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Transformation of Uzbekistan: How smooth transition in elite class is reshaping the country

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Within the nations of the former USSR, serious transformations are accompanied by distress – active power struggles, revolutions, and outbreaks of separatism. However, today, a country that has been squandering its potential for a quarter of a century is transforming in an uncommon way for the CIS – rapidly yet without political upheaval.

Reboot

The Communist party appointed Islam Karimov to run the Uzbek Soviet Socialist Republic back in 1990. After the Soviet Union collapsed, he retained power and strengthened his authority year after year, a common case for the post-Soviet republics in Central Asia. Karimov abandoned a state-planned economy, but he was otherwise cautious about making reforms and took an isolationist approach, which unquestionably had an adverse effect on the economy in the era of globalization.

After his death in 2016, a small ruling elite privately began to organize, resulting in the emergence of a new leader – former Prime Minister Shavkat Mirziyoyev. The subsequent presidential election, which Mirziyoyev won, only formalized his legitimacy. It seemed like a bad sign for those hoping for change, which was almost all of the 32 million citizens of Uzbekistan. And yet significant change is underway.

Awakening: but for how long?

The new leadership, despite emerging from the “Karimov elite,” seems to be doing everything the former president had opposed for years. A policy of relative openness and careful balance of exposure between the key centers of power, such as Russia, the USA, and China, has replaced isolationism. Mirziyoyev, who succeeded Karimov, did away with exit visas and he became one of the most well-travelled presidents himself. In the last couple of months alone, he has met with the leaders of Kazakhstan, Turkmenistan, China, Russia, and Pakistan, and attended the Arab-Islamic-American Summit as well as the Shanghai Cooperation Organization summit.

Until recently, Uzbekistan saw about zero foreign investment in its economy (0.1 percent of GDP, to be exact), but today it is seriously engaged in attracting foreign capital. A recent landmark example is the privatization of AO Urgench Exkavator, a large previously state-owned factory now owned by the Chinese. This was unthinkable in the previous era of economic isolation. The same goes for Uzbekistan’s agreement with Turkey on a $2 billion investment in agriculture.

Perhaps the biggest economic reform has been the deregulation of the foreign currency exchange market. Though Karimov’s Uzbekistan economy departed from Soviet policy, it maintained state control in one key area – the currency exchange rate. Under Mirziyoyev, the exchange rate of the national currency – the som – was left to be determined by the market. The reform immediately weakened its currency. However, it was still a crucial and beneficial long-term move for engaging in foreign trade and attracting investors.

There have also been reforms in taxation, the judicial system, and law enforcement agencies. Transformation is apparent almost everywhere. But we’ve seen good intentions remain intentions many times in many different countries. Could this end up being the case in Uzbekistan? Of course, it could. However, there are several important signs and trends that give Uzbekistan a chance for real, rather than declarative, transformation.

Tourism as an indicator

Tourism is a telling industry that shows the processes taking place across the country. Uzbekistan is fortunate in this area – it’s an exotic and cheap country with a fascinating culture, nature, and cuisine. Many well-preserved Muslim monuments serve as a great basis for “religious tourism.” Did the country live up to its potential as a tourist destination? Not fully. You could count on one hand the number of hotels that were able to comfortably accommodate foreigners. And paying with a card or exchanging money was a no-go.

The new leadership team has prioritized the development of tourism, and the country is actively filling the gaps in infrastructure (new hotels, bank branches, and means of transportation) and personnel (the new tourism university in Samarkand). Combined with economic reforms, first and foremost the deregulation of the foreign currency market, the first half of 2018 saw the flow of tourism increase by 91.6 percent compared to the same time last year, largely supported by the countries that were granted visa-free status.

Placing a bet on this industry, Uzbekistan is hoping for a multiplying effect and acting very sensibly. Tourism is a driver for other areas of business, such as restaurants, hospitality, and sightseeing, as well as internal logistics. Demand for construction materials, machinery, and utilities will grow to accommodate new construction. And the rise of these industries will create new jobs, stimulating consumption.

The new elite

Surprisingly, a new elite is taking form in parallel to the old one in a peaceful process. The old elite was very small and included only the former president’s family and associates. Today the elite is expanding, primarily as a result of business, the layer of society vitally invested in change.

