Publication: Monitor Volume: 7 Issue: 58

Alone among the Central Asian countries, Uzbekistan boasts a manufacturing sector with a sizable engineering component. Its automotive industry is often regarded as the jewel in its manufacturing crown: Uzbekistan, Russia and Ukraine are the only CIS countries which can claim to produce significant amounts of cars and trucks. Uzbekistan’s automotive industry includes ten enterprises at present. The two flagship automakers, both of them joint ventures, are UzDaewoo, a car producer in Asaka, and SamKocAuto, a bus and truck producer in Samarkand. The other plants produce automotive parts and components. In recent years, however, Uzbekistan’s automotive industry has been threatened by reductions in the competitiveness of its products on the key Russian market, and by the financial problems facing Korea’s Daewoo Motor Company.

Uzbekistan’s automotive industry is hoping to receive some US$80-US$90 million in foreign investment in 2001, according to a senior source at Uzavtosanoat, Uzbekistan’s automotive industry association. The actual amount, however, could be significantly lower if Korea’s Daewoo Motor Company is forced to wind down its operations in Uzbekistan due to the parent company’s recent bankruptcy. And this could spell big trouble for automobile production in Uzbekistan.

UzDaewoo is to receive foreign investment inflows totaling US$29 million in 2001. The joint venture is scheduled to launch mass production of Matiz cars, at a cost of US$42 million. South Korea’s Eximbank has provided a US$36 million loan under government guarantees for the project, which is apparently still on track despite the fact that Daewoo is undergoing bankruptcy proceedings in Korea. This year, UzDaewoo is planning to export 17,000 cars worth some US$85 million, primarily to Russia. The plant, located in the Ferghana valley, currently produces Nexia sedans, as well as Tico compact cars and Damas minibuses. The US$650 million joint venture, which originally targeted annual output of 200,000 cars, was founded in 1996 by the Uzbek government and Daewoo, with each of the partners holding a 50 percent equity stake. Uzbek officials say joint investment in the project has already exceeded US$1 billion (Reuters, February 8).

Three projects setting up auto parts production in Uzbekistan are expected to receive foreign financing totaling US$59 million in 2001. Approximately US$38 million is to be spent this year on the construction of a US$78-million plant to produce car batteries at Dzhizakakkumulyator (in the city of Dzhizak) with capacity of 1 million batteries per year, controlled by the American-Uzbek joint venture UzExide. Uzavtooina of Ferghana is to begin producing auto glass later this year. The plant is to have capacity to produce 200,000 auto window sets per year. Italy’s Banco National del Lavoro is arranging financing the project. Uzbekistan also hopes to open a plant to produce electric harnesses at Andizhankabel (Khanabad) with South Korea’s KOJE Industry Co (Russian agencies, January 5).

Should Daewoo wind down production in Uzbekistan, the demand for the components produced in these other factories could wither on the vine. Also, because the government and central bank keep the value of the Uzbek som at an artificially high level, cars produced in Uzbekistan have increasingly been undersold on the key Russian market by domestically produced autos, as well as used Western cars. These factors suggest that inflows of foreign capital into Uzbekistan’s auto industry this year could be much lower than the government anticipates.