Uzbekistan’s Search for Trade Partners

Uzbekistan’s Search for Trade Partners

Uzbekistan’s increasing diversity in trading partners points to a decline in traditional Central Asian economic reliance on Russia and indicates the possibility of increased interdependence between the countries of Central and South Asia and the Middle East.

Uzbekistan has become increasingly proactive in its search for new trading partners in the last two years. In particular, it has focused on expanding the amount it exports to its neighbors and new regional partners – not only to China, its second largest trading partner after Russia, but also to Afghanistan, Pakistan, Turkey and Kazakhstan, among others.

When Uzbekistan gained independence from the former Soviet Union in 1991, 70-80% of the young country’s export economy was based on cotton, and its primary trading partner was Russia. Today, while cotton production and Russian consumption remain central components of the Uzbek economy, Uzbekistan has begun the process of diversifying and modernising its economy, while also targeting new trading partners, the most important of which remains China.

Uzbekistan’s increased focus on trade relations with China is in no way new. In fact, by 2011, mutual trade between Uzbekistan and China totaled over $2 million. These relations have been reinforced over the last year through diplomatic and cultural outreach, including a trip last week by Gulnara Karimova, the notorious daughter and possible successor of Uzbekistan’s President Islam Karimov, to Beijing’s Fashion Week. Furthermore, since 2005, U.S.-Uzbek tensions over Uzbekistan’s poor human rights and democracy record have pushed Uzbekistan even closer to China.

However it is increasingly clear that Uzbekistan is not content with simply expanding its exports (primarily gas and uranium) to China and other East Asian trading partners like South Korea. Instead, current Uzbek trade and diplomatic policies indicate a desire to create a dependence on Uzbek exports in nations like Afghanistan and Pakistan. Uzbekistan also hopes to exploit linguistic, cultural and historical ties to make inroads in countries like Turkey and Kazakhstan.

While Uzbekistan’s largely closed borders and distrust between Afghan and Uzbek elites have limited economic ties between those two countries, Uzbekistan has nonetheless become Afghanistan’s primary electricity supplier. While the Karimov regime remains skeptical of the ability of the Karzai regime to survive the 2014 NATO withdrawal, it simultaneously recognises the major export opportunities offered by its land border with resource-poor Afghanistan. Since 2010, Uzbekistan has placed renewed focus on developing railway links between the two countries for trade purposes.

Uzbekistan is also increasingly overlooking its distrust of the security situation in Pakistan in order to exploit both a potential export market and potential Pakistani investors. Trade steadily increased since the early 2000s, when Uzbekistan and Pakistan signed cooperation and security agreements. Just as Uzbekistan sought to increase its land-based connections with Afghanistan, since 2011 air connections between Uzbekistan and Afghanistan have increased. In addition, the Karimov regime has granted a number of trade incentives to Pakistani investors and industrialists to encourage greater Pakistani investment in Uzbekistan.

Uzbekistan shares Turkic culture, language and history with several of the other former Soviet Central Asian states, as well as with Turkey itself. After the fall of the Soviet Union, Turkey was quick to recognize the economic opportunities created by increased access to the Turkic states of Central Asia. Over the last several years, Uzbekistan has similarly begun taking advantage of its Turkic connection in order to use Turkey as a transit hub from which Uzbekistan can export goods to both the Middle East and Europe. The overall trade potential between the two countries remains underdeveloped. However, Turkish investment is readily apparent in major Uzbek cities, and Uzbekistan has recognized the usefulness of its Turkic connection for exporting Uzbek goods, particularly cotton, to Europe and the Middle East.

Uzbekistan’s ability to effectively develop trade partnerships remains hampered by Uzbek laws which limit FDI. Firms that invest in Uzbekistan face a largely corrupt and ineffective system. Nevertheless Uzbekistan has successfully developed export-oriented policies in the last three years, including several investment incentives that have expanded its trade base in countries like Afghanistan, Pakistan, Turkey and Kazakhstan. Although Russia and China will remain Uzbekistan’s two largest trading partners for the foreseeable future, Tashkent is taking small steps toward increasing interdependence and economic cooperation between Central and South Asia and the Middle East.

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