-owned facilities and the search for potential investors.

In the sectoral context, the majority of privatized facilities were in education sector (95 units), agriculture and
water industry (78 units), healthcare (58 units), oil and gas industry (50 units). The regional distribution pri-
vatized entities show that privatized facilities were located in Surkhandarya (70 units), Tashkent (63 units),
Samarkand (60 units) and Andijan (50 units) regions as well as in the city of Tashkent (64 units).

          Table 5.1.1. Forms of privatization of State-                        Over 2006, 19 joint-stock companies and 55
                    Owned Facilities (units)                                   limited liability companies, including 15 joint-
                                             Including                         stock companies and 41 limited liability
             Privat-
 Period      ized in          Reorganized into:                                companies in the fourth quarter, were estab-
                                                          Sold entirely to
               total   Joint-stock   Limited liability   private individuals   lished on the basis of privatized state-owned
                       companies       companies                               facilities (Table 5.1.1). The bulk of privatized
IV 2005        251              1                   7                 243      property - 599 units, - was sold entirely into
2005           980              3                 75                  902      private ownership.
IV 2006        299            15                  41                  243
2006           673            19                  55             In order to meet one of the main objectives
                                                                      599
Source: State Property Committee of Uzbekistan                   of current privatization stage – reduction of
                                                                 state participation in statutory funds of eco-
nomic entities to minimally adequate level - state-owned and earlier unplaced packages of shares of 88 joint-
stock companies and stakes in statutory funds of 110 limited liability companies were sold exchange, auction
and tender bids. Compared with the corresponding indicators of the previous year it makes 49.7% and
39.3%, respectively.

Interest of large foreign investors, especially large companies from leading countries of the world, increased
significantly. It implies that investment climate of the country improved and government improved pre-
privatization preparation process considerably.

From the total number of agreements, signed with foreign investors in 2006, 35.8% were signed with the
well-known US companies and more than 20 % - with Russian and EU companies. On decision of State
Tender Commission these companies bought 53% of shares of “Quarts” joint-stock company, 25.4% of
shares of “Uzbekiston Pochtasi” joint-stock companies, 51% of shares of “Uzvneshtrans” state joint-stock
company, 91.9% of stake in statutory fund of “Fargona Suvkurilish” limited liability company, hotel “Chorsu”
in Tashkent city etc. At the same time, companies with non-transparent legal status and financial position,


5 Goals and content of the New Privatization Program were stated in the previous issue of this bulletin (covering January-September
2006)

 UZBEKISTAN ECONOMY                                                                                                               53
                                      INSTITUTIONAL AND MARKET TRANSFORMATIONS


registered off-shore participate at exchange and tender auctions to buy privatized property on a much
smaller scale.

84 loss-making, insolvent production and social facilities were transferred to mainly local investors on a com-
petitive basis at zero redemption value. Furthermore, the total amount of accepted investments liabilities was
UZS 12.6 billion, which 1.6 times exceeded the minimum amount of these liabilities envisaged by tender
terms and condition approved by the State Tender Commission.

 Graph 5.1.2 Privatization Proceeds (UZS billion)                      In 2006, proceeds from the sale and leasing of
                                                                       state-owned assets to special accounts of the
 80                                                                    State Property Committee (in UZS terms) ac-
 70                                                                    counted for UZS 70.5 billion, including UZS 24.5
 60                                                                    billion in the fourth quarter (Graph 5.1.2 and Annex
 50                        80.5                                        5.1.1). Compared with proceeds in the correspond-
 40                                                   70.5
                                                                       ing periods of the previous year, these indicators
 30                                                                    make up respectively 87.6% and 100.8%.
 20
            24.3                           24.5
 10
                                                               At the same time, proceeds in hard currency from
  0
                                                               the sale of state-owned assets to foreign investors
         IV 2005         2005        IV 2006         2006
                                                               in 2006 accounted for 48.7 million US Dollars,
Source: State Property Committee of the Republic of Uzbekistan which is 2.1 times more than similar indicator for
the previous year. When buying 22 state-owned enterprises foreign investors accepted liabilities, to invest in
total USD 43.4 million to develop these enterprises.

Total proceeds from the sale at exchange and off-exchange auctions of shares of privatized enterprises
made up UZS 40.4 billion (57.3%), real estate – UZS 17.4 billion (24.7%), stakes in the statutory funds of
limited liability companies – UZS 1.6 billion (2.3 %), other proceeds – UZS 11.1 billion (15.7%).

Funds received from privatization of state-owned property are partially transferred to various organizations
and enterprises based on special governmental decisions. All proceeds from primary sale of their shares,
less operational expenses, were transferred to enterprises of basic industries (power industry, railway trans-
port etc.). This action helped speedy restructuring of these important sectors of the economy.

Large portion of funds were distributed in accordance the usage norms to:
            • republican and local budgets to fund various program of economic and social development
                 of the country and regions, form market infrastructure institution;
            • the Chamber of Commerce and Industry of Uzbekistan for the purpose of legal support for
                 private entrepreneurs;
            • State Committee on De-Monopolization, Support for Competition and Entrepreneurship
                 (Goskondemonopolizatsiya) to form the Fund for Support to Entrepreneurship and Restruc-
                 turing of Enterprises;
            • State Property Committee of the Republic of Uzbekistan for advertising and other activity to
                 implement government privatization programs.

                                  Table 5.1.2. Distribution of Privatization Proceeds (%)
                          Direction of distribution                    IV 2005       2005        IV 2006       2006
      Republican budget                                                    68.0         41.8         60.7        55.6
      Local budgets                                                        11.8         10.5         10.7        11.3
      Chamber of Commerce and Industry                                      3.4          2.1          1.1         2.1
      State De-Monopolization Committee                                     1.0          0.6          0.9         0.8
      Assigned to economic associations, enterprises and organiza-
                                                                           14.4         41.9         24.1        26.0
      tions in accordance with special governmental decisions
      Other purposes                                                        1.1          3.1          2.5         4.2
       Total                                                              100.0        100.0        100.0       100.0
      Source: State Property Committee of the Republic of Uzbekistan

In 2006, the State Property Committee transferred UZS 73.4 billion of privatization proceeds to the republi-
can and local budgets, various enterprises and organizations, including the undistributed part of proceeds for
the previous year, including UZS 19.1 billion based on special governmental decisions – which made 90.5%
and 54.9% to the corresponding indicators for the previous year, respectively. The percentage of the funds
transferred to enterprises and organizations based on special governmental decisions decreased in the total
amount of distributed proceeds by 15.9 p.p. and accounted for 26.0% (Table 5.1.2).

54                                                                                               UZBEKISTAN ECONOMY
                                    INSTITUTIONAL AND MARKET TRANSFORMATIONS


Due to decrease in the amounts distributed based on special governmental decisions, in 2006, the share of
republican budget of privatization proceeds was increased. In total UZS 40.8 billion, which is UZS 6.9 billion
or 20.4% more than in the previous year, were transferred. As a result the share of the republican budget of
privatization proceeds grew by 12.9 p.p. and reached 55.6% (Table 5.1.2). While local budgets were trans-
ferred UZS 8.3 billion or 11.3% of total proceeds which is almost equal to these indicators for the previous
year.

The remaining privatization proceeds were distributed as follows: the Chamber of Commerce and Industry of
Uzbekistan – UZS 1.5 billion (2.1%); the Fund for Support to Entrepreneurship and Restructuring of Enter-
prises of the State Committee the Republic of Uzbekistan on De-Monopolization, Support for Competition
and Entrepreneurship – UZS0.6 billion (0.8%); other purposes – UZS3.1 billion (4.2%).

5.2. Real Estate Market
The Republican Real Estate Exchange (hereinafter “the RREE”) and its regional branches conducted elec-
tronic exchange bids on various real estate objects. These exchange bids were organized three times a
week. In 2006, sales agreements were signed: on results of exchange bids – UZS for 40.7 billion, off-
exchange bids – for UZS 11.5 billion which made up 78.0% and 22.0% of the annual turnover of the RREE,
respectively.

          Graph 5.2.1. Number of Objects Sold                        Totally 16.1 thousand units of various objects
           trough the RREE (thousand units)                          amounting to UZS 52.2 billion, including 2.5
                                                                     thousand units amounting to UZS 13.1 billion in
          Non-State Owned Facilities      State-Owned Facilities
                                                                     the fourth quarter (apart from stakes in statutory
  20                                                                 funds of LLC-s) were sold at exchange and off-
                          6.6                                        exchange bids. (Graphs 5.2.1 and 5.2.2, Annex
  15                                                                 5.2.1), The number of objects sold made 77.0%
                                                          3.6
                                                                     and 42.4% and on sale proceeds 118.6% and
  10
                                                                     102.3% to the corresponding indicators of the
                         14.3                             12.5
                                                                     previous year.
            1.5
   5
                                           0.2                From the total number of property sold in 2006,
            4.4                                   2.3         22.3% were offered for auctions by the govern-
   0
                                                              ment. In total 3.6 units of state-owned facilities
          IV 2005        2005         IV 2006 2006
                                                              worth UZS 7.5 billion were sold (Graphs 5.2.1
Source: the Republican Real Estate Exchange                   and 5.2.2), which made respectively 54.5% and
52.8% of the corresponding indicators for the previous year. Reduction in these indicators occurred due to
two reasons. First, the government offered less number of privatized facilities for auctions compared with the
previous year. Second, an alternative to the RREE structure selling privatized property – a state unitary en-
terprise "Respublika Mulk Auksioni" under the State Property Committee of the Republic of Uzbekistan was
established in September 2006. A part of privatized facilities was offered to auctions by this enterprise.

   Graph 5.2.2. Proceeds from the Sale of Real                     The trend is being observed of increasing role of
          Estate Objects ( UZS billion)                            the RREE in selling real estate objects offered for
       Non-State-Owned Facilities      State-Owned Faciliites
                                                                   auctions by legal entities and private individuals. In
  55                                                               2006, the share of non-state-owned facilities in the
  50                                                    7.5        total number of property sold through the RREE
  45
  40                                                               grew by 9.2 p.p. and accounted for 77.6% com-
  35                     14.2                                      pared with the previous year. Some types of facili-
  30
  25                                                    44.7       ties sold through the RREE were almost all offered
  20
           4.9           29.8
                                                                   for auctions by private individuals (agriculture –
  15                                      2.9
  10
                                                                   99.6%, construction in progress – 98.9%, trade
   5               7.9                   10.2                      and consumer services – 95.3%).
   0
         IV 2005         2005          IV 2006          2006Proceeds from sale of facilities offered for auctions
Source: the Republican Real Estate Exchange                 by private individuals make 85.6% if of the RREE’s
                                                            turnover, which is 17.9 p.p. more than in the previ-
ous year. In total, 12.5 thousand units of facilities offered for auctions by private individuals were sold for
UZS 44.7 billion (Graphs 5.2.1 and 5.2.2). This made up 87.4% and 150.0% respectively of the previous
year indicators.

In spite of 12.6% decrease in the number of facilities, the sale proceeds increased 1.5 times. This can be
explained by active participation of private individuals of large, expensive facilities, especially agricultural,

UZBEKISTAN ECONOMY                                                                                                   55
                                     INSTITUTIONAL AND MARKET TRANSFORMATIONS


residential and non-residential premises in 2006. If in 2005 the average selling price of an agriculture facility
was UZS 1.4 million, in 2006 it reached 2.9 million UZS, i.e. grew 2.1 times.

In 2006, 5189 units of agricultural objects were sold, which is 36.4% less in the previous year. However, sale
proceeds of these facilities increased by 34.0% and accounted for UZS 15.2 billion. As a result of dispropor-
tional change in indicators concerned the share of agricultural objects decreased in total quantity of property
sold through the RREE by 6.7 p.p. and made 32.3%, and in cost volume– increased by 3.3 p.p. and made
29.1% (Table 5.2.1).

The largest share (43.8%) of the RREE’s turnover was formed by proceeds from sale of residential and non-
residential buildings, other facilities. 4911 units of this type of facilities were sold for UZS 22.9 billion (Annex
5.2.1). The growth rates compared with the previous year were 10.7% and 62.7%, respectively. Leading
growth rates of the sales results from increase in the average unit selling price for this type of facilities by
UZS 1489 thousand or 46.9%.

Proceeds from in progress construction objects increased. 1455 units of objects were sold for UZS 2.3 billion
(Annex 5.2.1.). The growth rates compared with the previous year were 33.8% and 27.7%, respectively. The
share of construction-in-progress facilities in the total quantity of property sold increased by 3.8 p.p., and in
cost volume – by 0.4 p.p. (Table 5.2.1.)

                Table 5.2.1. Structural Composition of Property Sold the RREE (% of the total)
                                                       th                              th
                      Types of Property                4    q. 2006     2005          4 q. 2006         2006
     Construction in progress:
           Quantity                                               4.9          5.2            16.9             9.0
           Amount                                                 3.4          4.1             6.5             4.5
     Objects of trade, consumer services and social
     infrastructure:
           Quantity                                              10.0         9.7             13.8         10.9
           Amount                                                46.8        36.7             28.7         22.1
     Objects of infrastructure
           Quantity                                              49.0        39.0             20.1         32.3
           Amount                                                34.9        25.8             15.3         29.1
     Land plots:
           Quantity                                              19.6        24.9              3.7         17.2
           Amount                                                 1.6         1.4              0.1          0.5
     Residential buildings and non-residential prem-
     ises, other property
           Quantity                                              16.5        21.2             45.5         30.6
           Amount                                                13.3        32.0             49.4         43.8
     Total:
           Quantity                                             100.0       100.0            100.0        100.0
           Amount                                               100.0       100.0            100.0        100.0
     Source: the Republican Real Estate Exchange

In 2006, 1755 units of trade, consumer services, and social infrastructure facilities were sold for UZS 11.5
billion, which is 13.3% and 28.6% respectively less than in the previous year. At the same time the share of
these types of real estate objects in total quantity of property sold through the RREE increased by 1.2 p.p.,
and in cost volume - decreased by 14.6 p.p. (Table 5.2.1).

The sale through the RREE of the right to heritable life tenure of land plots intended for individual housing
construction continued. In total, rights to heritable life tenure of 2757 land plots were sold for UZS 255 mil-
lion, which was less than the previous year’s figures by respectively 47.2% and 58.2% due to offering at auc-
tion of a smaller number of land plots by local authorities. As a result of this and also of the growth in the
sales volume of other property types, the share of land plots in the total quantity of property sold through the
RREE fell by 7.7 p.p., and in the cost volume - by 0.9 p.p.

In addition to types of property listed in Table 5.2.1, stakes in statutory funds of limited liability companies
offered for sale by the government and private individuals were sold though the RREE. In 2006, stakes in
statutory funds of 308 limited liability companies were sold for UZS 2.1 billion, which made to the corre-
sponding indicators for the previous year 62.6% and 38.2%, respectively.

Of the total number of sold stakes, 110 units (35.7%) were offered for sale by the government and 198 units
(64.3%) – by private legal entities and individuals. However in spite of low level of state-owned stakes, pro-
ceeds from their sale reached UZS 1570 million or 74.0% of total proceeds from sale of the stakes. Whereas
proceeds from sale of stakes offered for sale by private individuals accounted for just UZS 552 million or

56                                                                                          UZBEKISTAN ECONOMY
                             INSTITUTIONAL AND MARKET TRANSFORMATIONS


26.0%. These data show that the government offered larger, more expensive stakes than private individuals.
The average selling price of a government stake was UZS 14.3 million, and of a stake of a private individual
– UZS 2.8 million.

5.3. Small Business
Development of small entrepreneurship in the country is one of the priority directions of the structural and
institutional transformations. Small business as an independent social and economic phenomenon plays an
increasingly important role in the economic growth and establishing full-fledged market economic systems in
the country.

In order to strengthen the market mechanism to develop small enterprise, the government took radical steps.
Important actions, which were taken in 2006, were:
             • improvement of the system of inspections of small enterprises (SE);
             • decrease in types and simplification of permissive procedures to perform entrepreneurial ac-
                 tivity;
             • improvement in the system of registration to organize entrepreneurial activity and implemen-
                 tation of notifying procedure of state registration of SEs.

Joint-stock commercial Mikrokreditbank was established to perform micro-lending and provide wide range of
banking and consulting services to small business and private entrepreneurship entities to strengthen and
expand their production activity In addition to this, market of micro-financing services rendered by credit un-
ions, micro-lending institutions, pawn-shops and other lending institutions was developed further. These
measures affected favorably the share of small entrepreneurship in GDP of the country and employment of
population.

In 2006, as a result of measures                   Table 5.3.1 Main Indicators of Development
taken dynamic development of                               of Small entrepreneurship
small entrepreneurship was reg-                      Indicator                          Unit         2005     2006
istered on the main macroeco-       Share of small entrepreneurship in GDP               %            38.2      42.1
nomic indicators. The share of      Number employed by small entrepreneur-
                                                                                  thousand people   6602.5    7258.6
small enterprises in GDP            ship
                                    Share employed by SEs in the total num-
reached 42.1% or increased by       ber of those employed in the economy
                                                                                         %            65.5      69.3
3.9 p.p. compared with 2005         Number of employed in :
(Table 5.3.1, Graph 5.3.1). The        Small enterprises                          thousand people     303.0    401.8
significant increase was ensured       Micro-firms                                thousand people    1083.9   1446.2
mainly by increase in the share     Number of new jobs in SE*                           Units       434208    425528
of micro-firms in GDP to 18.1%
                                    Number of operating SE per 1000 people              Units          10.3      13.2
(increase by 3.1 p.p.) and sole
                                    Source: State Statistics Committee of Uzbekistan *) Estimate
entrepreneurs – to 18.6% (in-
crease by 1.9 p.p.).

Increase in the share of small entrepreneurship in GRP      Graph 5.3.1. Share of SEs in GDP, (in %)
of the regions resulted in high increase in its share in
GDP of the country. It increase by 19.2 p.p. in Surk-      50                                      42.1
                                                                          38.2
handarya, by 17.1 p.p. in Namangan, by 16.1 p.p. in        40
Samarkand, 15.7 p.p. in Khorezm, 13.5 p.p. in Bukhara,
                                                           30
11.9 p.p. in Tashkent, 10.0 p.p. in Andijan, 9.4 p.p. in
Kashkadarya and by 9.1 p.p. in Sirdarya regions. Main      20
source of the increase was considerable growth in          10
these regions of the share of small entrepreneurship in
agricultural output. In 2006, in Surkhandarya region it     0
went up to 96.4% vs. 85.1% in 2005, accordingly: in                       2005                     2006
Samarkand– to 95.2% vs. 87.0%, Namangan – to             Source: State Statistics Committee of Uzbekistan
93.2% vs. 81.7%. Increase in the share of small entre-
preneurship in GRP was also registered in the Republic of Karakalpakstan, Kashkadarya, Jizzakh, Fergana
and other regions.

In 2006, the trend of increase in the share of SEs in GRP of Navoi region, however it somewhat lower than
the average national level due to highly developed large industrial enterprises and businesses in that region.




UZBEKISTAN ECONOMY                                                                                                57
                                    INSTITUTIONAL AND MARKET TRANSFORMATIONS


                                       Table 5.3.2 Share of SEs in GDP, GRP, (%)
                                                                                           Including:
                                          Total
           Region                                            Small enterprises           Micro-firms          Sole entrepreneurship
                                    2005         2006        2005        2006         2005         2006        2005         2006
Republic of Uzbekistan                38.2         42.1        6.5          5.4        15.0          18.1       16.7          18.6
 Republic of Karakalpakstan           45.1         52.6        9.4          8.3        25.6          27.1       13.9          17.2
 Andijan                              35.8         45.7        5.2          2.6         9.5          15.0       24.0          28.1
 Bukhara                              40.7         54.2        8.3          8.0        16.2          21.4       19.9          24.8
 Jizzakh                              58.4         67.4        2.5          2.8        35.8          38.0       26.1          26.6
 Kashkadarya                          34.9         44.3        2.8          2.2        18.8          24.3       16.8          17.8
 Navoi                                18.5         23.3        1.5          2.4         9.0           9.0       10.4          11.9
 Namangan                             45.2         62.3        8.6          7.0        16.7          23.8       26.1          31.5
 Samarkand                            49.9         66.0        5.3          6.9        17.7          24.7       31.5          34.4
 Surkhandarya                         42.8         62.0        6.3          5.6        16.5          29.5       23.1          26.9
 Sirdarya                             59.8         68.9        7.0          5.8        33.6          38.6       18.2          24.5
 Tashkent                             32.3         44.2        7.9          6.4        10.9          18.3       17.5          19.5
 Fergana                              40.8         49.5        5.5          5.1        19.5          21.9       18.9          22.5
 Khorezm                              47.1         62.8        6.7          4.8        23.0          27.4       24.5          30.6
 Tashkent city                        46.4         48.1       19.3         16.7        19.6          15.2       15.4          16.2
Source: State Statistics Committee of Uzbekistan

In the regional context, the high increase in the number of operating SEs was registered in Kashkadarya– by
11.4 thousand units, Tashkent – by 10.1 thousand units, Samarkand – by 9.7 thousand units, Andijan – by
9.1 thousand units and Fergana – by 8.8 thousand units. In the same regions the share of operating enter-
prises in the total number of registered enterprises exceeded greatly the average national level (Table 5.3.3).

       Graph 5.3.2 Number of Operating SEs,                      In 2006, slight increase in the number of operating SEs
                 (thousand units)                                was registered in: the Republic of Karakalpakstan (0.9
                                          346,1
                                                                 thousand units), Syrdarya (1.1 thousand units), Navoi
   350                                                           (1.3 thousand units), Jizzakh (2.8 thousand units), Buk-
   300           268,6                                           hara (3.5 thousand units) regions and Tashkent city
   250                                                           (2.5 thousand units). The share of operating SEs in the
   200                                                           total number of registered SEs is below the average
   150                                                           national level in Tashkent city (78.0%), Syrdarya
   100                                                           (84.1%), Surkhandarya (86.1%), Namangan (86.5%)
    50                                                           and Bukhara (87.5%) regions (Table 5.3.3).
     0
                    2005                  2006         An important indicator of the level of development of
Source: State Statistics Committee of Uzbekistan       small enterprises and micro-firms in the country is in-
                                                       crease in the number of operating SEs per 1000 per-
sons. In 2006, it was 13.2 units. Increase compared with 2005 accounted for 28.2% resulting from an active
increase in the number of newly established enterprises (ratio of SEs establishment in 2006 was 30.0 vs.
21.1 in the previous year and ratio of SEs liquidation went down to 5.5 vs. 9.8).

                       Table 5.3.3. Number of Operating SEs by Regions, (thousand units)
                                                       2005                                              2006
             Region                                 Share of operating SEs in total   Operating      Share of operating SEs in total
                                   Operating SEs
                                                     number of registered SEs, %        SEs           number of registered SEs, %
 Republic of Uzbekistan                    268.6                            87.0          346.1                               90.1
  Republic of Karakalpakstan                 14.2                           92.9           15.1                               92.0
  Andijan                                    16.0                           79.9           25.1                               92.2
  Bukhara                                    20.2                           89.1           23.7                               87.5
  Jizzakh                                    15.7                           83.6           18.5                               95.4
  Kashkadarya                                54.5                           94.2           65.9                               94.3
  Navoi                                       9.5                           89.3           10.8                               91.8
  Namangan                                   14.0                           82.5           20.0                               86.5
  Samarkand                                  20.9                           91.9           30.6                               94.6
  Surkhandarya                               14.0                           82.5           20.0                               86.1
  Sirdarya                                   10.5                           83.0           11.6                               84.1
  Tashkent                                   18.2                           87.9           28.3                               91.0
  Fergana                                    23.0                           88.2           31.8                               91.2
  Khorezm                                    18.7                           85.5           23.0                               87.7
  Tashkent city                              19.1                           75.3           21.6                               78.0
 Source: State Statistics Committee of Uzbekistan



  58                                                                                                  UZBEKISTAN ECONOMY
                             INSTITUTIONAL AND MARKET TRANSFORMATIONS


Increase in the number of operating SEs facilitated creation of new jobs, total number of which in 2006 ac-
counted for 425.5 thousand. In 2006, their considerable increase was registered in Andijan – 5348 new jobs
(growth rate compared with 2005 made 114.9%), Surkhandarya–3849 (112.0%), Tashkent city - 8538
(126.8%). Increase in the number of new jobs occurred in Kashkadarya, Samarkand and Tashkent region.
Whereas the number of new jobs decreased in Jizzakh – by 25.0%, Namangan – by 16.0%, Bukhara - by
more than 13.0%. The number of newly created jobs went down in the Republic of Karakalpakstan, Fergana
and Syrdarya regions mainly due to completion of institutional transformations in agricultural business in
these regions – restructuring of shirkats and forming on their basis if farms and dekhkan farms.

Increase in able-bodied population in regions greatly          Graph 5.3.3 Number of Employed by SEs,
affected the development of entrepreneurial activi-                      (thousand persons)
ties in the regions. In 2006, the average national                                                      7258.6
                                                            7400
increase in able-bodied population was 2.5% to the
previous year. The highest increases were regis-            7000
                                                                            6602.5
tered in Surkhandarya – 3.8%, Kashkadarya –                 6600
3.4%, Samarkand and Namangan - 3.1% in each of              6200
these two regions, Fergana and Andijan – 2.7% in
                                                            5800
each of these two regions. According the number of
employed by SEs of these regions also grew at               5400
speedier rates. Increase in the number of employed          5000
by SEs exceeded considerably the average national           4600
level in Andijan, Namangan, Surkhandarya and                                 2005                       2006
Kashkadarya regions (109.9%), which contributes
greatly in securing employment of people especially       Source: State Statistics Committee of Uzbekistan
in rural areas.

In 2006, total number of employed by SEs, includ-              Table 5.3.4. Number of Employed by SEs
ing sole entrepreneurs reached 7258.6 thousand                    by Regions (thousand persons) *
people or exceeded the level of 2005 by 656.1                    Region              2005        2006        Growth rate, %
thousand people. The number of employed by SEs           R. of Uzbekistan           6602.5      7258.6               109.9
made 69.3% of total number of employed in the              R. of Karakalpak-
                                                                                     349.1       368.9               105.7
economy or went up by 3.8 p.p. compared with               stan
2005 (Table 5.3.4, Graph 5.3.3).                           Andijan                   612.2       720.8               117.7
                                                           Bukhara                   442.4       488.3               110.4
Increase in the number of operating SEs and the            Jizzakh                   245.8       254.7               103.6
number of employed by them is related with, first of       Kashkadarya               545.1       606.4               111.2
all, implementation of state social, investment and s      Navoi                     196.2       206.0               105.0
sectoral programs as well as regional programs for         Namangan                  444.0       512.8               115.5
localization, development of building materials in-        Samarkand                 738.6       805.1               109.0
dustry, house-building, social infrastructure facili-      Surkhandarya              403.2       459.4               113.9
ties, reconstruction of roads and other production         Syrdarya                  207.5       221.4               106.7
facilities, where they perform significant volume of       Tashkent                  636.8       715.4               112.3
works. The total amount of loans issued by com-            Fergana                   812.0       877.1               108.0
mercial banks in 2006 has grown 1.3 times com-             Khorezm                   351.0       393.9               112.2
pared with 2005, thus stimulating establishment of         Tashkent city             618.6       628.4               101.6
new SEs. Total amount of loans issued by com-            *) Data from Ministry of Labor and Social Protection
mercial banks to SEs accounted for UZS 607.2 bil-
lion. Loans were issued on a largest scale in Tashkent city – about 25.0%, Tashkent region – 9.5%, Samar-
kand – 9.3%, Andijan – 8.8% and Kashkadarya – 6.6%.
In 2006, increase in the number of operating SEs        Table 5.3.5. Number of Operating SEs by Sectors
was registered practically in all sectors of the econ-             of the Economy, (thousand units)
omy (Table 5.3.4). Considerable increase in the                     Sector            2005          2006
number of operating entities took place in agricul- Industry                             19.5            20.8
ture where growth rate reached 138.1%.                 Agriculture                      176.8           244.2
                                                        Transport and communication               2.7                 3.8
As a result, compared with the previous year, in the Construction                           11.7     12.9
sectoral context, the entrepreneurial activities were Trade and catering                    40.9     44.3
characterized by increase in the number of operat- Source: State Statistics Committee of Uzbekistan
ing entities in agriculture - 70.6% vs. 65.8% in 2005
and fallen shares in: industry – to 6.0%, trade and catering – to 12.8% and construction – to 3.7% vs. re-
spectively 7.3%, 15.2%, 4.4% in 2005. There was a moderate increase in the number of small enterprises
operating in transport and communication sector (Graph 5.3.4).


UZBEKISTAN ECONOMY                                                                                                     59
                                       INSTITUTIONAL AND MARKET TRANSFORMATIONS


In 2006, the number of operating entities in industry increased by 6.7%. The share of small entrepreneurship
in industry was represented as follows: operating small businesses in food industry - over 33.0%, light indus-
try– 25.0%, building materials – 15.3% and mechanical engineering – 14.3% of the total number of operating
enterprises.

                       Graph 5.3.4. Sectoral Structure of SEs (number of operating entities, %)
                        industry
                                                                           industry                    agriculture
                        agriculture
                        construction
                                                                           construction                transport and communic
                        transp and communications
                        trade and public catering                          trade and public catering   other
                        other
                                                                                                5.8
                                    6.3     7.3                                                           6.0
                        15.2                                                        12.8
                 1.0                                                       1.1


                                                                             3.7
                 4.4
                                                                                                                     70.6
                                              65.8

                                2005                                                               2006

      Source: State Statistics Committee of Uzbekistan

In 2006, SEs produced goods and rendered services for UZS 1453.9 billion, which makes 10.0% of total in-
dustrial output vs. 9.4% in 2005. Growth rate to the previous year made 31.0%. Small enterprises (4.2%) and
sole entrepreneurs (3.5%) have the largest shares of the output. The share of micro-firms in industrial output
was 2.3%. The largest shares of small entrepreneurship in the industrial output were registered in Jizzakh–
33.5%, Samarkand– 25.7%, Surkhandarya – 20.5%, Sirdarya – 20.4% and Tashkent city - 33.0%. It was
bellows the average national level in Fergana – 6.4%, Kashkadarya – 6.9%, Andijan – 4.0% and Navoi –
1.6%, where large industrial production is most developed.

Stable high growth rates were observed on small enterprises in consumer goods production sector – 21.3%.
SEs produced consumer goods for UZS 909.8 billion, which made 22.4% of their total production in the
country or 0.4 more than in 2005. Sole entrepreneurs – 12.2% and small enterprises - 7.6%, produced con-
siderable share of consumer goods.

