How do Europeans evaluate the investment potential of Uzbekistan. The Dialogue with Klaus Mangold.

What is needed for more investment in Uzbekistan? How European business sees us and what kind of new organization was created in Europe for a dialogue with Uzbekistan? Interview with Professor Klaus Mangold, a well-known European businessman, current and former Board member of the world's largest companies from Daimler A.G. to Rothschild & Co. CIS. Subtitles are available on English, Russian and Uzbek.


 Interview with Klaus Mangold

J.Narvi: Welcome, Professor Mangold! We are very happy to have you here today. You have just joined a new organization – the European-Uzbekistan Business Association that is to be created – as its co-chair of the Supervisory Board. We were very happy to hear that. You have long experience on relations with Commonwealth of Independent States and you are a long-standing friend of Uzbekistan. Your experience in business as chairman of your own company now and before that and still in Knorr-Bremse, Rothschild Russia and the CIS, gives you a broad view of business and needs of the business I think it would be very useful for everybody involved including the government to have your views on what the business needs to come and invest in Uzbekistan which is one of the main goals of the government. So, welcome again.

K.Mangold: Thank you, thank you. Thank you for your nice words. I believe it is always good to stay here in Uzbekistan to see the dynamic development of the country. So, I am very happy to be here.

J.Narvi: We hear of many companies showing interests in coming to invest in Uzbekistan. But so far, we haven’t heard of any major investments from Europe. What is keeping them back? 

K.Mangold: I would like to give you an answer in 2 parts. One is that, I believe that investors have seen very good years in the development of the country in the 80th and the 90th. Afterwards it has been a certain kind of … let me say “a black period”, where the country was looking not to be such attractive for foreign investors as one would like to see it. And there was one neighborhood country as Kazakhstan who was very much open. So, people were going to Kazakhstan. And I believe that one should see 3 periods of time. One is that, it’s the beginning in the Karimov period. It was really a black box for foreign investors. With the start of the new president, there was at the beginning a strong interest which is still continuing today, linked with curiosity what is happening there in such a short period of time. And now third phase, I believe that, investors are considering Uzbekistan as one of the key countries in the region. So, this is one part of my answer. The second part is I believe that, people are very much looking now forward to see what the country will do in its dynamics about privatization, about investor friendly legislation, about issues as integration into the WTO for example, or in which way Uzbekistan is looking for being a very good member in the international global context of business doing. So, I believe that, we are now in a phase especially looking as well to German as well to other European investors, I said they are coming from now shifting a good interest, a  positive interest, to decision taking. But this takes normally, I would say usually, 2-3 years and people believe not so fast. And what is I believe now going on is that we see that Uzbekistan is looking forward to be a very important country if it comes to investments considering not only the very strong market, which is the most important one in Central Asia, but as we are looking to do business out of Uzbekistan to Russia and to China. So, I believe really this is… we will see a new momentum. We should see this with some patience and I believe really as well that in the raw material sector, in the construction sector, in machinery, in tourism we will see investments over the next couple of years.

J.Narvi: To these people, who are still waiting to see, perhaps, once burned, twice careful, what are the strength of Uzbekistan as a place for investment?

K.Mangold: I believe, the strength is certainly in the fact that this country is so much close to its strong neighborhood countries and that you have out of Uzbekistan a good platform, especially to take the agro and or food business. If you are taking some other industries and if you are looking to construction and so on, I believe that this could be a good hub to make business out of Uzbekistan for its neighborhood countries. And to neighborhood countries, are now I believe for 2020, despite all critical circumstances in the world business, they stand for growth rates. You will have important growth rates in China, you will have, I believe, considerable growth rates in Russia, so this brings a momentum. And this is the most important market in terms of population. And Uzbekistan in its history is the only manufacturing country, which has strong capacity of people who know to produce. If you are looking to the textile & garment industry, they who have good skills in this area. I am sure, that this will come back and this will be as well a good momentum that you will see skilled workforce, which will be one of the drivers for the business development in the next years. And as well I believe that people are very much looking forward to a country which develops to a very investor friendly positioning. And I see as well what’s going on in the momentum now of this Economic Forum, which will take place in March, I am sure that this will as well bring Uzbekistan to a focus of many investors in the world to see in which way the positioning in Central Asia will be a positive one.

J.Narvi: In this new Association you will have a privilege opportunity to pass messages also to government and considering the things still to do, the weaknesses that could be fixed, what is your message?