Instead of struggling for the redistribution of resources, the new elite has taken the long route, searching out new opportunities and creating new niches to occupy without competing with the old elite – the Karimov era politicians and those closely connected to big state business.

The new business elite is gradually finding its way into the administration. In April this year, Dzhakhongir Artykhodzhaev, 42, the founder of the AKFA Group, was appointed as the hokim (mayor) of Tashkent – a business representative, rather than a government official. A German national, Karsten Heinz, was previously employed by the German Ministry of Education and Researchand assumed the role of Deputy Minister of Innovative Development in July. Such appointments, unthinkable in the past, speak volumes about the change in Uzbekistan.

So far the only area that hasn’t shifted significantly is democracy. For the first time ever Freedom House recorded a slight improvement in this area in 2017. But Uzbekistan is a country that needs to develop democratic procedures and independent media. Otherwise, the lack of these characteristics combined with inherited corruption and a lack of skilled professionals will delay its transformation process. Even so, for the first time in 25 years, Uzbekistan stands a good chance of changing. According to HSBC’s forecast (World in 2050 report) within the next 30 years, the country will rank among the 26 fastest growing economies in the world (meaning GDP growth will remain above 5% per year). If this scenario comes to pass, we will witness one of the most impressive transformations of a state and, perhaps, the most inspiring one among former Soviet Union countries.

Gaukhar Nurgalieva, Head of Eurasian Studies Lab, SKOLKOVO Institute for Emerging Market Studies (IEMS), an Expert for HKUST-SKOLKOVO Executive MBA for Eurasia Programme. Before joining the SKOLKOVO Business School, Gaukhar worked at the Eurasian Economic Comission, as well as government and private sectors of the Republic of Kazakhstan. Gaukhar Nurgalieva holds a Master of Arts in international relations from the Fletcher School of Law and Diplomacy, USA, MBA from the Moscow State University (MGU), and Bachelor of Business Administration from The George Washington University.

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Central Asia

Uzbekistan and India Cooperation in the Sphere of Law and Justice

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“Cultivate the moral self, then regulate the family, rule the country rightly and make the world stay in harmony.” – Li Ji (The Book of Rites)

Strong relations between Uzbekistan and India is the result of mutual cooperation and cooperative diplomacy dating back to several decades.  From a historical perspective, there are frequent bibliographical references of Kamboja in Sanskrit and Pali literature, which is referenced to include parts of present-day Uzbekistan.  It is a cited fact that the Shakas participated in Mahabharata on the side of Kauravas. Ancient trade route uttar path, having its reference in Ramayana passed through Uzbekistan.  In later years, Fergana and Samarkand in Uzbekistan emerged as centres of trade on the trade routes linking India with Europe and China. India had close interaction with the Uzbek SSR during the USSR regime.  Indian diplomats and Heads of State often visited Tashkent to strengthen cultural and diplomatic bonds.  Bi-lateral relations between both the countries is also politically sensitive, because former Prime Minister, Shri Lal Bahadur Shastri passed away in Tashkent on 11 January 1966 after signing the Tashkent declaration with Pakistan and in August 1991, as the events leading to the disintegration of the USSR unfolded, President Islam Karimov, in his then capacity as Chairman of Supreme Soviet of Uzbekistan, was visiting India. Uzbekistan was declared independent on 1st September 1991.

A numerically small but vibrant and active Indian community resides in Uzbekistan. The bilateral relationship aims to maintain regular links with the community through its social media accounts, targeted emails, and invitations to Embassy events.  The Indian community actively participates in the celebration of the national days, International Yoga Day, Pravasi Bharatiya Diwas, Hindi Diwas, Holi, Diwali and cultural programmes on various occasions. These frequent interactions over thousands of years since 1947 contributed to close cultural linkages in architecture, dance, music and art. India’s soft power has travelled through borders to Uzbekistan, and it is evident from the fact that Indian movies and cuisine have traditionally been popular in Uzbekistan. Prime Minister Narendra Modi soon after his electoral victory visited Tashkent to discuss bilateral issues in 2015.  He visited Tashkent again in 2016 to attend Summit Meeting of the Shanghai Cooperation Organisation (SCO) during which India inked the Memorandum of Obligations for obtaining a status of the Member State of the SCO, of which Uzbekistan is a founding member. On 09 June 2017, India became a full-time member of the Shanghai Cooperation Organisation. The Regional Anti-Terrorist Structure of the Shanghai Cooperation Organisation (SCO-RATS) is headquartered in Tashkent and on 15 June 2017, the flag of India was raised at the SCO-RATS Headquarters in Tashkent.  India has been an active participant in SCO meetings and SCO-RATS events in Uzbekistan and other SCO countries.  Mr. P.P. Chaudhury, Minister of State for Law & Justice and Corporate Affairs, Government of India led a delegation to the SCO Justice Minister’s Meeting in Tashkent in October 2017.