             Table 5.3.6. Share of SEs in Production                             In 2006, SEs produced 35.6% of total output
                 by Sector of the Economy, (%)                                   of various foodstuffs with 18.0% growth rate.
                      Indicator                          2005г.   2006г.         Sole entrepreneurs produced more than
Industry                                                                         25.0% of industrial output. Approximately
  Share of SEs in total industrial output                  9.4     10.0          8.0% of industrial output was produced by
 Share of SEs in total output of consumer goods           22.0     22.4          small enterprises (Table 5.3.6).
 Share of SEs in total output of foodstuffs               36.4     35.6
Agriculture                                                       In 2006, an increase in the number of SEs
  Share of SEs in total output                            85.7    leaded to improve country’s agricultural out-
                                                                   94.2
Retail trade                                                      put. Annual agricultural output of Uzbeki-
  Share of SEs in total sales                   43.7      45.3    stan, in 2006, was UZS 6889.4 billion with
Consumer services                                                 16.5% growth rate. The share of SEs in total
  Share of SEs in total consumer services       52.0      50.9    agricultural output reached 94.2% or grew
Source: State Statistics Committee of Uzbekistan                  by 8.5 p.p. compared with 2005. At the
                                                                  same time dekhkan farms held the major
stake (61.6%) (Table 5.3.6). Nearly all agricultural output was produced by SEs in Jizzakh – 99.2%,
Khorezm– 98.6%, Syrdarya – 98.0% and Kashkadarya – 97.5%, where processes of transformation of spe-
cialized agricultural cooperatives (shirkats) growing fruits and vegetables and grapes into farms as well as
implementing principles and norms of market economy and contractual relations were in progress. The share
of SEs in agricultural output was below the average national level in Andijan, Navoi and Tashkent regions.

Retail turnover of small entrepreneurship entities accounted for UZS 3377.8 billion, with 19.0% growth rate to
the previous year. The share of SEs in total turnover reached 45.3%, which was 1.3 p.p. more than in 2005
(Table 5.3.6). Sole entrepreneurs had high share in the total turnover – 27.2%. The share of small enter-
prises accounted for 10.2% and micro-firms – 7.9%. Considerable excess of the share of small entrepre-
neurship in turnover over the average national level was registered in Tashkent city – 55.9%, Samarkand –
55.0% and Syrdarya – 50.1%. It was way below the average national level in Surkhandarya, Bukhara,
Kashkadarya regions and the Republic of Karakalpakstan.

 60                                                                                                       UZBEKISTAN ECONOMY
                                    INSTITUTIONAL AND MARKET TRANSFORMATIONS



Consumer services rendered by SEs in 2006 amounted to UZS 1110.9 billion with 15.8% growth rate to
2005. Share in total consumer services reached 50.9%, which was 1.1 percent point lower than in 2005 (Ta-
ble 5.3.6). Sole entrepreneurship continues to provide the bulk of consumer services (41.8%). Small enter-
prises with 5.9 % share, achieved high growth rates of consumer services rendered to population (137.0%).

High share of SEs in total consumer services was registered in Kashkadarya – 76.7%, Surkhandarya –
74.9%, Andijan – 71.6%, Bukhara – 68.3%, Namangan – 63.4% thanks to creating favorable conditions for
showing entrepreneurial initiative in the services sector. This is related with undertaking steps in accordance
with the Resolution of the President of the Republic of Uzbekistan “On Measures to Accelerate Development
of Services Sector in the Republic of Uzbekistan in 2006-2010”. In 2006, small entrepreneurship entities in-
creased volumes and expanded the range of services rendered to rural residents, first of all, utility services,
on repair and building of housing etc.

In 2006, the foreign trade turnover of SEs ac-                        Table 5.3.7. Share of SEs in Foreign Trade, (%)
counted for USD 2201.8 million, and the growth                                Indicator                    2005             2006
rate was 29.1%. In total foreign trade turnover, the              Exports
share of SEs was 20.4%.                                             Share of SEs in total exports               6.0             10.7
                                                                  Imports
In 2006, SEs were characterized with relatively                    Share of SEs in total imports      34.5    33.7
dynamic development on all critical indicators, in-               Source: State Statistics Committee of Uzbekistan
cluding exports which in 2006 accounted for USD
683.1 million. The share of small entrepreneurship in exports grew considerably and reached 10.7% or grew
by 4.7 p.p. (Table 5.3.7) resulting from increased activities of sole entrepreneurs in export transactions,
whose share grew by 4.4 p.p. and reached 6.3%.

Imports by small entrepreneurship for the period under analysis accounted for USD 1518.8 million or 34.5%
of total imports. Growth rate of imports to the previous year was 10.1%. Small enterprises and micro-firms
had significant share in total imports - 27.8%.

                            Table 5.3.8. Share of SEs in Foreign Trade by Regions, (%)
                                      Share of exports of SEs in total exports, %        Share of exports of SEs in total imports
             Region
                                           2005                       2006                   2005                      2006
Republic of Uzbekistan                                6.0                      10.7                  33.7                       34.5
 Republic of Karakalpakstan                         12.7                       57.3                  71.1                       46.1
 Andijan                                              2.2                       7.1                    5.2                        4.9
 Bukhara                                              3.8                       5.6                  65.0                       51.4
 Jizzakh                                              3.5                       5.8                  57.9                       63.0
 Kashkadarya                                          1.4                       4.0                  65.2                       75.3
 Navoi                                                0.3                       9.1                    3.0                        3.8
 Namangan                                           74.1                       19.3                  57.4                       65.6
 Samarkand                                          23.3                       41.6                  50.0                       55.8
 Surkhandarya                                       12.0                       30.9                  70.5                       77.9
 Sirdarya                                             3.6                      11.4                  71.4                       71.1
 Tashkent                                             5.6                      10.3                  44.0                       44.3
 Fergana                                            14.6                       21.7                  38.2                       23.9
 Khorezm                                              2.8                       7.0                  63.6                       69.3
 Tashkent city                                        7.2                      10.2                  38.7                       40.2
Source: State Statistics Committee of Uzbekistan

In 2006, upsurge in export activities was registered in the Republic of Karakalpakstan – by 44.6 p.p. because
of exports of pharmaceuticals and textile produce made by small enterprises. Exports by small enterprises
increased in Surkhandarya by 18.9 p.p., Samarkand by 18.3 p.p., Fergana by 7.1 p.p. and Sirdarya by 7.8
p.p. as a result of increased supplies to foreign markets of fruits and vegetables and grapes. The share of
small entrepreneurship in total exports grew virtually in all regions apart from Namangan region where it
dropped (Table 5.3.8).

Further development of foreign economic activity of small entrepreneurship was related with the need to help
small and private entrepreneurship entities arranging certification of exports of processing enterprises per
ISO 9001 standards.




UZBEKISTAN ECONOMY                                                                                                                 61
                                        INSTITUTIONAL AND MARKET TRANSFORMATIONS




                 Annex 5.1.1. Main Indicators of State-Owned Enterprises Privatization (units)
                                                                                                                IV               IV
                            Indicator                       2000     2001     2002    2003   2004     2005              2006
                                                                                                               2005             2006
Number of privatized facilities                             374    1449 1912 1519 1228               980       251     673      299
 State enterprises reorganized into joint-stock companies   152     227     223      75      28       3          1      19       15
 State enterprises reorganized into limited liability com-
                                                            103     827    1252     981     162       75      7         55       41
panies
 Facilities sold entirely into private ownership            117    184      325     396    1038      902     243       599      243
Privatization proceeds (UZS billion )                      14.3    23.2    43.6    56.1     78.4     80.5   24.3       70.5     24.5
Source: State Property Committee of the Republic of Uzbekistan
Note: Several joint-stock companies in 2000-2003 were established by pooling assets of several state-owned enterprises




      Annex 5.2.1. Quantity and Value of Property Sold through the Republican Real Estate Exchange
                                            (units/million UZS)
                                      2000              2001                  2002                   2003                    2004
   Types of Property
                               Quantity Amount   Quantity Amount       Quantity Amount        Quantity Amount         Quantity Amount
Construction in progress         296       630     265       559         180       832          586       1176          896       1449
Objects of trade, con-
sumer services and so-            419      450      548      1221            436      1039      954          3203      1768     8892
cial infrastructure:
Objects of infrastructure
                                  602      450      510        367           413       396      904          653       2516     4376
and water industry
Land plots                       5700      254     8662        504          8335       551     7391          490       6296      618
Residential buildings and
non-residential premises,        1926     4396     5231      9699           4920     13353     4078      17938         3123    12942
other property
  Total                          8943     6180   15216      12350       14284        16171    13913      23460        14599    28277




                                                   Annex 5.2.1. Continued
                                                        2005               IV 2005                  2006                  IV 2006
              Types of Property
                                                 Quantity Amount       Quantity Amount       Quantity Amount          Quantity Amount
Construction in progress                          1087       1825        289       431        1455       2331           422       861
Objects of trade, consumer services and so-
                                                  2025      16169           596      5998      1755      11539          346     3766
cial infrastructure:
Objects of infrastructure and water industry      8164     11359        2917         4477      5189      15222          504     2006
Land plots                                        5221       610        1167          209      2757        255           93        9
Residential buildings and non-residential
                                                  4435      14074           983      1702      4911      22892         1139     6481
premises, other property
  Total                                          20932      44037       5952         12817    16067      52239         2504    13123
Source: the Republican Real Estate Exchange




 62                                                                                                     UZBEKISTAN ECONOMY
                                                        Annex 5.3.1. Main Indicators of development of SEs
           Indicator            Unit      2000     2001           2002           2003           04/I          04/I -II     04/I - III          2004         05/I          05/I -II       05/I - III       2005          2006
  Share of small business
                                 %         31.0     33.8           34.6           35.0           27.8             29.1          32.4           35.6          28.2           30.9           34.3            38.2          42.1
  in GDP
  Small enterprises and
                                 %         13.1     14.8           15.7           16.5           13.4             13.9          15.4           18.6          13.7           14.3           17.7            21.5          23.5
  micro-firms
  Number of operating        Thousand
                                          149.3    177.7          236.4          229.6          222.4          235.4           239.1         237.5          245.3          252.8          261.0           268.6         346.1
  legal entities               units
  Number of employed in      Thousand
                                          745.3    801.8          900.3      1062.2         1041.5            1127.4       1236.2         1349.0         1258.3           1276.2          1347          1386.9          1848
  economic entities           persons
  Source: State Statistics Committee of Uzbekistan




                                                        Annex 5.3.2. Share of SEs the Output by Sector (%)
             Sector                2000      2001        2002         2003               04/I          04/I -II      04/I - III         2004            05/I          05/I -II       05/I - III           2005          2006
  Industry                          11.3       14.1       14.1         10.9               9.1             8.7            9.5             10.1            8.4             8.3             9.1                9.4          10.0
  Agriculture                       72.4       75.6       76.4         78.1              93.3           86.7           81.0              81.1           93.6           88.0            85.5                85.7          94.2
  Retail trade                      45.9       45.8       43.8         42.4              40.2           41.0           42.1              42.2           40.5           41.4            42.9                43.7          45.3
  Fee-based services                37.9       39.9       41.3         45.4              42.3           46.0           47.6              47.9           42.1           48.1            50.9                52.5          50.9
  Source: State Statistics Committee of Uzbekistan




                                                  Annex 5.3.3. Share of SEs in Foreign Trade of the Country
Indicator                            Unit      2000       2001        2002           2003              04/I         04/I -II      04/I - III      2004          05/I          05/I -II       05/I - III      2005         2006
Exports                               %         10.2        9.0            7.5            6.9           8.7              5.1           7.1            7.3           4.6            4.8            5.8             6.0      10.7
Imports                                %         27.4      26.9           24.9           33.0          29.4          30.9           31.6          32.7          29.4             31.4          32.7          33.7          34.5
Number of entities participating  Thousand                                                                                                                                                                                  No
                                                  2.8       2.5            2.7            3.2           1.8              2.6           3.2            3.8           2.0            2.9            3.8             3.9
in foreign trade                      units                                                                                                                                                                                data
Source: State Statistics Committee of Uzbekistan
                                                    SECTORS OF ECONOMY


6. Sectors of Economy
6.1. Industry
Both quantitative and qualitative significant positive changes were observed in industrial production. The in-
dustrial production index grew 10.8% and share of the in the GDP increased up to 22.1%. Compare to 2005,
the share of industrial production in GDP increased by 0.9 percent points. The high efficiency was achieved
in mechanical engineering, chemical, oil and gas sectors, food industry and in production of building materi-
als.

The mechanical engineering sector output generally increased by 25.7%, compared with the level last year
(Table 6.1.1). The most intensive development was observed in the car engineering sub-sector (32.2%) be-
ing a result of increasing physical production volumes of cars (38.7%). Manufacturing of highly demanded
both in domestic and international markets cars increased as follows: Matiz – 2.2 times, Damas – by 32.0%
and Nexia – by 15.0%.

Positive performance results of localizing industries targeted towards imports substitution and decreasing of
initial production costs contributed to containment of price development in mechanical engineering sector.
The producer price growth index in mechanical engineering exceeded the correspondent level of the previ-
ous year only by 3.3 percent points that strengthened positions of national producers in the international
market. The share of exports in the total volume of car output increased from 52.6% to 58.9%.

The growth rates in electric and agricultural mechanical engineering sectors increased as well and equaled
18.6 and 5.1%, respectively. The share of household electric appliances – refrigerators, air conditioners, TV-
sets and others remained low in the total volume of electric sector output. However, production of cable lines
and boosters increased significantly and manufacture of elevators was resumed. Considering agricultural
machinery sector, one can see that despite considerable production growth of spare parts, equipment for
light and textile industries, tractor trailers and some other types of mounted agricultural equipment, produc-
tion of tractors almost remained at the same level (0.2% increase) and production of some trailing equipment
did not achieve the level of 2005: tractor drills (70.1%), cultivators (98.2%), mowing machines (28.6%) and
etc.

      Table 6.1.1. Indices of Industrial Output                Enhancement of export potential requires consideration
                                 Index of industrial output    of the current situation prevailing at the micro-industrial
                                 (in % to previous period)     level. The sustainable demand for ferrous and non-
                                  05/I-IV          06/I-IV
                                                               ferrous metals in the international market and necessity
Industry                             107.3            110.8
                                                               to saturate the local one with domestically produced
  Power industry                      98.3            106.1    products to support implementation of development
  Fuel Industry                       98.7            105.9    programs intended for local staff training, school educa-
  Ferrous metallurgy                 108.3            111.0    tion, children’s sports and localizing industries, is the
  Non-ferrous metallurgy              97.4              99.1   main factor of the growth achieved in the metallurgy
  Chemicals and oil & gas            109.6            119.6    sector. The growth index of ferrous metallurgy output
  Machine-building                   129.7            125.7    was 11.1%. The high liquidity level of production con-
  Timber, wood-working                                         tributed to the growth of physical output: steel - by 39%,
                                      123.0           118.4
industry
                                                               rolled ferrous products – by 4.2%.
  Building materials                  111.0           112.2
  Light industry                      112.0           108.2
                                                               The export potential of the metallurgy sector has in-
  Food industry                       111.2           128.0
                                                               creased by 27.9%. Consequently, the share of this sec-
  Others                              113.5           118.8
                                                               tor in the structure of commodity exports increased
Source: State Statistics Committee of Uzbekistan
                                                               from 12.5% to 13.5%.

The sustainable development was observed in the chemical sector, though its share in the total volume of
industrial production is a practically constant value equaling 4.9%. During 2006, the index of chemical pro-
duction output reached 19.6%. Almost complete lack of petrochemical industry in its traditional sense as well
as the lack of potassium fertilizer production and of broad range of plant protection chemicals is the major
bottleneck making negative effect on inter-sector relations of the chemical sector and the national economy.
Production of mineral fertilizers has the largest share, especially of nitrogen ones, and exceeds 86.3% of the
total volume of mineral fertilizer production. Practically, there was a sustainable production growth demon-
strated by all types of chemical products in 2006, unless chemicals for plant protection and paint materials.
Producer price index for chemical products did not grow significantly and was 107.6% as compared with the
same period of the previous year. (Table 6.1.2).



 64                                                                                            UZBEKISTAN ECONOMY
                                                      SECTORS OF ECONOMY


The trend of decreasing demand for chemical fibers and lines has changed because of low price competitive
capacity. Consequently, after adoption of some measures by the Government, the production volume has
increased 2.1 times, mainly owing to building up of synthetic fiber production (nitrone). It is planned to make
production of the abovementioned products sustainable in future.

                   Table 6.1.2. Production Growth Indices of Principal Industrial Products
                                                               Production of principal industrial     Production indices of principal
                                       Measurement unit           products in physical units        products (in % to previous period)
                                                                  05/I-IV            06/I-IV           05/I-IV             06/I-IV
Power industry
 Power                                    million kWh                 47581             49318               95.8               103.6
Fuel
 Oil and condensate                        thousand t.                 5478            5412.1              82.8                 98.8
                                                      3
 Gas                                        million m                 60252           62421.3              99.7                103.6
 Liquefied gas                             thousand t.                211.6             223.1             107.3                105.5
 Coal                                      thousand t.                 3002              3122             111.2                  104
Metallurgy
 Steel                                     thousand t.                607.3              630.3            100.8                103.8
 Rolled ferrous products                   thousand t.                562.2              585.7            102.1                104.2
Mechanical engineering
 Tractors                                      unit                   2868               2872              100.1                100.1
 Cars                                          unit                 101010             140080              144.2                138.7
   Damas                                       unit                  11917              15731              125.5                   132
   Nexia                                       unit                  64639              74089              165.4                114.6
   Matiz                                       unit                  21531              49375              108.4            2.3 times
   Lacetti                                     unit                   2923                885          5.8 times                  30.3
 Armored cable                                 km                     2674               3403              122.4                127.3
 Refrigerators and freezers                    unit                    723               5044                23.3           7.0 times
 Air conditioners                              unit                   3287               4698              109.5                142.9
 Washing machines                              unit                    660                675                67.8               102.3
Chemical industry
 Mineral fertilizers                       thousand t.                866.2             940.9              98.8                 108.6
   Nitrogen                                thousand t.                765.0             812.3             103.9                 106.2
   Phosphate                               thousand t.                101.5             128.6              72.4                 126.9
 Synthetic ammonium                        thousand t.               1064.9              1141             104.5                 107.1
 Sulphuric acid                            thousand t.                  741             833.1                                   112.5
 Chemical fibers and lines                      t.                     5456             11509               59.2            2.1 times
 Synthetic detergents                           t.                      193               444               17.5            2.3 times
 Plant protection chemicals                     t.                     3175              2223               60.6                   70
Production of building materials
 Cement                                     thousand t.              5067.8             5582.9            105.5                110.2
                                      million of conditional
  Asbestos-cement roofing                                             397.3              417.1            113.1                  105
                                              surface
                                                       2
 Ceramic tiles                             thousand m                   150                215            105.3                143.3
Light industry
 Cotton fiber                              thousand t.               1187.6             1171.2            121.6                  98.6
 Cotton yarn                               thousand t.
 Silk thread                                     t.                     564              613.2              81.6               108.3
Source: State Statistics Committee of Uzbekistan

Development of fuel-and-power sector and its sub-sectors were not determined by the price factor. Price
indices of the electric power industry and fuel sub-sectors were by 15% and 2.6% lower, respectively, as
compared with the current general price level of the industry. In the aggregate, fuel-and-power sub-sectors
demonstrate a trend of growth in terms of both physical production volumes of the principal products – gas
(3.6%), coal (4.0%), power (3.6%), and of their share in the industrial structure, which increased from 27.1%
to 27.2%. Considering these, one can see that price factor does not make a serious negative impact on prof-
itability level of the sectors.

The coal industry has sustainable positions in the system of the fuel-and-power sector, however demon-
strates slower technical modernization progress and implementation of activities in this direction. The value
of physical output of coal, power and gas enabled to compensate the remaining lag in oil and condensate
production (98.8% index).


UZBEKISTAN ECONOMY                                                                                                                  65
                                                                 SECTORS OF ECONOMY


The increase in output of light industry exceeded the level of last year and was 8.2%. The major contribution,
like it was before, was brought by cotton ginnery sector making more than 66% of the total light industry out-
put. Along with that, the volume of cotton fiber production in 2006, decreased by 16.4 thousand tons or by
1.4 percent points as compared with the same period of last year. There is a positive dynamic trend of ex-
porting value volumes of cotton fiber by 6.2% higher. Along with that it is worth to mention a decrease of the
specific weight of cotton fiber in the total commodity export by 2.2 percent points that demonstrates increas-
ing of export volumes of high value added products.

 Table 6.1.3. Producer Price Indices by Industrial                                  A trend of slowing-down of the price growth in light
         Sector(in % to previous period)                                            industry made a positive impact on development of
                                                   05/I-IV              06/I -IY    processing industries targeted towards the final lo-
Industry/sector                                         128.1               124.0   cal consumption. The price index grew by 14.6%
 Electric power                                         119.2               109.0   compared with 9.1% of the same last year period
 Fuel                                                   177.7               121.4   (Table 3.1.3). Hence, physical production volumes
 Ferrous metallurgy                                     116.7               100.9   of knitted goods increased as a result of the de-
 Non-ferrous metallurgy                                 159.2               167.9   mand increasing by 15.5%, and of leg-wears - 2.1
 Chemical                                               112.6               107.6   times, of wool fabrics - 2.2 times, of cotton yarn –
 Mechanical engineering                                 110.8               114.1
                                                                                    by 34.4%, and of garments – by 17.5%.
 Timber, wood-working industry                          100.5               103.7
                                                         A dynamics of producer price indices change in
 Building materials                                     122.7               134.0
                                                         food industry had a contra trend of speeding-up.
   Light industry                          109.1  114.6
                                                         The price growth index in 2006 was 121.3% com-
   Food industry                           108.9  121.3
                                                         pared with 108.9% of last year. It should be noted
 Source: State Statistics Committee of Uzbekistan
                                                         that approximation of domestic prices to the level of
import prices in the environment of effective consumer demand was one of the factors influencing on estab-
lishment of dominated development dynamics in food industry. The increment of output in this sector was
0.1%. Production volumes of sugar, flour, and pasta and of some other foodstuffs were decreased. However,
forward-looking production tempo of canned products, vegetable and animal fats, cheese, and etc., contrib-
uted to positive trend of food import decreasing by approximately 15%.

In 2006, the production volume of building materials increased by 12.2% mainly owing to increased volume
of cement production (by 10.2%). A sustainable demand prevailing in the local market to construct industrial
and social infrastructure as well as increased export supplies are the main factors bringing about the produc-
tion growth of building materials. The share of building material production is still insufficient and makes
4.0% out of total national industrial production. A price index of cement industry considerably grew up to
40.2%, of asbestos-cement materials – to 71.3%, of non-metallic materials – to 27.5% etc., however, im-
ported finishing materials retained high competitive advantages.

The summarized results of industrial sector development demonstrated that price growth factors and rates of
domestic and international demands continued to influence on structural changing dynamics. The share of
raw material sector in the general structure of industrial production increased from 49.3% to 60.5%, including
the share of fuel-and-power sector – from 27.2% to 27.1%, and of metallurgic sector – from 19.2% to 20.9%
(Graph 6.1.1).

                                  Graph 6.1.1. Structural Changes in Industrial Production (%)

                                        05/I-IV                                                                     06/I-IV

                            Building                                                                    Building
            Chemical        materials             Others                                                materials               Others
             industry          4%                  6%                                                     4%                     5%
                                                              Fuel-and-                     Chemical
               5%                                                                                                                         Fuel-and-
                                                             power sector                   undustry                                     power sector
        Light industry                                           28%                           5%                                           27%
            17%
                                                                                     Light industry
                                                                                         15%
          Food industry
               8%                                                                              Food
                                                                                             industry
                                                           Metallurgy                          9%                                        Metallurgy
                                                                                                         Mechanical
                         Mechanical                          19%
                                                                                                         engineering                       21%
                         engineering
                            13%                                                                             14%


  Source: State Statistics Committee of Uzbekistan

66                                                                                                                            UZBEKISTAN ECONOMY
                                           SECTORS OF ECONOMY



The share of mechanical engineering sector increased considerably from 12.9% to 13.7%, however distinc-
tive influence of food and light industries (from 25.3% to 23.5%) impacted on decreasing of effectiveness of
structural changes. The total share of processing sectors of mechanical engineering, light and food indus-
tries decreased from 38.2% to 37.2%. The share of chemical industry remained almost at the same level of
4.9%.

6.2. Consumer Goods Market
Consistent steps have been taken in the country aimed at saturation of the consumer market with domestic
goods. The mechanism of relations between the national commodity producers and trading companies was
improved, conditions were established to promote consumers goods to buyers at affordable prices.

In recent years, several governmental decisions have been made to grant stimulating benefits to domestic
producers of the goods on which demand exceeds their supply. The Resolution of the Cabinet of Ministers,
dated 13 November 2002 No 390, established that enterprises specialized in production of certain listed
goods pay income taxes with a 20 % discount. Small enterprises pay unified tax from sales gained from pro-
duction of consumer goods at a rate, which is 25 % lower than the previously established rate. Incomes
gained in result increased volume of production are exempt from taxes. Special conditions were crated for
producers of children’s consumer goods whose production man-hours are equated to goods for adults. Thus,
income gained from production of goods for children are subject to tax at a low rate - 7 %.

The cost of imported goods and materials is deductible from foreign currency exports proceeds surrender
requirements. Separate custom benefits were granted to simulate production of goods using imported raw
materials.

Those factors facilitated sustainable growth in production of consumer goods. Over 2006, their production
grew by 20.6 % and accounted for UZS 4069.7 billion. Production of consumer goods is arranged in all the
regions of the country. However each of them has its own segment on the consumer goods market, which is
proved by wide differentiation in indicators of the share of each region in the total national output (from 1.3 %
on the Republic of Karakalpakstan to 30.4% on Andijan region) and goods output per capita (Annex 6.2.1).
These indicators change in time depending on efficiency of measures taken to increase volumes of produc-
tion, marketing, financial state of enterprises of the sectors and other objective factors, including demand
constraints resulted from varying solvency.

Production of non-food goods grew at advanced rates. As a result, there were positive changes in their favor
in output macrostructure (Annex 6.2.2). The share of non-foods increased from 55.6 % to 58.2 %. High share
of non-foods in total output (more than 50 %) was registered only in 5 regions (Andijan, Bukhara, Navoi,
Samarkand, Fergana). In the rest of regions production of foodstuffs prevailed, and in the Republic of Kara-
kalpakstan, Jizzakh, Kashkadarya, Surkhandarya, Sirdarya regions the share of foodstuffs exceeded 80 %.
In 2006, the decrease in the share of light industry goods from 10% in 2005 to 7.7 % was registered. This
resulted from suspension of activities of textile enterprises related with taking steps on modernization and
technical re-equipment. Steps to modernize textile enterprises aimed at strengthening the competitiveness
of produce and goods, as well as more efficient use of cotton fiber and other local raw resources, were
made.

Approximately 1350 thousand tons of flour, 15.9 thousand tons of cereals, over 170 thousand tons of sugar,
more than 250 thousand tons of oil, 200 million of standard cans of canned fruits and vegetables, 10 thou-
sand tons of tea, about 9 million deciliters of alcoholic beverages, 30 million of knitwear goods, 200 thousand
square meters of cotton and silk fabrics, 140 thousand cars etc. were produced in the country. Over 2006, of
43 types of goods whose production gets registered by the State Statistics Committee of Uzbekistan, pro-
duction volumes of 28 types, including 16 foodstuffs and 12 non-foods, (65 % of the total list), were growing
stably. Production volumes declined on 16 commodity groups, including 6 foodstuffs and 10 non-foods (An-
nex 6.2.3). Production of refrigerators increased 7 times, small wares – 6 times, canned meat and soft
drinks – almost 2 times, tea 1.5 - times, cigarettes, 1.4 times – cars,– canned fruits and vegetables, ice-
cream -1.3 times, pasta, mixed fodder, juice, carpets and carpet goods-1.2 times. Increase by 1%-17% was
recorded on flour, vegetable oil, sugar, alcoholic beverages, knitwear and footwear goods, soap, some types
of home appliances etc.

At the same time, production of some types of baked products, livestock farm produce, sparking wine and
wine as well as textile produce, medications and other medical supplies, gas stoves and electric irons de-
clined. Small enterprises do have their segment on the consumer goods market. At the same time, the
share of small enterprises in the total output is low. Dynamics of this indicator is represented in Table 6.2.1.

UZBEKISTAN ECONOMY                                                                                           67
                                                    SECTORS OF ECONOMY


              Table 6.2.1 (%)                          As seen from the table, although there was a general declin-
   Year        Share of SEs in Industrial Output       ing trend in the share of small enterprises in total industrial
2001                                         14.5      output till 2005, in 2006 this was followed by increase in this
2002                                         15.9      indicator. This was related with implementation of measures
2003                                         10.9      to establish more favorable conditions to develop small busi-
2004                                         10.1      ness in general, i.e. regarding production of consumer goods.
2005                                          9.4      The total saturation level of the market with domestic goods
2006                                          10       was quite high was over 80%. Table 6.2.2 represents the dy-
                                                       namics of saturating the market with domestic goods.

Table 6.2.2. ( in % to domestic market resources)    On some commodity groups produced in the coun-
             Total                    Including:     try with potential to expand their production, imports
   Year
             goods     Foodstuffs                    made to saturate domestic market were quite high
                                            Non-foodstuffs
2004             87.4       94.1                     and accounted for from 30 % to 60 %. These were
                                                       79.8
2005             88.6       94.4                     first of all light industry goods – silk fabrics, woolen
                                                         82
2006             86.9       93.9                     fabrics, ready-to-wear clothes for adults and chil-
                                                       75.7
                                                     dren, knit-work, jogging suits, underwear, footwear,
hosiery, crockery, some types of complex home appliances. In 2006, over 21 million US Dollars were spent
for their imports.

Factors impeding to development of production of goods were:
– A considerable part of large industrial enterprises producing consumer goods employ obsolete equipment
and technologies requiring additional maintenance costs. Different taxation of large and small commodity
producers. In addition, commodity producers bear additional costs to pay for services of quality checking
authorities, expert examination, issue of appropriate conclusion (standardization, healthcare and environ-
mental etc), which increases the cost of finished goods and make them uncompetitive;
– High custom duties for imports of raw materials and auxiliary materials used in production of the goods. For
instance, in order to produce footwear one should bring in boot-trees, dye-stuff, chemicals, molds. To pro-
duce fashionable ready to wear clothes it is necessary to import fabrics of broad range (woolen, half-woolen,
blended, whip-cord, acetated, linen) as well as small ware and accessories;
– Sale of seasonal produce via retail trade enterprises became difficult. Trade enterprises, as a rule, accept
goods on consignment terms, i.e. pay suppliers after the goods are sold. Shops return unsold goods to sup-
pliers and sale of goods in next season becomes simply loss-making.
– Bank issue long-term loans for reconstruction of obsolete facilities and purchase of raw materials in insuffi-
cient amounts. Lending rates exceeding 22-23% are much above of current refinancing rate which limits ac-
cess to loans. Financial assistance provided to producers as sponsorship is included into tax base which
makes it ineffective.
– No adequate conditions were created to provide commodity producers especially small enterprises with
access to raw materials, which are offered for exchange bids in limited quantity or in large lots. In spite of
considerable improvement in exchange activity, exchange procedures continue to remain very complex for
small producer-firms;
– If enterprises have unpaid bills for electricity and gas, enterprises are disconnected from respective energy
sources which leads to production suspension for long time. At the same time, enterprises have to write off
stocks related to production in progress as waste which affects the cost of all finished products.

