Uzbek Cotton-Sector Reform Plan Needs More Work

Uzbek Cotton-Sector Reform Plan Needs More Work

Tuesday, 3 November, 2009
Uzbekistan plans to export less raw cotton and process more into textiles inside the country, but NBCentralAsia analysts warn that this will be hard to achieve because the textile industry is still undeveloped.

Bureaucratic barriers continue to obstruct investors who might want to put money into modernising textiles production, and the cotton sector is hampered by the government monopoly over purchases.

On October 15, the deputy minister for foreign economic relations, investment and trade, Akmal Kamolov, told the closing ceremony for the Fifth International Cotton Fair in Tashkent that Uzbekistan had signed contracts to sell one million tons of cotton fibre for the current growing season.

This year it will export 600,000 tons, with another 400,000 tons going abroad in 2010.

The country produces about 3.5 million tons of raw cotton a year, of which a quarter is processed domestically. Uzbekistan is the world’s second largest cotton exporter, selling between 800,000 and 1.5 million tons annually on world markets.

After last year’s cotton fair, the Uzbek authorities announced plans to hold exports down to 700,000 tons a year and launch 22 new processing factories. The aim is to turn at least half of the raw cotton Uzbekistan grows into textiles, and export these at a higher profit margin.

However, NBCentralAsia observers say this goal has not yet been achieved.

Noting the export figures cited by Kamolov, a Tashkent-based economic journalist commented that “we can see that exports are not falling, which means that there isn’t anyone to process cotton into textiles at the moment”.

One of the reasons why the plan is falling short of expectations is the way the cotton trade is structured within Uzbekistan. Growers are not allowed to sell their crop on the open market, and have to go to state-run trading companies. These firms take the best grades of cotton and earmark it for the national commodity exchange, the starting-point for exports.

According to an engineer in a textiles plant, only poorer grades are left over for domestic manufacturers, and it is hard to turn these into quality materials.

If cotton processing plants could directly sign contracts with their buyers, local textile producers could choose cotton from which they could make fabrics and goods that later could compete with international brands.

According to Tashkent-based expert Dilmurod Kholmatov, a number of textile factories that could potentially be productive are standing idle as they have gone bankrupt due to bank loans they have been unable to repay.

That makes it unlikely that textile production will take off any time soon.

Kholmatov says the first thing that would be needed to make this happen would be to “give all the players in the market equal and transparent access to cotton. There is a strong cotton lobby in the country that has no interest in seeing the cotton processed domestically.”

Other experts agree that the main monopoly firm, Uzinterimpex, finds it easier to shift raw cotton abroad than to try to find export markets for textiles, given the competition these would face internationally.

“Uzbek textile enterprises are not going to be able to compete with Chinese manufacturers,” said one commentator.

A foreign businessman in Tashkent related his experience of trying to invest in textile manufacturing, but being blocked by bureaucracy and corruption.

“We spent about six months negotiating with the local administration when we wanted to get land to build a textile plant in Tashkent,” he said. “They [the authorities] like to talk about the social responsibility of private businessmen and the need to pay all ones taxes in full and on time. Yet they don’t want to do anything for the investor.”

(NBCentralAsia is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service has resumed, covering Uzbekistan and Turkmenistan.)
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