Government to Government dialogues are managed through a robust mechanism including an Intergovernmental Commission, which oversees trade and economic relations and Foreign Office Consultations. Uzbekistan and India have previously signed Agreements/MOUs/ Protocols/Joint Statements in areas such as trade, investment, education, civil aviation, tourism, science & technology, telecommunications, agriculture and Information Technology.   By the end of 2018, the Union Cabinet chaired by Prime Minister Shri Narendra Modi approved the Memorandum of Understanding (MoU) between India and Uzbekistan on Cooperation in the Sphere of Law & Justice. The MoU is an all-comprehensive diplomatic agreement covering the exchange of experience by legal professionals, Government functionaries and their training and effective legal aid mechanism for resolution. The MoU will accelerate greater cooperation between India and Uzbekistan in providing legal services in both countries in the field of exchange of experience through training and information sharing visits between both countries on enhancing legal capacities of Government functionaries.

The present Government under Prime Minister Narendra Modi is practising a modern form of proactive diplomatic dialogue wherein there is tremendous focus on knowledge sharing areas in the field of law and policy. Strengthening the International law jurisprudence should be main focus of global economies striving for economic and societal progress. The MoU is also important from a diplomatic point for India as the Union Cabinet has also approved an agreement between India and Morocco on Mutual legal assistance in criminal matters. It will also fulfil the desire of both countries to strengthen the bonds of friendship and fruitful cooperation in the Civil and Commercial matters, which is the spirit, essence and language of the agreement. These dual agreements will enhance co-operation in the service of summons, judicial documents, letters of request and the execution of judgments decrees and arbitral awards.

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Tajikistan: Towards the Next Level of Development

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Today, Tajikistan finds itself at a juncture, where—with the right decisions taken—it could step onto a path of rapid socio-economic development, dynamic rates of inclusive growth, and significantly improved economic perspectives for its citizens. Many “foundational” investments, some with World Bank support, have been realized, not least those linked to the modernization of the country’s infrastructure and legal-institutional superstructure, allowing for a more effective delivery of public and social services. However, given the substantial changes that have occurred over the last 25 years, and which have built Tajikistan’s economy, policies that used to be appropriate in the past may no longer be effective in the future. Economic policy challenges have moved from a state-led focus on public infrastructure to the encouragement of private-sector initiative, investment, and innovation.

Throughout its history, Tajikistan has had to respond to a myriad of existential threats, from the civil war to increased politico-economic isolation along borders closed for reasons of politics and/or conflict, the global financial and economic crisis after 2008, or the sharp fall in prices of primary commodities after 2014. It was bequeathed an economic model that had collapsed under the weight of inefficiencies, amplified by a history that—with the demarcation of the Russian-Afghan border in 1895—had placed Tajikistan at the periphery of a larger state entity bereft of its economic base and home markets.

Still, Tajikistan has proven resilient, as reflected in impressive average annual growth rates of 7.3 percent during the post-conflict years. As a result, per capita income during 1998–2017 increased, net of effects from inflation, by more than 160 percent. There has been impressive success in resolving the winter shortages in energy supply, while—in many parts of the country—citizens benefit from tangibly improved water and transport services.

For the last quarter century (that is, for most of Tajikistan’s post-independence history), the World Bank Group has been privileged to support efforts to place the country’s economy on a sound footing and develop the foundation for a socio-economic (professional) perspective for the citizens of Tajikistan. It has done so through all three periods of the country’s development, from the civil war period to reconstruction and the responses to the various economic shocks affecting the country after 2008.

