- - Friday, June 8, 2012

BISHKEK, KyrgyzstanUzbekistan’s announcement that it will privatize key state-owned assets has evoked skepticism about the former Soviet republic’s commitment to economic reform.

Observers note that the Central Asian nation has a history of harassing entrepreneurs and investors, while much of the country’s wealth is held by a cadre of oligarchs close to the longtime president.

“I think the idea that at last, finally, there’s going to be a great liberalization of the economy would be nonsense,” said Craig Murray, former British ambassador to Uzbekistan. “[The government] mindset is a cross between a Soviet [model] and a gangster family.”

Uzbek's government — which has been headed by President Islam Karimov since the country’s independence in 1991 — announced last month that it will privatize 500 state-owned assets in the energy, metals, agriculture, electronics and pharmaceuticals industries.

Soon after the announcement, private South Korean investors and the state-owned oil and gas company Uzbekneftegaz signed a deal for building a $4 billion chemical and gas production plant in the northwest of the country, according to local reports.

“Most local companies are probably owned by people who are in government or close to government,” said Lilit Gevorgyan, a London-based analyst at IHS Global Insight.

“If they see a foreign company as a competitor, they are likely to employ all sorts of administrative pressures — such as visits by the environmental protection office or revoking work permits — to push the competitor out.”

The World Bank last year ranked Uzbekistan 150 out of 183 economies for ease of doing business.

Legal troubles

Last year, the British mining company Oxus Gold suspended operations in Uzbekistan.

In a letter to Germany’s foreign minister last year, company lawyers said that Oxus Gold had been the target of an “ongoing campaign by the Uzbek government to steal the last foreign assets in the mining industry.”

An Oxus Gold employee currently is serving a 12-year prison sentence in Uzbekistan on charges of espionage that the company’s lawyers describe as “fabricated.”

Meanwhile, according to media reports, the Indian textile company Spentex is mounting a $100 million lawsuit against the Uzbek government, which it claims forced Spentex into bankruptcy in 2006.

“There are frequent cases of direct pressure and intimidation toward businessmen, including foreign ones,” said Vyacheslav Zubenko, an economic analyst for Birzhevoy Lider, a magazine that assesses investment opportunities in the region, based in Kharkov, Ukraine. “There are cases of raids and seizures of businesses and inhospitable treatment of foreign businesses in Uzbekistan.”

Mr. Zubenko cites examples of Turkish, German and U.S. companies, as well as Oxus Gold and Spentex, as targets of such harassment. “All of them had to leave sunny Uzbekistan, and it is unlikely that their stories will help to improve the investment climate in the Central Asian republic,” he said.

Story Continues →