K.Mangold: I believe it’s always, one must be almost careful to give advice to a government from a business perspective. But if I would be in a position to give to two or three recommendations I believe that the country should very much look forward to, for example, build as soon as possible which is under the way, strong positioned specific economic zones, which will be attractive for foreign investors and where you can have a lot of advantages, tax-wise, as bureaucracy is concerned, a fast track in permits for construction, a good infrastructure and so on. I believe there are good examples around the world which show that this works very well and this gives a lot of good opportunity. Second, I believe that the country must be very sensitive if it comes to its rating. And this refers mainly to the positioning of the banks, to have the debt development under control and to look forward to show up in the international business standard as a country which is looking after the financials. And my third point I believe is, to have a very clear strategy about the privatization, and the state has still a lot of assets where it has a strong ownership in, but I am sure that one should change this over the time, and to give with this a momentum for foreign investors to take a stake and then to look forward to bringing technology and to upgrade the companies in a good sense. And let me make as well one important remark as well, I believe that EUROUZ has an outstanding mission, not only in terms of business but as well in terms of convincing European leaders in Brussels, in politics and in business, to look much more for the opportunities in Central Asia and especially in Uzbekistan. And I believe that the EU Commission must be well advised to find much more dynamic position if it comes to Central Asia as a whole and with the focus as well to encourage the leadership in the country.  

J.Narvi: You are a business consultant these days and I am sure that you are very familiar with the old tools of business consulting. The strengths, weaknesses, opportunities, threats analysis, we already covered strength and weaknesses. What opportunities would you see?

K.Mangold: You know, I see this before my professional, own background. I was working in the chemical, in the textile industries, in steel and in the automotive industry. I spent most of my live in the automobile industry3. Seeing this, I believe really that the key assets of Uzbekistan, and I’ll come to the weaknesses as well, the key assets are the availability of reasonably priced energy. Uzbekistan has a lot of energy reserves. And the news that the gas exports will be stopped in a 2 years time and to use it internally for the construction of a strong chemical industry is, I believe, something which will be certainly attractive for many chemical companies to do business in the country. I see as well that Uzbekistan has still a huge possibility to bring people to the job and there are actually too many young people leaving the country. This is, I believe, a challenge, which is on the one hand a disadvantage, but if you are playing this in the right way and if you find attractive jobs for these young people, I believe, it is a huge advantage to have a good critical mass of young people, which you can train on the job in some of the industries. And I believe as well that the country had always an industrial orientation. So, this is, I believe, something we have to work on. And about the weaknesses, I believe, that it is very difficult to say what the country should do better. I believe the President, in the leadership, in the government are doing actually an excellent job. I have sometimes impression that they are going so far, that sometimes the population cannot follow what the government wants to do in a short period of time. So, we should not overstretch the dynamics and to ask too much. I believe the government and the President is on the right way. And if I’m looking to the key messages of the President in his speech from last week, I believe, the things are developing well. And tax system is ok, its predictability for foreign investors. And I believe that the government may still work more on a marketing tool of the country and to show up as well in international forums. For example, DAVOS or ASEM And I see that with the Economic Forum it is on the right way to open the window and to invite many investors from abroad, especially as well from Europe, to show as a country, which has a lot of advantages for FDI.

J.Narvi: One of the main axis of the development of the country is opening up and integrating into the global economy. How important is this for a European investor? WTO, Eurasian Economic Union, whatever. Of course, European Union is negotiating its own agreement with Uzbekistan, but the trade part is very much based on WTO regime. How important is that for the business?

K.Mangold: WTO access is very important, very very important. Because I know many, very big companies for which it is essential that a country is a member of WTO, because this keeps a framework, where you can have predictable business conditions in which you can work on. So, this is very important. Nevertheless, when one should as well have a look to what it means in the period of transition and in which way you can really have a very well-organized established process by which you know exactly what will happen if you open your borders from one day to another. You must be careful to have a look what happens with the existing labor force, with existing companies. So, I believe, that this is an issue by which I would recommend to see negotiations on a very dynamic way, to look for a agreement as soon as possible, but to have as well an agreement, which gives time to the local industry to be in a way that they can adapt to the new rules and to have very strong wind of an open market economy, which they can, I believe, really afford.

J.Narvi: You mentioned these special economic zones and that they would have particularly good infrastructure. Overall, how do you see the infrastructure of Uzbekistan, especially for exports and notably beyond the immediate neighborhood? It’s physical infrastructure, it’s digital infrastructure. Is it adequate for the needs of a sophisticated investor?

K.Mangold: I believe that it always depends on what your requirements are if you are making investment. If I would be an investor in the chemical industry, I would certainly look forward that I have right logistics in place and it took me integrated into international value chain, which is today so important. So, logistics are a key asset if it comes to the investment process. And I believe that logistics sometimes are more important than the cost of labor. If you have a very good open working system by which you can organize it easily, via road, via aircraft, via reasonable accessibility to the major areas, I believe it is very important. And especially if I see the plans of the government for the development of tourism. This is very important for creation of labor. But it needs as well still more emphasized investment strategy for airports, for roads and so on. And for hotels. If you are looking to Samarkand, to Khiva, to Bukhara, I believe it is very important to have hotel infrastructure. And to have as well infrastructure by which people can have easy access and by which they see that this country is gives comfort to the needs of the modern tourism industry. There is only one example that you have, and on the other hand, I believe that you have in the country seen from a benchmark comparison as well as others that infrastructure is developing reasonably and there  should be as well a strong push to be integrated in the Belt and Road Initiative and to connect the country with this big project.

