WBD set to tap Uzbek potential

The government of Uzbekistan has granted a production licence to
Russian dairy giant Wimm-Bill-Dann eight months after the firm
bought Uzbekistan's largest dairy group, but the country's good
investment potential is still blighted by state controls, writes
Chris Mercer.

Wimm-Bill-Dann (WBD) bought 77 per cent of the shares in Uzbekistan's debt-ridden dairy company, Tashkent Sut, last April. The Russian firm said it planned to invest $7.3 million (€5.9 million) in the plant before 2008, but last month had still not been granted a permit to begin production.

Now, Uzbekistan's meat and milk industry association has issued the permit, enabling WBD to further branch out from its Russian base after also purchasing the biggest dairy in neighbouring Kyrgysztan in 2002.

But the move is certainly risky for WBD. Uzbekistan's economy in the last decade has been notoriously subject to rigorous government controls and interference. Foreign direct investment in the country was among the lowest of all ex-Soviet states in 2003, at a little more than $60 million.

"We've had some frustration with the political and social side of things. They've got a lot of work to do,"​ said Jeff Hiday of the European Bank for Reconstruction and Development (EBRD). He said the government had taken a positive step by liberalising the exchange rate in early 2003, but was still restricting cash supplies and maintaining tough border controls.

A recent EBRD report on the country said: "The economic outlook depends critically on easing tight restrictions on the availability of cash and the liberalising of trade. However, as the authorities are continuing their restrictive monetary and trade policies, a substantial acceleration of growth appears unlikely."

The report adds that tariff barriers have "severely disrupted trade for the private sector,"​ and this isolationist economy policy could be a concern for WBD which said it intended to use its new dairy facility in Tashkent to produce products for Tajikistan as well.

However, WBD will certainly have a better chance of building up its market share in Uzbekistan from the inside and the country has one of the best transport networks in central Asia - something which will aid product distribution as well as collection of raw materials such as milk.

Hiday said there was no doubt that the country needed companies like WBD if its industry was to progress. "The country is not nearly up to its potential. The place is full of promise and there is clearly a decent amount of interest in the country, but it is not moving in either direction at the moment,"​ he said.

The government seems to know this and president Islam Karimov has made repeated pledges to do more to liberalise trade in Uzbekistan as well as advance accession to the World Trade Organisation. The issue is whether his government will now do more to act on these promises.Uzbekistan's GDP growth rate, around 3 per cent, is significantly below that of all its immediate neighbours, although the country suffered least in the economic problems that hit the region during the 1990s. The closest to Uzbekistan in GDP growth during 2003 were Kyrgyzstan on 6.7 per cent and Tajikistan with 7 per cent.

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