The Silver Anniversary of the collaboration between Tajikistan and the World Bank Group falls on the eve of a new era, with an opportunity for real, sustainable socio-economic transformation, a different set of challenges, and the need to adjust economic and development policies to a new environment. Rather than focusing on a domestic market of 9 million—mostly low-income—clients, which has proven too small a market for competition and sustained private-sector development, Tajikistan-based companies have the opportunity to access hundreds of millions of potential clients in the immediate neighborhood in South, Eastern, and Central Asia. All commodities and services, for which Tajikistan has a comparative advantage, whether it is food products, energy, minerals, cotton, textiles, or IT-based services, have deep markets nearby.

Already, Tajikistan is investing considerable national wealth to improve regional (or, rather, continental) connectivity and establish a stable export base, starting in energy. To be able to reap the full benefits inherent in very ambitious investments in energy generation and transmission, the country needs to pay particular attention to (i) investing in people (and preparing its mostly young citizens for the opportunities ahead); (ii) increasing the efficiency of (public) institutions; and (iii) providing the private sector with an environment that translates the opportunities into entrepreneurs’ confidence that private investments will result in improved productivity, company growth, and increased profits.

The inherent result of Tajikistan’s current remittance-financed, import-reliant economic model is a narrow private sector, with binding constraints to production, logistics, and innovation. If well-understood, the current economic structure might prove a “blessing in disguise” during a period in which there is high “in principle” demand for products and services “made in Tajikistan”. If economic policies are adjusted, with a view to permitting entrepreneurs and investors to develop sufficient trust in institutions and confidence in the future, they would complement public investments with private investments of the scale, scope, and quality to foster innovation, increase productivity of key sectors of Tajikistan’s economy, and increase wages and employment opportunities. By encouraging the private sector to import up-to-date technology, install modern equipment, and implement the highest standards, Tajikistan’s economy would be competitive, export-oriented, and provide profit opportunities for enterprises, irrespective of ownership.

As argued in the World Bank’s (2008) Growth Report, “economic miracles” are a misnomer. Dynamic rates of sustained and inclusive growth can be generated, as other countries have done before, by committed, credible, and capable governments that maintain macro-fiscal stability and allow the private sector to exploit opportunities in the world economy, support high rates of saving and investment, and permit markets to allocate resources. May Tajikistan, by the time of the Golden Anniversary of World Bank Group partnership, have shown the vision, courage, and determination to be included among the élite group of countries that have managed to transform their economies, and invest, innovate, and guarantee growth and prosperity to their people.

World Bank

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Central Asia

Turkic Chinese soup: A barometer of anti-Chinese sentiment

Dr. James M. Dorsey

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A heavy soup made of pulled noodles, meat, and vegetables symbolizes Central Asia’s close cultural and/or ethnic ties with China’s repressed Turkic and Hui Muslims. It also explains growing Central Asian unease with China’s re-education campaign in its north-western province of Xinjiang and its signature infrastructure and energy driven-Belt and Road initiative.

Named Ashlan Fu and introduced to Kyrgyzstan in the late 19th century by Dungans, exiled Chinese Hui Muslims who fled over the Tien Shan Mountains after a failed rebellion in 1877, the soup has become a staple of Kyrgyz cuisine.

Made of Laghman noodles, starch preserves, onion, garlic, chilli, dark vinegar, and egg, Ashlan Fu is “the best cure for a hangover,” says Aman Janserkeev, a Kyrgyz student.

It’s also indicative of the potential fallout of China’s crackdown on Turkic and increasingly Hui Muslims that amounts to the most frontal assault on Islam in post-World War Two history and of commercial terms underlying Belt and Road-related Chinese investments in Kyrgyzstan and Central Asia.

Some 150 members of Kyrgyzstan’s far right Kyrk Choro (Forty Nights) group last month protested outside the Chinese embassy in the Kyrgyz capital of Bishkek against the inclusion of ethnic Kyrgyz in the up to one million Muslims detained in re-education camps in Xinjiang as part of the Chinese crackdown.

In a sign of the times, Kyrk Choro, a nationalist group that has gained popularity and is believed to have the support of the Kyrgyz ministries of interior and labour, migration and youth, and the National Security Committee (GKNB), focused in its protest exclusively on ethnic Kyrgyz in Chinese detention.

Acting as vigilantes, Kyrk Choro four years ago raided clubs in Bishkek in a campaign against prostitution and accused Chinese nationals of promoting vice. In a video of an attack on a karaoke club, a Kyrk Choro leader showed a receipt that featured a girl as one of the consumed items.

