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    World

    How has Russia-Ukraine war affected Uzbekistan?

    How has Russia-Ukraine war affected Uzbekistan?

    The Russia-Ukraine war and the looming threat of mobilisation triggered the most significant outflow of Russian citizens since the Civil War. The estimates of this exodus range from 0.5 mn to 1.3 mn individuals, Kursiv reported. The majority of these emigrants, now referred to as "re-locants", found refuge in the countries of the Caucasus and Central Asia, including Uzbekistan.

    Photo: Mobilisation
    Sources: Reuters
    As per the Statistical Agency of Uzbekistan, Uzbekistan welcomed over 400,000 Russian visitors in 2022. This figure encompasses not only re-locants but also tourists and transit passengers. The Russian Federal Security Service’s border service reports a 3.5-fold increase in travel to Uzbekistan in Q1 2023.

    The anti-war emigration primarily consisted of “white-collar” professionals. These were predominantly specialists with higher education, proficiency in foreign languages, and a minimum of six years of work experience. Certain sectors of the Uzbek economy viewed this as a unique historical opportunity to address the shortage of highly qualified personnel.

    IT workers relocating to Uzbekistan

    In September 2022, IT-Park reported approximately 6,000 IT workers who had relocated to Uzbekistan since the onset of the war. Furthermore, 163 specialists were granted IT visas, allowing them unrestricted entry and exit from the country.

    Photo: IT sphere
    Sources: Freepik

    Several individuals and entire offices relocated to Uzbekistan due to the war and mobilisation. For instance, software developer Epam Systems, a resident of the park since 2019, relocated several hundred Russian and Belarusian employees to Uzbekistan. Heart Core, the developer of the role-playing shooter Gripper, relocated to Tashkent in its entirety.

    Since 2022, 239 companies from the Russian Federation and 31 from Belarus have been granted resident status by IT-Park. Additionally, through the launched One Stop Shop service, 92 Russian companies and 7 Belarusian ones applied for residency.

    The “white-collar” immigration was not confined to “IT specialists”. Engineers, doctors, marketing specialists, and administrative staff also relocated to Uzbekistan. While some managed to settle in their new location, others continued their search for a better life. It is estimated that between 15% and 25% of the re-locants returned to Russia.

    Photo: IT Park
    Sources: Spot.uz

    Economic impact

    The economic impact of this wave can only be indirectly estimated. For instance, exports of computer software saw a more than five-fold increase in 2022 following a decline in 2021. Exports of other computer services grew 11 times, and other information services more than doubled.

    Even a short stay of highly qualified specialists in the local labour market is an absolute plus for the economy. Due to the experience and knowledge of Russian “middles” and “seniors”, both the overall labour productivity in Uzbek companies and the qualifications of local personnel are increasing.

    Oksana Tkachenko, Director of Recruitment at ANCOR Uzbekistan, asserts that the demand for Russian specialists remains robust and continues to strengthen due to a significant shortage of personnel, particularly specialists who have not yet reached the required level within the country.

    The sectors experiencing growth in Uzbekistan, including retail, fast-moving consumer goods (FMCG), restaurant, IT, and fintech, are particularly affected by this personnel shortage. IT specialists, including developers, analysts, and product managers, who are responsible for the development of various projects, are still in high demand.

    Tkachenko also notes a significant interest in specialists from the banking sector as competition in this industry intensifies. B2B service, underwriting, and risk management are all developing, and sales specialists, technologists, production specialists, and IT specialists are very much in demand.

    Return of labour migrants

    The commencement of hostilities coincided with the lifting of the last anti-Covid restrictions on labour migration between Russia and Central Asian countries. According to a policy brief titled “The Impact of the War in Ukraine on Migration Flows in Central Asia”, entries from Central Asian countries in 2022 increased by 50% compared to 2021. Meanwhile, the number of labour migrant entries from Uzbekistan increased by 35%, returning to pre-pandemic 2019 levels.
    Photo: Labour migrants
    Source: Freepik

    This does not exclude the risks faced by compatriots who have taken Russian citizenship in Russia. In 2022, there were 27,000 such individuals. Regular roundups of “new citizens”, usually followed by forced enrolment in the military register, have been reported. The fear of being in a war zone reduces the attractiveness of a Russian passport but has little effect on the migration flow.

    Migrants from Uzbekistan who are currently working in Russia reported that six months ago there were fears that they would start “combing everyone” and some of them even left to wait out the dangerous times in their homeland. But now everything is relatively calm.

    Remittances as indicator of migration sentiment

    An important indicator of migration sentiment is the volume of remittances from the Russian Federation to Uzbekistan, which serves as the main source of income for every sixth family in the republic. In 2022, this indicator doubled to a record $16.9 bn, and their “weight” in GDP increased from 13% to 21%.

