Afghanistan Situation

As Afghanistan’s former government collapsed during August, followed by the USA having fully withdrawn on 31^st August 2021, “Operation Enduring Freedom” came to an abrupt end with the Taliban returning to power.

So, what does this mean for Uzbekistan? We have received a few queries about this, but as far as we can see, there should be little to no change in Uzbekistan going forward. The most visible change is more Afghan’s living in Tashkent (and in some of the cities bordering Afghanistan), though they arrived during the past several months and are mainly of the Afghan middle class who are educated and business owners, some of whom brought with them substantial wealth. Many of these Afghans have historically done business in Uzbekistan, owning everything from English schools to cement plants, and thus Uzbekistan was already a second home of sorts for them. Bringing valuable skillsets and capital is certainly not worrying to us and should be a net positive.

Regarding security and refugees, Uzbekistan hosts the largest military in Central Asia, has a secure border with Afghanistan, and is not accepting any refugees. The few who did flee into Uzbekistan, either via land or by air (as defectors from the Afghan air force flew to Uzbekistan during the middle of August), have been detained and the Uzbek government is working with western countries in order to have them deported abroad. Further, on 27^th August 2021 President Mirziyoyev was quoted in local media saying “We predicted these events would happen [and so Uzbekistan] started communicating with [the Taliban] not yesterday, but two years ago. When no country had communicated with them, I gave instructions” to establish a dialogue with them. Uzbekistan has built a good rapport with the Taliban as it is focused on protecting the security of its territory and has been forward-thinking in this regard.

Coca-Cola Bottlers Uzbekistan privatisation – a model for future privatisations or a one-off?

On 6^th August 2021 the Agency for State Asset Management, responsible for the privatisation of Uzbekistan’s state-owned enterprises (SOE’s), announced an agreement to sell the state’s 57.118% stake in the local Coca-Cola bottling company to Turkish Coca-Cola Icecek A.S. for  USD 252.28 mln. Rothschild & Co. and Dentons acted as the financial and legal advisors to the deal which was widely regarded as transparent and fair.

The bottling company had been in the pipeline for privatisation for several years and it is highly encouraging that it was sold in a transparent fashion to a foreign strategic investor who should be able to increase efficiencies within the company and further enhance profitability. One benefit of SOE’s being privatised is the low hanging fruit efficiency gains that can be had with new management. For example, a friend who owns a Lebanese cafe in Tashkent will message a sales representative indicating that he needs a delivery of certain Coca-Cola products. It’s not uncommon for a response to take several days and for him to be informed that they don’t have certain SKU’s such as 500ml bottles of Coke or bottles of Bonaqua water. The bar for improvement in this country is anything but high and should lead to some pretty impressive margin and profitability increases for its new Turkish owners, just as publicly listed steel producer Uzmetkombinat (TSE: UZMK) experienced when it went through restructuring with the help of private sector experts.

Looking ahead to the long list of privatisations from wineries to the national airline (Uzbekistan Airways) to several large gold and copper mining operations, if the privatisation of Coca-Cola Bottlers Uzbekistan can become a blueprint for future privatisations, then the broader privatisation proramme over the coming years should be very exciting indeed, for both the government and the population. So, we will patiently wait to see if increased transparency in the sphere of privatisations becomes the new normal or if this flagship privatisation was a one-off due to the brand name. We are hopeful it will be more of the former.