Market Update

The annual general meeting (AGM) season concluded in June with no big surprises. The majority of our portfolio companies continue to execute and experience strong growth. Thus, the next catalyst for our portfolio companies will be second quarter earnings results, expected to be published over the next forty-five days or so.

During the month I had the opportunity to meet two companies that are planning eventual IPO’s. It’s too early to delve into each of them as we will see what ultimately happens as plans of course could change, but if I am reading the tea leaves correctly, they could be eventual dual listings, most likely in Tashkent and London and each valued at roughly USD 1 bln+. Uzbekistan’s private sector companies have significant growth potential. We are optimistic that in the not-too-distant future we will see a growing number of IPO prospects as the need to raise capital through equity increases amid the underlying sustained strength in the economy and robust growth across industries.

Also, during the month of June the European Bank for Reconstruction and Development (EBRD) announced 2021 and 2022 GDP growth estimates for Uzbekistan of 5.6% and 6% respectively, while it estimates broader Central Asian GDP growth of 4.5% during both years. The underlying strength in the region’s growth is no doubt commodities based as the region boasts world-class deposits of oil and gas, uranium, copper, gold and silver, among many other commodities. On this note, Uzbekistan entered the top 10 countries in gold production. In 2020 Uzbekistan produced 101.6 tons of gold, making it the 8^th largest gold producer in the world, advancing ahead of Mexico and Indonesia. With the eventual IPO of the state-owned gold company, Navoi Mining & Metallurgical Kombinat, which owns the world’s largest open-pit gold mine, Muruntau, gold production is likely to continue increasing, further stabilizing the Uzbek Som and helping to maintain a strong balance sheet for the country.

On the precipice of a consumption boom?

With rising commodity prices and strong domestic growth due to the growing manufacturing and agricultural sectors and eventual cheaper domestic financing, our feeling is that the rising demand for goods, services and subsequent labour (leading to more livable wages) puts Uzbekistan on the precipice of a consumption boom which will see the demand for steel, cement, chemicals and fertilizers, consumer goods, and consumables accelerate markedly.

During the final week of June, I flew to the Fergana Valley to attend several AGM’s. The Fergana Valley is located in the east of Uzbekistan and home to the majority of the country’s population. Spending the night in the city of Fergana, officially home to approximately 230,000, but likely closer to 500,000 people, I was pleasantly surprised by just how livable the city is. Relative to Tashkent, the streets are quieter and there is less pollution. The infrastructure is great (Wi-Fi needs improvement but is much better than my last trip to the Valley in 2019) and with Fergana being one of the industrial centres for the region, the rising consumption trends are noticeable. Told by my taxi driver, only two weeks ago Fergana’s first Korzinka (the nation’s largest grocery store chain) opened its flagship store in the city. While most shopping is still done at bazaar’s, the eventual transition to supermarket shopping is likely not far afoot. Further, KFC is planning a push into the region this year, and with only one shopping mall in Fergana, as others open, no doubt many of the major food and beverage and clothing chains in Tashkent will expand into Fergana. This will likely be in relative alignment with more factories opening up in the city, specifically in textiles and pharmaceuticals, which will hopefully lead to strong direct and indirect employment opportunities, thus creating sustained demand for many of the goods the fund’s portfolio companies manufacture and distribute.