Resource-rich Uzbekistan is on a push to attract foreign investment, hoping a raft of government reforms will help revolutionize its economic model.
The former Soviet state gained independence from Moscow in 1991, and in recent years the Central Asian nation has been claiming it wants to move away from its state-led economy to that of a market-oriented set up. The Uzbek government's case has focused particularly on the diversification of agricultural production as well as the development of mineral and petroleum exports, capacity and manufacturing.
Uzbekistan has the fourth-largest gold deposits in the world and is also rich in copper and uranium. The energy industry has a heavy presence in the country, claiming there are significant untapped reserves of both oil and gas.
Cotton production also remains a key contributor, although the nation's main cash crop industry has been subject to global boycott orders over its use of forced labor.
Shavkat Mirziyoyev has served as President of Uzbekistan since 2016 and has been the main driver behind recent attempts to open up the economy. The Uzbek government's reform roadmap for 2019 to 2021, announced in November 2018, outlines five policy goals: to maintain macroeconomic stability; to accelerate the transition from state-led economy into a market-driven system; to improve social services; to strengthen the government's role in the market economy; and to preserve environmental stability.
Mirziyoyev's administration has also set about refocusing the judicial system from prosecution to protection of human rights, tackling corruption, liberalizing financial markets and creating a favorable environment for domestic and overseas investors.
Ipek de Vilder, analyst at frontier markets-focused brokerage Auerbach Grayson, told CNBC that such reforms would help render Uzbekistan "comparable to Poland in the early 1990s and Romania in 2000, where market driven reforms with strong GDP growth and good pipelines increased the investment opportunities for foreigners."
The government has its sights set on large-scale privatizations of state-owned enterprises. Auerbach Grayson's domestic broker partner, Avesta Investment Group, has flagged the likes of Qyzylqumsement, a 3.5 million ton capacity cement plant, as an example of the liquid stocks piquing interest from investors. The company is 86% state-owned, with 35% up for privatization.
Uzbekistan's GDP growth for 2018 was 5.1% and has remained steady into 2019, coming in at 5.3% for the first quarter.
'Reform fatigue'
But while there are macro factors which work in Uzbekistan's favor, including its location, its youthful demographics, natural resources, large foreign exchange reserves and low government and private sector debt, its attempt to catapult itself to the vanguard of frontier markets still faces a number of headwinds.
A recent $1 billion bond offering was relatively well received by investors, but not many of the plans outlined in the government's development strategies have been fully implemented, according to Agathe Demarais, global forecasting director at the Economist Intelligence Unit.
"More realistically, a transition to a market-oriented economy remains a distant prospect, given a systemic reliance on the state to drive economic growth," Demarais told CNBC.
"There is also a risk of reform fatigue—Mr Mirziyoyev has pushed through many economic reforms in a short period of time, which could be difficult to implement effectively, owing to their large scale and scope."
She also explained that Uzbekistan's society is far from being a free-market one, given that the legacy of the Soviet era is still "very much palpable, and it will take decades to move away from the current mindset."
Skepticism on democratic reform
Under Mirziyoyev's predecessor, Islam Karimov, Uzbekistan was a tightly controlled society, but questions remain over whether the new regime's shift in rhetoric will produce tangible results.
Uzbekistan is still ranked 156th out of 167 countries on the Economist Intelligence Unit's 2018 Democracy Index — below that of Sudan.
Demarais projected that despite attempts to reform the economic environment, it is unlikely that Mirziyoyev will introduce political reforms to advance democracy, which is unlikely to aid the government's quest to lure foreign investors.
"Although the president has freed some political prisoners, it is unlikely that there will be remarkable changes towards freedom of speech, despite some cosmetic alterations and positive rhetoric from the president that is unlikely to translate to actual change," she added, suggesting that this will continue to weigh on investor sentiment.
William Jackson, chief emerging markets economist at Capital Economics, told CNBC that significant progress had been made in terms of institutional improvement, which "bodes well for long-term prospects and should make investors more confident."
However, he pointed out that Uzbekistan relies heavily on trade with Russia, "where potential growth is extremely weak," and faces some further near-term headwinds.
"Uzbekistan has had a credit boom recently, which caused imports to rise sharply and its current account deficit to widen, so it's now very dependent on foreign capital inflows," he added.