In order to stimulate further domestic production of consumer goods it is advisable to solve the following is-
sues at a governmental level.
    1. Development of measures on additional financial assistance to domestic commodity producers en-
        visaging access of producers to long-term lending resources at rates not exceeding the bank refi-
        nancing rate, provision by banks of cash funds to buy raw materials and resources on the domestic
        market;
    2. Expanding of range of products offered for exchange bids, simplification of system of exchange pro-
        cedures and deals;
    3. Prevention of production suspension resulting from unpaid bills for energy resources.
    4. Development the schedule for lowering import custom duties;
    5. Provision of equal competition conditions to importers and commodity producers with introduction of
        unified procedure for paying excises and VAT for domestic and imported goods.

6.3. Agrarian Sector
From 2000 the government of Uzbekistan provided comprehensive reforms and restructuring of agrarian
sector of the country. Reforms of agricultural cooperatives showed the correctness of the chosen path.
Transformation of low-profitable and loss-making shirkats into private farms showed its positive results. Crop
capacity in these farms has doubled. The class of owners has shaped in the agriculture. Logistical and fi-
68                                                                                          UZBEKISTAN ECONOMY
                                                    SECTORS OF ECONOMY


nancial expenditures of agricultural production process have decreased. In 2006, certain positive shifts were
observed, due to the ongoing structural transformations and new governmental incentive measures imple-
mented in both the crop cultivation and livestock breeding sectors.

According to the results of           Table 6.3.1 Key Indicators of the Development of Agriculture (%)
2006, the agricultural output                                2000     2001     2002   2003  2004  2005   2006
amounted to UZS 7314.0          Share of Gross Agricul-
                                                             30.4     30.0     30.6   28.6  26.4  25.0   24.1
billion. Gross agricultural     tural Output in GDP
                                Growth Rates of Agri-
output has increased by         cultural Output
                                                           103.2     104.5    106.1  107.3 110.1 105.4  106.2
6.2% as compared to the         Growth Rates of Crop
                                                           103.1     106.5    110.1  103.4 113.2   108  106.3
previous year (versus 5.4%      Production
in 2005). The growth has        Growth Rates of Live-
                                                              103    101.9    102.0  111.3 106.8 104.2  106.2
                                stock Breeding
being caused by relatively
                                Share of Investment in
high (as compared to the        Agriculture in Total          5.7      4.6       5.8   4.3   3.4    3.2   4.1
previous year) growth rate      Investments
in the livestock sector –       Source: The State Statistics Committee of Uzbekistan
6.2% (versus 4.2% in
2005), though the growth rate in the crop cultivation sector decreased by 1.7 p.p. At the same time, the
share of gross agricultural output in GDP continued to decrease. In 2000, the share of agriculture in GDP
was 30.4% and it decreased to 24.1% in 2006. This process is a lasting natural process related to the ac-
celerated growth of industry and service sectors (Table 6.3.1).

The share of crop output in the structure of gross agricultural output increased from 55.6% to 56.9% and the
share of livestock output decreased from 44.4% to 43.1% as compared to the previous year (Figure 6.3.1).
The existing situation was triggered by advanced growth rates in crop cultivation comparing to growth rates
in livestock breeding in the previous years6.

           Figure 6.3.1. Structure of Gross Agricultural Output (%)                    Over the reviewed period,
                  Share of Crops Output                Share of Livestock Output
                                                                                       the area under crop was
  70                                                                                   cut by 10.1 thousand hec-
                                                                             56.9
  60    52.6        51.6
                         48.4   50.649.4     51.648.4 53.7        55.6                 tares – from 3647.5 thou-
            47.4                                           46.3
  50                                                                   44.4       43.1 sand hectares in 2005 to
  40                                                                                   3637.4 thousand hectares
  30                                                                                   in 2006. The area under
  20                                                                                   leguminous     plants    in-
  10                                                                                   creased by 17.8 %, rice -
   0                                                                                   by 15.4%, vegetables - by
          2000        2001       2002         2003     2004         2005        2006   12.1%, melons and gourds
Source: The State Statistics Committee of Uzbekistan                                   - by 10.3%. The areas un-
                                                                                       der     technical     crops
amounted to 1478.2 thousand hectares, which was 97.4 %, compared the level of 2005. The areas under
cotton were cut by 24.1 thousand hectares. The positive change towards increase occurred regarding the
areas under potatoes; they increased by 5.6%, fodder crops - by 2.1%, fruit and berries - by 0.9% and wheat
– by 0.6% (Table 6.3.2). Overall, the ongoing structural transformations of sown areas were related to the
intensification of the restructuring of shirkats into private farms and to the approved measures of the gov-
ernment regarding intensification of reforms in fruit and vegetable and grape cultivation sectors, according to
which the number of farms and dekhkan (peasant) entities specialized in non-technical crops increased.7

In the light of these measures, more than 35 thousand specialized fruit and vegetable and grape-cultivation
farms were established, based on the restructured shirkats. Their long term leased land plots comprised 149
thousand hectares of land and 111.7 thousand hectares of gardens and vineyards have found the owner.




6 In 2000-2006 the accumulated growth of crop output was 62.5% versus 40.8% of livestock output.
7 In accordance with the Decree of the President of the Republic of Uzbekistan of 09.01.2006, N УП-3709 "On Measures for Intensifica-
tion of Economic Reforms in Fruit and Vegetable and Grape Cultivation Sectors", the Decree of the President of the Republic of Uzbeki-
stan of 11.01.2006, N ПП-255 "On Organizational Measures for Restructuring Fruit and Vegetable and Grape Cultivation Sectors" and
the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan of 10.03.2006, N 42 "On Adoption of the Resolution on Proce-
dure of Establishment of Agricultural Companies and Organization of their Activities in the Sectors of Fruit and Vegetable and Grape
Cultivation", the Order of the President of the Republic of Uzbekistan of 07.07.2006, "On Establishing of the Working Group for Prepara-
tion of the Proposals on Equipping the Farms with Modern Equipment and Mini-Technologies Required for Fruit and Vegetables Proc-
essing ", the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan of 20.08.2007,. N 178 "On Adoption of the Procedure
of the Preferential Crediting Scheme and Leasing Services to Farms and other Small Business Enterprises Engaged in Processing of
Fruit and Vegetables and Livestock Products for Purchase of Mini-Technologies and Compact Equipment”

 UZBEKISTAN ECONOMY                                                                                                                 69
                                                       SECTORS OF ECONOMY


     Table 6.3.2. Structural Transformations of the Cultivated Areas by Type of Economic Entity
                                in 2005 and 2006 (thousand hectares)
                                                      2005                                               2006
                           All Types of      Agro -                             All Types of   Agro -l
                                                                     Dekhkan                                             Dekhkan
                            Economic         Enter-          Farms               Economic      Enter-           Farms
                                                                     Entities                                            Entities
                             Entities        prises                               Entities     prises
  Total Cultivated Area        3647.5       1064.9     2140.7          441.9        3637.4     471.0            2710.6     454.8
   Grain Crops                 1616.1        475.9      932.0          208.2        1618.0     220.7            1181.5     215.8
        wheat                  1439.7        422.8      845.8          171.1        1448.5     195.8            1078.8     173.9
        rice                     52.5         13.5       35.7            3.3          60.6        8.1             48.8       3.7
        corn for seeds           33.6           5.5       8.9           19.2          32.8        2.9             10.0      19.3
   Leguminous plants             12.9           1.0       5.2            6.7          15.2        0.6              5.3       9.2
   Technical Crops             1518.4        473.4     1034.9           10.1        1478.2     188.4            1280.1       9.7
        Cotton                 1472.3        456.9     1015.4              -        1448.2     179.8            1268.4         -
   Potatoes and Vege-
                                 222.8       22.9        39.5          160.4        244.4         9.1             69.6     165.7
   tables and Gourds
        Potatoes                  49.8        1.9         2.9            45.0         52.6        0.7              5.2      46.7
        Vegetables               137.7       16.6        21.7            99.4        154.4        6.5             45.0     102.9
        Melons and
                                  33.9        3.3        14.8            15.8         37.4        1.9             19.4      16.1
   Gourds
   Fruit and Berries
                                 208.2       85.4        54.9            67.9       210.0       29.5             108.6      71.9
   Plants
   Grapes                        120.7       62.5        24.3            33.9       119.1       11.7              70.4      37.0
   Fodder Crops                  290.3       92.8       134.3            63.2       296.4       53.4             179.4      63.6
  Source: The State Statistics Committee of Uzbekistan

In the light of the abovementioned, the significant decrease in the share of shirkats and considerable in-
crease in the share of private farms in the overall structure of the sown areas was one of the remarkable
trends of 2006. Thus, in 2005, the share of shirkats in the overall structure of the sown areas was 29.2%. In
2006, it decreased by 55.6% and accounted for about 13%. The sown area of private farms increased by
569.9 thousand hectares or by 26.6% and dekhkan entities – by 12.9 thousand hectares or by 3% as com-
pared to the previous year.

The reporting year was favorable for the agrarian sector in many aspects. Development of private farming,
intensification of the reforms in fruit and vegetable and grape cultivation sectors, favorable weather condi-
tions, timely supply of mineral fertilizers, fuel and lubricants, as well as machines facilitated the growth of
crop capacity and production (with the exception of raw cotton). In 2006 both farms and shirkats sold 3600.3
thousand. tonns of raw cotton, which was 100% of the Order and accounted for 96% to the level of the pre-
vious year (Table 6.3.3). The State quotas for raw cotton have been fulfilled by all regions. At the same time,
the average crop capacity over the country decreased by 2.4% - from 25.5 centners per hectare to 24.9
centners per hectare, as compared to the previous year, due to decrease of average crop capacity in
shirkats (Table 6.3.4).

                          Table 6.3.3. Contribution of All Types of Economic Entities
                                    to Agricultural Output (thousand tons.)
                                                    2005                                                 2006
      Product         All Types of        Agro -                                All Types of   Agro -
                                                                     Dekhkan                                             Dekhkan
                       Economic           Enter-           Farms                 Economic      Enter-           Farms
                                                                     Entities                                            Entities
                        Entities          prises                                  Entities     prises
 Cotton                   3749.0          1263.9      2485.1               -        3600.3     489.6            3110.7         -
 Grain                    6540.9          1792.2      3625.7          1123.7        6546.7     708.6            4662.5    1175.6
 Wheat                    5927.0          1641.3      3353.6           932.9        5996.3     660.4            4400.5     935.4
 Rice                      165.8             37.7       98.3            29.8         220.3      25.9             160.4      34.0
 Potatoes                  924.2             27.5       45.9           850.8        1021.0      14.6             108.3     898.1
 Vegetables               3517.5           321.2       480.3          2716.2        4294.1     170.7            1305.4    2818.0
 Food-Melons and
                            615.3         33.1         205.7           376.5        744.1       25.7             325.7     392.7
 Gourds
 Fruit and Berries          949.3        207.3         175.5           566.5       1182.2       95.1             487.9     599.2
 Grapes                     641.6        252.8          89.3           299.5        803.6       62.9             408.3     332.4
 Source: The State Statistics Committee of Uzbekistan

Overall, 6546.7 thousand tons of grain was produced by all types of agricultural entities in 2006, which was
5.8 thousand tons more than in previous year. In the total structure of grain crops, the major product is
wheat – 91.6% of total crop. The average crop capacity of grain among all types of agricultural entities
amounted to 4130 kg per hectare and wheat – 4270 kg per hectare. Rice production increased by 32.9%

70                                                                                                      UZBEKISTAN ECONOMY
                                                      SECTORS OF ECONOMY


and amounted to 220.3 thousand tons. All types of agricultural entities, in accordance with the signed
agreements, sold the State 2453.4 thousand tons of grain, including 2430.8 of wheat versus 2303.0 thou-
sand tons and 2262.0 thousand tons in 2005 respectively. Besides, the seed farms of the country have pre-
pared 264.3 thousand tons of seed fund for the harvest of 2007.

Comparing to the previous year, the grape production in the reporting year increased by 25.2 %, fruits and
berries – by 24.5%, vegetables – by 22.1%, melons and gourds – by 20.9% and potatoes – by 10.5%.

Among all types of agricultural entities, dekhkan entities keep the highest performance indicators regarding
the major types of crops (Table 6.3.4). The year of 2006 was specified by the growth of crop capacity re-
garding all types of crops (with the exception of raw cotton) among all types of agricultural entities. Favor-
able weather conditions and the governmental measures on improvement of soil reclamation and energy
saturation of agricultural production have had their positive impact on the crop capacity.

A number of projects aimed at the improvement of soil reclamation in the Republic of Karakalpakstan and in
Jizzakh, Surkhandarya, Sirdarya and Khorezm regions were implemented at the expense of budget and
other attracted funds. In 2006, 148 units of reclamation machines, including 107 excavators, 39 bulldozers
and 2 reclamation hydraulic dredges were supplied to cover the equipment needs.

In 2006, 2309 tractor-cultivator ТТZ, including 1703 on a leasing basis, about 1000 plowing caterpillar trac-
tors, 192 highly efficient grain combines and more than 2500 units of other machines were supplied to the
agrarian sector.

           Table 6.3.4. Crop Capacity by Certain Types of Economic Entities (centner/hectare)
                                               2005                                                     2006
      Product         All Types of    Agro -                                   All Types of
                                                                  Dekhkan                      Agro - En-                   Dekhkan
                       Economic       Enter-          Farms                     Economic                       Farms
                                                                  Entities                      terprises                   Entities
                        Entities      prises                                     Entities
Raw Cotton                   25.5       27.7          24.5               -           24.9           27.2          24.5             -
Grain                        39.8       37.3          38.3            52.2           41.3           35.6          40.3          52.6
Wheat                        41.5       39.6          39.7            54.5           42.7           37.1          41.7          55.2
Rice                         31.8       30.4          30.7            47.6           33.0           32.9          32.2          44.2
Potatoes                    170.3      109.7         132.5           175.2          175.2          139.3         158.6         177.6
Vegetables                  215.8      168.1         181.6           230.7          223.0          169.6         206.2         233.6
Food-Melons and
                             62.3      36.8           50.5            92.2           73.8           49.5          63.9          92.7
Gourds
Fruit and Berries          169.1      104.9          134.0           213.4          178.2          132.5         150.4         216.6
Grapes                       64.7      50.5           51.0            94.7           79.4           53.8          58.0          89.8
Source: The State Statistics Committee of Uzbekistan

In order to provide the most favorable conditions to the farms engaged in fruit-and-vegetable and grape-
cultivation sectors, 185 points for procurement and stocking of agricultural produce, 73 packaging production
points and 77 transport service stations were established. 199 local agricultural companies were established
within the process of development of fruit and vegetable and grape cultivation sectors according to the gov-
ernment resolution on organization of cooperation of agricultural producers, 34 thousand agreements were
signed to the amount of UZS 200 billion between agricultural companies and other economic entities. The
International Specialized Fair represented modern mini-technologies and compact equipment designed for
agricultural application was held, resulting in selecting of 217 food-processing projects worth UZS 9.5 billion.

Due to the development of farms and dekhkan entities and due to the measures the government took on
stimulation of increase in livestock population8, the situation in 2006 was improved comparing to the previous
year and the population of all kinds of livestock as well as the livestock output was increased. Thus, the
growth of livestock output increased by 2 percent points and made up 6.2% as compared to 2005.

Over the reviewed period, the cattle population among all types of agricultural entities amounted to 7044.6
thousand heads, including cows – 2982.5 thousand heads or increased by 7.8% as compared to the previ-
ous year, including cows - by 5.7% (Table 5). The population of sheep and goats also increased by 6.8%,
horses - by 2.7%, all kinds of poultry - by 17%. The average weight of cattle in overall livestock population in
dekhkan entities accounted for 92.8%, in farms– 5.3%, cows – 94.5 и 4.1% respectively, sheep and goats –
75.3 и 5.4% respectively, poultry – 68.7 and 3.6% respectively. The overall increase in livestock output has


8 Resolution of the Cabinet of Ministers of the Republic of Uzbekistan as of .2006, N 67 "On Measures for Realization of the Program on
Incentives for Development of Livestock Population, Mostly Cattle in Private Households, Dekhkan Entities and Farms in 2006-2010 "

 UZBEKISTAN ECONOMY                                                                                                                71
                                                  SECTORS OF ECONOMY


being reached due to the efforts applied to growth stimulation in livestock population among personal house-
holds, dekhkan and farm entities.

                            Table 6.3.5. Livestock and Poultry Population by All Types of
                                         Economic Entities (thousand heads)
                                              2005                                                     2006
                      All Types of     Agro –                                All Types of        Agro -
                                                              Dekhkan                                                       Dekhkan
                       Economic        Enter-       Farms                     Economic           Enter-     Farms
                                                              Entities                                                      Entities
                         Entities       prises                                 Entities          prises
 Cattle                    6534.9        177.2      330.2       6027.5            7044.6          130.4     375.6            6538.6
 Cows                      2821.3          59.7     105.4       2656.2            2982.5            43.0    121.3            2818.2
 Sheep and Goats         11248.4        2429.5      499.3       8319.6           12016.2         2313.8     649.4            9053.0
 Horses                     158.1          20.0      12.3        125.8             162.4            16.3     13.8             132.3
 Pigs                         87.6         18.5      13.6         55.5              93.1            15.6     15.0              62.5
 Poultry of all kinds    20670.6        5347.6      754.8      14568.2           24188.4         6703.4     875.8           16609.2
 Source: The State Statistics Committee of Uzbekistan

In accordance with the approved parameters, 29.5 thousand heads of cows were supplied to the low-income
families in rural areas. Besides, the commercial banks extended micro-credits to population to the amount of
more than UZS 31.7 billion for livestock purchase; 45.6 thousand heads of various types of livestock were
bought with this money. In 2006, 738 heads of pedigree stock was imported from abroad, 16.9 thousand
heads of high-yielding livestock was sold by auctions.

Due to this program, more than 750 thousand people have being classified as employed and 349.3 thousand
of them got new work record cards. People engaged in livestock breeding in their personal households and
dekhkan entities started the process of voluntary contributions to the Pension Fund. Thus, in 2006 more
than 150 thousand people signed the agreements with the Pension Fund.

During 2006, all types of agricultural economic entities produced 1139.4 thousand tons of meat (live weight),
which was 7.5 % more comparing to the previous year, 679.4 thousand tons of meat (slaughter weight) -
7.4% more, 4855.6 thousand tons of milk - 6.6% more, 2128.1 million units of eggs - 8.2 % more, 21.4 thou-
sand tons of wool - 6% more, 726.8 thousand units of astrakhan pelts - 7.6% more and 20 tons of silk co-
coons 25.3% more (Table 7).

In order to improve the service backup, infrastructure for veterinary service was developed; as a result, 404
stations of artificial insemination of the animals have being set, 166 auctions of pedigree stock have been
held and 374 outlets for mixed fodder sale have been set.

Over the reviewed year, in the light of intensification of the reforms in fruit and vegetable and grape cultiva-
tion sectors, more than 74 thousand farms, including 40 thousand farms specialized in gardening and grape
cultivation were organized due to reorganization of shirkats.

                   Table 6.3.6. Major Livestock Output by All Types of Economic Entities
                                                     2005                                                    2006
                     Unit        All Types of   Agro -                            All Types of      Agro -
                                                                    Dekhkan                                                   Dekhkan
                                  Economic      Enter-    Farms                    Economic         Enter-          Farms
                                                                    Entities                                                  Entities
                                   Entities     prises                              Entities        prises
Meat (Live
                   ‘000 tons        1060.4        36.5      22.6     1001.3          1139.4          37.0            24.2      1078.2
Weight)
Meat (Slaugh-
                   ‘000 tons         632.6        20.8      13.8         598.0         679.4         21.2            14.3       643.9
ter Weight)
Milk               ‘000 tons        4554.7        50.8      94.8     4409.1          4855.6          35.4           111.1      4709.1
Eggs             million units      1966.4       729.3      71.5     1165.6          2128.1         773.4            76.7      1278.0
Wool               ‘000 tons           20.1        3.5       0.6       16.0            21.4           3.2             0.9        17.3
Astrakhan
                  ‘000 units         675.2       259.9      24.8         390.5         726.8        218.4            31.6       476.6
Pelts
Silk Cocoons          tons             16.2        9.3       6.9         -              20.3          6.4            13.9         2.5
Source: The State Statistics Committee of Uzbekistan

As of 1 January 2007 there were 189.2 thousand private farms engaged in agricultural production. Over a
year their number increased by 63.5 thousand, the area of the assigned lands increased significantly - by
31.2% and amounted to 4953.2 thousand hectares, 2710.6 thousand hectares of which were allotted to
sown areas. Their share in the total structure of sown areas accounted for 74.5% (versus 58.7% in 2005).
The same indicator regarding technical cultures made up 86.6% (versus 57.7% in 2005), grain crops –
73.0% (68.2%), fodder – 60.5% (46.3), grapes – 59.1% (20.1%), melons and gourds – 51.9% (43.7%), fruit

72                                                                                                     UZBEKISTAN ECONOMY
                                                   SECTORS OF ECONOMY


and berries - 51.7% (26.4%), and vegetables – 29.1% (15.8%). Though the share of sown areas under pota-
toes is insignificant (only 9.9%), their share increased by 69.8% as compared to the previous year. The av-
erage size of farms’ land plots decreased from 30.0 hectares to 26.2 hectares in 2005. The number of em-
ployed on the farms increased by 426.9 thousand people and amounted to 1381.1 thousand people, 382.5
thousand of which were hired farm workers.

In the reporting year, contribution of           Table 6.3.7. Key Performance Indicators of Farms
private farms to gross agricultural                     Indicator                      Unit     2005                  2006
output kept growing due to their on-   Number of Farms                              ‘000 units   125.7                 189.2
going improvement.        Thus, their  Total Area Assigned to Farms               ‘000 hectares 3775.3                4953.2
share in gross agricultural output     Average Land Plot per Farm                    hectares     30.0                  26.2
increased from 24.5% to 32.2%.         Total Employed on Farms                     ‘000 people   954.2                1381.1
Though in 2006, the share of farms     Average Staff per Farm                         people       7.6                   7.3
in the livestock output remained in-   Share of Farms in Gross Agricultural
                                                                                        %         24.5                  32.2
significant (only 2.8%), more than     Output
half of the total crop output (54.6%)  - Crop Cultivation                               %         41.4                  54.6
was produced by farms. The growth      - Livestock Breeding                             %          2.5                   2.8
rate of production output among        Growth Rate of the Output of Farms               %        131.7                 144.1
farm entities remained stable and      - Crop Cultivation                               %        133.6                 145.4
accounted for 144.1% versus 131.7      - Livestock Breeding                             %        103.0                 117.4
% in 2005. The growth rates in-        Source: The State Statistics Committee of Uzbekistan
creased both in crop cultivation
(from 133.6% to 145.4%) and in livestock breeding (from 103.0 to 117.4%) (Table 6.3.8).

In 2006, the average weight of farms in grain production was 71.2% (versus 55.4% in 2005), raw cotton –
86.4% (66.3%), potatoes – 10.6% (5.0%), vegetables – 30.4% (13.7%), melons and gourds – 43.8%
(33.4%), fruits – 41.3% (18.5%), grapes – 50.8% (13.9 %), silk cocoons – 68.5% (42.7%). The crop capacity
among farms has increased by 5-38% as compared to dekhkan entities.

In 2006, in order to facilitate the activities of farms and other agricultural producers the following were estab-
lished: 336 outlets for the supply of fuel and lubricants, 254 outlets for the supply of mineral fertilizers, 622
alternative MTP – machine and tractor fleets, 482 Water Users Associations, 115 consulting centers and 282
mini-banks. The newly established mini-banks provided crediting to the farms on preferential terms to cover
the production costs of raw cotton and grain produced for the state needs.

In 2006, no cardinal changes took place                          Table 6.3.8. Key Performance Indicators of
in the operation of dekhkan entities.                                    Dekhkan (Peasant) Entities
They remain the major producers of ag-                             Indicator                   Unit          2005     2006
ricultural output, due to the significant             Number of Dekhkan Entities            ‘000 units       4544.0   4631.7
share of their products in livestock                  Cultivated Area                     ‘000 hectares       509.3    507.6
breeding. Their share in gross agricul-               Average Size of Dekhkan Entity         hectares          0.11     0.11
tural output accounted for 61.6% (versus              Share of Dekhkan Entities in
                                                                                                %              60.2     61.6
60.2% in 2005) (Table 6.3.8). They culti-             Gross Agricultural Output
vated 12.5% of sown area or 454.8 thou-               - Crop Cultivation                        %              35.5     37.8
sand hectares (increase by 12.9 thou-                 - Livestock Breeding                      %              92.5     93.1
sand hectares as compared to the previ-               Growth Rate of the Output of
                                                                                                %             106.5    104.7
                                                      Dekhkan Entities
ous year).
                                                      - Crop Cultivation                        %             109.9    101.4
                                                      - Livestock Breeding                      %             105.0    106.5
The crop capacity indicators among
                                                      Source: The State Statistics Committee of Uzbekistan
dekhkan entities remained 1.3-2 times
higher, than they were among private farms. At the same time, these indicators decreased versus farms’
indicators by 4-21% versus shirkats’9 – by 11-25%, as compared to the previous year.

In 2006, the work on reorganization of agricultural enterprises into farms continued; in accordance with the
approved measures of the government regarding intensification of reforms in fruit and vegetable and grape
cultivation, 666 shirkats were restructured into farms, including 219 ones specialized in fruit and vegetable
and grape cultivation. As a result, the tendency was maintained of a decreasing share of shirkats in gross
agricultural output, area under cultivation, production of major agricultural crops and in the total structure of
the livestock.




9 With the exception of grain crops (increase by 7.8%) and vegetables (increase by 0.5%)

 UZBEKISTAN ECONOMY                                                                                                       73
                                                   SECTORS OF ECONOMY


The number of shirkats decreased by 4112 enterprises, as compared to the previous year, their share in
gross agricultural output decreased from 15.3% to 6.1% and in sown area – from 1064.7 thousand hectares
to 472.0 thousand hectares (Table 6.39).

                    Table 6.3.9 Key Performance Indicators of Shirkats (Agro-Enterprises)
                             Indicator                           Unit       2005 г.               2006
     Number of Shirkats                                         units              7276                  3164
     Cultivated Area                                        ‘000 hectares         1064.7                 472.0
     Share of Shirkats in Gross Agricultural Output               %                 15.3                   6.1
     - Crop Cultivation                                           %                 23.1                   7.6
     - Livestock Breeding                                         %                  5.0                   4.1
     Growth Rate of the Output                                    %                 80.7                  47.0
     - Crop Cultivation                                           %                 79.2                  38.5
     - Livestock Breeding                                         %                 92.2                  95.1
     Source: The State Statistics Committee of Uzbekistan

Over the period of 1999 – 2006 years, 1773 shirkats were reorganized and more than 189.2 thousand farms
were established in their territory. In 2007, in accordance with the Decree of the President of the Republic of
Uzbekistan, it was decided to reorganize the reminder agricultural cooperatives into private farms.

Increase in number of private farms will demand the establishment of the corresponding production and
market infrastructure to provide these farms with material and technical resources and to render all kinds of
services to them. The enterprises of production and market infrastructure have to be located not far from the
farms and provide the whole range of the required services. In addition, it is necessary to improve the qual-
ity of the services with the minimum overhead expenses.

To stimulate the effective functioning of farms engaged in fruit and vegetable cultivation, it is advisable to pay
a special attention to further improvement of the newly established agricultural companies, timely advancing
of fruit and vegetable production, expanding the processing and production lines of the export oriented prod-
ucts.

To stimulate further development in livestock breeding, the following package of arrangements should to be
developed:
    – Optimization of the cropping structure of area under fodder as well as targeted use of land assigned
       to the specialized livestock breeding farms;
    – Qualitative development of pedigree stock-breeding, expansion of the services on artificial insemina-
       tion of the livestock;
    – Increase in output of adequate mixed fodder, taking into consideration import of the necessary raw
       material and ingredients; and
    – Proper equipping of veterinary stations and improvement of zoo-technical and veterinary services
       rendered to private households, dekhkan and farm entities.

6.4. Domestic Trade and Services
Sustainable economic development of retail trade and entire consumer sector should be supported by highly
developed wholesale system. Wholesale stage is an important chain linking industry and retail outlets and
ensures balance of their economic interests and satisfaction of consumers. Analysis of trends in
development of trade over the recent years revealed that domestic commodity producers gave up certain
share of domestic market largely due to inefficient operations of wholesale organizations, while rural retail
trade companies were cut off the sources of commodities.

Market transformations resulted in phasing out of wholesale stage due to several subjective causes. Over
the recent years the number of wholesale organizations increased 1.5 times while the turnover increased
only by 10%. More in-depth analysis identified other issues. The growth in the total turnover of wholesale
companies was mainly achieved due to intermediary activities, which they embarked in attempt to adapt to
market conditions. Supply of goods from wholesale warehouses in accordance to the chain “production –
wholesale - retail" was decreasing drastically. This affected the level of saturation of shops with goods and
trade services. Retail trading companies located in rural area had no access to resources and goods in wide
range. As a result, over the last five years, despite faster growth in the rural population, rural trade lacks
adequate development. In 2005 retail goods turnover in rural regions was 3.9 times less then in the urban
regions.


74                                                                                         UZBEKISTAN ECONOMY
                                          SECTORS OF ECONOMY


In view of the above, and with the purpose of creating favorable conditions for development of trade the
decision was made on creation of large wholesale link. In accordance with the Decree of the President of
Uzbekistan of 23 February 2006 No 3722 "On Measures for Liberalization of and Creation of Favorable
Conditions for Wholesale and Retail Trade” the Association of wholesalers was established. The association
includes 38 wholesale warehouses in the regions (19 of them specialize in foodstuffs and the remainder 19
in non-foodstuffs).

Positive results were observed in the trade market services. Retail turnover in 2006 increased by 14.8% as
opposed to 2005 and reached UZS 7460.8 billion (Annex 1). Growth in trade was observed in the entire
country. The fastest development rates were registered in Navoi, Surkhandarya and Khorezm regions (more
than 20%). Per capita sales of goods increased by 13.5% and reached UZS 281.42 thousand. This indicator
significantly varies by region, from UZS 134.4 in the Republic of Karakalpakstan to UZS 910.22 thousand in
Tashkent due to difference in income of the population and efficiency of trade organization.

The fastest growth of 20.1 % was observed in stores offering advanced forms of trade services. Share of
trade companies’ turnover in the total sales turnover increased from 26.5% to 29.5%. In 2006, the number of
newly emerged retail trade companies reached 2094, including 668 in rural area, while the number of new
public catering enterprises reached 578, including 242 in the rural area. 36 trade and everyday services
centers were set up. Of them more than 60% were organized in the rural area.