Yet, while standing up for the rights of ethnic Kyrgyz and Kyrgyz nationals, Kyrk Choro has also called for Uighurs, the Turkic Muslims that populate Xinjiang, to be booted out of Bishkek’s most popular clothing bazaar and replaced by ethnic Kyrgyz.

During December’s protest, Kyrk Choro also demanded the expulsion of illegal Chinese migrants. It further insisted that the government check the documents of migrants, including those who had obtained Kyrgyz citizenship over the last decade, including 268 Chinese nationals who are in majority of Kyrgyz descent.

Kyrk Choro’s contradictory demands and claims reflect not only a global trend towards ethnic and religious nationalism with undertones of xenophobia but also concern that Belt and Road-related projects serve Chinese rather than Kyrgyz and Central Asian interests.

The Kyrgyz government recently reported that 35,215 Chinese citizens had arrived in the country in 2018, many of them as construction workers on Chinese-funded projects.

Political scientist Colleen Wood noted that social media activists were linking criticism of Chinese commercial practices with China’s crackdown in Xinjiang.

“One widely-shared image, which declares “Don’t let anyone take your land,” depicts a strong fist — adorned with a Kyrgyz flag — stopping a spindly hand — marked by a Chinese flag — from snatching factories and a field,” Ms. Wood wrote in The Diplomat.

Ms. Wood said some activists compared Chinese practice to the demarcation in 2002 of the Chinese-Kyrgyz border during which the Central Asian nation handed over 1,250 square kilometres of land to China.

Another Facebook page, Kytai baskynchylygyna karshybyz (We’re against Chinese aggression) posted articles about Chinese mining companies operating in Kyrgyzstan, a target of Kyrgyz protesters, alongside articles depicting the intrusiveness of the crackdown in Xinjiang, according to Ms. Wood.

Ashlan Fu, the popular Dungan soup, could prove to be a litmus test of the depth of mounting anti-Chinese sentiment.

An Instagram account with a Stop China feed publishes xenophobic content about Chinese culinary habits as well as regular updates on the crackdown that is expanding into the autonomous region of Ningxia Hui.

Ningxia Hui recently signed a cooperation agreement on anti-terrorism with Xinjiang in a bid to learn from the crackdown on the Turkic Muslims or in the words of the Global Times, a Communist Party organ, “to learn from Xinjiang’s experiences in promoting social stability.”

In advance of another protest at the Chinese embassy in Bishkek scheduled for January 17, Kyrgyz First Deputy Prime Minister Kubatbek Boronov called this week on the public not to believe anti-Chinese postings on social media.

In an acknowledgement of Kyrk Choro’s appeal, Mr. Boronov asserted that the group had denied participating in the December protest.

The government, much like Turkey and the vast majority of Muslim countries, has so far evaded taking China to task on its crackdown for fear of jeopardizing its relations with the People’s Republic.

Kyrgyz President Sooronbay Jeenbekov insisted last month that “the ethnic Kyrgyz of China are citizens of China, who obey the laws of their country. How can we intervene in their domestic matters? We can’t.”

If Kazakhstan where the issue of ethnic Kazakhs detained in China has flared up is anything to go by, the Kyrgyz government is walking a tightrope.

Asyla Alymkulova,  a Kyrgyz national recently established  the Committee to Protect the Kyrgyz People in China after her husband, Shairbek Doolotkhan, a Chinese-born Muslim, vanished in October on a business trip to Xinjiang.

Mr. Doolotkhan’s company subsequently advised Ms. Alymkulova that her husband had been “sent away to study” in a camp.

A Kyrgyz diplomat was among representatives of 12 non-Western countries whom China in the last week invited to Xinjiang to counter criticism of the crackdown and showcase economic and social progress. A group of foreign journalists was invited separately.

Short of a reunion with her husband, there is little that is likely convince Ms. Alymkulova or the relatives of thousands of other Central Asians, including at least 2,500 Kazakhs, that Chinese policy towards Muslims is benign and benefitting the community and the region’s progress.

That in turn will not make things easier for the Kyrgyz and other Muslim governments at a time that ethnic and cultural identities in a nationalistic and at times xenophobic environment are becoming prevalent. Kyrgyz attitudes towards Ashlan Fu may be the barometer.

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