VZCZCXRO1719
RR RUEHDBU RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHNT #0921/01 1561327
ZNR UUUUU ZZH
R 051329Z JUN 09
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 0977
INFO CIS COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0061
RUEHBS/USEU BRUSSELS 0002
RUEHBUL/AMEMBASSY KABUL 0088
RUEHIL/AMEMBASSY ISLAMABAD 0267
RUEHKA/AMEMBASSY DHAKA 0206
RUEHKT/AMEMBASSY KATHMANDU 0203
RUEHLM/AMEMBASSY COLOMBO 0206
RUEHNE/AMEMBASSY NEW DELHI 0255
RUEHNT/AMEMBASSY TASHKENT

UNCLAS SECTION 01 OF 03 TASHKENT 000921 
 
SENSITIVE 
SIPDIS 
DEPARTMENT FOR SCA/CEN 
EEB/IFD/OMA 
AND EEB/EPPD 
 
E.O. 12958: N/A 
TAGS: ECON EFIN SOCI UZ
SUBJECT: UZBEKISTAN:  DESPITE CLAIMS, ECONOMIC CRISIS HITS HOME 
 
¶1. (SBU) SUMMARY.  First quarter macroeconomic 
results show that the real sectors of the Uzbek 
economy are already facing serious problems created 
by the downturn in the world economy.  Despite GOU 
claims to the contrary, analysis of official 
statistics indicates that total exports in the 
first quarter of 2009 decreased by 5 percent while 
imports grew by 24 percent.  The export share of 
hydrocarbons was 52.5 percent -- three times higher 
than in the same period last year -- thereby 
pointing to a significant reduction of non-energy 
exports.  Uzbekistan's positive trade balance in 
the first quarter was achieved mainly due to high 
prices for natural gas and a strong import 
substitution policy.  Continued weakness in the 
demand for gas in Europe and the CIS may begin to 
offset this factor in subsequent quarters.  Sources 
in various industry sectors unofficially admit that 
many factories are not operating at full capacity 
due to a lack of demand. International experts 
expect that the Uzbek economy will demonstrate 
growth in 2009, although much depends on the GOU's 
ability to meet and address the economic challenges 
created by the global economic crisis.  END SUMMARY 
 
FIGURES DON'T LIE, BUT LIARS CAN FIGURE 
--------------------------------------- 
 
¶2. (SBU) An official report issued by the State 
Statistics Committee of Uzbekistan says that 
exports in the first quarter of 2009 totaled USD 
2.5 billion and increased year-on-year by 6.1 
percent.  However, if compared with the same GOU 
statistics from last year, exports in the first 
quarter of 2008 totaled USD 2.6 billion, which 
would indicate a decrease of about 5 percent.  At 
the same time, imports grew significantly -- by 24 
percent to USD 2.3 billion from USD 1.8 billion 
(year-on-year).  The positive trade balance in the 
first quarter was achieved mainly due to high 
prices for natural gas and the GOU's strong import 
substitution policy, implemented partially through 
the withholding of currency conversion to 
importers.  The share of cotton in total exports 
dropped to 8.8 percent compared to 16 percent in 
2008 (year-on-year), while the share of 
hydrocarbons increased from 16.8 percent to 52.5 
percent.  The share of machinery (mainly cars 
produced by the GM-Uzavtosanoat joint venture for 
export to the Russian and Kazakh markets) also 
declined to 2.2 percent from 8.3 percent in 2008. 
 
¶3. (SBU) Uzbekistan's largest trading partner is 
still Russia at USD 1.1 billion for the quarter of 
¶2009.  Exports to Russia increased by about 50 
percent -- from USD 411 million to USD 603 million 
year-on-year -- due mainly to increased gas prices, 
while imports have decreased from USD 519.5 million 
to USD 453.4 million.  The largest non-CIS trade 
partners are China (USD 677 million) and 
Switzerland (USD 594 million).  The case of 
Switzerland is particularly interesting, as trade 
turnover with this country in the first quarter of 
2008 was only USD 205.3 million (USD 1 billion for 
the year as a whole).  This dramatic increase in 
trade with Switzerland reflects a gas export scheme 
that involves a Swiss subsidiary of Gazprom 
Germania called ZMB Schweiz and a company called 
Zeromax, which belongs to "private Uzbek 
shareholders."  (COMMENT:  First Daughter Gulnara 
Karimova is believed to be closely tied to Zeromax, 
which is registered in the tax haven of Zug.) 
 