Wholesale turnover increased by 5.5% and reached approximately UZS 3 trillions. Approximately 40% of
retail turnover is supplied through wholesale network. There are also favorable trends towards increase in
sales of non-foodstuffs and expansion of their range due to domestically produced goods. Domestic market
of home appliances is also strengthening. While in 2003 the share of non-foodstuffs in the total turnover was
39.4% and in 2005 – 48.1%, in 2006 it reached 48.6%. Trade turnover in rural regions increased from 20.5%
in 2005 to 28% in 2006.
Major priorities for expansion of trade services in 2007 would include creation of additional wholesale
network, specifically in rural area and remote regions, enhancing of rural stores cooperation with industries
and wholesale organizations. In accordance with the Resolution of the President of Uzbekistan of 17 April
2007 No 325, 180 retain trade firms and 111 public catering enterprises suppose to be established in 2007.
As a result the share of trade turnover in rural areas, according to the estimates would increase from 28% to
35%.

Economic reform priorities in 2006 included acceleration of services sector development being an important
factor ensuring employment, growth in income and well-being of the population.

In order to implement practical actions in this area, the targeted program envisaging several incentives and
preferences aimed at development of services sector and measures which will be implemented in all towns
and villages (Resolution of the President of Uzbekistan of 17 April 2006, No 325).

The key targets of the Program include considerable increase in volume of services in GDP up to 49% by
2010. The above measures were developed taking into account foreign experience based on evaluation of
economic capacity of developed countries, where share of services account for 60-80% of GDP.

Implementation of the Program in 2006 enabled to noticeably expand the network of service enterprises.
Among the decisive growth factors we should mark the following:
– growth in a number of enterprises offering traditional services (11%) as well as firms offering innovative
services (30%). For instance, the number of retail trade enterprises grew by 41% and as of 1 January 2007
there were 52.6 thousand of such companies. The number of companies rendering every day services also
increased considerably by 4.9 thousand or 41% in 2006. Banking infrastructure increased by 21%. The
number of mini-banks increased by more than 360 units, savings banks – by more than 90 units. Compared
to 2005 there were qualitative structural transformations towards consumer services, services with use of
modern technologies as well as financial and transportation services.
– high adaptability to changes in services market, which from one hand strengthens positions of the subjects
and from the other hands leads to expansion of competitive environment and new types of activities and
service opportunities.
– services ensures relatively high returns due to incentives encouraging their growth. Likewise due to
incentives in 2006, financial services increased by 7.9%, every day services - by 15.8%, including repair of
equipment, cars - by 13.2% compared to the level of 2005. Over the Program year the increase in healthcare
services amounted almost 45%, education – 27% and services of sports organizations increased by 24%.

Other services, including those enjoying tax privileges, increased by 113.6% In some regions growth in
service sector is faster and exceeds the forecast considerably (Annex 6.4.5).

UZBEKISTAN ECONOMY                                                                                       75
                                            SECTORS OF ECONOMY



The national growth in services is secured at the level of 13.2% matching the Program target. In
Surkhandarya, Namangan, Samarkand and Khorezm regions the growth in services exceeds the national
average.The most dynamic growth was recorded in Oltinsoy district of Surkhandarya region, Chust district of
Namangan region (above 20%) and Muinakh district of Karakalpakstan (above 50%).

Share of services in GDP exceeded the Program target and reached 39.3% and in some regions like
Karakalpakstan and Tashkent City this share exceeds 50%. Practical experience of 2006 showed that
increase in services was facilitated by measures aimed at attraction of investment resources, including
foreign. The highest benefits were achieved in the course of implementation of the National Program for
Telecom Reconstruction and Development, Program of Computerization and Information Technologies
Development. This resulted in expansion of wireless telephone communication, growth in the number of
mobile telephony subscribers, development of coin-box telephony and points of collective access to the
Internet, as well as cable TV services.

At present, there are 400 new electronic digital telephone exchanges in line with international standards
offering many additional services. In Jizzakh and Andijan regions their number increased 5-6 times. As a
result, the range of better quality services expanded as well as the level of telephony coverage. The core
services are improving and additional services are being developed.

Joint project with Alkatel Shanghai Bell (China) envisages enhancement of quality and enabling access to
television services in remote areas through replacement of the respective transmitters. In December 2006
O’zbekiston TV channel was transformed to digtal format. It is envisaged that Uzbek programs would be
received both in Uzbekistan and Russia, East Europe, China, Mongolia, India and Afghanistan.

Implementation of measures aimed at enhancement of telecommunication technologies enabled in 2006 to
cover 200 remote villages with television broadcasting, including more than 50 remote areas of
Surkhandarya region and more than 30 in Navoi and Kashkadarya regions.

Among financial services for rural consumers there was a growth in leasing transactions.
UzKishloqKhujaliqMachLeasing, over 2006, signed contracts with farmers for 4.2 units of agricultural
machinery. Currently agricultural producers in Surkhandarya, Samarkand and Bukhara regions use
approximately 1 thousand units of agricultural machinery purchased through capital leasing. In 2006 the
number of leasing operations increased by 38.7% compared to 2005 and amounted to 3.7 thousand
transactions. As a result, volumes of leasing services increased by 17.3%.

The practice confirms the axiom that development of services immediately provides for vital interest of
people and is a reliable source for increase of income and wealth of the bulk of the population and in addition
helps resolving employment issues without considerable investment.                Besides, support of local
administrations (khokimiyates) play very important role, because timely allocation of the land plot and
available production premises as well as other measures facilitate involvement of funds of entrepreneurs to
this important sector.

Development of the service sector in the last year created 137 thousand jobs. For instance, in Khanka
district of Khorezm region 1.5 thousand new jobs were created.

Creation of information and library centers and universal scientific libraries provides new opportunities for
information servicing of the population and encourages education and self-training. Likewise in 2006 the
information-library center was established in Jizzakh city at regional universal scientific library. In addition to
traditional services the center is rendering a range of information services for readers in the region. The
services include access to the Internet and other computer services. In addition to the Internet databases
the readers can take advantage of internal resources of the center. Such types of services are being actively
developed in information and library centers in Bukhra, Fergana and Samarkand regions where the users
can have access to Internet and Media center services as well the local resources and databases.

Information centers at general education schools are also being developed. Their number reached 211 and
the most exemplary among them are center at Urgench city school No 9, center at Tashkent city school No
97 and center at Karshi city school No 1. Such information and resource centers help students receive
additional knowledge and teachers -- use information for preparation of lectures, lessons and presentations.

Trade infrastructure is also developing. Over the period of 2006 the number of newly-established stores
reached 2094, including 668 in rural area, 36 trade and services centers of Guzar type, including 23 in rural
area, as well as 576 public catering enterprises and 100 trade fairs were arranged for sales of agricultural

76                                                                                      UZBEKISTAN ECONOMY
                                           SECTORS OF ECONOMY


produce to urban residents. Evolving of infrastructure and measures for strengthening wholesale link
facilitates growth in retail turnover which grew 14.8%.

Fee-based services were also developing. Over 2006 growth in fee-based services for individuals grew
19.3%, which considerably exceeded the forecast (Annex 3). Changes in volume of services caused
changes in their structure. The share of everyday services is steadily decreasing. Structural shifts signal that
there are still certain distortions in satisfying consumer needs in different types of domestic everyday
services. Specifics of the territories and solvent demand of the population stipulates differences in the
domestic services consumption structure by region, for instance while in the five most affluent regions
domestic services account for 20% of the total services, in the other – are far below this level.

Overall, the analysis indicate that in 2006 per capita volume of fee-based services was UZS 82.5 thousand
which makes up 118.1% to the level of 2005 and exceeds the level of 2000 twice. The growth of the
respective per capita indicator in Sirdarya region was 30%, and exceeded 20% in Namangan, Samarkand,
Fergana and Khorezm regions.

Compared to 2000 fee-based services in Andijan regions increased 3 times and reached UZS 83.3
thousand, while in Tashkent city this indicator increased 1.8 times and reached UZS 317 thousand
respectively. Overall, in 2006 the volume of fee-based services increased 19.3% which is considerably
higher that it has been envisaged in the forecast and in six regions of the country the increase was 1.3.
times.

At the same time, there is still some potential for growth, especially in rural areas as outcomes of 2006
indicate:
a) travel services for foreigners are still underdeveloped. Poor quality of service, including transportation
services and hotel services hinder adequate expansion of services for tourists visiting Uzbekistan. In
general, physical volumes of travel services remained at the level of 2005, and the target of 15% growth was
not met. Six regions of the country failed ensure the target growth (including Andijan, Namangan,
Samarkand and Khorezm regions).
Despite efficiency of measures in the financial sector and considerable increase in services by financial and
banking institutions, the actual growth rates were 7.9%, which was below the target. The growth was
ensured due to considerable acceleration of the sector development in the five regions (including Andijan,
Bukhara, Khorezm and Tashkent city). In four regions physical volumes of financial services decreased as
opposed to the level of 2005.
Some targets in public utilities sector services, including installation of cold water consumption meters in
apartment houses are not being met. The target for creation of centers for repair and installation of the said
devices was not met due to major failure in Fergana region. In eight villages of in Samarkand and
Surkhandarya regions centralized natural gas supply was not arranged.
The nation-wide target for growth of fee-based services was met with the exception of Bukhara region.

b) services are mainly perceived as general services such as shoe repairing, hair dressing, photo and rental.
Therefore in 2007 it would be advisable to continue facilitating increase in the share of banking, financial and
educational services.

c) small commodity production is also still underdeveloped. There are 4.9 general service enterprises in the
country, including 550 entities engaged in shoe making and repair, 442 dress making entities and 706
hairdressing salons. However, this infrastructure is not sufficient. In many villages there were no such
entities. Our studies and surveys indicate that in order to attain the adequate level of supply, for instance, in
Norin district of Namangan region with the population of 124 thousand people it would be necessary to
create more than 130 entities, including 12 stores, 24 shoe-making workshops, 39 photo-studios and so
forth. Development of outwork may be also viewed as a new factor accelerating growth in services.

d) communication services should be further developed, especially in remote areas and emphasis on
modernization of post offices in rural regions. Such types of services should be developed aggressively
through:
 - equipping service infrastructure with means of electronic communication, including rural areas and
     remote districts;
 - creating information centers for commodity producers, logistics centers for processing of exported
     cargos with electronic data bases on tariffs for shipments, highways, services and transport
     infrastructure; and
 - implementing of web resources for distance education, self-training and additional training.

e) in trade and public catering special emphasis should be made on improving quality.

UZBEKISTAN ECONOMY                                                                                           77
                                           SECTORS OF ECONOMY


f) public utility services should take into account requirement of the consumers and their protection should be
improved. Therefore legal services in the area of consumer protection rendered by regional subdivisions of
the Federation of Consumer Protection Societies should be expanded more dynamically. The public
awareness of the legal norms regulating municipal and public utility services should be increased using mass
media and social advertizing.

Therefore in order to strengthen and expand positive achievements of 2006 in the service sector we would
propose the following:
1) UzbekTourism company, jointly with the Ministry for Foreign Economic Relations, Investment and Trade,
Ministry of Economy and other ministries and agencies concerned should develop draft program for tourism
development. The draft should envisage development of various areas of tourism, including topical, sports,
business, environmental, archaeological, health and other. The key precondition for expansion of travel
services should be creation of infrastructure with attraction of foreign and private capital. The targeted
program should form national travel industry in the country, increase competitiveness of the economy and
preserve and efficiently use cultural and natural heritage of Uzbekistan.

2) the Central Bank, Ministry of Finance joinly with commercial banks, insurance, leasing and auditing
organizaitons should develop and approve set of measures for considerable increase of banking and
financial services, envisaging the following:
  - active development and expansion of new forms of bank crediting related to attraction of savings,
     primarily consumer crediting for purchase of domestically produced goods and mortgage crediting;
  - introduction of new finanicial services and products, micro-crediting for start-up capital on soft terms,
     including in services sector, expansion of micro-leasing in agriculture and the processing sector;
  - expantion of the mini-bank network and enhancement of their services;
  - wide application of plastic cards for settlements, specifically for services; and
  - development of market infrastructure institutes, primarily organizations offering insurance and leasing
     services and mobilizing available savings of the population.

3) Uzbek Agency of Communications and Informatization should undertake measures for timely and
complete implementation of targeted modernization of post office network envisaged in this year and
developement and implementation of new types of services on the basis of infromation and communication
technologies up to 2010.

4 UzCommunKhizmat Agency jointly with the Ministry of Justice should review the effective procedure of
rendering public utility services with the view of better protection of consumer rights.




78                                                                                   UZBEKISTAN ECONOMY
                                Annex 6.2.1 Consumer Goods Production by Regions of the Republic of Uzbekistan in 2006
                                                                           Growth rate to the previous      Output per capita    Rank of the region on     Share of the region in total
                      Region                   Output (billion UZS)
  #                                                                                 year (%)                 (thousand UZS)        output per capita              output (%)
       Republic of Uzbekistan                 3375.6         4069.7            117.7           120.6       129.00       153.66                                 100.0           100.0
 1.      Republic of Karakalpakstan               49.1         54.6            112.9           111.3        31.26        34.62       14             14           1.5              1.3
 2.      Andijan region                         965.1        1239.2            147.3           128.4       409.06       517.56        1              1          28.6            30.4
 3.      Bukhara region                         255.1         265.7            107.8           104.1       168.19       173.11        3              3           7.6              6.5
 4.      Jizzakh region                           84.8         98.1            119.0           115.7        80.97        92.69        8              7           2.5              2.4
 5.      Kashkadarya region                     122.0         142.4            111.4           116.7        50.84        58.30       12             12           3.6              3.5
 6.      Navoi region                             69.0         72.9            103.9           105.7        85.03        89.35        7              8           2.0              1.8
 7.      Namangan region                        122.5         139.2            107.7           113.6        58.66        65.70       11             10           3.6              3.4
 8.      Samarkand region                       272.3         359.3            105.5           132.0        94.31       122.59        6              6           8.1              8.8
 9.      Surkhandarya region                      73.3         95.2             94.7           129.9        38.38        49.05       13             13           2.2              2.3
 10.     Sirdarya region                          46.7         57.6            100.2           123.3        69.23        84.67        9              9           1.4              1.4
 11.     Tashkent region                        355.8         384.8            109.9           108.1       144.63       155.19        4              4          10.5              9.5
 12.     Fergana region                         328.5         359.1            108.9           109.3       114.86       123.90        5              5           9.7              8.8
 13.     Khorezm region                           75.7         92.2            104.1           121.8        52.45        62.91       10             11           2.2              2.3
 14.     Tashkent city                          555.7         709.4            115.1           127.7       259.90       330.18        2              2          16.5            17.4
Source: State Statistics Committee of the Republic of Uzbekistan

                                           Annex 6.2.1 continued: Macrostructure of Consumer Goods Output in 2006
                                                                Consumer goods production                                        Growth rate of consumer goods output
                                                                      (million UZS)                                                           to 2005 (%)
                     Region                                                     Including:                                                            Including:
 #
                                                Total                                                Of them: light     Total                                          Of them: light
                                                             Foodstuffs         Non-foodstuffs                                   Foodstuffs       Non-foodstuffs
                                                                                                    industry goods                                                    industry goods
         Republic of Uzbekistan               4069681           1699309               2370372            314888.5       120.6          117.3             123.1                  100.9
 1.      Republic of Karakalpakstan           54639.3            46466.9                8172.4             3419.2       111.3          111.7             109.2                    82.6
 2.      Andijan region                       1239233            79306.3              1159927             36436.5       128.4          121.5             128.9                    83.2
 3.      Bukhara region                      265639.6             106982             158657.6             57780.8       104.1          105.0             103.5                  103.4
 4.      Jizzakh region                       98136.3            77228.3                 20908             3019.7       115.7          105.3             182.7                  125.5
 5.      Kashkadarya region                    142395          117243.1               25151.9             16572.3       116.7          116.4             118.2                  123.2
 6.      Navoi region                          72895.4           33934.4                 38961             6669.4       105.7          110.3             102.0                    89.3
 7.      Namangan region                        139206         102250.7                36955.3            23659.3       113.6          122.3              95.0                    82.6
 8.      Samarkand region                    359325.9             172857             186468.9             24021.5       132.0          118.7             147.3                  127.8
 9.      Surkhandarya region                     95197           81031.9               14165.1             5574.1       129.9          125.6             161.6                  135.7
 10.     Sirdarya region                       57576.2           50076.5                7499.7               5060       123.3          120.4             147.0                  168.5
 11.     Tashkent region                     384750.9          207844.6              176906.3             36810.7       108.1          109.6             106.4                    83.6
 12.     Fergana region                      359066.2          108552.4              250513.8               28287       109.3          125.2             103.6                    88.4
 13.     Khorezm region                        92219.8           63815.1               28404.7            17663.2       121.8          127.8             110.2                  108.6
 14.     Tashkent city                       709400.6          451719.5              257681.1             49914.8       127.7          120.8             141.9                  131.5
Source: State Statistics Committee of the Republic of Uzbekistan
                                          Annex 6.2.1 Macrostructure of Consumer Goods Output in 2006 (continued)
                                                          Macrostructure of consumer goods output ( in % to their total output)
                                                                         2006                                                                   2005
  #                   Region                                                 Including:                                                             Including::
                                             Total                                         Of them: light          Total                                            Of them: light
                                                         Foodstuffs     Non-foodstuffs                                            Foodstuffs     Non-foodstuffs
                                                                                          industry goods                                                           industry goods
         Republic of Uzbekistan             100.00              41.8              58.2                 7.7          100.0                44.4               55.6                 10
 1.      Republic of Karakalpakstan         100.00             85.04             14.96                6.26          100.0                88.4               11.6                8.1
 2.      Andijan region                     100.00               6.4              93.6                 2.9          100.0                34.3               65.7                4.5
 3.      Bukhara region                     100.00              40.3              59.7                21.8          100.0                43.8               56.2              23.6
 4.      Jizzakh region                     100.00              78.7              21.3                 3.1          100.0                89.1               10.9                2.9
 5.      Kashkadarya region                 100.00              82.3              17.7                11.6          100.0                81.6               18.4              13.7
 6.      Navoi region                       100.00              46.6              53.4                 9.1          100.0                44.3               55.7              13.5
 7.      Namangan region                    100.00              73.5              26.5                17.0          100.0                69.5               30.5              23.6
 8.      Samarkand region                   100.00              48.1              51.9                 6.7          100.0                52.8               47.2                6.9
 9.      Surkhandarya region                100.00              85.1              14.9                 5.9          100.0                86.9               13.1                4.8
 10.     Sirdarya region                    100.00              87.0              13.0                 8.8          100.0                86.7               13.3                7.2
 11.     Tashkent region                    100.00              54.0              46.0                 9.6          100.0                59.0               41.0              11.7
 12.     Fergana region                     100.00              30.2              69.8                 7.9          100.0                30.6               69.4              13.3
 13.     Khorezm region                     100.00              69.2              30.8                19.2          100.0                66.2               33.8              22.8
 14.     Tashkent city                      100.00              63.7              36.3                 7.0          100.0                62.1               37.9                5.6
Source: State Statistics Committee of the Republic of Uzbekistan
               Annex 6.2.2 Output of Consumer Goods in 2006 in Uzbekistan
                                                                                    Output
  #                Goods                          Unit
                                                                     2005        2006        Growth rate, %
Foodstuffs
  1.      Flour                                Thousand tons         1319.2     1348.7                102.2
  2.      Cereals                              Thousand tons             23.1       15.9                69.1
  3.      Mixed fodder                         Thousand tons           400.4      492.9               123.1
  4.      Pasta                                Thousand tons            17.6       21.2               120.4
  5.      Bread and baked products             Thousand tons            31.2       29.3                 93.8
  6.      Vegetable oil                        Thousand tons          252.9         285               112.7
  7.      Refined oil                          Thousand tons          220.4       250.9               113.9
  8.      Margarine                                  Tons             21253      21937                103.2
  9.      Sausages                                   Tons                129         93                 72.1
 10.      Animal oil                                 Tons                   6        21                 28.8
 11.      Ice-cream                                  Tons              2529       3184                125.9
 12.      Canned meat                     Thousand standard cans         851      1690                198.6
 13.      Juice                           Thousand standard cans     17805       20522                115.3
 14.      Tea                                        Tons               6739     10037                148.9
 15.      Sugar                                      Tons           146381      170579                116.5
 16.      Salt                                       Tons            27462       27510                100.2
 17.      Soft drinks                       Thousand deciliters        4501        9131             2 times
          Canned fruit and vegeta-
 18.                                      Thousand standard cans.   148267      202758               136.8
          bles
 19.      Wine                              Thousand deciliters       2413        2309                95.7
 20.      Vodka and liquor                  Thousand deciliters       5794        6514               112.4
 21.      Brandy                            Thousand deciliters         29          33               113.8
 22.      Sparkling wine                    Thousand deciliters        168         105                62.5
Non-foodstuffs
 23.      Cotton fabrics                   Million square meters     240.2       166.7                  69.4
 24.      Silk fabrics                    Thousand square meters      3173        3134                  98.8
 25.      Knitwear goods                      Thousand units         26801       28889                107.8
 26.      Hosiery                             Thousand pairs.        17589        6792                  38.6
 27.      Medications                            Million UZS          3409        2481                  72.8
 28.      Disposable droppers                 Thousand units           179          57                  31.8
 29.      Disposable syringes                 Thousand units            14          10                  71.4
 30.      Small ware                             Million UZS          2896       16215            5.6 times
 31.      Carpets and carpet goods        Thousand square meters      7908        9778                123.6
 32.      Footwear                               Million UZS          6078      6947.4                114.3
 33.      Laundry soap                               Tons            51416       53730                104.5
 34.      Face soap                                  Tons              513         520                101.4
          Filterless and regular ciga-
 35.                                             Million units        5261        7903               150.2
          rettes
 36.      Refrigerators                              Units             720        5044              7 times
 37.      Washing machines                           Units             660         675                102.3
 38.      Irons                                      Units            1746         503                  28.8
 39.      Cars                                       Units          101293      140189                138.4
 40       Gas stoves                          Thousand units            3.1          2                  64.5
 41.      Steel crockery                         Million UZS          1563      3753.1            2.4 times
 42.      Children's bicycle                         Units            1918         140                   7.3
 43.      China and faience crockery             Million UZS          2600        3405                132.7
Source: State Statistics Committee of the Republic of Uzbekistan
                                                                          Annex 6.4.1 Retail Turnover by Region, 2006
                                      Retail turnover (UZS billion)              Share of trade firms' turn-                                                   Retail turnover (UZS   Wholesale turnover to
                                                                                                                    Per capita turnover (UZS thousand)
                                                        Including                over in the total turnover                                                            billion)          retail turnover
        Region                          In % of                        In % of
                              total                    turnover of                                                        Rank of                  Rank of                 In % of
                                         2005                           2005        2006           2005         2006                    2005                    Total                   2006        2005
                                                       trade firms                                                       the region               the region                2005
 Republic of Uzbekistan     7453.7         114.7          2200.7       120.1          29.5            26.5     281.42                 213.15                   2979.8       105.5        40.0        39.2
 Republic of Karakal-
                             211.9         113.4             75.9      117.8          35.8            34.4     134.36          14      99.82             14      70.3        78.9        33.2        26.9
 pakstan
 Andijan region              642.8         111.8            167.8      119.3          26.1            24.4     268.47           4     210.83              3     203.5        85.0        31.7        29.6
 Bukhara region              388.3         111.1            107.3       120           27.6            25.6     252.98           6     196.41              6     195.5       138.6        50.3        32.9
 Jizzakh region              169.1         115.5             48.2      132.6          28.5            24.8     159.77          13     120.40             13      62.8       100.0        37.1        45.4
 Kashkadarya region          468.8         112.1             95.7      132.5          20.4            17.3     191.94          10     152.45              9     141.9       130.6        30.3        20.0
 Navoi region                236.6         120.4             67.4      102.5          28.5            33.5     289.99           3     208.01              4      68.5        79.6        29.0        28.0
 Namangan region             442.5         118.5            105.6      111.4          23.9            25.4     208.85           9     154.57              8     103.7       106.0        23.4        20.3
 Samarkand region            534.0         108.3            137.0      106.4          25.7            26.1     182.20          11     146.67             11     148.6        89.0        27.8        32.5
 Surkhandarya region         438.3         124.2             87.5      135.5          20.0            18.3     225.82           7     161.68              7      75.3        82.0        17.2        25.7
 Sirdarya region             116.2         113.4             41.6      121.4          35.8            33.5     170.81          12     130.15             12     353.7       136.2       304.4       166.5
 Tashkent region             763.3         110.0            218.8      121.6          28.7            25.9     307.83           2     241.33              2     399.8       111.3        52.4        54.6
 Fergana region              764.6         111.0            203.2      132.9          26.6            22.2     263.82           5     207.87              5     257.6       102.6        33.7        33.7
 Khorezm region              321.7         127.0            108.7        137          33.8            31.3     219.49           8     150.07             10      55.3        88.5        17.2        17.8
 Tashkent City              1955.6         117.4            736.0      116.4          37.6            37.9     910.22           1     662.69              1     843.3        107         43.1        51.6
Source: State Statistics Committee of the Republic of Uzbekistan

                                                        Annex 6.4.2. Fulfilling of Targeted Development Parameters for Service
                                                                               Sector of Uzbekistan in 2006
                                                                                                                              In % of 2005
                                                                      Types of Services                             Growth in Volume of Services (%)
                                                                                                                    Forecast                  actual
                                                Share of Services in GDP (%)                                                 39.0                     39.5
                                                Services - total                                                            113.2                    113.2
                                                 Trade and public catering                                                  113.5                    113.5
                                                 Transportation                                                             110.0                    123.8
                                                 Communication and Informatization                                          120.0                    142.8
                                                 Financial and banking services                                             111.8                    107.9
                                                 Travel services                                                            115.0                    105.2
                                                 Hotel services                                                             115.0                    114.3
                                                 Public utilities and general services                                      112.0                    102.7
                                                 Repair of vehicles and other machinery and equipment                       116.0                    113.2
                                                 Other services                                                             111.8                    121.9
                                                Source: State Statistics Committee of the Republic of Uzbekistan
                        Continue annex 6.4.2 Fulfilling of Targeted Development Parameters for Service Sector of Uzbekistan in 2006
                                                                 Services - total                                                              Including:
                                    Share of Services in                                                                                          Communications and
                                                                                             Trade services                Transportation                                         Finance and banking
            Region                       GRP (%)                Fore-                                                                                Informatization
                                                                            actual
                                                                cast
                                                                                         Forecast        actual       Forecast        actual     Forecast           actual      Forecast          actual
                                   Forecast       actual
Republic of Uzbekistan (GDP)            39.0         39.3      113.2        113.2          113.5         113.5            110.0       123.8       120.0             142.8         111.8           107.9
 Republic of Karakalpakstan             51.2         54.1      115.0        111.0          101.5         113.4            103.0       109.2       109.4             152.0         111.8           89.3
 Andijan reg.                           33.1         39.0      103.1        117.0          103.1         106.2            104.9       116.2       116.2             179.6         111.8           115.8
 Bukhara reg.                           30.6         33.6      111.3        112.3          111.2         119.0            105.0       127.1       105.3             143.0         102.0           113.8
 Jizzakh reg.                           34.8         38.8      108.3        106.2          105.0         113.6            106.0       119.4       107.0             168.2         130.8           105.3
 Kashkadarya reg.                       30.0         28.2      110.0        108.6          107.0         113.6            107.3       126.2       111.5             167.7         108.1           94.6
 Navoi reg.                             27.2         26.8      114.5        113.1          113.0         121.4            117.5       130.0       119.0             130.0         118.0           84.1
 Namangan reg.                          36.9         38.7      125.0        121.0          113.5         111.7            110.0       146.7       115.0             160.2         110.0           101.2
 Samarkand reg.                         34.9         26.3      116.0        119.4          105.0         106.9            112.0       112.5       120.0             152.1         111.8           96.9
 Surkhandarya reg.                      32.1         39.3      117.0        116.2          115.0         120.0            118.0       130.7       115.0             167.0         105.0           105.3
 Sirdarya reg.                          30.5         29.3      111.6        107.7          115.7         116.8            108.0       123.4       103.2             168.4         100.4           98.7
 Tashkent reg.                          30.7         23.6      113.2        113.8          113.5         112.5            110.0       124.3       121.0             140.6         127.0           129.1
 Fergana reg.                           34.5         30.4      117.0        116.2          104.7         108.5            109.8       120.6       121.0             177.1         122.0           107.3
 Khorezm reg.                           33.9         31.2      106.0        111.8          103.0         119.4            114.0       119.0       121.0             159.8         108.0           120.4
 Tashkent City                          60.9         71.7      129.7        113.0          134.7         115.8            104.8       116.0       119.0             134.9         102.8           119.1
Source: State Statistics Committee of the Republic of Uzbekistan

                        Continue annex 6.4.2 Fulfilling of Targeted Development Parameters for Service Sector of Uzbekistan in 2006
                                                                                                                   Including:
                                                       Travel                        Hotel services         Public utilities and general           Vehicle repair                Other services
                  Region
                                            Forecast            actual       Forecast          actual         Forecast            actual       Forecast       actual         Forecast       actual
     Republic of Uzbekistan (GDP)               115.0            105.2          115.0            114.3            112.0             100.7        116.0         113.2            111.7         113.6
      Republic of Karakalpakstan                105.0            126.7          106.0            115.1            115.0              97.3        113.0         107.6            124.1         102.0
      Andijan reg.                              112.3            107.9          112.9        1.8 times            112.0              99.0        106.4         121.2            112.0          90.9
      Bukhara reg.                              100.1            101.5          113.0            111.9            106.0             134.2        102.5         147.7            108.3          94.4
      Jizzakh reg.                              107.0            130.0          104.0            124.4            108.1             113.1        105.0         114.9            108.0          81.4
      Kashkadarya reg.                          105.5            125.8          110.0            111.8            121.0             100.3        115.0          94.5            111.7          84.0
      Navoi reg.                                111.0            142.2          105.4            109.2            120.1             102.9        115.7         145.3            108.5         118.0
      Namangan reg.                             125.0            122.4          115.0            109.2            119.0             110.1        116.0         106.8            111.7         112.0
      Samarkand reg.                            115.0            101.6          110.0            141.8            108.9             102.9        116.0         107.5            112.0         107.0
      Surkhandarya reg.                         112.0            106.8          117.0            116.0            111.0              90.2        122.0         168.0            125.0         111.0
      Sirdarya reg.                                              116.6          110.5            113.7            103.0             119.7        106.0          71.9            113.3         107.0
      Tashkent reg.                             117.0            140.7          115.0            113.8            112.0             116.9        116.0          78.0            111.7         117.0
      Fergana reg.                              108.0        2.4 times          109.0            125.7            115.0              74.1        129.0         121.5            126.0         120.0
      Khorezm reg.                              112.0            104.9          128.0            106.1            114.0              97.3        123.0         131.9            114.0         118.0
      Tashkent City                             117.0              86.2         111.3            109.5            112.0              84.6        114.0         105.9            124.2         118.0
     Source: State Statistics Committee of the Republic of Uzbekistan
                 Annex 6.4.3. Fulfillment of Target for Jobs Creation in 2006 for Uzbekistan (persons)
                            Region                                2006                     Fulfillment, %                +,-
               Republic of Uzbekistan                     93279            136842                    146.7                     43563
                Republic of Karakalpakstan                  569               5622                   988.0                      5053
                Regions:
                Andijan                                   20736              20823                  100.4                         87
                Bukhara                                    1669              14005                  839.1                      12336
                Jizzakh                                    1866               2060                  110.4                        194
                Kashkadarya                                2380               4110                  172.7                       1730
                Navoi                                      2190               3209                  146.5                       1019
                Namangan                                   8750               8807                  100.7                         57
                Samarkand                                  1208               1208                  100.0                          0
                Surkhandarya                              21250              24389                  114.8                       3139
                Sirdarya                                   1815               1929                  106.3                        114
                Tashkent                                   7619               8293                  108.8                        674
                Fergana                                    1315              13975                 1062.7                      12660
                Khorezm                                    3174               7092                  223.4                       3918
                Tashkent City                             18738              21320                  113.8                       2582
               Source: State Statistics Committee of the Republic of Uzbekistan

                           Annex 6.4.4. Development of Fee-based Services in Uzbekistan, 2006
                                                Fee-based services                                      Including general services
                                                             actual                           actual                 Share of general services in the
            Region
                                   Target (%)                         In % of                          In % of        total fee-based services (%)
                                                   UZS million                       UZS million
                                                                       2005                              2005           2006              2005
Republic of Uzbekistan                  117.5        2180580.7           119.3        297523.2            115.8            13.6                 15.0
 Republic of Karakalpakstan             115.0           49954.1          116.4          3692.1            116.4              7.4                 7.2
 Regions:
 Andijan                                119.0          199351.2         119.1          36104.2           117.0             18.1                20.5
 Bukhara                                118.0          116707.0         115.1          21261.9           107.5             18.2                21.2
 Jizzakh                                115.0           39854.4         115.0           7596.3           106.8             19.1                22.3
 Kashkadarya                            121.0          100103.4         125.2          25419.0           120.7             25.4                28.8
 Navoi                                  119.0           61192.1         119.5           9128.0           104.0             14.9                16.9
 Namangan                               125.0          104568.4         126.7          25172.2           113.4             24.1                27.9
 Samarkand                              116.0          177166.7         124.7          29365.6           122.7             16.6                17.3
 Surkhandarya                           111.0           70263.5         111.2          13224.4           133.9             18.8                17.3
 Sirdarya                               112.4           27087.6         130.5           2251.1           110.1              8.3                 8.4
 Tashkent                               117.0          135569.8         118.8          20010.9           114.2             14.8                16.9
 Fergana                                117.0          164968.0         123.1          46643.6           123.8             28.3                29.3
 Khorezm                                118.0           88886.5         126.7          19193.9           123.4             21.6                24.0
 Tashkent City                          116.0          678092.6         116.0          38460.0           102.5              5.7                 7.0
Source: State Statistics Committee of the Republic of Uzbekistan
                           DEMOGRAPHIC SETTING, EMPLOYMENT AND LABOR MARKET


7. Demographic Setting, Employment and Labor Market
Population. As of 1 January 2007, the population of the Republic of Uzbekistan reached 26,663.8 thousand
people. During the year, it increased by 351.1 thousand people or by 1.3 % as compared to 2005. In 2006,
the growth rate of the population slightly accelerated. During 2005, the increase in the population amounted
to 291.4 thousand people or 1.1% (Table 7.1.).