    In 2023, the volume of remittances expectedly decreased, but still far exceeds the level before the war in Ukraine. In January-September, Uzbekistan received $8.4 bn of cross-border transfers, a decrease of 33.7%. Compared to the same period in 2021, the volume was higher by 45.5%. The Central Bank forecasts slow growth of 5-6% in 2024 and beyond, which means a return to a long-term trend after the “hungry” pandemic years and “fat” 2022.

    Impact of war and sanctions on logistics

    Traditionally, Uzbekistan, being a landlocked country, relied on transport corridors through Russia. However, the conflict in Ukraine and the subsequent sanctions on Russia have disrupted logistics between the People’s Republic of China and Europe. This disruption has led to increased freight costs and decreased revenues from cargo transit along the northern corridor, prompting the government and local companies to explore alternative transport corridors.

    Photo: EU
    Source: Daryo

    In the face of this new geopolitical reality, the Trans-Caspian international transport route, which connects China and the European Union via Central Asia, the Caucasus, Turkey, and Eastern Europe, gained prominence. In September 2022, an agreement was signed between Uzbekistan, Kyrgyzstan, and China to conduct a feasibility study of the China-Kyrgyzstan-Uzbekistan railway project. According to Central Asia specialist Grigory Mikhailov, Central Asian countries, particularly Kazakhstan, Kyrgyzstan, and Uzbekistan, greatly benefited from these geopolitical and logistical shifts.

    Mikhailov asserts that Uzbekistan reaped the most benefits from this situation. He attributes this to the proactive efforts of President Mirziyoyev and the country’s accumulated potential, which enabled Uzbekistan to attract significant foreign investments, initiate several major projects, modernise part of the transport infrastructure, and improve logistics and checkpoint operations over the past two years.

    Challenge of sanctions and banking operations

    On February 13, the Senate of Oliy Majlis passed the first reading of a bill that would prohibit individuals subjected to economic sanctions from opening accounts in Uzbek banks and would empower the Central Bank to establish risk management requirements in this regard. Viktor Dostov, Head of the Russian e-Money and Remittance Association, clarified that this act does not introduce anything new but merely formalises established practices.

    Photo: Sanctions as the consequence of war
    Source: Daryo

    The issue of making payments between Russia and Uzbekistan evolved from a technical task into a significant challenge for those engaged in trade between the two countries over the past two years. This is particularly true for large exporters, who face serious difficulties, primarily related to banking operations, as Uzbekistan does not maintain correspondent relations with banks under sanctions restrictions.

    Impact on Uzbekistan’s economy

    These restrictions hit Uzbekistan harder than Russia, as the Uzbek economy is critically dependent on high-tech imports from Russia. An OECD survey revealed that 85% of Uzbek firms involved in foreign trade have experienced problems with the supply of raw materials, equipment, and components since the onset of the conflict due to the disruption of supply chains. A complex and challenging process of restructuring technological chains and finding new suppliers is currently underway.

    Following the legalization of parallel imports in Russia, Uzbekistan has emerged as a crucial link in the logistics chain for goods from countries that have imposed sanctions against Russia. In 2022, the volume of goods and services supplied from Uzbekistan to Russia surged by nearly 50%, reaching $3.06 bn.

    The upward trend persisted into 2023. Traditional Uzbek exports such as textiles, fruits, and vegetables were supplemented by household appliances, electronics, and automobiles.

    However, parallel imports have introduced a series of challenges. It quickly became apparent that Uzbekistan and other Central Asian countries lacked the necessary warehouse capacity to accommodate the increased supplies. By the end of Q1 2023, less than 5% of warehouse space was available in Uzbekistan, with even less in neighbouring countries.

    The political repercussions soon followed. In the summer of 2022, Uzbek companies began appearing on the stop lists of the United States and the European Union. In June, Promcomplektlogistic was subjected to secondary sanctions by the US. A year later, the EU added Alfa Beta Creative and GFK Logistic Asia, both registered in Tashkent, to its sanctions list. In November 2023, another Uzbek company, Mvizion, was sanctioned by the US. In all instances, the supply of dual-use goods and components was cited as the official reason.

    The region has seen heightened attention from European and American regulatory bodies. For instance, the EU's special envoy on sanctions visited Uzbekistan twice last year - in March and November. However, both visits were without consequences.

    Parallel imports placed Uzbekistan in a precarious position. The country's leadership is caught between not wanting to provoke the West and not wanting to jeopardize its relationship with its main trading partner and potential profits.

    The EU and the US also understand that imposing "full-scale" sanctions could push the country towards even greater integration with Russia, which is why they are not resorting to extreme measures.

    Despite the sanctions, exports to Russia from countries such as Kazakhstan, Georgia, Armenia, Uzbekistan, Azerbaijan, Kyrgyzstan, Tajikistan, and Turkey increased by almost 40%. Simultaneously, these countries significantly increased imports of those categories of goods whose export to Russia is prohibited.

     

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    25.02.2024, 10:19   Comments (0)   5097
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