CRISIS HITS INDUSTRY 
-------------------- 
 
TASHKENT 00000921  002 OF 003 
 
 
¶4. (SBU) It is difficult to make objective 
assessments of the real consequences of the crisis 
in Uzbekistan, as most statistics are not 
publically available or are not reliable. 
Moreover, official media do not report any "bad 
news" about the domestic economy.  However, the 
reduction of total exports and the increased share 
of gas in their structure demonstrate a significant 
reduction of other non-energy exports. 
 
¶5. (SBU) The textile industry, considered one of 
the most promising export oriented sectors in 
Uzbekistan with strong local content potential, 
faced serious challenges due to a sharp drop in 
external demand.  The Deputy Hokim (Governor) of 
the Shaikhontohur district of Tashkent City 
unofficially told us that four textile factories in 
his district have been idle since January because 
of a collapse in sales.  These companies have no 
money to pay salaries, forcing them to cut jobs, 
and local banks will not extend credit to augment 
their working capital.  The Turkish manager of the 
foreign-owned Sirkachi textile factory said that 
many textile joint-ventures are not operating and 
are having a hard time selling finished goods. 
According to his assessment, about 500 people have 
lost their jobs in textile factories in the city of 
Tashkent alone.  Many Turkish investors are trying 
to sell their assets in the country.  An Indian 
investor who owns the large Spentex Textile Company 
said that he has already lost USD 25 million in 
¶2009. 
 
¶6. (SBU) The automotive industry, another large 
export-oriented sector of the Uzbek economy, has 
also been adversely affected by the crisis.  GM- 
Uzbekistan sales in Russia, the main export market 
for the company, were 18,196 units in January-April 
2009, which is 45 percent less than in the same 
period in 2008.  The company has had to sell its 
most popular models on the domestic market for U.S. 
dollars in order to "imitate" export sales. 
 
¶7. (SBU) The energy sector has been the main 
generator of Uzbekistan's export earnings in 2009. 
The export of energy in the first quarter grew to 
USD 1.3 billion from USD 662 million in 2008 thanks 
to an export price that has nearly doubled since 
last year.  However, the sustainability of these 
prices is uncertain.  Russia, the main importer of 
natural gas from the region, is facing significant 
problems.  First, the demand for Russian gas in the 
European Union in February-March fell by 60 percent 
(year-on-year); second, Ukraine, the largest gas 
importer in the CIS, reduced its gas imports by 
more than 40 percent, and CIS countries overall 
imported only 55 percent of last year's volumes; 
third, domestic demand for gas in Russia fell by 6- 
8 percent.  This has led Russia's Gazprom to reduce 
its gas imports from Central Asia.  According to 
industry reports, Gazprom has reduced its intake of 
gas from Turkmenistan by 90 percent since April 9, 
and this means that Uzbekistan is generating less 
income from transiting Turkmen gas to Russia. 
Those same reports say Gazprom is trying to 
renegotiate prices and volumes for 2009 with both 
Turkmen and Uzbek suppliers. 
 
COMMENT 
------- 
 
¶8. (SBU) The GOU has been taking every opportunity 
to repeat the message that Uzbekistan is less 
affected than other countries by the global 
financial crisis thanks to the smart economic 
policies of President Karimov.  To some extent this 
 
TASHKENT 00000921  003 OF 003 
 
 
is true.  The GOU's projection for GDP growth in 
2009 is 8 percent.  International experts and IFIs 
also believe the Uzbek economy will demonstrate 
stable GDP growth in 2009: the IMF's projection is 
7 percent, the World Bank's is 5-6 percent, and the 
Economist Intelligence Unit predicts 2.5 percent 
growth. 
 
¶9. (SBU) Uzbekistan is unlikely to stave off the 
impact of the crisis much longer.  Macroeconomic 
results in the first quarter and the situation in 
various industries show that the real sectors of 
the Uzbek economy already face serious problems 
created by the sharp deterioration in the external 
environment.  Uzbekistan's economic performance in 
2009 will depend on the GOU's ability to meet and 
address economic challenges created by the crisis. 
The GOU's current policy, focused on import 
substitution and exports, needs to be reconsidered 
with more attention to domestic consumption and 
improvement of the investment climate in non 
export-oriented sectors. 
NORLAND