                                Table 7.1. The Population Dynamics of Uzbekistan
                            Total Population                           Urban                               Rural
       Year       Total, thousand     Increase during     Total, thou-    Increase during   Total, thou-      Increase during
                      people            the year, %      sand people         the year, %    sand people          the year, %
     2000                 24487.7                1.5          9165.5                  0.9      15322.2                    1.8
     2001                 24813.3                1.3          9225.3                  0.7      15587.8                    1.7
     2002                 25115.8                1.2          9286.9                  0.7      15828.9                    1.5
     2003                 25427.9                1.2          9340.7                  0.6      16087.2                    1.6
     2004                 25707.4                1.1          9381.3                  0.4      16326.1                    1.5
     2005                 26021.3                1.2          9441.9                  0.6      16579.4                    1.6
     2006                 26312.7                1.1          9495.1                  0.6      16817.6                    1.4
     2007                 26663.8                1.3          9584.6                  0.9      17079.2                    1.5
     Source: The State Statistics Committee of Uzbekistan

Demographic changes were effected by changes in natural growth rates and migration processes. During
the year urban population grew by 89.5 thousand people (or 25.5%) and rural population grew by 261.6
thousand (74.5%). It indicates that significant part of growth occurred in rural areas. However, in 2006, the
urban population began to grow faster compared to the previous years. The number of urban population in
2006 turned out to be by 36.3 thousand people higher than in 2005. Considering further development of
such positive tendency, we might expect that the decrease in urban population, which had place within re-
cent years, will stop.

Regional analysis showed that, the population of certain regions grew with significantly higher rates. In
2006, the average population growth rate was 1.3%. In Kashkadarya and Surkhandarya regions the popula-
tion growth rate was 1.7%, and in Samarkand and Khorezm regions, it exceeded 1.6%. In Tashkent City and
Sirdarya region growth rates of population was the lowest. (During 2006 their population increased merely by
7.4 thousand people and 16.5 thousand people respectively). However, due to rapid growth of Tashkent
city’s population, the situation is slightly changing. In 2005, it increased by 4.9 thousand people, and during
2006 – by 16.5 thousand people, or 3.4 times more. These changes indicted that Tashkent City played the
significant part in urbanization processes. It also implies that the growth of city is important for further socio-
economic and demographic development of the country.

The birth rate is still the major factor in population growth of Uzbekistan. Therein, no major changes took
place in 2006, the number of newborns increased by 4.2% (555.9 thousand newborns in 2006 versus 533.5
thousand newborns in 2005). Nevertheless, it is important that despite a slight increase in 22.4 thousand
people, there is a steady decline of the birth rate both in rural and urban areas of the country. More than two
thirds of newborns (69%) were registered in rural areas; however, these figures also indicated certain
changes in favor of the urban population, the share of urban newborns increased from 30.8% in 2005 to
31.2% in 2006.

The number of deceased was 139.6 thousand people in 2006. Decreasing trend of death rates also re-
mained stable; the number of deceased decreased by 963 people compared to 2005, which reflected in de-
crease of the overall death coefficient. However death rate of urban area decreased (by 1816 people.),
whereas for rural area rates increased (by 853 people). The correlation of births and deaths maintained a
stable natural increase in the population of the country, which amounted to 416.3 thousand people (versus
392.9 thousand people in 2005).

As for the structure of the population, there are some specific features there. At the beginning of 2007,
shares of men and women were equal (amounted to 13.3 million people respectively). The average weight
of the population under the able-bodied age (under age of 16) accounted for 34.6 % of total population. The
number of able-bodied population (16-55(60) years) which amounted to 15.5 million people, or 58.3 %, re-
mained quite high. The share of people beyond the able-bodied age accounted for 7.1% or 1.9 million people
(Graph 7.1.).

In 2006, the negative balance of external migration remained stable. However, the absolute value of external
migration flow decreased by 37.0 thousand people or by 1.5 times, as compared to 2005. It showed that the
negative balance of external migration had been decreasing. More importantly, outflow of important labor
force is diminishing.
UZBEKISTAN ECONOMY                                                                                                              85
                           DEMOGRAPHIC SETTING, EMPLOYMENT AND LABOR MARKET



Thus, abovementioned changes in natural movement and                      Graph 7.1. Breakdown of the Population
migration of the population indicate that the certain im-                          by Major Age Groups
provement of the demographic setting took place in the                                   0-16 years
Republic of Uzbekistan in 2006.
                                                                                         16-54 (54) years
Employment of the Population. The acceleration of eco-                                   55 (60) years and older
nomic reforms, structural transformations and moderniza-                                7.1%
tion significantly impacted the growth of employment. Dur-
                                                                                                                 34.6%
ing 2006, the number of the employed in the economy’s
sectors, compared to 2005, increased by 270.7 thousand
people or by 2.6% (Annex 7.1.). One of the specific fea-
tures of development was an increase in employment in
non-manufacturing sectors - 3.0%, compared to 2.5% in
the non-manufacturing sector. During 2006, the number of                           58.3%
employed people in the non-manufacturing sector in-
creased by 98.3 thousand people,
i.e. 36.3% of the total growth of the             Graph 7.2. Sectoral Structure of the Employment
employment in the economy has
                                                                                                                     2006
been provided by this sector. As a                                 finance & credit
result, the average weight of those                                                                                  2005
employed         in     the     non-
                                        education, culture, arts, science, R&D &
manufacturing sector increased                          logistics
from 32.9% in 2005 to 33.1% in
2006, while the share of those             health care, physical culture & social
employed in the manufacturing                             welfare
sector decreased from 67.1% to
66.9% respectively.                                      utilities & daily services


Among the real sector industries           trade, public catering, procurement &
(Graph 7.2.), the highest growth                          logistics
rates of employment were in trade,
public catering, logistic support                    transport & communication
and procurement. It increased by
8.1%, and absolute increase made                                      construction
up 73, 3 thousand people. The
number of industrial workers also
grew with stable rates. It increased                                   agriculture
by 4.1% or by 54.9 thousand peo-
ple, which was 31.8% of the total                                         industry
growth of employment in manufac-
turing sectors. As a result, the
                                                                                   0 500 1000 1500 2000 2500 3000 3500
share of those employed in this
                                                                                     Number of employed, '000 people
sector increased from 13.2% in
2005 to 13.9% in 2006. This was Source: The State Statistics Committee of Uzbekistan
linked to a certain extent to the industrialization of the economy of the country. Quite high growth rates of
employment have been also achieved in the construction – 103.3%.

In non-manufacturing sectors, the employment was increasing at a higher rate. The growth rate in transport
and communication sector was 6.1%, and public utilities and daily services for population it was 4.7%.
Thereafter, their share in total number of those employed in the non-manufacturing sectors of economy has
increased. The number of the employed in health care, physical education and social welfare increased by
4.4% or by 32.6 thousand people. The growth rate of those employed in education, culture, the arts, science
and scientific support was quite high – 3.6%.

The increase in the number and changes in the sectoral breakdown of those employed in the non-
manufacturing sectors of economy have resulted from the implementation of structural transformations in the
economy and realization of the approved programs on investment and service development.

In 2006, due to attraction of various sources of finance, including foreign investments, own funds of enter-
prises, savings, loans provided by commercial banks and extra-budgetary funds, 571.3 thousand job places
were created. This indicator was 19.0% higher than predicted figures. During 2006, the growth of the em-
ployment was mainly effected by development of small-scale business and private entrepreneurship, which

 86                                                                                               UZBEKISTAN ECONOMY
                            DEMOGRAPHIC SETTING, EMPLOYMENT AND LABOR MARKET


provided 59.5% job places of total number of new job places. The employment of those involved in home-
based work was also increasing. Thus, in 2006, about 153.6 thousand home-based job places, which were
26.8% of total number of new job places, have been created. In 2005, this indicator was 64.9 thousand job
places (12.7%). Significant increase in home-based job places were impacted by the development of coop-
eration with the large industrial and service sector enterprises with home-based producers. The Decree of
the President of the Republic of Uzbekistan - No.-3706 of 5 January 2006, further improved this cooperation.
Along with this, the share of job places created due to the putting into operation of new objects, reconstruc-
tion and modernization of the operating manufactures and the development of social and market infrastruc-
ture accounted for more than 13.4%.

Current Labor Market. During 2006, the employment centers registered 374.1 thousand people, as job
seekers. High number of job seekers was registered in Fergana region (14.7% of total number of the regis-
tered as job seekers), Samarkand (13.9%) and Namangan (11.6%) regions. The largest part of those regis-
tered with the employment centers were people from rural areas and the youth under 30, their share at the
end of 2006 accounted for 73.4% and 50.6% respectively (Table 7.2.).

    Table 7.2. Number and Structure of the People Applied                         During 2006, labor centers paid higher
       to the Labor Exchanges as Job Seeking in 2006                              amount of unemployment assistance to
      Indicator
                                   Applied                   Employed             applicants. As of 1 January 2007, the
                          people        in % to total   people    in % to total   level    of    employment    assistance
Total                     374060             100.0      305120          81.6      reached 81.6%. At the same time, the
  Including:
                                                                                  level of employment assistance in rural
  1. By residence
                                                                                  areas was considerably higher, than in
  - urban                   99356         26.6        76584            77.1
  - rural                  274704         73.4       228536            83.2       urban areas – 83.2% and 77.1% re-
  2. By age                                                                       spectively. The highest indicator of em-
  - 16 - 18 years            4670           1.2        3795            81.3       ployment assistance was in the capital
  - 18 - 30 years          184849         49.4       154982            83.8       of the country – 86.2%, which could be
  - 30 - 50 years          175936         47.1       141294            80.3       explained by most favorable work con-
  - 50 years and older       8605           2.3        5049            58.7       ditions and by the growing demand for
  3. By education level                                                           labor force in megalopolis.
  - higher education        22885           6.1       17758            77.6
  - specialized secon-                                               As of 1 January 2007, 25.6 thousand
                            86044         23.0        66683            77.5
  dary education
  - general secondary
                                                                     people in the country were registered
                           265131         70.9       220679            83.2
                                                                     as an unemployed. Taking this into
  education
                                                                     consideration, the level of the regis-
Source: Data provided by the Employment Assistance Centers under the Ministry
of Labor and Welfare.                                                tered unemployment in Uzbekistan ac-
counted for 0.3% of the total number of the economically active population. At the same time, according to
the estimates carried out by the Ministry of Labor and Welfare in accordance with the standards of the Inter-
national Labor Organization, the real level of the unemployment in the country was within the range of 5.0%.
Of total number of the officially registered unemployed, Republic of Karakalpakstan– 17.4% and Khorezm
Region – 11.6%, showed the highest figures. Both Kashkadarya and Navoi regions also had relatively high
figures of the unemployed – 10.9% and 10.0% respectively (Annex 7.2.).

The number of job vacancies, registered with the centers under the Ministry of Labor and Welfare, increased
from 26.5 thousand places as of 1 January 2006 to 27.2 thousand places as of 1 January 2007. The largest
number of job vacancies was registered in Tashkent – 34.5% of their total number.

The tension in the current labor market reflected in the number of the unemployed per one vacancy, which is
the worst in the Republic of Karakalpakstan -10.2 men per vacancy, Khorezm region – 6.5 men per vacancy
and Namangan region– 2.1 men per vacancy, versus 0.9 men per vacancy on average overall the country.

The current situation in the labor market shows that it would be advisable to build up and to stimulate the
competitive environment in the sphere of the employment assistance, which will support the ongoing market
transformations in the economy in general and in the labor market in particular.




 UZBEKISTAN ECONOMY                                                                                                   87
                             DEMOGRAPHIC SETTING, EMPLOYMENT AND LABOR MARKET




                            Annex 7.1. Breakdown of the Employed by Manufacturing
                               and Non-Manufacturing Sectors of the Economy
                                                                     2005                          2006
                                                                                                                       2006 in % to
                       Indicator                        Thousand            Average     Thousand          Average         2005
                                                         people             weight, %    people           weight, %
 Employed - Total                                        10196.3                100.0    10467.0              100.0         102.6
 Manufacturing production                                 6839.8                 67.1     7012.2               67.0         102.5
 including:
 - Industry                                                 1347.5              13.2      1402.4              13.4          104.1
 - Agriculture                                              2967.4              29.1      2935.9              28.0           98.9
 - Construction                                              848.5               8.3       876.6               8.4          103.3
 - Transport and Communication                               334.4               3.3       343.8               3.3          102.8
 - Trade, public catering, procurement and logistics         903.9               8.9       977.2               9.3          108.1
 - Other                                                     438.1               4.3       476.3               4.6          108.7
 Non-Manufacturing production                               3356.5              32.9      3454.8              33.0          102.9
 including:
 - Public utilities and daily services for population        316.4                3.1      331.2                3.2         104.7
 - Health care, physical culture and social security         735.5                7.2      768.1                7.3         104.4
 - Education, culture, arts, science, R&D and logis-
                                                            1385.1              13.6      1434.5              13.7          103.6
 tics
 - Transport and Communication                               153.7                1.5      163.1                1.6         106.1
 - Finances and credit                                        54.2                0.5       54.9                0.5         101.3
 - Other                                                     711.6                7.0      703.0                6.7          98.8
 Source: The State Statistics Committee of Uzbekistan




     Annex 7.2. . Key Indicators of the Current Labor Market by the Regions of Uzbekistan in 2006
                                            Registered as                     Number of unemployed             Number of unem-
                                                                Employed,        from the registered
                   Region                    job seeking,                                                     ployed per vacancy,
                                                                   %
                                                people                         people           In %                people
      Republic of Karakalpakstan                   23931           73.4           4439             17.4                    10.2
      Andijan Region                               30039           84.8            863              3.4                     0.9
      Bukhara Region                               20462           79.0            767              3.0                     0.6
      Jizzakh Region                               15201           77.4            909              3.6                     1.9
      Kashkadarya Region                           28609           81.7           2781             10.9                     3.3
      Navoi Region                                 21045           82.0           2552             10.0                     0.7
      Namangan Region                              43308           77.8           2345              9.2                     2.1
      Samarkand Region                             52184           90.5           1825              7.1                     1.3
      Surkhandarya Region                          11258           72.3           1208              4.7                     0.7
      Sirdayra Region                               4998           88.9            933              3.7                     1.2
      Tashkent Region                              20428           80.3            933              3.7                     0.4
      Fergana Region                               55250           85.7           1046              4.1                     0.4
      Khorezm Region                               28559           70.2           2970             11.6                     6.5
      Tashkent City                                18788           86.2           1975              7.7                     0.2
     Republic of Uzbekistan                      374060            81.6         25546             100.0                     0.9
     Source: Data provided by the Employment Assistance Centers under the Ministry of Labor and Welfare.




88                                                                                                    UZBEKISTAN ECONOMY
                                  INCOME AND EXPENDITURE OF THE POPULATION


8. Income and Expenditure of the Population
Income of the population. In 2006, the average national nominal cash income increased by 33.2% in 2006
and amounted to UZS 12 954.9 billion. This growth was mainly ensured by increase in wages by 41.2% (as
opposed to 30.1% in 2005) and income from entrepreneurial activity by 30.1% (as opposed to 20.8% in
2005). As a result, in the structure of cash income of the population the share of wages accounted for 29.4%
(as opposed to 27.8% in 2005), share of business income accounted for 55.1% (as opposed to 56.5%) and
social transfers – 15.1% (as opposed to 15.5%) (Table 8.1.1).

The growth of available per capita             Table 8.1.1. Structure of Cash Income of the Population (based
income continued concurrently. The             on balance of cash income and expenditures of the population)
available per capita income in nomi-                                                In % to total
                                                                                                         In % of the respective pe-
nal terms increased by 32.6% and in                      Indicator                                        riod of the previous year
                                                                                 05/I-IV     06/I-IV        05/I-IV         06/I-IV
real terms by 22.0%. Key factors of
                                               Cash income, total                 100.0       100.0            126.3          133.2
average per capita income growth in
2006 include Government measures                Wages                              27.8        29.4            130.1          141.2
                                                Entrepreneurial income net
for increase of wages, implementa-              of wages
                                                                                     0.3        0.3            116.3          158.0
tion of advanced system of pay-                 Pensions, allowances, and
ment, incentives for teachers and                                                  15.5        15.1            142.4          130.1
                                                stipends
heath sector staff and development              Business income including
of small business.                              proceeds from sale of agri-        56.5        55.1            120.9          129.9
                                                cultural production and other
                                               Source: State Statistics Committee of Uzbekistan
Overall in 2006, household incomes
were significant higher than expenditures, indicating increase in cash assets.

Compared to 2005, in growth of household incomes in Tashkent city, Navoi region (29.8 percent points), in
Tashkent (17.6), Surkhandarya (12.8), Bukhara (3.6) and Jizzakh (3.0) regions were high, whereas in other
regions this relative indicator decreased. As a result, interregional differentiation in the level of average per
capita income in 2006 decreased by 0.3 percent points compared to 2005 and amounted to 5.9 times. Re-
gions with high level of average per capita income traditionally include industrial regions - Navoi region and
Tashkent city, regions with moderate level of average per capita income (70% of the national level) include
Kashkadarya, Namangan, Samarkand, Sirdarya and Khorezm regions. Regions with low level of income
include the Republic of Karakalpakstan, Jizzakh, Samarkand and Namangan regions.

There are considerable differences in structure of cash income by region. In high income industrially devel-
oped regions (Tashkent city and Navoi region) the wages represent the key sources of income. In the re-
mainder regions the share of business income is rather high.

The structure of cash expenditure of the population demonstrates growth in the share of consumer good.
The share of consumer services and savings simultaneously decreased. The cash balance after all pay-
ments increased by 0.1 percent points to the total income. Average per capita monthly cash expenditures
and savings increased by 31.4% and reached UZS 39 894.2

                         Table 8.1.2. Structure of Cash Expenditure of the Population
                                                                                       In % of the respective period of the
                                                            In % to cash income
                          Indicator                                                                previous year
                                                            05/I-IV       06/I-IV          05/I-IV               06/I-IV
        Monetary income of population                        100.0          100.0               126.3                 133.2
        Consumer expenses                                     73.1           73.6               120.1                 134.2
        Compulsory payments and contributions                   7.7           6.9               126.2                 119.9
        Increase in deposits, including purchase of for-
                                                              17.2           17.3               153.7              133.8
        eign currency
        Cash balance                                            2.0           2.1               199.5              140.2
       Source: Balance of cash income and expenditure of the population, State Statistics Committee of Uzbekistan.

Elasticity ratio (dependence between dynamics of per capita income and the level of expenditure for goods
and services) in 2006 indicates that increase of per capita income by 1% results in increase in expenditure
for good and services by 1.03%. It indicates that the household demand was elastic.

Household survey data also showed changes in structure of aggregate income of households. In 2006, com-
pared to 2005, the share of in kind income decreased by 1.3 percent points and the share of business in-
come increased by 5.9 with concurrent decrease in wages share - 0.7 and social transfers - 2.5.


UZBEKISTAN ECONOMY                                                                                                              89
                                  INCOME AND EXPENDITURE OF THE POPULATION


Wages During 2006 minimum                     Graph 8.1.1 Relative Available Per Capita Cash Income in 2006
wages was increased twice. In                                (in % of average national level)
accordance with the Presidential
Decrees No120 of 20 June 2006                       Tashkent city                                                 339.4
(1.2 times) and No3808 of 12 Oc-
                                                 Khorezm region      73.7
tober 2006 (by 20%) wages were
increased. Overall in 2006 aver-                Ferghana region       79.3
age minimum wages amounted to                    Tashkent region            96.8
UZS 10370 and the growth indica-                  Sirdarya region    73.5
tor as opposed to the previous               Surkhandaya region       79.9
year was 33.1%.
                                               Samarkand region     65.1

Average monthly wages net of              Namangan region        66.6
agriculture and small business               Navoiy region                    142.9
according to reports of operating       Kashkadarya region        71.4
entities in 2006 amounted to UZS
                                              Djizak region     63.2
115.2 thousand and increased by
41.3% compared to the previous              Bukhara region             94.2
year. At the same time share of              Andijan region          88.6
wages in labor efficiency was            R. Karakalpakstan     57.3                                               %
34.5. Such remarkable growth in
wages was facilitated by meas-                              50       100    150     200   250    300              350
ures for growth of wages of public Source: State Statistics Committee of Uzbekistan
education and heath care stuff, as
well as increase in the share of labor expenditure in the added value in real sector of the economy.

            Graph 8.1.2 Structure of Household Income (based on the survey findings, in %)
                          2005                                        2006


               in-kind     other; 4.9                                  in-kind
                                                                      income;       other; 5.8
              income;                                                                                wages;
                                             wages;                     13.6
                14.9                                                                                  29.4
                                              30.1

          property
                                                                     property
          income;
                                                                     income;
             4.0
                                                                        1/8
                                             entrepren                                                enterpren
             social                             eurial                   social                          eurial
           transfers;                         income;                  transfers;                      income;
              17.3                              28.8                      14.8                           34.7



     Source: State Statistics Committee of Uzbekistan

In 2006, according to the Resolution of the President of the Republic of Uzbekistan (25.11.2005), No 227
and (01.12.2005) No 229, labor payments of public education and healthcare sector were changed. These
changes impacted approximately 440 thousand teachers and 178.0 thousand other staff. Additionally, more
than UZS 53.5 billions was paid to 187.6 thousand teachers in the form of bonuses. These funds were at-
tracted from Principal Funds and it resulted in almost 50% increase in average monthly wages of teachers
and reached UZS 68 653.4.

The Fund of Financial Encouragement and Medical Institutions’ Development paid UZS 21.2 billion to medi-
cal institutions, including UZS 6.9 billion for wage bonuses. Bonuses to nominal wages from the above funds
were paid to 131.3 thousand medical staff (32% of the total), incentive premiums -- to 117 thousand (29%)
and financial aid – to 10.3 thousand (4%). On overage wages of heath and pharmaceutical sector staff in-
creased by 63.8% (as opposed to 45.2% in 2005) and reached UZS 76.9 thousand.
At the same time the wage-level differentiation remained in 2006. This was caused largely by the fact that
wages increasingly depend on results and labor efficiency and those, in turn, on level of education and train-
ing.

Wage level differentiation among the economy sectors in 2006 was 44.7 times, while the highest wage-level
sector to lowest wage-level sector ratio decreased and amounted to 5.1 in 2006 versus 5.2 in 2005 (Table
8.1.3).

90                                                                                               UZBEKISTAN ECONOMY
                                   INCOME AND EXPENDITURE OF THE POPULATION



    Table 8.1.3 Wage-level Differentiation         The greatest decrease of relevant wages over 2005-2006
     of Economy Sectors of Uzbekistan              was observed in finance, credit and insurance sectors
                              2005        2006     (Graph 8.1.3). In the public health, physical culture and
Variation Ratio                 49.2        44.7   sports, social security, trade, public catering and pro-
Relation of max to min, times    5.2         5.1   curement, construction and public health the average
                                                   wages exceeded the national level. Wage levels in other
sectors changed insignificantly over the period under review.
Source: State Statistics Committee of Uzbekistan

                          Graph 8.1.3 Changes in Relative Wages by Economy Sector
                                of Uzbekistan, in % to National Average Level
    330                                                                               Industry
                                                                                      Transport
    280                                                                               Communication
                                                                                      Constraction
    230                                                                               Trade& public catering
                                                                                      Informational service
    180                                                                               Communal services
                                                                                      Public health
    130
                                                                                      Popular schooling
     80                                                                               Culture& art
                                                                                      Science& science services
     30                                                                               Finance, lending, insurance
                        2005                       2006                               Other

Source: State Statistics Committee of Uzbekistan

Inter-industrial differentiation of wage-level was coupled by the intra-industrial differentiation. Economic sec-
tors with high public share, such as forestry and (quintile ratio was 4.2 times) and public health (4.9 times),
earned lower wages. Contrary, sectors with high private share, trade, public catering and procurement (10
times) and transportation (8.8 times),earned higher wages.

Wage-level Differentiation by Region of Uzbeki-                      Table 8.1.4. Wage-level Differentiation
stan As the Table below shows wage-level differen-                            Indicators by Region
tiation by region was decreasing over 2005-2006:                                                  2005              2006
variation ratio declined by 1.3 percent points, while         Variation Ratio                          31.4            30.1
difference between region with high and low level -           Relation of max to min, times             2.8             2.6
by 0.2 percent points (Table 8.1.4).                          Source: State Statistics Committee of Uzbekistan

Deepening of wage-level differentiation of the regions is caused by several factors including: economic po-
tential of the region, prevalence of inefficient and uncompetitive entities, low adaptability of the population to
new type of economic relations, environmental and anthropogenic processes in selected regions ect. Tradi-
tionally regions with agricultural sector get low wages. (Namangan, Samarkand and Jizzakh). Regions with
high wage level include those with dominating share of industry -- Tashkent city, Navoi and Tashkent regions
(Graph 8.1.4). Impact of these three high income regions to national averages is significantly high. If we ex-
clude these regions, the national average wage would decrease approximately by 25%.

         Graph 8.1.4. Relative Wage-level by Region of Uzbekistan (in % of the National Average)
                                                                                              R. Karakalpakstan
   180
                                                                                              Andijan region
   170
                                                                                              Bukhara region
   160
   150                                                                                        Djizak region
   140                                                                                        Kashkadarya region
   130                                                                                        Navoiy region
   120                                                                                        Namangan region
   110                                                                                        Samarkand region
   100                                                                                        Surkhandarya region
    90                                                                                        Sirdarya region
    80                                                                                        Tashkent region
    70                                                                                        Ferghana region
    60                                                                                        Khorezm region
                       2005 г.                      2006 г.                                   Tashkent city
Source: State Statistics Committee of Uzbekistan

UZBEKISTAN ECONOMY                                                                                                         91
                              INCOME AND EXPENDITURE OF THE POPULATION



Property income includes dividend and interest income and depends on the level of households' savings. In
the households income structure property income in 2006 decreased from 4.0% (2005) to 1.8%.

Social Transfers. In household income structure, the share of social transfers accounted for 14.8%, includ-
ing financial aid to low income families and large families - 1.0%. More than 1564.1 thousand eligible large
families, approximately 247.0 thousand low-income families received welfare payments. In addition, 423.9
thousand unemployed mothers with children under 2 years of age received child support payments.

Total public budget expenditures for welfare payments to low income families in 2006 reached UZS 278.6
billion, including welfare payments to families with minors -- UZS 148.0 billion, financial aid to low income
families – UZS 12.3 billion and child support – UZS 118.3 billion. As of 1 January 07 the number of pension-
ers and welfare recipients reached 2978.3 thousand people (0.5% increase versus 2005). Over 2006 social
welfare bodies included 141.4 thousand new pensioners, 26.7 thousand handicapped, and single aged peo-
ple not eligible to retirement pension to the lists of welfare recipients. Welfare bodies paid UZS 1334.3 billion
from extra-budgetary Pension Fund, including UZS 1164.1 to non-working pensioners, UZS 55.0 billion to
working pensioners and UZS 81 billion as social insurance (except pensions). In addition, selected catego-
ries of pensioners received compensations for payment of utility bills in the total amount of UZS 21.3 billion.

As of 1 January 07 average size of pensions was UZS 42.3 thousand (increased by 37.3% to beginning of
the year) and welfare - UZS 23.7 (growth – 32.2). As of 1 January 2007, in accordance with the Law of the
Republic of Uzbekistan “On Accumulation-based Pension Security”, individual savings pension accounts
were opened to 4.7 million of employees. In 2006 savings pension accounts were opened to 641.5 thousand
employees. The total balance of the above accounts has reached UZS 47.7 billion, including UZS 29.4 billion
in 2006, which is 1.61 times more than in 2005.

