Resource-Based Economy a Risk to Uzbekistan

Uzbekistan’s economy, already based largely around exports of natural gas and cotton, looks set to become even more reliant on raw materials.

The authorities appear to be basing their projections on further expanding the oil and gas industry, rather than trying to diversify into manufacturing to offset the risks posed by fluctuating export prices, say analysts.

In mid-May, Ghoibullo Abdulloev, head of the Institute of Geology and Oil and Gas Exploration at the holding Uzbekneftegaz, was quoted by the Russian oil news website Neft Rossii as saying the country was expecting 1.9 billion US dollars in foreign investment over the next five years to open up new deposits. The exploration work could, if successful, increase oil and gas production by 11 per cent by 2016, he said.

Currently, Uzbekistan produces about 60 billion cubic metres of gas a year, of which 17 billion goes to Russia via the Central Asia-Centre pipeline, four billion goes to neighbours Kazakstan, Kyrgyzstan and Tajikistan, and the rest is consumed inside the country. 

Of the 228 known deposits, 26 are being developed with the help of foreign investors.

An economist in Tashkent, who requested anonymity, said these investors preferred extracting and exporting raw hydrocarbons to putting money into refining plants.

“There are many processing enterprises abroad in need of a steady supply,” he said. “The country will thus be able to increase oil and gas exports in the next few years if exploration confirms the Uzbek [geological] data.”

Some economists recommend seeking investment for refining industries as well as exploration, arguing that the country is already over-dependent on raw materials and that this could pose risks in future.

A dramatic fall in world demand would hit prices, Uzbek revenues and the economy as a whole. If global prices go up, on the other hand, Uzbekistan will increasingly become merely a provider of unprocessed fuel without the capacity to keep up in other areas of technology.

As one commentator pointed out, the authorities have plans to diversify the economy, and need to implement them to avoid the curse of resource dependence.

Dilmurad Kholmatov, an economist in Tashkent, says that paradoxically, these plans themselves partly depend on greater oil and gas production. “In order to develop a [petroleum and gas] processing industry, we need promising new deposits,” he said. “But [investors] will be reluctant to invest without accurate estimates of how much any new deposits will produce. If there isn’t enough oil or gas, the plant isn’t going to turn a profit.”

A financial expert in Tashkent takes a different view, arguing that expanding the oil and gas sector is no threat to the rest of the economy since the government is also planning to invest in unrelated areas like construction and engineering.

This article was produced as part of IWPR’s News Briefing Central Asia output, funded by the National Endowment for Democracy.