- - Friday, June 8, 2012

BISHKEK, Kyrgyzstan — Uzbekistan’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.

Still, analysts say there is a growing awareness by the Uzbek government of the need to modernize its economy to keep up with neighboring countries such as Kazakhstan, which has been a magnet for foreign investment in the energy sector.

“For the first two decades [of independence from the Soviet Union], the country wanted to focus on homegrown industry and then open up the economy when it’s ready,” Ms. Gevorgyan said. “But they have become isolated from the rest of the region and the West.”

Changing times?

Others point to the U.S. lifting sanctions against Uzbekistan in January as a factor, noting that Uzbekistan — along with Kyrgyzstan and Kazakhstan — signed agreements with NATO this week for the use of transit routes for coalition troops leaving Afghanistan by the end of 2014.

“At the moment they’re seeing the prospect of an awful lot of money from the Americans in terms of the transit out of Afghanistan,” said Mr. Murray, the former ambassador. “My guess is that these liberal economic noises are a part of Karimov trying to give the United States the impression that something is changing, when in fact nothing is changing.”

The international community imposed sanctions against Uzbekistan in 2005 after several hundred Uzbeks were killed when security forces opened fire on protesters in the city of Andijan. The crackdown followed public demonstrations over the arrest and torture of a group of local businessmen on what human rights activists say were trumped up charges of belonging to an illegal religious group.

“The Andijan massacre is clearly illustrative of the link between human rights violations and business in Uzbekistan,” said Claire Tixeire of the European Commission on Human Rights in Berlin. “Even ordinary citizens were demanding transparency and accountability from the government.”

Organizations such Human Rights Watch say Uzbekistan remains one of the world’s most repressive societies, and analysts say a fundamental shift is needed before the country can nurture private enterprise.

“The idea that economic power should not be under central control is something that [the Uzbek government] doesn’t get because economic and commercial autonomy or independence tends to lead to independent political thought, creating an independent middle class, all of which they regard as a threat to the state,” said Mr. Murray. “[Privatization] would just be inconsistent with everything they are actually doing.”

Janelle Dumalaon reported from Berlin.

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