Within the framework of the Year of Charity and Medical Staff, low-income and large families received as
gratis aid cattle of the total worth of UZS 10 billion. Additionally, apartments and houses of 2 thousand of
single-senior people and 66 thousand low-income families were repaired. 23 thousand (100%) single aged
citizens received social services with delivery to their homes. 2061 disable people received wheelchairs.
1334 – otophones and 32.4 thousand pensioners and invalids got free vouchers to local health recreation
facilities and resorts. Overall, 45.8% of social programs were funded from public budget and 54.2% from
budgets of institutions, organizations and sponsors.

In-Kind Income. In the households' income in-kind income decreased from 14.9% in 2005 to 13.6% in the
current year. Correlation of cash and non-cash income varied considerably among urban (21.3 times) and
rural (4.2 times) households. Impact of self-employment was greater among rural population, while the bulk
of urban households' income represented wages and social transfers (1.6 times more).

Expenditures of the population. According to House-              Table 8.1.5. Structure of Households’ Ex-
holds' Budget Surveys the share of consumer expenses               penditure to Total Expenditure (in %)
decreased from 84.1% in 2005 to 81.3%. Non-consumer                                               2005           2006
expenses increased (from 15.9% to 18.7%) mainly due                  Total Expenditures           100.0           100.0
to increase in business expenses (from 4.5% to 6.1%)          Consumer expenses                     84.1           81.3
which witness the increasing entrepreneurial activity of       Foodstuffs                           48.5           46.1
the population.                                                Non-foodstuffs                       21.7           21.8
                                                               Services                             13.4           13.1
                                                               Public Utilities                      5.3            5.1
                                                               General Services                      1.6            1.5
                                                               Other                                 6.4            6.5
                                                              Non-consumer expenses                 15.9           18.7
                                                               Taxes and Charges                     9.1            9.8
                                                               Business Expenses                     4.9            6.1
                                                               Other                                 1.9            2.8
                                                              Source: Households’ Budget Survey. State Statistics Com-
                                                              mittee of Uzbekistan.




92                                                                                        UZBEKISTAN ECONOMY
                                 INCOME AND EXPENDITURE OF THE POPULATION



                          Graph 8.1.5 Structure of Household Consumer Expenses
                                    (based on the survey findings, in %)
                             2005                                        2006

          food goods buying         non-food goods buying             food goods buying
                                                                      non-food goods buying
          services                                                    services
                                                                                        16.2

                                             16.2
                25.8                                           26.9




                                                                                          56.9
                                         58.0

      Source: State Statistics Committee of Uzbekistan

There were also positive changes in the structure of consumer expenses. The shares of consumer goods
expenses (from 48.5% to 46.1%) and services (from 13.4% to 13.1%) decreased. The share of non-food ex-
penses including durables (from 21.7% to 21.8%) increased. It indicates about positive shifts in consumer
behavior of the population. This tendency is maintained due to expansion of consumer crediting to the popu-
lation, including for purchase of durables.




UZBEKISTAN ECONOMY                                                                                     93
                                                         REGIONS


9. Regions
                                        Development of Regions
In 2006, the Republic of Karakalpakstan, 12 regions, and the Tashkent city experienced relatively high rates
of economic growth on important macroeconomic indicators.

All regions showed sustainable growth rates of gross regional product (GRP). Considering 7.3% GDP
growth rate, GRP growth rates of Tashkent city (8.9%), Samarkand (8.9%), Surkhandarya (8.6%), Tashkent
(8.2%), Andijan (8.0%) and Namangan (7.7%) regions were significantly higher than national average. Eco-
nomic growth of regions was achieved due to dynamic development of industry and services sector (Annex
9.1).

In 2006, in the territorial structure of             Graph 9.1. Share of the Regions in the GDP of the
GRP certain changes took places                         Republic of Uzbekistan in 2005 - 2006 (%)
in comparison to 2005. Shares of
GRP in total GDP was high in                                                    2.7
                                                    R. Karakalpakstan                                              2005    2006
                                                                                 2.8
Tashkent city (13.2%), Tashkent
(9.9%), Kashkadarya (7.9%), Fer-                               Andijan                          6.8
                                                                                                  7.0
gana (7.7%) regions.                                                                          5.8
                                                              Bukhara                          6.2
Regions such as Andijan (6.8%),                                                  3.0
                                                               Jizzakh           3.0
Samarkand (6.6%), Navoi (6.1%)
and Bukhara (5.8%) showed mod-                                                                       7.9
                                                         Kashkadarya
erate share in GDP. The lowest                                                                      7.8
                                                                                              6.1
shares of GRP belonged to:                                       Navoi
                                                                                              5.9
Sirdarya (1.8%), Jizzakh (3.0%)                                                     3.8
                                                           Namangan                 4.0
regions and the Republic of Kara-
kalpakstan (2.7%) (Graph 9.1).                                                                  6.6
                                                           Samarkand
                                                                                                6.7
                                                                                       4.4
Compared with 2005, the shares of                       Surkhandarya                    4.5
the following regions in GRP in-                                              1.8
                                                             Syrdarya
creased: Kashkadarya (from 7.8%                                               1.9
to 7.9%), Navoi (from 5.9% to                                 Tashkent
                                                                                                             9.9
6.1%), Tashkent (from 9.3% to                                                                             9.3
                                                                                                    7.7
9.9%) regions and Tashkent city                               Fergana
                                                                                                    8.0
(from 12.9 to 13.2%). These                                                         3.6
changes were the result of struc-                            Khorezm                 3.7
                                                                                                                   13.2
tural transformations and high indi-                     Tashkent city
cators in real sector of the econ-                                                                                 12.9
                                                                                                                          16.7
omy that were achieved in these              Undistributed part of GRP                                                    16.3
regions. In Jizzakh region this indi-
cator remained unchanged. In the                                         0             5                10           15           20
rest of the regions GRP declined.
                                           Source: State Statistics Committee of Uzbekistan

Per capita GRP grew in all of the regions. During the analysis process, the ratios of regional per capita GRP
to average GRP were calculated and ratios were distributed into 3 groups. The first group included regions
with ratios above one and included Navoi (1.969), Tashkent city (1.625), and Tashkent region (1.053), which
in 2005 was in the second group (0.990) and Bukhara region (1.009). The second group (with an index be-
tween 0.500 and 1.000) was composed of 8 regions out of 14. In 2006, increase in per capita GRP produc-
tion in comparison to 2005 was registered in Kashkadarya (from 0.848 to 0.858) thanks to sustainable de-
velopment of real sector of the economy. The third group of poorly developed regions (index ≤ 0.500) in-
cluded Namangan (0.477) that in 2005 belonged to the second group (0.503), and the Republic of Karakal-
pakstan (0.449). In this group, the index went downward.

Analysis has shown that per capita GRP is less than country’s average in the following regions: the Republic
of Karakalpakstan 2.2 times, Namangan – 2.1 times, Samarkand and Surkhandarya – 1.7 times, Khorezm,
Fergana and Sirdarya –1.4 times.

In 2006, growth of industrial output in regions compared with 2005 were high. Overall growth of industrial
sector was 10.8%. Regions such as Tashkent city (25.2%), Sirdarya (27.3%), Andijan (24.9%), Samarkand
(21.8%), Surkhandarya (17.3%), and Jizzakh (13.3%) showed significantly higher rates of industrial output.
This was mainly related with high growth rates in light, food and building materials industries in the above
regions (Annex 9.1).

94                                                                                                         UZBEKISTAN ECONOMY
                                                            REGIONS



                            Table 1. Grouping of Regions on Per Capita GRP Production
                               2005                                                          2006
   I group (index ≥1.000)
                                                                    Navoi                              1.969
    Navoi                                           1.893
                                                                    Tashkent city                      1.625
    Tashkent city                                   1.570
                                                                    Tashkent                           1.053
    Bukhara                                         1.063
                                                                    Bukhara                            1.009
   II group ( index from 0.500 to 1.000)
      Tashkent                                      0.990
      Kashkadarya                                   0.848           Kashkadarya                        0.858
      Andijan                                       0.782           Jizzakh                            0.754
      Jizzakh                                       0.760           Andijan                            0.749
      Sirdarya                                      0.737           Sirdarya                           0.703
      Fergana                                       0.729           Fergana                            0.700
      Khorezm                                       0.676           Khorezm                            0.652
      Surkhandarya                                  0.613           Surkhandarya                       0.602
      Samarkand                                     0.609           Samarkand                          0.601
      Namangan                                      0.503
   III group (index ≤ 0.500)
                                                                     Namangan                          0.477
    Republic of Karakalpakstan                      0.465
                                                                     Republic of Karakalpakstan        0.449
   Source: computations based on data from Uzbekistan State Statistics Committee

In 2006, in comparison with 2005, per capita industrial production indices increased in Andijan (from 1.170 to
1.297), Kashkadarya (from 1.375 to 1.416), Navoi (4.580 to 4.652), Sirdarya (0.380 to 0.420), Tashkent
(1.528 to 1.652) regions. In the remaining regions, this indicator declined (Annex 9.2). The Navoi region was
the leaser on per capita industrial production (4.652). This was 4 times higher of the average national level
and 22.9 times higher of the Surkhandarya level (0.203).

In 2006, all regions reached high growth rates on production of consumer goods. Average growth rate of
consumer goods production was 20.6%. This indicator was above the average national level in Tashkent city
– 27.7%, Samarkand – 32.0%, Surkhandarya – 29.9%, Andijan (28.4%), Sirdarya (23.3%), and Khorezm
(21.8%) (Annex 1). High growth rates of consumer goods production in the mentioned regions occurred be-
cause of modernization, installment of modern equipment and application of the newest technologies in in-
dustrial production of consumer goods and new competitive products.

Index of per capita consumer goods production decreased in 10 regions out of 14. It went up in Andijan (from
3.055 to 3.368), Samarkand (from 0.788 to 0.798) and in Tashkent city (from 1.988 to 2.149) (Annex 9.2). In
10 regions out of 14, the consumer goods production index was below the average national level. The high-
est index was achieved in Andijan (3.368). In the Republic of Karakalpakstan per capita consumer goods
production was 14.9 times lower than in Andijan.

In 2006, growth rates of agricultural output accounted for 6.2% on the country as a whole. The indicator
was above this level in Surkhandarya (12.8%), Samarkand (10.7%), Tashkent (9.2%), Navoi (7.7%), Na-
mangan (7.0%), and Jizzakh (106.5%) and in the Republic of Karakalpakstan (8.4%). The results were
achieved through high production volumes of raw cotton and grain crops (Annex 1). Index computations of
per capita agricultural output showed that in 2006 compared with 2005 the indices grew in 6 regions out of
14. Reduction in this indicator was registered in Andijan (from 1.020 to 0.952), Bukhara (1.498 to 1.482),
Kashkadarya (from 1.089 to 0.994), Namangan (from 0.852 to 0.828), Sirdarya (from 1.634 to 1.466), Fer-
gana (from 0.846 to 0.799), Khorezm (from 1.193 to 1.178). In 8 regions per capita agricultural output was
above the average level. The highest level was achieved in Jizzakh (418.1 thousand UZS), the lowest – in
the Republic of Karakalpakstan (156.2 thousand UZS). The difference makes 2.7 times (Annex 9.2).

In 2006, investment grew in all regions apart from Tashkent region where growth rates accounted for -9.2%.
The growth rates were relatively high in 8 regions of 14, and the national average growth rate accounted for
9.1%. In the Republic of Karakalpakstan (28.4%), Khorezm (58.9%), Samarkand (43.1%), Kashkadarya
(39.5%), Sirdarya (38.1%), Navoi (20.6%), Bukhara (19.0%), and Fergana (14.0%) growth rates of invest-
ments were significantly higher than national average. (Annex 9.1).These changes were results of consider-
able investments directed to those regions. Additionally, main objectives of these investments were devel-
opment of fuel and energy complex (the Republic of Karakalpakstan, Bukhara), creation of social infrastruc-
ture (Andijan, Samarkand, Sirdarya), modernization of airport and establish a JV in Samarkand city, mod-
ernization of railway station in Sirdarya.

The main factors of relatively low increase in investments in Andijan, Jizzakh, and Namangan was that in
previous year in these regions large industrial facilities and production infrastructure facilities were built for
which large investment funds were assigned.

UZBEKISTAN ECONOMY                                                                                             95
                                                                                                                               REGIONS



  Index computations of per capita investments have shown that in 2006 vs. 2005 the indices increased in 7
  regions out of 14. Decrease was registered in Andijan (from 0.401 to 0.365), Jizzakh (from 0.601 to 0.546),
  Namangan (from 0.453 to 0.415), Surkhandarya (from 0.712 to 0.685), Tashkent (from 1.074 to 0.863) and
  in Tashkent city (from 2.462 to 2.382). The highest indicator was achieved in Navoi (2.534), and the lowest –
  in Andijan (0.365). The difference made 7.0 times (Annex 9.2).

  In 2006, retail trade turnover growth rates were high in all of the regions. Under the average national level
  of 14.8% in Navoi it accounted for 24.0%, Surkhandarya – 23.7%, Khorezm – 23.0% and in Tashkent city –
  18.9%. High growth rates of retail trade turnover in those regions resulted from expansion of services sector
  through upsurge in activities of private sector and small entrepreneurship (Annex 9.1).In 2006, per capita
  retail trade turnover increased in Navoi (from 0.960 to 1.061), Surkhandarya (from 0.757 to 0.799) and in
  Tashkent city (from 3.274 to 3.0111). In 11 regions out of 14, per capita retail trade turnover was below the
  national level. The indicator was the lowest in the Republic of Karakalpakstan (UZS128.2 thous.), which 7.2
  times less than that of Tashkent city (UZS922.3 thous,). Low per capita turnovers were registered in Sirdarya
  (169.0 thous. UZS) and Jizzakh (UZS156.1 thous,) regions (Annex 9.2).

  Consumer services growth rates in 2006 vs. 2005 was 19.3%. Higher growth rates of consumer services
  were observed in Sirdarya (30.5%), Khorezm (26.7%), Namangan (26.7%), Kashkadarya (25.2%), Samar-
  kand (24.7%), Fergana (23.1%), Navoi (19.5%) regions (Annex 1). High growth rates resulted from active
  development of services, health-care, passenger transportation as well as communication and Internet ser-
  vices in these regions (Annex 9.1). Index computation of per capita consumer services have shown that, in
  all regions consumer services indexes grew with stable rates. In 12 out of 14 regions, per capita consumer
  services were below the average national level. The highest per capita consumer services level was
  achieved in Tashkent city (UZS315.6 thousand), the lowest – in the Republic of Karakalpakstan (UZS31.6
  thousand) as well as in Jizzakh (UZS37.6 thousand), Surkhandarya (UZS36.2 thousand), and Sirdarya
  (UZS39.8 thousand) (Annex 9.2).

  On results of 2006 inter-regional variation narrowed on agricultural output (from 3.1 times to 2.7 times), in-
  vestments (from 7.3 times to 7.0 times). On the rest of indicators inter-regional variation expanded: GRP –
  from 3.8 times to 4.4 times, industrial output – from 20.1 times to 22.9 times, consumer goods production -
  from 10.6 times to 14.9 times, retail trade turnover– from 6.3 times to 7.2 times (Graph 9.2).

                 Graph 9.2. Dynamics of Variation in Economic and Social Development of the Regions
   Range of                                                                        GRP                                               Range of                                                                        Industry
   variation                                                                                                                         variation
                                                                                   Agriculture                                                                                                                       Consumer goods
    (times)                                                                                                                           (times)
                                                                                   Investments
   14                                                                                                                                30                                                                              Paid services
                                                                                   Trade turnover
   12                                                                                                                                25
   10
                                                                                                                                     20
    8
                                                                                                                                     15
    6
                                                                                                                                     10
    4
    2                                                                                                                                    5

    0                                                                                                                                    0
                                                                                                                                                                               2004




                                                                                                                                                                                                                         2005




                                                                                                                                                                                                                                                                  2006
                                                                                                                                                      2004/I-II




                                                                                                                                                                                                            2005/I-III




                                                                                                                                                                                                                                         2006/I-II
                                          2004




                                                                                   2005




                                                                                                                            2006
                                                 2005/I




                                                                                                                                             2004/I



                                                                                                                                                                  2004/I-III



                                                                                                                                                                                      2005/I

                                                                                                                                                                                               2005/I-II




                                                                                                                                                                                                                                2006/I



                                                                                                                                                                                                                                                     2006/I-III
                 2004/I-II




                                                          2005/I-II




                                                                                                   2006/I-II
        2004/I



                             2004/I-III




                                                                      2005/I-III



                                                                                          2006/I



                                                                                                               2006/I-III




Source: State Statistics Committee of Uzbekistan

  Navoi (on GRP, industry and investments) and Tashkent city (on the rest of indicators) contributed most into
  inter-regional variation change as these territories had considerable economic potential.

  It is important to note that high growth rates on indicators of real sector of the economy were registered in
  such poorly developed regions as the Republic of Karakalpakstan, Jizzakh and Surkhandarya. However, the
  huge gap continued to exist between the regions, especially on industrial output, consumer goods production
  and investments. Sustainable economic and social development of regions in many respects was connected
  with expansion of private sector and priority development of small entrepreneurship.




   96                                                                                                                                                                                                      UZBEKISTAN ECONOMY
                                                                        REGIONS




   Annex 9.1. Dynamics of Changes in the Main Indicators of Social and Economic Development of the
                Regions (growth rates to the previous period in comparable prices in %)


                                                      Gross Regional Product (GRP)
                                                                                              I/       I-II/       I-III/                I-II /    I-III/
     Region          2000       2001      2002      2003      2004      2005      2006                                         I/ 2006
                                                                                            2005      2005         2005                  2006      2006
 R. Karakalpak-
                     89.7       98.3   100.9     107.5        105.0   106.0      106.3     103.0      109.2        111.0       106.0     106.1     104.6
 stan
 Regions:
 Andijan             102.8   108.9     102.9     101.9        104.6   108.5      108.0     111.0      109.8        111.0       105.3     109.5     110.1
 Bukhara             104.2   103.5     102.0     101.9        107.3   106.9      105.6     104.5      106.1        111.5        99.7     103.4     105.6
 Jizzakh             104.2   106.5     110.0     110.2        108.6   107.0      107.0     106.5      106.5        112.0       106.9     109.4     107.8
 Kashkadarya         99.0    105.0     109.4     105.7        102.5   106.2      106.8     103.8      105.0        106.5       104.9     107.3     107.7
 Navoi               103.2   101.4     104.7     102.0        106.3   100.6      106.3     102.0      98.8         100,0       102.4     104.2     105.3
 Namangan            108.0   104.5     103.2     103.7        106.5   106.5      107.7     106.9      106.0        106.1       103.9     108.2     106.5
 Samarkand           104.6   103.5     107.9     106.9        105.4   106.4      108.9     104.1      103.6        103.0       107.4     107.7     109.1
 Surkhandarya        105.5   108.0     103.7     103.8        105.7   104.5      108.6     106.7      103.5        101.8       101.6     104.6     108.9
 Sirdarya            102.6   102.9        97.5   102.4        107.8   111.4      106.3     104.6      104.0        114.6       107.3     110.8     109.6
 Tashkent            110.9   104.2     103.4     103.0        109.4   103.0      108.2     104.5      103.8        103.4       102.8     104.3     106.9
 Fergana             106.1      99.5   104.8     101.9        103.9   105.6      105.1     103.5      103.9        103.4       104.4     105.6     106.8
 Khorezm             94.8    103.0     103.6     103.9        113.3   106.6      106.0     104.4      108.1        111.9       102.3     103,4     103,6
 Tashkent city       104.5   104.3     101.5     104.0        106.2   111.4      108.9     103.0      107.8        110.5       108.7     108,5     108,1
R. Uzbekistan         103.8 104.2 104.0 104.2                 107.4   107.0      107.3     104.8      107.2        107.2       103.6     106,6     107,3
Source: State Statistics Committee of Uzbekistan



                                                                 Industrial Output
                                                                                                I/         I-II/      I-III/      I/      I-II /    I-III/
         Region         2000       2001      2002     2003       2004     2005      2006
                                                                                              2005        2005       2005       2006     2006      2006
 R. Karakalpakstan      111.2      95.9      94.9      98.4      115.6    118.4     110.1     141.3       147.2      141.6      112.5    114.3     106.9
 Regions:
 Andijan                 90.0     128.1     105.5     118.1      134.3    134.5     124.9     153.5       146.9      143.4      110.4    118.5     123.2
 Bukhara                103.9     107.7     103.3     102.5      108.7    102.1     103.2     108.5       102.0      101.5      100.1    102.0     103.7
 Jizzakh                122.7     119.9     130.3     115.1      108.6    131.6     113.3     120.0       131.5      136.6      119.7    119.6     115.4
 Kashkadarya            101.9     104.4     112.1     114.0      108.3    101.3     107.9     103.0       101.5      101.7      104.0    105.3     105.5
 Navoi                  102.2     100.6     106.5      99.4      105.6    97.8      100.9     100.1        95.0       96.6      100.4    101.8     99.6
 Namangan               126.1     118.2     112.5     113.3      113.0    114.0     110.9     112.4       116.8      113.9      104.6    113.2     111.0
 Samarkand               97.3     105.7     106.7     110.6      115.0    108.9     121.8     111.6       102.9      107.2      118.7    122.4     126.9
  Surkhandarya          107.9     104.1     113.1     104.3      112.3    104.2     117.3     111.7       105.2      103.1      103.1    100.0     108.7
 Sirdarya               106.7     101.3     122.4      98.9      103.8    103.7     127.3     111.4       119.3      121.1      116.7    145.6     135.3
 Tashkent               108.8     109.1     108.3     101.4      108.2    100.1     106.8     107.8       102.8      105.4      100.1    103.3     104.1
 Fergana                108.5     101.4     108.7     101.8      103.6    105.0     108.7     106.3       106.9      105.5      106.6    109.8     110.3
 Khorezm                103.5     100.3     103.9     101.0      107.6    127.0     110.3     118.5       141.3      139.5      110.0    104.5     106.1
 Tashkent city          113.2     110.5     111.7     111.9      103.9    116.3     125.2     111.4       111.2      119.4      123.7    129.5     130.2
R. Uzbekistan             105.9 107.6 108.3 106.0                109.4    107.2     110.8     108.3       107.5      107.7      106.8    109.7     110.2
Source: State Statistics Committee of Uzbekistan




   UZBEKISTAN ECONOMY                                                                                                                              97
                                                                    REGIONS




                                                    Consumer Goods Production
                                                                                          I/      I-II/    I-III/      I/      I-II /    I-III/
         Region          2000     2001     2002     2003     2004     2005     2006
                                                                                        2005     2005     2005       2006     2006      2006
 R. Karakalpakstan       105.9    113.5    104.3    104.7    110.5    114.8    111.3    117.1    107.0    111.3      111.1    114.5     111.7
 Regions:
 Andijan                 92.6     123.7    97.8     120.3    145.9    147.0    128.4    180.3    159.6    157.5      111.3    118.7     125.4
 Bukhara                 105.9    107.4    103.3    106.0    107.9    107.1    104.1    104.7    104.8    100.5      108.8    103.1     103.9
 Jizzakh                 123.6    119,3    159.3    129.0    110.4    116.2   115.7     120.6    117.7    113.5      120.8    117.5     124.1
 Kashkadarya             113.1    112.7    108.5    108.8    117.2    112.1    116.7    107.8    110.7    110.8      118.5    109.1     114.1
 Navoi                   115.5    99.98    114.5    105.3    96.1     99.5     105.7     98.3    100.6    100.4      106.8    105.8     107.2
 Namangan                124.3    111.8    118.1    114.0    110.5    104.5    113.6    112.1    107.0    109.7      100.1    110.7     109.8
 Samarkand               92.4     102.6    102.5    106.8    110.0    103.7    132.0    110.1    100.7    104.2      124.0    131.2     136.7
  Surkhandarya           111.9    100.9    114.8    106.2    115.2    94.7     129.9    101.8     95.1     91.1      136.9    126.6     127.3
 Sirdarya                110.1    120.2    103.0    104.2    107.5    98.3     123.3    109.9     99.1    100.0      109.3    135.1     130.8
 Tashkent                112.5    114.1    106.6    107.7    111.7    109.7    108.1    107.7    106.2    115.7      109.3    112.6     107.6
 Fergana                 111.3    98.1     106.4    101.6    119.2    108.0    109.3    115.8    113.0    108.6      109.6    110.9     109.5
 Khorezm                 107.8    94.0     95.0     114.5    101.4    97.3     121.8     96.5    106.5    105.9      106.2    115.1     118.2
 Tashkent city           111.3    101.3    120.2    102.7    103.4    114.0    127.7    107.4    103.7    121.0      124.2    148.2     133.4
R. Uzbekistan             106.2 107.6 108.4         108.5    113.5    116.6    120.6    116.4    117.1    119.4      114.2    120.6     120.9
Source: State Statistics Committee of Uzbekistan




                                                            Agricultural Output
                                                                                                  I-II/    I-III/              I-II /    I-III/
      Region           2000      2001     2002     2003     2004     2005     2006     I/ 2005                      I/ 2006
                                                                                                 2005     2005                2006      2006
 R. Karakalpakstan      65.6     90.5     101.2    134.3    114.4    103.7    108.4    105.8     123.3    123.7     103.9     107.2     103.8
 Regions:
 Andijan               110.2     107.1    102.0    101.7    102.6    105.3    103.5    107.7     100.6    100.0     103.3     106.7     107.4
 Bukhara               106.3     102.0    102.6    108.8    109.3    109.7    104.5    109.4     110.9    122.5     111.7     107.0     104.3
 Jizzakh               100.1     106.9    113.2    116.6    114.0    106.2    106.5    106.8     106.6    113.1     105.6     113.2     108.0
 Kashkadarya            89.4     106.9    119.9    103.1    109.9    109.8    100.8    109.0     112.5    110.6     108.9     114.9     106.2
 Navoi                 105.0     107.2    106.7    113.7    109.9    104.9    107.7    109.7     108.6    109.2     107.9     112.3     109.0
 Namangan              111.5     101.4    101.5    102.2    109.0    103.9    107.0    104.7     100.8    100.9     104.7     112.0     105.2
 Samarkand             104.8     103.9    112.4    11.4     105.8    105.9    110.7    105.2     103.6    101.0     103.0     107.5     108.3
  Surkhandarya         106.7     110.5    102.8    105.8    106.5    102.0    112.8    108.8     102.7    100.3     103.2     108.4     111.5
 Sirdarya              101.9     105.8    98.8     109.4    111.6    113.7    103.2    105.8     105.5    119.1     109.7     102.7     106.0
 Tashkent              114.9     103.7    102.4    104.1    110.2    104.2    109.2    106.7     110.7    106.5     102.4     100.4     109.9
 Fergana               113.5     100.4    105.2    101.9    108.4    108.6    101.8    104.6     110.3    102.5     101.7     105.3     106.0
 Khorezm                82.8     103.6    106.4    114.0    114.3    104.1    104.2    104.2     111.1    112.8     102.9     101.7     102.3
 Tashkent city
R. Uzbekistan            103.1 104.2 106.0 107.3            108.9    106.2    106.2    106.6     107.2    107.3     104.5     107.2     107.1
Source: State Statistics Committee of Uzbekistan




    98                                                                                                      UZBEKISTAN ECONOMY
                                                                  REGIONS




                                                                 Investments
                                                                                               I-II/    I-III/               I-II /    I-III/
      Region           2000    2001     2002     2003     2004      2005    2006   I/ 2005                        I/ 2006
                                                                                              2005      2005                2006      2006
 R. Karakalpakstan     83.0    105.8    114.0    115.7    104.1     76.2   128.4    45.6      53.6      74.8      125.2     176.2     144.5
 Regions:
 Andijan              101.0    118.4    105.0    108.3    61.9     129.2   104.5    74.3      112.7     113.6     157.5     125.5     125.7
 Bukhara              108.0    119.2    103.0    92.3     151.3    120.7   119.0   135.1      139.0     139.0     147.0     119.,1    105.0
 Jizzakh              111.0     77.5    112.0    63.4     107.7    111.5   107.2   125.0      166.1     142.6     115.2     100.1     109.8
 Kashkadarya           93.0    130.2     93.4    112.8    80.9     116.2   139.5   125.8      127.9     127.1     112.4     104.2     128.2
 Navoi                116.0    107.4     97.9    113.8    83.2     141.9   120.6   102.3      135.6     135.0     147.5     113.9     109.4
 Namangan             103.0     85.5    100.0    101.7    104.5     97.6   100.4   102.8      100.0     98.5      106.8     108.2     109.5
 Samarkand            104.0    107.1     99.8    105.4    118.1    110.6   143.1    81.6      83.2      90.2      137.2     157.1     151.9
 Surkhandarya         102.0    115.7    101.0    104.0    92.9     136.4   108.2   105.7      125.2     133.4      91.8      99.4     106.9
 Sirdarya             100.2    101.3     84.4    102.4    139.7     89.6   138.1   166.1      91.7      73.3       95.1     139.1     132.0
 Tashkent             106.0    112.1    102.0    105.5    117.6    112.7    90.8     96.6     100.7     108.6      87.6     109.2     102.1
                                                                                      2.4
 Fergana              107.0    108.7    107.0    68.4     91.8     119.2   114.0              128.8     123.3      68.9      94.3     105.5
                                                                                    times
                                                            2.3
 Khorezm              102.0     95.5    103.0    65.8               44.1   158.9    94/0      98.4      79.2      103.8     111.3     136.6
                                                          times
 Tashkent city         92.0    106.3     80.9    112.6    121.6     88.4   104.0   126.1      117.4     122.6      91.5      97.6      93.4
R. Uzbekistan            101.0 104.0 103.6 104.8          107.3    105.7   109.1   104.2      105.4     106.9     104.5     106.9     110.0
Source: State Statistics Committee of Uzbekistan




                                                         Retail Trade Turnover
                                                                                     I/       I-II/    I-III/               I-II /    I-III/
      Region         2000     2001     2002     2003     2004      2005    2006                                  I/ 2006
                                                                                   2005      2005      2005                 2006      2006
  R. Karakalpak-
                     103.6    117.9    101.2    108.5    102.1     95.9    108.2   112.4     108.3     101.0     100.2      101.0     103.4
  stan
  Regions:
  Andijan            106.4    109.3    107.3    96.4     91.8      95.0    110.7   100.1     101.5     102.1     102.3      111.3     109.9
  Bukhara            110.3    114.7    107.0    101.4    104.4     110.1   112.8   114.1     114.5     113.4     106.6      110.0     110.6
  Jizzakh            111.0    125.8    116.1    103.7    106.1     95.1    112.8   109.5     107.2     102.7     105.9      106.9     109.9
  Kashkadarya        109.9    116.5    106.7    109.4    100.0     101.5   111.3   107.7     107.7     109.1     107.3      111.1     110.7
  Navoi              105.4    113.3    103.8    104.7    125.5     105.5   124.0   117.8     109.8     107.7     116.7      119.7     121.4
  Namangan           110.8    118.8    113.5    97.9     99.0      109.4   114.7   110.1     112.9     114.4     107.0      108.2     109.1
  Samarkand          113.6    106.6    103.7    107.0    100.8     102.4   110.3   107.5     110.2     107.0     106.3      108.5     109.8
   Surkhandarya      121.4    113.7    112.6    108.4    108.3     110.3   123.7   109.8     113.1     113.3     114.9      118.9     120.8
  Sirdarya           105.8    102.1    91.1     96.5     101.5     110.0   112.3   105.4     101.3     107.3     105.9      108.1     108.2
  Tashkent           123.3    115.9    101.1    108.1    112.6     100.0   111.2   106.3     102.9     103.5     103.0      105.3     105.7
  Fergana            103.2    103.5    106.2    98.4     97.0      99.7    111.0   102.5     100.8     101.2     104.1      108.1     109.4
  Khorezm            111.8    107.9    101.4    96.3     105.5     116.4   123.0   112.2     118.7     119.5     115.7      121.8     122.9
  Tashkent city      100.2    104.7    89.9     110.8    115.2     113.5   118.9   114.9     112.2     114.4     111.4      116.2     116.1
R. Uzbekistan          107.6 109.6 102.1 104.2           105.2     105.1   114.8   108.7     108.1     108.6     107.5      111.6     112.2
Source: State Statistics Committee of Uzbekistan




