An Associated Press story that appeared yesterday reports that – get this – the Uzbek government has apparently finally decided that it doesn’t make economic sense to rip off foreign investors and abscond with their property.
Stories over the past year in various media have detailed the trials of doing business in Uzbekistan. As the AP recounted:
Uzbekistan’s standing among investors has been severely tainted by a series of scandals involving the alleged seizure of assets by local privately and government-run businesses.
British gold mining company Oxus Gold says its state-run partners last year concocted stories of alleged violations of environmental standards as a way of forcing the joint venture into liquidation. It said the entities devised the scheme to take over the Amantaytau Goldfields venture, where some of the world’s most promising fields are being developed.
Several partly foreign-owned ventures have been similarly liquidated in Uzbekistan in the past and the government has been quick to buy them up at what market observers consider below-market rates.
More details can be found over at Eurasianet, which provides background about the Oxus Gold deal. Also, in a related development that I missed last fall, the Uzbek government even jailed an Uzbek employee of Oxus Gold for espionage. Another article at Eurasianet from last year argues that even German companies, who had been emboldened by their government’s controversial preference for engagement with Tashkent, have soured on doing business in Uzbekistan.
Now a presidential decree, published on the webpage of the Foreign Ministry, is trying to return at least some investor confidence. According to the decree, the motivation for this extreme step is global financial turmoil. In other words, Karimov and his cronies need cash, and the decision to keep selling energy abroad even with shortages back home hasn’t helped enough. According to the AP:
One measure stipulates that international companies with investments worth more than $5 million will be exempt from any changes to tax legislation for a period of ten years.
Another tasks justice officials with ensuring that law enforcement authorities do not curtail the work of foreign companies.
The second point is actually a remarkable admission that the rule of law does not exist in Uzbekistan, at least for foreign companies. I wonder whether those new measures would actually make me more or less confident if I was a foreign investor. I guess that tax freeze would be appealing, but I’m not sure that I’d want to do business anywhere that requires the president himself to admonish the police not to interfere with the work of foreign companies.
If I was doing due diligence on the country, I’d also be very tempted to believe that President Karimov doesn’t mean it seriously, that this might just be a set up to eventually dress down some minor officials for ignoring the decree. As many of us have reported over the years, it’s a favorite tactic of autocrats such as Karimov and Lukashenka to employ that Soviet-style practice – appearing to be acting forcefully to root out corruption while actually just shifting some members of the nomenclature around.
Here’s one recent example, in which Karimov took the occasion of a meeting of the Tashkent city council to read out the names of officials that had supposedly broken the law and abused their positions.
All those justice officials who are now supposed to protect foreign investors must be quivering in their boots.
The illustration, “The Fortunes of a Street Waif,” is from Needham, George Carter (1884) Street Arabs and Gutter Snipes Boston: D. L. Guernsey.