J.Narvi: You mentioned the term that has become very important mass word in international business – integration into global value chains. Where do you see Uzbekistan in that chain?

K.Mangold: I believe that this is the beginning, to be very frank. And I am sure that one has to have if you are integrated in the international value chain you need an excellent infrastructure platform, you must have predictability if it comes to customs, you must have predictability if it comes to long term tax & tax incentives and I believe really that this is a point which I believe Uzbekistan is doing actually a lot to be successful in this regard. Exactly as well in this point, I am sure that Uzbekistan can be very very important seen in the development of of the cost’s structures. For example, in China and in Russia. And to manufacture here with parts coming from the outside being manufacturing after it has been reexported I believe its cetraintly has a big opportunity for the country, think about automotive industry, about other industry. So, I believe, this is a big advantage for the country.

J.Narvi: You mentioned developing infrastructure and especially tourist industry. Well, the environment that we have today is of course at the very top end of what Uzbekistan has to offer. But I would like to make a link to President’s speech, where he said that this would be the year of the enlightenment and education. What areas of education should be privileged in that area?

K.Mangold: I believe that in today’s times without digitalization it’s not possible to be successful. So, a focus, if you are thinking about training of young people, of building a new landscape for universities. It would be good to concentrate on everything what you need for the development of the infrastructure, where you link as well education with digitalization and with AI. I believe, this is key. And I see that there are actually many projects in this regard. And if I would add one thing, I believe one should as well, in the overall development of the education. And if I am looking to what universities could do for this, high schools one should never forget that this country has huge opportunities in food and agriculture. And this goes along with a system by which you need fertilizers, by which you need a lot of water, sophisticated water, reserves and how to make irrigation. So I believe that all these together gives a package by which the country should focus on certain areas. And I see that you have for example in Uzbekistan very good systems in the medical area. So, why shouldn’t you add something else as well and exactly our of Germany we have some very good projects in the agro business and in the food industry and as well in construction, where we believe there is a strong demand for skills in this areas.

J.Narvi: So, this is also the area, where the European Union is very active. We have budget support for the agricultural policy just starting and we have skills developing program in agriculture. And we are really thinking on the same line as you are on that. Now, European investor coming to Uzbekistan, what kind of modus operando do you think they will and should seek: fully owned, joint venture, mixed venture?

K.Mangold: This is a very difficult issue, because it always depends on what you need from the very beginning to be successful. If you have, for example, a company here in Uzbekistan which is very strong in manufacturing, if you could add values by bringing this into value chain and by helping this company to be successful by marketing sales process in the international market, it is good to look for a such partner, subject to the fact that it is privatized. I believe, there is a limited appetite to form a joint venture as long as such companies are government owned, sorry state owned. So to privatize these companies has threefold positive effect. One you will have FDI’s. Second, you will bring in technology, because this is one of the key drivers of the future development. And you open then the doors to the world market. So, this is something, where you can have a very good platform if you are starting with joint venture but I believe, most of the companies today are looking for greenfield investment, because it is less complicated and it something where you are managing the whole success factors on your own. I see actually tendency, that people are looking much more for greenfield investments and not so much looking for joint ventures. But it depends as I said, if the company has strong position in the market already, why not. And then you have as well all kind of intelligence strategy, strategic alliances which make such a thing interesting.

J.Narvi: And in all this, the role of this new organization, new Association that is being set up, what value added will it bring to this process?

K.Mangold: This organization, EUROUZ comes in the right time and it is good that it is not only binational organization, but this is organization which covers all Europe and mainly European Commission orientated countries. I believe, that the key mission which I see is to bring European entrepreneurs to Uzbekistan but as well to play a very important role and be a very good discussion partner for all European institutions in Brussels and elsewhere. And to show as well to the European authorities what the key assets are of Uzbekistan and what kind of a strategy is needed to support Uzbekistan in its way to a free market economy. And this is I believe extremely important and to bring to Uzbekistan a new awareness of European decision takers. And to be very frank, seeing this from the German point of view in terms of business, taxes regulation it is strong shift from national tools to European. So, it’s consequent to show up on the European level with EUROUZ to be a strong partner seen from both sides if it comes to strengthen the position of Uzbekistan in the overall European framework. And as we know the EU Commission has just decided about a new Strategy for Central Asia. So, I believe the time is right, the concept is right and I wish this organization a lot of success for the next couple of years.

J.Narvi: Thank you, Professor Mangold.

K.Mangold: Thank you. I would make one last remark. I am coming to Uzbekistan since more than 30  years and if I see the development of the country in the last 2-3 years, I am always impressed and as well not only in cities as Tashkent, but as well when we are going in the countryside. And if you see what’s going on there so I wish the country all the best for it’s promising future in the next couple of years. Thank you.

Special thanks to Universal Bank, Hyatt Regency Tashkent and the European Union delegation to Uzbekistan for their partnership within this project.

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