    UZBEKISTAN ECONOMY                                                                                                                99
                                                                 REGIONS




                                                         Consumer Services
                                                                                      I/       I-II/      I-III/       I/        I-II /       I-III/
         Region         2000     2001    2002    2003     2004    2005     2006
                                                                                    2005      2005       2005        2006       2006         2006
  R. Karakalpakstan     114.2   105.1   112.4    113.2   109.2    116.4    116.4    129.6     110.0      114.1       115.3      119.1        121.8
  Regions:
  Andijan               138.9   113.3   109.3    121.5   132.7    117.4    119.1    123.1     115.9      114.3       113.2      117.5        117.8
  Bukhara               112.6   108.4   117.0    108.8   117.3    117.5    115.1    120.3     116.8      116.3       115.5      115.3        117.4
  Jizzakh               110.4   116.2   114.2    114.0   118.5    113.9    115.0    129.1     113.7      113.7       110.4      109.6        116.1
  Kashkadarya           137.2   114.6   121.9    110.9   102.6    133.5    125.2    117.1     119.9      122.6       119.2      123.2        127.9
  Navoi                 116.8   118.7   108.9    118.7   121.8    118.1    119.5    125.6     124.6      123.3       119.3      117.9        116.3
  Namangan              137.0   115.5   110.8    127.1   117.4    126.9    126.7    116.6     120.1      127.3       111.6      113.1        112.7
  Samarkand             118.1   121.8   104.0    124.0   113.9    124.6    124.7    119.0     116.1      123.0       122.8      127.2        129.3
    Surkhandarya        109.6   114.2   114.3    116.6   111.7    113.1    111.1    118.2     109.3      109.0       116.8      120.7        117.8
  Sirdarya              104.8   125.8   109.6    103.2   112.5    127.8    130.5    127.1     122.7      127.0       119.3      124.1        125.0
  Tashkent              111.5   100.2   109.2    107.1   113.2    113.0    118.8    114.3     115.2      115.9       122.8      120.3        124.0
  Fergana               115.5   113.5   110.5    114.5   119.6    122.6    123.1    118.9     121.4      124.5       120.7      119.7        121.2
  Khorezm               107.9   106.4   102.0    110.6   119.2    124.8    126.7    134.8     121.0      123.1       117.1      119.4        123.6
  Tashkent city         113.5   117.4   112.8    107.5   105.7    108.4    116.0    103.5     104.6      107.9       104.6      102.6        107.5
 R. Uzbekistan            115.7 114.7 108.6 109.5        113.8    115.0    119.3    114.2     111.6      114.5       111.8      113.3        116.4
 Source: State Statistics Committee of Uzbekistan




                  Annex 9.2. Level of Variation in Social and Economic Development of the Regions
                                              (based on per capita index)

                                                    Gross Regional Product
                                                                                                 I-II/      I-III/                   I-II/       I-III/
         Region         2000     2001    2002    2003     2004     2005     2006     I/2005                            I/2006
                                                                                                2005       2005                     2006        2006
 R. Karakalpakstan      0.456   0.413    0.392   0.400    0.423    0.466    0.449    0.412      0.373      0.475       0.384        0.407       0.453
 Regions:
 Andijan                0.911   0.935    0.834   0.764    0.744    0.761    0.749    0.685      0.653      0.947       0.651        0.721       0.762
 Bukhara                1.109   1.155    1.101   1.053    1.085    1.064    1.009    1.041      0.922      1.402       0.958        1.001       0.995
 Jizzakh                0.742   0.669    0.666   0.702    0.768    0.744    0.754    0.558      0.484      0.701       0.552        0.562       0.732
 Kashkadarya            0.722   0.724    0.780   0.782    0.747    0.845    0.858    0.820      0.698      0.794       0.880        0.841       0.846
 Navoi                  1.039   1.267    1.490   1.685    1.705    1.802    1.969    2.060      1.711      1.773       2.360        2.223       2.019
 Namangan               0.667   0.637    0.599   0.543    0.572    0.505    0.477    0.441      0.396      0.491       0.403        0.419       0.460
 Samarkand              0.709   0.679    0.693   0.669    0.601    0.596    0.601    0.472      0.426      0.578       0.427        0.462       0.564
  Surkhandarya          0.716   0.727    0.760   0.734    0.657    0.603    0.602    0.528      0.525      0.641       0.492        0.526       0.593
 Sirdarya               0.807   0.822    0.776   0.754    0.768    0.749    0.703    0.555      0.579      0.777       0.516        0.606       0.706
 Tashkent               1.040   1.017    1.032   1.041    1.032    1.020    1.053    1.075      0.919      1.002       1.041        0.995       1.110
 Fergana                0.941   0.866    0.843   0.785    0.759    0.724    0.700    0.725      0.657      0.706       0.691        0.728       0.716
 Khorezm                0.832   0.717    0.720   0.681    0.669    0.670    0.652    0.593      0.532      0.644       0.556        0.580       0.630
  Tashkent city        1.563 1.665 1.671 1.682 1.678 1.750 1.625                     2.113      1.750      1.754       2.165        1.874       1.755
R. Uzbekistan          1.000 1.000 1.000 1.000 1.000 1.000 1.000                     1.000      1.000      1.000       1.000        1.000       1.000
Range of variation
                        3.4     4.1      4.3       4.2     4.0      3.8     4.4       5.1        4.7         3.7        6.1          5.5         4.5
(times)
Source: Computations based on data from State Statistics Committee of Uzbekistan




     100                                                                                                    UZBEKISTAN ECONOMY
                                                                    REGIONS




                                                            Industrial Output
                                                                                        I/      I-II/    I-III/     I/       I-II /       I-III/
         Region         2000     2001     2002     2003     2004     2005     2006
                                                                                      2005     2005     2005      2006      2006         2006
  R. Karakalpakstan     0.279    0.247    0.201    0.193    0.207    0.228   0.203    0.255    0.218    0.235     0.233     0.227        0.191
  Regions:
  Andijan               0.909    1.071    0.979    0.960    1.028    1.170   1.297    1.161    1.066    1.201     1.139     1.223        1.295
  Bukhara               1.100    1.096    1.133    0.996    0.952    0.807   0.694    0.955    0.752    0.776     0.806     0.708        0.669
  Jizzakh               0.278    0.360    0.380    0.418    0.381    0.406   0.351    0.439    0.383    0.406     0.440     0.417        0.356
  Kashkadarya           0.931    0.953    0.917    0.967    1.050    1.375   1.416    1.398    1.181    1.302     1.534     1.419        1.382
  Navoi                 3.144    3.318    4.046    4.490    4.431    4.580   4.652    4.251    3.928    4.581     4.784     5.059        4.800
  Namangan              0.466    0.450    0.396    0.377    0.343    0.289   0.240    0.311    0.258    0.279     0.262     0.259        0.231
  Samarkand             0.515    0.459    0.398    0.351    0.330    0.304   0.297    0.298    0.237    0.282     0.302     0.256        0.263
   Surkhandarya         0.323    0.302    0.283    0.286    0.295    0.261   0.234    0.303    0.228    0.232     0.252     0.204        0.202
  Sirdarya              0.460    0.541    0.427    0.429    0.402    0.380   0.420    0.474    0.348    0.361     0.483     0.468        0.399
  Tashkent              1.368    1.487    1.569    1.537    1.650    1.528   1.652    1.514    1.378    1.582     1.477     1.594        1.692
  Fergana               1.169    1.024    1.072    0.944    0.911    0.818   0.816    0.838    0.724    0.820     0.795     0.784        0.813
  Khorezm               0.507    0.467    0.414    0.363    0.319    0.354   0.304    0.360    0.320    0.335     0.336     0.317        0.285
   Tashkent city       1.700 1.744 1.729 1.823 1.468 1.336 1.325                  1.162        1.158    1.358     1.142     1.278        1.355
 R. Uzbekistan         1.000 1.000 1.000 1.000 1.000 1.000 1.000                  1.000        1.000    1.000     1.000     1.000        1.000
 Range of variation
                        11.3    13.4    20.1     23.3     21.4    20.1    22.9    16.7         18.1     19.8      20.5      24,8         25.2
 (times)
 Without
                        6.1     7.1      8.6      9.4      8.0     6.7     6.9     5.9          6.3      6.8       6.6       7,8          8.9
 Navoi region
 Source: Computations based on data from State Statistics Committee of Uzbekistan




                                                      Consumer Goods Output
                                                                                                I-II/    I-III/                 I-II /      I-III/
      Region           2000     2001     2002     2003     2004      2005    2006    I/ 2005                      I/ 2006
                                                                                               2005     2005                   2006        2006
 R. Karakalpakstan     0.425    0.400    0.341    0.332    0.307    0.287    0.225   0.328     0.264    0.281      0.267       0.255       0.220
 Regions:
 Andijan               1.354    1.616    1.677    1.847    2.259    3.055    3.368   3.147     2.836    3.106      3.176       3.247       3.348
 Bukhara               1.501    1.589    1.550    1.458    1.477    1.297    1.126   1.380     1.179    1.246      1.217       1.117       1.076
 Jizzakh               0.266    0.385    0.573    0.655    0.723    0.688    0.603   0.704     0.636    0.677      0.718       0.661       0.645
 Kashkadarya           0.616    0.656    0.560    0.615    0.470    0.444    0.379   0.447     0.394    0.405      0.421       0.364       0.336
 Navoi                 0.616    0.619    0.640    0.712    0.707    0.624    0.581   0.612     0.522    0.594      0.590       0.600       0.623
 Namangan              0.665    0.579    0.571    0.561    0.573    0.507    0.428   0.546     0.440    0.495      0.440       0.463       0.434
 Samarkand             1.226    1.072    1.016    0.884    0.836    0.788    0.798   0.799     0.664    0.789      0.789       0.760       0.776
  Surkhandarya         0.433    0.377    0.364    0.356    0.403    0.321    0.319   0.317     0.281    0.293      0.357       0.327       0.303
 Sirdarya              0.700    0.700    0.659    0.669    0.677    0.552    0.551   0.597     0.475    0.524      0.493       0.530       0.525
 Tashkent              1.071    1.164    1.184    1.252    1.206    1.096    1.010   1.007     0.924    1.140      0.999       1.025       1.026
 Fergana               1.076    1.009    0.934    0.844    0.903    0.826    0.806   0.830     0.747    0.839      0.840       0.819       0.813
 Khorezm               0.787    0.543    0.551    0.544    0.501    0.426    0.409   0.469     0.426    0.423      0.395       0.458       0.411
  Tashkent city       2.093 2.004 2.360 2.396 2.124 1.988 2.149                  1.797         1.644    2.015      2.123       2.201       2.243
R. Uzbekistan         1.000 1.000 1.000 1.000 1.000 1.000                1.00    1.000         1.000    1.000      1.000       1.000       1.000
Range of variation
                       8.2     5.3     6.9      7.2       7.4    10.6    14.9     9.9           10.8     11.1      11.9         12.7        15.2
(times)
Source: Computations based on data from State Statistics Committee of Uzbekistan




    UZBEKISTAN ECONOMY                                                                                                                   101
                                                                   REGIONS




                                                           Agricultural Output
                                                                                         I/      I-II/    I-III/     I/      I-II /    I-III/
         Region          2000    2001     2002     2003     2004     2005     2006
                                                                                       2005     2005     2005      2006     2006      2006
  R. Karakalpakstan     0.425    0.354    0.360    0.435    0.480    0.523    0.566    0.311    0.336    0.562     0.391    0.419     0.561
  Regions:
  Andijan               1.170    1.119    1.150    1.051    1.042    1.020    0.952    0.797    0.979    0.948     0.806    1.097     0.960
  Bukhara               1.340    1.375    1.321    1.376    1.418    1.498    1.482    1.245    1.322    1.630     1.324    1.639     1.445
  Jizzakh               1.331    1.211    1.329    1.425    1.497    1.488    1.514    1.246    0.892    1.394     1.320    1.116     1.407
  Kashkadarya           0.831    0.851    0.980    1.006    1.003    1.089    0.994    0.671    0.778    0.984     0.725    0.937     0.956
  Navoi                 1.238    1.144    1.149    1.218    1.218    1.268    1.343    1.231    1.289    1.287     1.817    1.668     1.464
  Namangan              1.019    0.996    1.042    0.970    0.968    0.852    0.828    0.639    0.660    0.828     0.707    0.812     0.750
  Samarkand             1.037    1.081    1.110    1.154    1.084    1.142    1.189    1.283    0.956    1.195     0.963    1.078     1.166
    Surkhandarya        1.187    1.353    1.311    1.279    1.222    1.084    1.124    1.222    1.200    1.240     1.305    1.267     1.188
  Sirdarya              1.397    1.501    1.373    1.393    1.636    1.634    1.466    1.346    1.473    1.778     1.428    1.381     1.483
  Tashkent              1.511    1.539    1.268    1.255    1.242    1.250    1.393    1.996    1.213    1.189     1.998    1.189     1.476
  Fergana               0.977    1.024    0.995    0.931    0.883    0.846    0.799    0.984    0.936    0.801     0.851    1.038     0.818
  Khorezm               1.144    1.025    1.072    1.098    1.173    1.193    1.178    1.350    0.965    1.201     1.376    1.101     1.166
   Tashkent city
 R. Uzbekistan          1.000 1.000 1.000 1.000 1.000 1.000 1.000                      1.000    1.000    1.000     1.000    1.000     1.000
 Range of variation
                         3.6     4.2      3.8      3.3      3.4     3.1     2.7         6.4      4.4       3.2      5.1      4.0       2.6
 (times)
 Source: computations based on data from State Statistics Committee of Uzbekistan




                                                              Investments
                                                                                        I/      I-II/     I-III/     I/     I-II /     I-III/
      Region           2000     2001     2002     2003     2004     2005     2006
                                                                                      2005     2005      2005      2006    2006       2006
 R. Karakalpakstan     0.819    0.648    0.832    1.119    1.111    0.722    0.917    0.759    0.642     0.786     0.929   1.222      1.089
 Regions:
 Andijan               0.552    0.505    0.439    0.641    0.377    0.401    0.365    0.250    0.338     0.390     0.353   0.413      0.420
 Bukhara               0.705    0.627    1.063    0.701    1.174    1.346    1.445    1.554    1.265     1.368     2.192   1.556      1.292
 Jizzakh               0.577    1.112    1.155    0.583    0.611    0.601    0.546    0.561    0.713     0.699     0.573   0.673      0.645
 Kashkadarya           1.897    1.931    1.608    1.760    1.507    1.583    1.972    1.667    1.604     1.745     1.719   1.669      1.973
 Navoi                 2.014    2.535    2.125    2.213    1.835    2.294    2.534    1.548    1.913     2.215     2.133   2.231      2.182
 Namangan              0.701    0.501    0.476    0.471    0.449    0.453    0.415    0.467    0.450     0.510     0.465   0.493      0.502
 Samarkand             0.523    0.453    0.404    0.531    0.505    0.432    0.548    0.367    0.400     0.467     0.467   0.628      0.622
  Surkhandarya         0.470    0.509    0.451    0.600    0.641    0.712    0.685    0.902    0.814     0.845     0.763   0.807      0.794
 Sirdarya              0.772    0.754    0.713    0.592    0.819    0.618    0.769    0.694    0.602     0.680     0.619   0.853      0.797
 Tashkent              0.747    0.762    0.899    0.872    1.085    1.074    0.863    1.040    0.897     1.005     0.844   0.984      0.901
 Fergana               0.587    0.796    0.931    0.480    0.396    0.405    0.405    0.662    0.506     0.495     0.420   0.476      0.456
 Khorezm               0.630    0.695    0.855    0.437    0.874    0.339    0.493    0.405    0.406     0.426     0.397   0.459      0.529
  Tashkent city       2.730 2.272 2.131 2.864 3.088 2.462 2.382                       3.086    2.209     2.713     2.704   2.250      2.309
R. Uzbekistan         1.000 1.000 1.000 1.000 1.000 1.000 1.000                       1.000    1.000     1.000     1.000   1.000      1.000
Range of variation
                       5.8     5.6      5.3      6.5      8.2     7.6     7.0         12.3      6.5       7.0       7.7     5.5        5.5
(times)
Without Tashkent city  4.3     5.6      5.3      5.1      4.9     5.7     7.0          2.1      5.6       5.7       6.2     5.4        5.2
Source: computations based on data from State Statistics Committee of Uzbekistan




    102                                                                                                     UZBEKISTAN ECONOMY
                                                                  REGIONS




                                                        Retail Trade Turnover
                                                                                                    I-II/      I-III/               I-II /      I-III/
      Region           2000      2001   2002    2003   2004      2005         2006      I/ 2005                         I/ 2006
                                                                                                   2005       2005                 2006        2006
 R. Karakalpakstan     0.470   0.485    0.491   0.505 0.503      0.476    0.455         0.513     0.430      0.466      0.504     0.460       0.453
 Regions:
 Andijan               1.272   1.314    1.356   1.284 1.077      1.012    0.944         1.204     0.966      1.014      1.087     1.056       0.977
 Bukhara               0.756   0.841    0.902   0.855 0.873      0.918    0.911         0.922     0.815      0.915      0.920     0.913       0.917
 Jizzakh               0.420   0.530    0.630   0.602 0.617      0.590    0.554         0.612     0.506      0.557      0.626     0.565       0.557
 Kashkadarya           0.662   0.697    0.715   0.755 0.768      0.743    0.676         0.708     0.653      0.745      0.681     0.694       0.692
 Navoi                 0.728   0.770    0.808   0.800 0.965      0.960    1.061         0.906     0.813      0.964      0.997     0.997       1.055
 Namangan              0.691   0.747    0.805   0.773 0.720      0.727    0.718         0.795     0.675      0.740      0.766     0.732       0.716
 Samarkand             0.791   0.709    0.707   0.744 0.711      0.693    0.659         0.706     0.621      0.685      0.703     0.678       0.666
  Surkhandarya         0.588   0.594    0.665   0.700 0.716      0.757    0.799         0.729     0.681      0.767      0.751     0.794       0.804
 Sirdarya              0.691   0.665    0.639   0.609 0.595      0.624    0.600         0.558     0.506      0.606      0.553     0.555       0.578
 Tashkent              1.033   1.041    1.038   1.112 1.179      1.148    1.105         1.091     0.990      1.137      1.050     1.070       1.087
 Fergana               1.219   1.145    1.232   1.153 1.076      0.972    0.937         1.011     0.876      0.980      0.977     0.965       0.958
 Khorezm               0.662   0.685    0.668   0.610 0.605      0.694    0.755         0.649     0.601      0.686      0.731     0.743       0.765
  Tashkent city        2.854 2.789 2.452 2.550 2.816         3.011       3.274    2.831           2.604      3.056      3.028     3.135       3.198
R. Uzbekistan          1.000 1.000 1.000 1.000 1.000         1.000       1.000    1.000           1.000      1.000      1.000     1.000       1.000
Range of variation
                          6.8   5.7     5.0    5.0     5.6      6.3        7.2      5.5             6.1         6.6       6.0        6.8           7.1
(times)
Without Tashkent city     3.0   2.7     2.8    2.5     2.3      2.4         2.4      2.4            2.3         2.4       2.2        2.3           2.4
     Source: computations based on data from Uzbekistan State Statistics Committee



                                                            Consumer Services
                                                                                            I/       I-II/     I-III/     I/       I-II /     I-III/
           Region         2000     2001     2002    2003      2004    2005      2006
                                                                                          2005      2005      2005      2006      2006       2006
   R. Karakalpakstan     0.410     0.340   0.358    0.380     0.393   0.398     0.384     0.440     0.355     0.390     0.444     0.420      0.397
   Regions:
   Andijan               0.870     0.856   0.771    0.813     0.999   0.975     1.011     0.615     0.694     0.887     0.641     0.846      0,946
   Bukhara               0.927     0.856   0.878    0.883     0.894   0.927     0.923     0.983     0.863     0.932     1.059     1.034      0.976
   Jizzakh               0.455     0.441   0.448    0.481     0.488   0.477     0.457     0.560     0.459     0.484     0.534     0.490      0.471
   Kashkadarya           0.463     0.420   0.423    0.462     0.420   0.470     0.498     0.415     0.374     0.427     0.461     0.474      0.484
   Navoi                 0.707     0.718   0.663    0.755     0.844   0.949     0.911     1.027     0.838     0.917     1.076     0.964      0.891
   Namangan              0.500     0.479   0.448    0.506     0.504   0.575     0.600     0.540     0.470     0.567     0.567     0.565      0.586
   Samarkand             0.626     0.612   0.606    0.687     0.666   0.718     0.734     0.632     0.574     0.677     0.677     0.712      0.720
    Surkhandarya         0.480     0.441   0.444    0.457     0.469   0.490     0.440     0.491     0.396     0.454     0.505     0.465      0.452
   Sirdarya              0.366     0.361   0.366    0.382     0.395   0.453     0.484     0.502     0.401     0.430     0.541     0.473      0.446
   Tashkent              0.732     0.670   0.616    0.631     0.653   0.633     0.664     0.638     0.590     0.642     0.722     0.726      0.692
   Fergana               0.610     0.553   0.556    0.586     0.631   0.681     0.692     0.655     0.574     0.666     0.702     0.683      0.695
   Khorezm               0.707     0.596   0.581    0.602     0.659   0.714     0.737     0.833     0.654     0.684     0.840     0.755      0.707
    Tashkent city       3.455 3.761 4.090 4.201 4.156 3.918 3.834                         4.197     3.749     4.157     3.800     3.786      3.791
  R. Uzbekistan         1.000 1.000 1.000 1.000 1.000 1.000 1.000                         1.000     1.000     1.000     1.000     1.000      1.000
  Range of variation
                         8.4     11.1    11.4    11.1     10.6      9.8   10.0             10.1     10.6       10.7      8.6       9.0        9.5
  (times)
  Without Tashkent city  2.5      2.5     2.5     2.3      2.5      2.3     2.6            2.4       2.4        2.4      2.4       2.5        2.5
  Source: computations based on data from Uzbekistan State Statistics Committee




     UZBEKISTAN ECONOMY                                                                                                                      103
                            LISTED BANKS – ANALYSIS OF CURRENT TENDENCIES



ANALYTICAL PART
Listed Banks – Analysis of Current Tendencies
                                                                                         L. Sultanova, A. Gaisina

The importance of commercial banks at the stock market of Uzbekistan is very high. Commercial banks of
Uzbekistan, with their diversified operations, can participate at stock market with full range of services.
Analysis of stock market turnover enables to make a conclusion that banking sector is steadily developing
and demand for shares of banks continues to grow. The banking sector is leading in the structure of stock
exchange turnover.

Commercial Banks, with joint-stock company formation, are considered as exemplary issuers and demand
for their stock is high. It is rather difficult to get listed, as stock exchanges have very high requirements to
their members. Therefore once listed, companies, as a rule, try to stay there. Analysis of commercial banks
listed in Toshkent Stock Exchange shows that their number is steadily increasing. While as of January 2007
only four banks were listed, by 1 November 2007 their number increased to nine banks with A rating. Cur-
rently Pakhtabank, Gallabank, Ipotekabank, UzPromStroyBank, Hamkorbank, Kapitalbank, Ipaq Yuli Bank,
Aloqabank and Turonbank are included in stock market listing.

Only shares of these banks are quoted in the market.      Table 1. Quotations of Shares (price to par value)
Term "listed” is very significant. Listed issuers were           Banks           Average/Par value   Max/Par value
examined and accessed by the exchange and there-          Ipotekabank                        1.01              1.20
fore their shares are being quoted. Stock exchange        Gallabank                          1.01              1.08
is responsible for real value of such shares (Table 1).   UzPromStroyBank                    1.08              1.32
                                                          Pakhtabank                         1.01              1.10
In accordance with the Regulation on Official Ex-         Hamkorbank                         1.00              1.03
change Bulletin, Toshkent Stock Exchange prior to         Kapitalbank                        1.11              1.27
listing an issuer should verify the following:            Ipaq Yuli Bank                     1.01              1.10
        a) availability of state registration of issue of Aloqa Bank                         1.30              1.30
shares in the Center in accordance with the legisla-
                                                          Source: Toshkent Stock Exchange
tion on securities market;
        b) absence of limitations for free circulation of shares in constituent documents and decision on issue;
        c) disclosure of information by the issuer in accordance with the legislation;
        d) the amount of issuer's equity is at least UZS 200 million;
        e) availability of at least 50 shareholders; and
        f) over the at least last two years, the issuer incurred no losses.

If applicant satisfies all these criteria then it can be considered as listed. Shares of applicants, who can not
pass the market regulation requirements, can be traded at Tashkent Stock Exchange as unlisted.

Rank A issuers should also comply with the following requirement – volume of trade in the issuer’s stock
should be at least:
      1) UZS 5 million over one calendar quarter (for joint-stock banks);
      2) UZS 1 million over one calendar quarter (for other issuers);

All listed banks regularly publish reports on forthcoming issues, number of placed shares and so forth.

The group of listed banks issue both preferred and common stocks. Total par value of placed preferred stock
should not increase 20% of the authorized capital of joint-stock company. Share of preferred stock in the to-
tal volume of issued stock varies by bank: UzPromStroybank - 11.8%, Pakhtabank - 0.87%, Ipotekabank -
13.6%, Ipaq Yuli Bank - 0.14%, Hamkorbank - 9.23% and Gallabank - 7.5%.

According to regulation, preferred stocks can be differentiated and important points of are:
• Owners of preferred stock may not vote at the general shareholders meeting and participated in man-
    agement of the bank;
• Dividends on preferred stock are paid at fixed rate;
• In event of joint-stock company liquidation owners of preferred stock have priority over owners of com-
    mon stock in receiving their investment and dividends;
• Owners of common stock:
     May participate in decision making by vote;
     May participate in management;
     Receive dividends depending on the bank’s performance and income;
104                                                                                       UZBEKISTAN ECONOMY
                            LISTED BANKS – ANALYSIS OF CURRENT TENDENCIES


     Upon liquidation may claim their investment and dividends after owners of preferred stock.
•   Preferred stocks empower their owners with the same scope of rights (except vote at the general share-
    holders’ meeting).

Majority commercial banks’ shares are       Graph 1. Share of Freely Circulating Banks' Stock, in %
freely circulating (Graph 1). This is
their key difference from shares of            Ipak Yoli bank
other issuers, which due to various                Aloqa bank
reasons float free partially. In addition,
banks' stocks enjoy several tax privi-     UzPromStroy bank
leges. In accordance with the Decree              Kapital bank
of the President of Uzbekistan of 19             Ipoteka bank
December 2006 “On Measures for
                                                   Galla bank
Stimulating Increase in Capitalization of
Commercial Banks” dividend income of            Hamkor bank
legal entities from commercial banks’              Paxta Bank
stocks are exempt from taxation and
funds invested in purchase of shares of                        0 10 20 30 40 50 60 70 80 90 100
commercial banks at their primary or Source: Toshkent Stock Exchange
additional offering are deducted from
corporate income tax base and single tax payment. This privilege is applied to shares of commercial banks
purchased from 1 January 2007 and dividends on shares paid up to 31 December 2009.

In the process of privatization in Uzbeki-                        Graph 2. Assets of Listed Banks as
stan government maintained its interest in                          of 1 January 2007 UZS billion
many joint stock banks. However only two
of nine listed banks have government interest:                Aloqa bank
UzPromStroyBank - 4.7% and Ipotekabank -                    Hamkor bank
9.8%. Employees' interest is also relatively
                                                               Galla bank
small and varies from 1 to 6%, with the excep-
tion of Ipaq Yuli Bank - 23%. Foreign portfolio            Ipak Yoli bank
investors were mainly attracted by UzProm-                   Kapital bank
StroyBank and Ipaq Yuli Bank. They pur-
chased 19.3% and 17% of the total place                      Ipoteka bank
shares respectively.                                          Paxta bank
                                                        UzPromStroy bank
Balance Sheet Indicators
Balance sheet analysis is crucial for assess-                     -      200        400      600    800
ment of financial standing of a commercial
bank. Comparative analysis of key selected Source: Toshkent Stock Exchange
balance-sheet indicators is presented below. Assets of the largest listed bank UzPromStroyBank as of 1
January 2007 totaled UZS 677.18 billion, followed by Pakhtabank – UZS 501.9 billion, Ipotekabank – UZS
423.6 billion, Kapitalbank – UZS 128.95 billion, Ipaq Yuli Bank – UZS 100.07 billion, Gallabank – UZS 85.99
billion, Khamkorbank – UZS 78.29 billion and Aloqa Bank – UZS 51.9 billion.

As we can see, ranking by total assets (Graph 2)                  Graph 3. Equity to liability ratio, in %
indicates that assets of UzPromStroyBank are
exceeding those of Aloqa Bank more than 10                       Kapital bank
times. However, difference in total assets is not                    Ipak Yoli
significant for listing. There other criteria of im-        UzPromStroy bank
portance.                                                        Ipoteka bank
                                                                   Paxta bank
Review of equity and liabilities of listed banks
show that equity to liability ratio is one of the key            Hamkor bank
indicators of sustainability of a bank. What is the                Aloqa bank
situation among the listed banks?                                  Galla bank

Gallabank, Aloqa Bank and Hamkorbank have                                   0    5     10    15     20   25   30
the highest equity to total liabilities ratio (Graph Source: Toshkent Stock Exchange
3). Although, these three banks are not leading in
term of total assets, the equity to liabilities indicator show that their issuing policy is efficient and they suc-
cessfully mobilize capital at the stock market.


UZBEKISTAN ECONOMY                                                                                            105
                                  LISTED BANKS – ANALYSIS OF CURRENT TENDENCIES


Liquidity implies bank’s ability to meet its obligations to customers taking into account forthcoming release of
funds invested in asset transaction and possible borrowings at money market. Capital adequacy is critical
for bank's liquidity, as well as amount and structure of borrowings, matching of assets and liabilities, impact
of selected transactions and diversification of lending and deposit transactions.

