TASHKENT - The recent travails in
Uzbekistan of Russian cellphone giant MTS hit by
employee arrests and a three-month suspension
highlight the perils for foreigners of doing
business in Central Asia's most populous country.
Although Tashkent tries to project an
investor-friendly image, experts say pervasive
corruption makes it difficult, if not impossible
for most foreign entities to enjoy a stable
operating environment.
Tashkent suspended
the operations of Uzdunrobita, MTS's Uzbekistan
arm, on July 17 for 10 working days, accusing it
of using equipment illegally. On July 30, the
suspension was extended for three months. Tashkent
has also accused MTS representatives of engaging
in criminal activity, including evading
US$1.3 million in taxes
and violating Uzbekistan's currency regulations.
Five managers including Russian citizen
Radik Dautov, who was appointed Uzdunrobita's
acting head after director Bekzod Akhmedov fled
Uzbekistan, are under arrest. On July 25, Russian
officials said they had voiced their "concern" to
Tashkent about Dautov's detention. Six days later,
Moscow urged a resolution to an "ever more acute"
dispute.
MTS (owned by Russian oligarch
Vladimir Yevtushenkov) denies being in breach of
the law and is fighting back, condemning "the use
of the tactic of intimidation and arrest of
Uzdunrobita staff", and assailing the "ungrounded
attacks on a Russian investor's business".
The shutdown sparked an exodus of its 9.5
million clients to rivals amid speculation about
the future of Uzdunrobita, which had a 40% share
of the cellphone market among Uzbekistan's
29.5-million population.
Observers doubt
that a dispute over equipment is really at the
root of MTS's troubles in Uzbekistan. General
malaise amid the smoke-and-mirrors nature of
Uzbekistan's economy is fueling such scepticism,
as are recent case histories, particularly the
rapid demise of the conglomerate Zeromax.
Analysts believe that the most lucrative
business opportunities in the country are
controlled by a coterie of movers and shakers
close to President Islam Karimov, key among them
Gulnara Karimova, the president's daughter whose
worth was estimated by the German magazine Der
Spiegel in 2010 at $570 million.
"Commercial interests are closely tied
with political elite in Uzbekistan, although often
direct ownership of businesses is hard to trace,"
Lilit Gevorgyan, regional analyst at IHS Global
Insight, told EurasiaNet.org in e-mailed remarks.
"For those entering the Uzbek market, it
is pretty clear that without the continuous
endorsement of a very narrow political elite led
by President Islam Karimov carrying out business
in Uzbekistan bears high risks."
Leaked US
diplomatic cables have detailed the sway of the
well-connected over Uzbekistan's economy. One 2008
cable memorably described the rush for assets as
"a fairly brazen, at times seemingly desperate
grab by [Uzbekistan's] elites for portions of the
Uzbek economic pie".
It also spoke of "a
steady drumbeat of complaints from foreign
investors" and four years on, the list of
disappointed investors continues to grow,
encompassing Western, Turkish, and Asian firms, as
well as Russian ones like MTS.
The case of
UK-based company Oxus Gold illustrates the risks
faced by bold investors venturing into
Uzbekistan's high-stakes economy. Following
sustained pressure (including the imprisonment of
a company metallurgist for 12 years on espionage
charges), Oxus agreed last year to sell its 50%
stake in the Amantaytau Goldfields mining
operation to its Uzbek partners, but its troubles
did not end there.
Oxus accused the buyers
of understating the value of its share and remains
locked in litigation, seeking $400 million at
international arbitration over what company lawyer
Robert Amsterdam has bitterly described as "an
ongoing campaign to fabricate a reason to steal
the last foreign assets in the mining industry in
Uzbekistan".
Turkish-owned businesses have
also come to grief. The once popular Demir
supermarket in downtown Tashkent stands shuttered
after its owners quit Uzbekistan amid
disagreements with authorities. Investors in
another Tashkent store, Turkuaz, fared worse: one
is serving a three-year jail sentence on tax
evasion charges, seven other Turks were convicted
on the charge, but deported, and Turkuaz (renamed
Toshkent) is doing a roaring trade under Uzbek
management.
Indian textile firm Spentex
Industries this spring lodged a $100 million
compensation claim with Tashkent after "bankruptcy
was thrust upon it"; Denmark's Carlsberg suspended
operations this year over what it described as a
"shortage of raw materials".
In this toxic
investment environment, Tashkent launched a
privatization drive in May, with 497 assets in
sectors including energy, metallurgy, agriculture
and industry up for grabs.
According to
official statistics, growth is robust: the Asian
Development Bank says Uzbekistan's economy grew by
8.3% in 2011 and forecasts 8% growth this year.
Nevertheless, without cast-iron guarantees
investors are likely to be leery of stumping up
cash.
Tashkent says entrepreneurs' rights
are secured by legislation, which includes
guarantees against confiscation without
compensation. A presidential decree issued on July
16 also aims to ease the regulatory environment by
simplifying often baffling red tape, mainly
concerning tax and licensing procedures.
Nevertheless, businessmen privately complain that
in Uzbekistan laws are at best applied unevenly.
The country fares poorly in international
rankings, languishing near the bottom of the World
Bank's Doing Business 2012 report (166th out of
183 states) and Transparency International's 2011
corruption ranking (177th out of 182).
Uzbekistan's business environment has even
hit Washington's foreign policy agenda: the United
States has urged Tashkent to address "pervasive
corruption issues", Assistant Secretary of State
Robert Blake said on July 24, and simplify
"restrictive currency conversion laws".
Another defining feature of Uzbekistan's
economy is the thriving black market, where a
dollar fetches a third more than the official rate
of around 1,900 Uzbek soms.
Against this
troubled background, "the MTS case will only add
to Uzbekistan's already tainted investment
destination image", Gevorgyan said. "For now, the
protection of business rights remains weak and
there are no high expectations that Karimov is
going to bring positive changes any time soon."
Joanna Lillis is a freelance
writer who specialises in Central Asia.
(Inter Press Service. This story
originally appeared on
EurasiaNet.org.)
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