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Uzbekistan: Karimov In South Korea Looking For Investment

South Korean President Roh Moo-Hyun (right) shakes hands with Uzbek President Karimov at the Blue House in Seoul on March 29 (epa) Uzbek President Islam Karimov is due in South Korea today for talks on economic cooperation. South Korea is the biggest investor in the Uzbek economy. But in recent years, several South Korean companies have left Uzbekistan because of the unfavorable investment climate. Experts see Karimov's visit to Seoul as an attempt to restore economic cooperation and stop investment outflow as well as to find political support -- a crucial necessity amid Uzbekistan's isolation from the West.

PRAGUE, March 28, 2006 (RFE/RL) -- This will be the Uzbek leader's fourth visit to South Korea. Many observers see it as a desperate attempt by Karimov to attract more investment and gain political support as Uzbekistan becomes increasingly isolated from the West.

Karimov's visit to Seoul is his fourth since the deadly events in Andijon last year. He visited China and Kazakhstan last year and Russia in January.

Looking For Friends

Alisher Taksanov is an independent economist from Tashkent. "It's likely that President [Karimov] is going there for political support," he said. "He is not welcome in European or North American countries. The few countries that will still receive him are in Southeastern Asia. The reason is that these countries have never made any special demands on democratic rights.

South Korea, China, and Japan have given economic assistance to Uzbekistan with no conditions regarding democratization and respect of human rights."

Taksanov says foreign investment will not be attracted to the Uzbek economy unless the country's government implements market-economy reforms and stops interfering in the economic affairs of companies.

The World Bank announced on 16 March that it will not give any new loans to Uzbekistan. Another foreign lender, the European Bank for Reconstruction and Development, stopped lending Tashkent money in 2004, citing the country's human rights violations.

Western governments condemned the Uzbek security forces' actions in Andijon in May 2005, when hundreds of civilians were killed in a popular uprising to complain about unemployment and poverty. The European Union imposed sanctions against Uzbekistan after Tashkent rejected calls from Brussels and Washington for an independent probe into the Andijon events.

Tashkent also evicted U.S. troops from a military base on its soil last year with the urging of Russia and China.
Will the Uzbek leader get both political support and investment from Seoul?

Wooing The Big Investor

A Tashkent-based banker who spoke to RFE/RL on condition of anonymity says it won't be easy for Karimov to re-attract South Korean investment to Uzbekistan.

"The Uzbek government [delegation] is going to Korea with big hopes to bring potential investors here," he said. "But if we look at it realistically, it will be hard to develop [relations]. However, if the Uzbek government is ready to help them, Korean investors may come [to Uzbekistan]."

The history of bilateral relations between Seoul and Tashkent has been anything but smooth.

Uzbek officials like to make a historical reference when discussing relations with South Korea: they say that ties between the two were formed in the 7th century when the ancient Korean dynasty Koguryo sent an emissary to the Samarkand Khanate.

Diplomatic relations were established between Tashkent and Seoul in 1992 shortly after Uzbekistan gained independence. Economic cooperation was dynamic as South Korea soon became the biggest investor in the Uzbek economy with investments totaling some $1 billion.

President Karimov, who has repeatedly said South Korea was an important partner for Uzbekistan, appointed Korean citizen Kim Tae Bong a deputy minister of light industry in 2003, despite a law prohibiting foreigners from serving as public officials.

Promising Investments Gone Wrong

South Korean companies opened several giant joint ventures with Uzbekistan: UzDaewooAuto became the first automobile-building company in Central Asia; Daewoo Unitel entered the country's emerging telecommunications market; and Kabool Textiles Uzbek Ltd. opened and quickly became a leader in cotton-fiber production.

All three ventures are still operating, but none has Korean capital -- UzDaewooAuto and Kabool Textiles are owned by Uzbeks and Daewoo Unitel became an Uzbek-Russian venture.

The Daewoo Corporation was seriously hit by the 1998 financial crisis in Southeastern Asia and was forced to sell its holdings in Uzbekistan.

The case of Kabool Textiles is unclear. Uzbek authorities took over the company citing its large debts.

Government Interference

Don Kang, the former head of Kabool Textiles Uzbek Ltd., says South Koreans decided to leave Uzbekistan because of the perpetual interference of Uzbek authorities in their business and due to high corruption. He says the overall investment risks remain high and thus impedes foreign investment.

"The Uzbek government changes the tax matters or some of the foreign investment laws too often," Kang said. "They must keep [them] in the [coming] 10 years, in the [coming] 5 years without change. But [the] incentives to foreign investors were changed regularly. The risk of the investments, the reputation of the country, and credibility -- this is what matters. Because of that business risk, no one is ready to invest in Uzbekistan."

Uzbekistan's investment climate is to be discussed during a meeting between Karimov with South Korean President Roh Moo-Hyun.

"The two presidents will discuss ways of strengthening bilateral ties, including trade, investment, and the development of energy and mineral resources," Roh spokesman Kim Man-Soo said last week. He added that South Korea is particularly interested in jointly developing Uzbekistan's oil and gas fields, and gold, uranium, zinc, and other natural resources. Bilateral trade turnover was $520 million in 2005.

Ties That Bind

Economist Taksanov says South Korea is likely to maintain ties with the current Uzbek regime mostly because of the 230,000 ethnic Koreans living in Uzbekistan.

President Roh's spokesperson said last week that Roh is to ask Karimov to extend more support and attention to Uzbekistan's Koreans.

The largest ethnic Korean population in Central Asia, Uzbekistan's Koreans are mostly descendants of the Koreans who settled in the Soviet Far East but were forcibly moved to Central Asia by Josef Stalin after World War II.

Seoul has developed cultural ties with the Korean community in Uzbekistan, allocating funds for their education, particularly the Korean-language courses, and other needs.

South Korean movies regularly shown on Uzbek TV are popular among both Koreans and Uzbeks.

South Korea also accepts some 15,000 Uzbek citizens as labor migrants every year under an agreement with the Uzbek government. Although unofficial sources say hundreds of thousands of Uzbeks go to South Korea annually as illegal migrant workers.

Taksanov, the Tashkent-based independent economist, is not optimistic about the outcome of the summit. He says foreign investment will not be attracted to the Uzbek economy unless the country's government implements market-economy reforms and stops interfering in the economic affairs of companies.

(RFE/RL Uzbek Service correspondent Alisher Sidikov contributed to this report.)

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