    Graph 4. Rate of Return of Listed Banks, in %                        Profit is the major objective of a commercial
                                                                         bank’s operations. Retained earnings are a ba-
         Kapital bank                                                    sis for assets growth and capitalization, ensuring
          Aloqa bank                                                     stability and liquidity, as well as adequate level
  UzPromStroy bank                                                       of dividends, development and quality enhance-
                                                                         ment. Net profit (after taxes) to assets is another
       Ipak Yoli bank
                                                                         key indicator of bank’s profitability. The following
        Ipoteka bank
                                                                         banks had the highest indicators (Graph 4) in the
        Hamkor bank                                                      beginning of 2007: Gallabank - 15.8%, Pakhta-
          Paxta bank                                                     bank - 9.87%, Hamkorbank - 8.82%, Ipoteka-
          Galla bank                                                     bank - 5.82%, Ipaq Yuli Bank - 4.26%, Aloqa
                                                                         Bank - 3.20 %, Kapitalbank - 3.04 % and Uz-
                         0         5         10           15
                                                                         PromStroyBank - 2.71%. The largest bank in
Source: Toshkent Stock Exchange                                          terms of total assets UzPromStroyBank is the
last in the list.
          Banks need to address liquidity issues by stabilizing their resource base. Analysis of selected types
of attracted resources enables to formulate ways towards strengthening bank's liquidity. Level of deposit
diversification is determined by the number and share of large deposits, which increase exposure in case of
premature repayment. Growth in the share of term deposits favorably affects and bank's liquidity.

      Graph 5. Share of Deposits in Liabilities, in %                    Considerable share of demand deposits nega-
                                                                         tively affect balance sheet liquidity. Enhance-
         Kapital bank                                                    ment of liquidity can be achieved through
          Aloqa bank                                                     change in structure of attracted resources:
                                                                         through increase in the share of time deposits
           Galla bank
                                                                         by possible re-arrangement of stable part of
          Paxta bank                                                     demand deposit closing balances to time depos-
   UzPromStroy bank                                                      its.
        Ipak Yoli bank
                                                                         All the listed banks are actively mobilizing re-
        Hamkor bank                                                      sources through deposits. Share of deposits to
         Ipoteka bank                                                    total liabilities is under 59 % across all the listed
                                                                         banks. (Graph 5).
                         0   20        40    60      80        100
Source: Toshkent Stock Exchange                             The relatively small Hamkorbank has the most
                                                            preferable deposit structure (Table 2). Share of
savings and time deposit is at least 70% of the total deposits. This means sustainable and rather long-term
resource base.

                                            Table 2. Deposit Structure, in %
                      Bank                        Demand Deposits             Savings Deposits    Time/Term Deposits
          UzPromStroyBank                                             3.45              15.12                 45.29
          Ipotekabank                                                85.26               3.86                 10.88
          Pakhtabank                                                 57.69              18.93                 23.38
          Ipaq Yuli Bank                                             60.47               3.81                 35.71
          Gallabank                                                  47.70               0.06                 52.24
          Hamkorbank                                                 31.99              20.60                 47.41
          Kapitalbank                                                61.74               0.92                 37.35
          Aloqa Bank                                                  53.8               13.1                  33.1
         Source: Toshkent Stock Exchange

In contrast, Ipotekabank, leading in the share of deposits in liabilities, has mainly demand deposits (85.3%).

Analysis of asset-side transactions of a bank from its liquidity standpoint is based on loan portfolio assess-
ment. The largest loan portfolios have the largest banks – UzPromStroyBank, Pakhtabank and Ipotekabank
(Graph 6).




106                                                                                                UZBEKISTAN ECONOMY
                                              LISTED BANKS – ANALYSIS OF CURRENT TENDENCIES


                  Graph 6. Total Loans, UZS thousand                                                                               However, in addition Pakhtabank,
                                                                                                                                   Gallabank and Hamkorbank have
  450 000   000
  400 000   000                                                                                                                    the highest shares of loan portfolios
  350 000   000                                                                                                                    in their asset structure (Graph 7).
  300 000   000                                                                                                                    The last in the list is Ipotekabank
  250 000   000
  200 000   000                                                                                                                    (37.9%). This is partially due to the
  150 000   000                                                                                                                    tendencies in forming deposit struc-
  100 000   000                                                                                                                    ture of this bank. High share of de-
   50 000   000
            -
                                                                                                                                   mand deposits limits expansion of
                                                                                                                                   lending strategy of a bank.




                                                                            Hamkor bank
                   UzPromStroy




                                                Ipoteka bank




                                                                                          Ipak Yoli
                                 Paxta bank




                                                               Galla bank




                                                                                                                    Kapital bank
                                                                                                      Aloqa bank
                                                                                            bank
                      bank




                                                                      Thus, key balance-sheet indicators
                                                                      of the listed banks indicate their fi-
                                                                      nancial sustainability as intermediar-
                                                                      ies, having balanced loan and de-
Source: Toshkent Stock Exchange                                       posit basis and successfully issuing
and trading stock in the domestic market. In addition to being the most successful institutional investors in
Uzbekistan, listed banks issue the most reliable and liquid stock.

       Graph 7. Share of Loans in Assets, in %                                                                     In addition to regulatory documents, public of-
                                                                                                                   fering of commercial banks’ stocks at the stock
       Kapital bank                                                                                                exchange should be at least 25% of the entire
       Ipoteka bank                                                                                                issue, such banks should be listed and the quo-
      Ipak Yoli bank
                                                                                                                   tations should be regularly published. This im-
                                                                                                                   plies that the number of listed banks will grow
        Aloqa bank
                                                                                                                   as a result of a need to increase capitalization
  UzPromStroy bank                                                                                                 through increase in equity, issuing and trading
       Hamkor bank                                                                                                 of stock at the exchanges.
        Paxta bank
                                                               Banking sector of Uzbekistan is one of the most
            Galla bank                                         promising investment areas in Uzbekistan. At
                     0        20      40       60       80
                                                               present this segment of financial market dem-
                                                               onstrates growth rates exceeding those of other
Source: Toshkent Stock Exchange                                sectors and capable to maintain positive dy-
namics in future. Economic entities have additional incentive for search of optimal distribution of their funds,
and banking sector would increasingly identify these areas and take advantage of them. As a result, stocks
of the banks continue to be in high demand. This applies to other instruments too. In order to issue bonds,
regulation requires banks to get their ratings. In addition, national rating system of commercial banks and
their stock is underway. Listing and rating should be distinguished. Rating is assessment of credit potential
and risk exposure of a company. Listing implies continuous disclosure of information by issuer – publication
of financial reporting, information on shareholders, large transactions, decisions of general meeting and so
forth. Ideally listing and rating should go hand in hand. In subsequent analysis of commercial banks as is-
suers of stock both their listing and rating should be reviewed.




UZBEKISTAN ECONOMY                                                                                                                                                 107
          IMPROVEMENT OF RESOURCE BASE OF FRUIT AND VEGETABLE PROCESSING INDUSTRY


Improvement of Resource Base of Fruit and Vegetable Processing
Industry of Uzbekistan
                                                                                                    Pugach. I.L.

Lack of raw materials as well as its poor quality is one of the top problems discussed among the directors of
the enterprises engaged in production of fruit and vegetable juices and canned food. This problem has sev-
eral aspects. Dekhkan and private farm entities prefer to sell their product in free markets at commercial
prices right after harvest. They do not want to sell their product to the processing enterprises at prices set in
the agreements six months before the harvest. Besides the fact, that the processing enterprises are not al-
ways ready to fulfill the signed agreements. Regarding the payment and assistance in cultivating the product,
there are certain technological and organizational aspects connected with the specific character of the farm-
ing. This results in low yields of fruit and vegetables as well as in poor quality of these products as raw mate-
rial. This article is an effort to explain the ways of improvement in the economic-organizing sphere of the
horticulture and vegetable growing.

The farming business in our country is not based on the knowledge and scientific methods but on the experi-
ence of the past. The farmers apply fertilizers, water, and weed the fields in the same manner as their an-
cestors did a hundred years ago. They believe that they can raise a crop capacity simply using the imported
seeds. However, selection (sorting) in the developed agrarian countries is oriented toward the specific tech-
nology. That is why it is important not just to have the seeds itself, but also to get the training on how to grow
these seeds properly.

The producers, both farmers and food processors, have certain shortages in many aspects of legal, eco-
nomic and technological knowledge. The decision of what kind of crops the farmers will be growing next
year is determined not by the consumer’s demand but by the forecast of the most expensive product. As a
result, if onions were expensive last year and there was a shortage of this product in the market, then one
can be sure, that this year there will be a great many onions and it will be cheap. The crop capacity in gar-
dening and vegetable growing remains extremely low due to insufficient application of modern agro-technical
methods (Table 1).

                            Table 1. Total Yield and Crop Capacity of Certain Crops
                                          2003            2004                  2005                 2006
Fruit and Berries
Total Yield                                      765.8            841.7                 959.3               1182.2
Crop Capacity                                     52.5             58.2                  62.3                 73.8
Grape
Total Yield                                      401.5            589.1                 641.6                803.6
Crop Capacity                                     41.3             60.8                  64.7                 79.4
Vegetables
Total Yield                                     3301.4           3336.1                3517.5               4294.3
Crop Capacity                                    200.9            203.1                 215.8                 223
Potatoes
Total Yield                                      834.4            895.7                 924.2                1021
Crop Capacity                                    152.5            157.5                 170.3                175.2
Melon and Gourds
Total Yield                                      587.3            572.5                 615.3                744.5
Crop Capacity                                    141.4             157                  744.5                178.2
Source: State Statistics Committee of Uzbekistan

In our agriculture, shirkat or kolkhoz is considered a cooperative farm. However, in reality, the cooperation is
possible regarding only certain aspects of the farmers’ activities. For example, in Israel Moshavy are the
cooperatives of private farmers, assisting in organization of sales, acquiring resources and hiring of neces-
sary specialists. Nowhere in the world a farmer is able solely to hire an agronomist, a bookkeeper, a market
specialist or an economist, but cooperative is capable to do this. A single farmer is not able to organize the
processing of the grown fruit and vegetables and has to sell the products to the resellers or processing en-
terprises. In addition, a farmer is in unfavorable situation with respect to his contractors. However, the union
of farmers can organize both the processing and the sale of the grown products.

As for Uzbekistan, the water use and water saving technologies play the most important part here. The wa-
ter consumption in the agrarian sector of Uzbekistan is significantly higher, as compared to the other coun-
tries with the similar pattern of farming. At the same time, the agricultural producers complain of low limits of
water and high water charge. The solution is to move (step-by-step) to drip irrigation. Drip irrigation is not
108                                                                                       UZBEKISTAN ECONOMY
          IMPROVEMENT OF RESOURCE BASE OF FRUIT AND VEGETABLE PROCESSING INDUSTRY


just watering; it is an additional dressing of the soil. The fertilizers are added to water, not scattered all over
the field. Thus, both water and fertilizers are saved. Understanding that it is too early to discuss the devel-
opment of drip irrigation during bedding out of the vegetables, it is quite possible to use it extensively in the
vegetable growing in the green houses. The simplest plant for drip irrigation consisted of a tank and a net-
work of plastic pipes fitted with flow-diversion controllers costs only about USD400. What is the efficiency of
the plant? The usual crop capacity of the vegetables grown in the green houses of Uzbekistan (tomatoes
and cucumbers) is 5-7kg per square meter. The yield of 10 kg is considered a big success, but it happened
quite rarely. The use of the simplest drip irrigation plant guarantees the yield of 10 kg per one square meter,
and along with the proper composition of the fertilizers used in the growing process can facilitate even higher
crop capacity.

The major agricultural producers of fruit and vegetables in Uzbekistan are dekhkan entities. The areas as-
signed to them normally are no bigger than 0.2 hectares. These entities still cannot agree among them on
who will grow what sorts, within what periods and what agro-technical methods are necessary to apply. The
same is true for farm entities. All farmers have the gardening areas sized from one to 5 hectares, and each
farmer decides by his own on what planting stock and at what part of the area he will be growing, as well as
what kind of fertilizers he will be using. As a result, we have fruit and vegetables of various sorts in insignifi-
cant compared with the foreign producers quantities. This causes those difficulties the processing enter-
prises encounter with during the purchase of raw materials and results in unstable production volumes (Ta-
ble 2)

                             The Production of Major Sorts of Fruit and Vegetables
                 Cans (reference cans, million)            2003           2004         2005          2006
      Vegetable                                               13.0          11.3         15.1           18.8
      Tomatoes                                               182.1         141.4        120.7           95.1
      Fruits                                                  67.0          48.2         57.6          115.1
      Other Fruit and Vegetable                               98.8          70.0         78.6           85.3
      Juices and Concentrated purees (million dal.)           82.1          86.6         97.4         121.1
     Source: State Statistics Committee of Uzbekistan

Looking at the goods of foreign producers, i.e. apples, which one can see all over our markets, it is remark-
able that all these fruits are of the same size, the same bright color and the same degree of ripeness, without
any blotches caused by fall or insects. One can argue that all these apples contain many chemicals and are
not that tasty as our local ones, but one has to agree the next important thing after fertilizers is the proper
organization of the cultivation process.

The industrial technologies nowadays are introduced to fruit and vegetable cultivation more actively. This
means not only the embedding of modern machinery everywhere where it is possible, but also the higher
efficiency of the large-scale production. It is not profitable to store, to transport and to process 500 kilos of
apples, another story – 50 tons. Therewith, apples of the sort of greater demand have to be timely supplied
to the market. Although, the competitiveness is much higher in the foreign market, it is increasing in the do-
mestic market as well.

The process of garden formation is one of the most important in the fruit growing process. Before, it was
considered that the trees have to be big and their crowns have to be of the right shape to be covered evenly
with the sunlight. That is why the crown cut works have been considered as a very important agro-technical
method. Nevertheless, big trees cause big difficulties for both the fruit pickers and the harvester mecha-
nisms. The fruits of upper branches have to be picked by hand or to be knocked down with different tools.
However, the fallen fruits could not remain intact and degradation of their quality was inevitable. The breed-
ers have solved this problem through a selection of brachytic trees. On the one hand, it facilitated the im-
provement of mechanization of the harvest and reduced the losses, but, on the other hand, the crop capacity
of the brachytic trees has not increased adequately, which led to decrease in total yields. To respond to this
failure the breeders have selected new hybrid trees, which had more fruits on each branch and the branches
were of the same length as in brachytic trees. This sort of plant combines high crop capacity and ease of
fruit picking. Thus, the science responds to the real needs of the agrarian sector of the economy.

Today it is not enough simply generate the scientific knowledge. Both the agrarian and the processing en-
terprises have to have an access to them, i.e., through the instructors’ centers. The professionals of various
specializations such as agronomists, lawyers, bookkeepers could be hired by these centers to consult the
agricultural producers. The international organizations can fund the first stage of the establishing of such
centers and later on, the farmers and their associations can support these centers themselves, as they need
them. This financing principle will finally “turn upside down” the pyramid existed since the time of kolkhoz
and sovkhoz when all the specialists were secured with job places irrespective of the real need of the agrar-
UZBEKISTAN ECONOMY                                                                                             109
          IMPROVEMENT OF RESOURCE BASE OF FRUIT AND VEGETABLE PROCESSING INDUSTRY


ian sector in their services. The instructors-consultants of these centers have to work together with the
farmers on their farms, solving the individual problems of these particular farmers and have to be paid ex-
actly for this work. Of course, it is clear, that a single farmer will not be able to pay for the services of all
those specialists he needs. That is why the cooperation of the farmers trying to introduce the newest scien-
tific and technical achievements in the agriculture is so important.

The successful development of fruit and vegetable cultivation in the agrarian sector needs three major fac-
tors. 1) Setting of certain conditions and technologies correspondent to the biological properties of the plants
and to the climatic conditions of the region (temperature, sunlight, amount of precipitations etc.), soil proper-
ties, water amount and quality and other specific characteristics. 2) Fertilizers; all countries in the world use
fertilizers in crop cultivation. It is important here, that the use of the fertilizers should be economically proved
and ecologically acceptable. 3) Selection, seed growing and adaptation of certain sorts to the local condi-
tions; without this condition, the first two will not give the expected results.

                                                  Marketing.
It is important for producers to have comprehensive information on the market they are interested in and on
the clients whom they want to work with. The clients’ behavior as well as their preferences in the products
tends to change. These changes result from the development of new technologies, preferences of the end
users and the state policy, particularly in the sphere of standards. All producers from the countries unaffili-
ated the EC wanted to work in the EC market have to comply with the EC quality and phyto-hygienic stan-
dards. Taking into consideration that many types of different analysis (tests) are never done in Uzbekistan,
for example, test on content of sulphur compound in the products; and there is nothing specified on the
maximum allowable content of sulphur compound in the domestic standards, one can understands that there
are certain technical insurmountable barriers, which tie up the entry of the goods produced in Uzbekistan to
the European market.

Marketing approach in fruit and vegetable sector assumes the creation of the “single chain of values” starting
with the growing process and ending with the sale of the processed product. The first link in this chain is the
seeds and the seedlings. Of course, from the perspective of the economical efficiency, the height of the
trees, the planning of the garden, the positional relationship of the crops are significant, but the sorts are of a
greater importance.

         Graph 1. Structure of Costs in Fruit and Vegetable Sector                   The question of what
                                                                                     sort of fruit and vegeta-
                                                            A mortization            bles are cultivated is
  2006
                                                                                     very important for the
                                                                                     processing       industry.
                                                            Social insurance
  2005                                                      contributions
                                                                                     There are sorts of toma-
                                                                                     toes which are abso-
                                                            remuneration of labour   lutely no good for pro-
  2004                                                      expenditures             duction of tomato paste
                                                                                     or ketchup, same thing
                                                            Production& material     with the apples: there
  2003                                                      expenditures             are certain sorts of ap-
                                                                                     ples, which are no good
        0          20           40           60      80    100
                                                                                     for production of qualita-
                                                                                     tive apple juice. In addi-
Source: The State Statistics Committee of Uzbekistan                                 tion, the use of the “not
quite proper raw material” results in increase of its consumption and in production price. In the production of
tomato paste, the use of the sort of tomatoes with the content of solids suitable for the processing industry
can result in decrease in consumption of raw materials by 20%. For the time being, as it is shown in the
Graph 1, the purchase of raw materials is one of the main production inputs of the processing enterprises.

Optimization of the production capacity is another problem linked to the marketing approach. Nowadays, a
processing enterprise in order to stay profitable has to process no less than 5 thousand tons of fruit and
vegetable raw materials per season. The processing of lesser volume is just unprofitable. With the average
crop capacity of 25 tons per hectare, and with such type of equipment it is possible to process the harvest of
200 hectares. The industrial equipment of lesser production capacity is produced practically nowhere in the
world. Moreover, the production capacity of numerous models of industrial equipment is 150-600 tons of
raw materials per 24 hours.

What does it mean in practice? The crop capacity of fruit and vegetables in Uzbekistan is low and the ar-
eas used by each farm for cultivation of the abovementioned crops normally make up 3-5 hectares. It means

110                                                                                      UZBEKISTAN ECONOMY
          IMPROVEMENT OF RESOURCE BASE OF FRUIT AND VEGETABLE PROCESSING INDUSTRY


that for each farm and even more for each dekhkan entity, specialized in growing of fruit and vegetables it is
economically inefficient to have its own processing facilities. It seems, that even large economic entities, will
not be sufficient with its own raw materials if they install the industrial processing equipment. Therefore, the
problem is to identify the framework for mutually beneficial cooperation between agrarian and processing
enterprises. A farmer can solely own the processing enterprise but then he has to solve the problem on raw
materials supply, in other words to buy the raw materials in the market. A group of farmers could own the
processing enterprise as a cooperative association or a stock corporation. Although, it might turn out that in
order to keep running the enterprise at full capacity, they still have to buy an additional amount of raw mate-
rials from the other producers, but a good thing is that the farmers will be able to process the grown fruit and
vegetables under profitable conditions. Moreover, the farmers–founders of the processing enterprise will
gain profit on sales of industrial product and will be interested in increase of the amount of the processing
work, thereby supporting the “single chain of values”.

When you know the market, it is quite possible to use not only the modern processing technologies but also
the traditional ones. For example, there are businesspersons, engaged in export of dried tomatoes to the
European countries (UK, Belgium). The drying of tomatoes is carried out in the natural sunlight. By the way,
this traditional technology is the cheapest one. Of course, not every sort of tomatoes is good for such drying
method, and in order to get the excellent finished product the selected fruits have to be of the highest quality.
Besides, the market itself is not very big. Nevertheless, the success of export diversification, which was re-
cently discussed a lot, depends on the ability to find and develop a niche in the foreign markets.

To provide the stable functioning of the “chain of values”, the contacts between all the participants of this
chain have to be constant, in other words, the exporters, the processing enterprises and the agricultural pro-
ducers have to be tied directly or via chain of mediators. All countries with the successful processing indus-
tries have strong systems of intermediates. Wholesalers both buy up the goods from the agricultural pro-
ducers and push them further to the processing, retail turnover or export, and also sort out fruit and vegeta-
bles by the grade of their ripeness and damage, size and shape (qualify the goods); depending on the quality
and degree of conformity with the set standards (not necessary the state one, but maybe worked out by the
market participants); this is the method of determining the price for each party of goods.

The systems of procurement, logistics and marketing in Uzbekistan require substantial improvement. There
are many examples proving this. One of them is sweet cherry. There are not too many countries in the
world, which are capable of growing sweet cherries of high quality and Uzbekistan is one of them. The best
sorts of sweet cherries are grown in Namangan and Andijan regions. However, there is no general vision of
cherry production as a big business, there are practically no examples of the “single chain of values” has
been organized starting with the growing and ending with the export.

It is displayed, first, in the absence of steady relations with the targeted markets and information on them.
There is a persistent opinion that it is possible to sell sweet cherries in Moscow by 7-8 USD per kilo. But,
nobody cares about how these cherries have to look like and how they have to be packed up. As a result,
the whole process is done as following: sweet cherries are bought up from dekhkans and farmers as “just
from the tree” (in other words, not sorted, not washed and with fruitstems), packed into boxes, loaded on the
trucks and appear at the Moscow markets in the same condition. Taking into consideration that a truck is
usually an ordinary KamAZ truck and not a special refrigerator maintaining the required temperature regime,
and the trip to Moscow, considering downtimes at the boundary areas, can last a week, it is not a surprise
that the quality of the goods start decreasing even prior to sale in Moscow and the real losses caused by
such damage can reach 15-20%. By the way, there are sweet cherries from the other countries in the Mos-
cow markets, for example, one can see sweet cherries from Israel, washed, without fruit sticks and neatly
packed into cellophane bags. One can argues that Uzbek cherries are better, bigger, sweeter and juicier
etc., but it seems, that not all the businessmen succeed to persuade the customers, if a certain part of busi-
nessmen, engaged in the sale of sweet cherries bear losses annually. The same is true for grapes and for
the other fruit as well. Thus, it is very likely that the work on the establishing of sorting and packaging work-
shops for the exported products, facilitated by the international organizations will display good results in the
nearest future.

The dissociation of the farmers is one of the reasons of this situation. The representatives of the interna-
tional organizations facilitated the development of the agriculture in Uzbekistan were spoken about this dis-
sociation in different words but with the common feeling of regret. Before, it used to be a shirkat, there was a
chairman, all kinds of specialists – agronomists, economists and others there, but today every farmer is a
chairman himself, and he does not want to pay to the specialists. Therewith, the services of high-qualified
specialists are expensive, which means that many farmers just do not have enough money to pay for these
services. The way out is in the developing of different forms of cooperation, of course, not in the form of kol-
khoz/shirkats, but something different, depending on the farmers’ needs.

UZBEKISTAN ECONOMY                                                                                          111
          IMPROVEMENT OF RESOURCE BASE OF FRUIT AND VEGETABLE PROCESSING INDUSTRY



There is a good example of such cooperation in Andijan region where the organization of the agricultural
producers has established the relationship with the Russian breeders, who supplied the Uzbek producers
with the seeds for cultivation in the green houses. These seeds go to dekhkan entities, which have the
proper conditions for the seedlings growing. Then these seedlings are disseminated among other house-
holds engaged in the growing of early sort of tomatoes in their green houses. Since all the seeds are of
good quality and of one specific sort and the number of the cooperative members amounts to several tens of
dekhkans and farmers, late in April – early in May they usually succeed in getting quite significant yield of
tomatoes of the same sort and equal grade of ripeness. At this time of the year, the tomatoes in the Russian
market have the highest seasonal price. However, the members of the cooperative can also decide to sell
part of the product in Uzbekistan. They get the information on market prices both in Russian cities and in
Tashkent. The exported product is sorted out, packed, loaded into refrigerators, where it is cooled to the
temperature of +8 Centigrade, which facilitates its intactness and then sent to the foreign partners they al-
ready have long-term relations with. The final settling between the cooperative members is done after the
sale of the product.

The question: “How the fruit and vegetable processing relates to all this?” could be answered very simple.
The processing industry today is not just the production of fruit and vegetable canned food as well as dried
fruit and vegetables. To a considerable extent, it is a preservation of consumer’s properties and a prepara-
tion for the consumption of fresh fruit and vegetables. Sugar and vinegar, used for the conservation are not
the products, helping to look healthy. Another function of the fruit and vegetable processing industry in the
modern interpretation is to supply the products at its best, to make a customer buy these cherries and save
him trouble to wash them and to sort them out. All the rest is the production of new products. Ketchup is not
a tomato, and apple jam is not an apple. That is why the opinion about the operation of fruit and vegetable
industry is needed to provide the customers with fruit and vegetables during the seasons when these fruits
are naturally unripe is as minimum out of date.

Exactly this new approach will provide the efficient development of fruit and vegetable industry as well as the
food industry in general. As for the food industry of Uzbekistan, with the increase of its share of investment
in the total amount of investment in the industry, its share in the industrial output decreases. This indicates
the fact that the urgent technological modifications are not conducted or do not demonstrate the expected
results.

Today’s consumers’ preferences asso-          Graph 2. Shares of Food Industry in the Investments and
ciated with the concept of healthy life                        Industrial Output of Uzbekistan
style assume the consumption of fresh             f ood industry production share Share of investment to basic capital
fruit and vegetables rich in vitamins        14
and microelements, not containing the        12
admixtures of hazardous substances           10
(nitrates, pesticides etc.). Considering      8
its favorable climatic conditions, Uz-        6
bekistan can become a fruit and vege-         4
table supplier to the foreign markets.        2
                                              0
However, in order to realize this plan,
three factors have to be highly competi-               2003              2004            2005             2006
tive: price, quality and service. As for Source: The State Statistics Committee of Uzbekistan
the price, so far, there are no ques-
tions. The product from Uzbekistan is quite competitive. As for the quality, unfortunately, as it was men-
tioned before, our dried fruits and tomato cans contain certain chemical substances, in particular sulphur
compound and nitrates, which in accordance with the EC standards are not admissible. There are many
possibilities to improve the production technologies, which the private business is interested in and to im-
prove the national quality standards that could be done by the government, in the framework of its functions.

Unfortunately, the service is the worst thing. The first problem here is the goods delivery. The unaccommo-
dated trucks are used for transportation of both fresh and processed fruit and vegetable products, because
of the severe shortage of special articulated trucks-refrigerators in the country, the majority of which has al-
ready reached the end of their service life. At the same time, a customs duty and an import VAT push up the
increase in cost of entry of these trucks by 73%. A used refrigerator truck at the cost of EUR 120 thousand
will cost for a businessperson from Uzbekistan the sum of EUR210 thousand. As a result, the freight traffic
between countries is runned by the truck companies of the neighboring countries – Iran, Kazakhstan, Russia
and Turkey. With all that, it is well known that the freight traffic is a profitable business, a refrigerator truck is
normally repaid in 2.5 years, but there is no production of this type of trucks in Uzbekistan. It is clear, that
there is a need in reduction of customs duty for the entry of the trucks required for the transportation of fruit

112                                                                                        UZBEKISTAN ECONOMY
          IMPROVEMENT OF RESOURCE BASE OF FRUIT AND VEGETABLE PROCESSING INDUSTRY


and vegetable products. The budget will lose nothing, because for the recent years not a single articulated
truck-refrigerator has been brought into the country.

The consumer’s preference of fresh fruit and vegetables does not mean that there is no demand for jam and
pickles. Glass bottles and jars are used as a packaging material to ship these products to the market. In
Uzbekistan the glass jars of various capacity are made by joint-stock company of open type (ОАО) “Quartz”
(Kuvasai city). The production capacity of this enterprise enables to provide with the glass tare not only Uz-
bekistan, but also the neighboring countries of Central Asia, where the fruit and vegetable sector is also de-
veloped. The products of ОАО “Quartz” is expensive and not comply with some foreign standards (with EC
standards in particular). These discrepancies are the following: first, the walls of the locally made jars are
thicker than it is specified by the European standards. This is how the strength of the glass tare achieved.
At the same time, the foreign companies engaged in the manufacture of glass tare reach the required level of
strength through the processing of the glass using the special substances (the same as in the production of
armored glass for the cars). Of course, thicker glass adds to the mass of these jars, which causes the ex-
ceeding of the international standards in these parameters. Second, in accordance with the EC standards
the glass jars have to be absolutely colorless and transparent. The glass produced by the ОАО “Quartz“ has
some kind of greenish tint. Finally, the surface of the glass jars has to be ideally even, without “bubbles”,
micro cracks and impregnations. The glass tare produced by the OАО “Quartz” not always meets these re-
quirements. Now, the mechanism of so called “customs tariff” protection is acting to stimulate the local pro-
ducers of packing materials including the producers of glass tare. All kinds of the imported glass jars are
subjects to customs tariff at the amount of 30%. Besides, the VAT on import, which is 20%, is also collected.
In other words, the level of the efficient tariff protection makes up 56%. However, despite the fact that the
import glass tare is more than 1.5 times more expensive, and the losses of this fragile product during the
transportation are almost unavoidable, many processing enterprises still prefer to import that type of packag-
ing. With all that, one has not to import it from far away. In Kyrgyzstan in Tokmak city there is a plant similar
to ОАО “Quartz “that was not originally designed for the glass tare production for the conservation industry.
Nevertheless, today, it produces the glass tare and its cost price is by 60% lower, than the cost price of the
ОАО “Quartz “product. The stockholders of Kuvasai plant now have the grounds to review their operations.

The presence of the competition in the glass tare production in the Central Asian Market puts a new, not yet
operating glass tare manufacture in Tashkent in an uncomfortable situation. The new manufacture will enter
already occupied market and will have to offer the product exceeding the existed one by price and by quality,
which means that the manufacture has to be equipped with the best equipment.

Reference Literature.
   1. “Development of Market Infrastructure for the Benefit of Farming Entities”, Report of the Center for
       Economic Studies – Tashkent, 2004.
   2. “Productivity and Competitiveness of the Enterprises in the Light and Food Industries” (public opinion
       poll), the study was ordered by the Association of Businesswomen of Uzbekistan, Tashkent, 2005.
   3. Dzumenko R. V. “Analysis of the Developing of Agro-Food Trade between CIS Countries” All-
       Russian SRI of the Agriculture Economy, 2001
   4. Moldovan high value agriculture export competitiveness Study, USAID 2004




UZBEKISTAN ECONOMY                                                                                          113

								
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