Economy

Economic production is concentrated in commodities: Uzbekistan is now the world's fourth-largest producer and the world's second-largest exporter of cotton and the seventh world major producer of gold. It is also a regionally significant producer of natural gas, coal, copper, oil, silver and uranium. Agriculture contributes about 37% of GDP while employing 44% of the labour force . Unemployment and underemployment are estimated to be at least 20%.

Facing a multitude of economic challenges upon acquiring independence, the Uzbekistani government adopted an evolutionary reform strategy, with emphasis on state control, reduction of import, and self-sufficiency in energy. Since 1994, state controlled media have repeatedly proclaimed the success of this 'Uzbek Economic Model' as a unique example of smooth transition to the market economy while avoiding shock, pauperization and stagnation. The gradualist reform strategy has involved postponing significant macroeconomic and structural reforms. The state in the hands of the bureaucracy has remained a dominant influence in the economy.

According to the Economist Intelligence Unit, "the government is hostile to allowing the development of an independent private sector, over which it would have no control". The economic policies have repelled foreign investment, which is the lowest per capita in the CIS. For years, the largest barrier to foreign companies entering the Uzbek market has been difficulty in currency conversion. In 2003, the government accepted the obligations of Article VIII under the International Monetary Fund, providing for full currency convertibility. However, strict currency controls and tightening of borders have lessened its effects.

The government of Uzbekistan restricts imports in many ways, including high import duties. Excise taxes are applied to protect locally produced goods. Official tariffs are combined with unofficial, discriminatory charges resulting in total charges amounting to as much as 100 to 150 percent of the actual value of the product, making imported products virtually unaffordable. A number of the CIS countries are officially exempt from Uzbekistan import duties.

Inflation, though lower than in the mid-1990s, has remained high; although in 2006 it was officially 7.6%, it was actually 38% based on analysis of consumer prices.

Labour

Literacy in Uzbekistan is over 99%, and workers are generally well-educated and trained. The government emphasizes foreign education and each year sends about 50 students to the United States, Europe and Japan for university degrees, after which they have a commitment to work for the government for 5 years. Reportedly, about 60% of the students who study abroad find employment with foreign companies on their return, despite their 5-year commitment to work in the government. Some American companies offer special training programs in the United States to their local employees.

With the closure or downsizing of many foreign firms, it is relatively easy to find qualified, well-trained employees, and salaries are very low by Western standards. Salary caps, which the government implements in an apparent attempt to prevent firms from circumventing restrictions on withdrawal of cash from banks, prevent many foreign firms from paying their workers as much as they would like. Labour market regulations in Uzbekistan are similar to those of the Soviet Union, with all rights guaranteed but some rights unobserved. Unemployment is a growing problem, and the number of people looking for jobs in Russia, Kazakhstan, and Southeast Asia is increasing each year. According to official Ministry of Labour estimates, around 100,000 citizens of Uzbekistan work abroad. In 2006, 3% of the workforce was unemployed, with another 20% underemployed.

Agriculture

Agriculture and the agroindustrial sector contribute more than 30% to Uzbekistan's GDP. Cotton is Uzbekistan's dominant crop, accounting for roughly 45% of the country's exports. Uzbekistan also produces significant amounts of silk, fruit and vegetables. Virtually all agriculture involves heavy irrigation. Farmers and agricultural workers have very low incomes because the government uses the difference between the world prices of cotton and wheat and what it pays the farmers to subsidize highly inefficient capital intensive industrial concerns, such as factories producing automobiles, airplanes and tractors.

Consequently, agricultural productivity is low, with many farmers focusing on producing fruits and vegetables - for which supply and demand determine the price - on small plots of land, as well as smuggling cotton and wheat across the border with Kazakhstan and Kyrgyzstan in order to obtain higher prices.

Natural Resources

Minerals and mining also are important to Uzbekistan's economy. Gold is Uzbekistan's second most important foreign exchange earner at 22%. Uzbekistan is the world's seventh-largest producer, at about 80 tons p.a., and holds the fourth-largest reserves.

Uzbekistan has an abundance of natural gas (1.875 trillion cu m proved reserves), used both for domestic consumption and export; oil almost sufficient for domestic needs; and significant reserves of copper, lead, zinc, tungsten, and uranium. Inefficiency in energy use is extremely high, given the failure to use realistic price signals to cause users to conserve energy.

Trade

Uzbekistan has adopted a policy of import substitution. The multiple exchange rate system and the highly over-regulated trade regime has led to both import and export declines since 1996, although imports have declined more than exports, as the government squeezed imports to maintain hard currency reserves. Draconian tariffs and border closures imposed in the summer and autumn of 2002 led to massive decreases in imports of both consumer products and capital equipment. Uzbekistan's traditional 'trade' partners are NIS states, notably Russia, Ukraine, Kazakhstan, and the other Central Asian countries. Non-NIS partners have been increasing in importance in recent years, with China, South Korea, Germany, Bangladesh and Turkey being the most active.

Investment

Uzbekistan's lack of currency convertibility has caused foreign investment inflows to dwindle to a trickle. In fact, Uzbekistan has the lowest level of FDI per capita in the Commonwealth of Independent States. Since Uzbekistan's independence, US firms have invested roughly $500 million in Uzbekistan. Large US investors include Newmont Mining Corporation, reprocessing tailings from the Muruntau gold mine; Case Corporation (now Case IH), manufacturing and servicing cotton harvesters and tractors; Coca Cola, with bottling plants in Tashkent, Namangan, and Samarkand; Texaco, producing lubricants for sale in the Uzbek market; and Baker Hughes, in oil and gas development. No large new investments have taken place from the United States in the last five years.

Organisations

Uzbekistan is a member of the IMF, World Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development. It has observer status at the World Trade Organization, is a member of the World Intellectual Property Organization, and has publicly stated its intention to accede to the World Trade Organization. It is a signatory to the Convention on Settlement of Investment Disputes Between States and Nationals of Other States, the Paris Convention for the Protection of Industrial Property, the Madrid Agreement on Trademarks Protection, and the Patent Cooperation Treaty. In 2002, Uzbekistan was again placed on the special '301' Watch List for lack of intellectual copyright protection.