In Uzbekistan, a Chevy on every corner

Thu Sep 6, 2012 12:59am IST

Stocks

   

* GM has brought technology/capital to Uzbekistan

* GM made 94 pct of new cars sold in Uzbekistan in 2011

* People wait for up to a year for new GM cars

* Some other foreign investors have fared less well

ALMATY, Sept 5 (Reuters) - When a Tashkent resident flags down a private car for a $2 ride, chances are it will be a Chevrolet. Ninety-four percent of new cars sold in Uzbekistan last year were made by General Motors - the biggest share of any market served by the U.S. auto giant.

That General Motors should have a foothold in the reclusive former Soviet republic owes much to the technology and capital it brings to a country which, under veteran President Islam Karimov, has been the graveyard of many foreign ventures.

Landlocked Uzbekistan, a mainly Muslim country of 29 million in the heart of Central Asia, is ranked by rights bodies among the world's most repressive states. Hundreds died in 2005 during a bloody crackdown on an uprising in the Ferghana valley city of Andizhan.

The same, densely populated valley, where poverty fuels simmering discontent with Karimov's rule, is home to the GM plant where South Korean-trained workers file through electronic turnstiles to sparkling production lines beyond.

Robots tease metal sheets into shiny new Chevys and workers are trained to calmly respond to musical signals, in contrast to the noisy bustle, embroidered skull caps and brightly coloured gowns on display in Asaka, the town outside the factory gates.

A former Communist party apparatchik, Karimov, now 74, has gambled heavily on building high-tech industries to try to cut dependence on the export of cotton, gold and other raw materials that were the backbone of Uzbek production in Soviet times.

"The Uzbek government's economic development model is essentially one of import substitution," said Lilit Gevorgyan, analyst at IHS Global Insight. "Uzbekistan lacks the capital and the new technologies. The joint venture with GM is a good example of how they can achieve this goal."

The compact Matiz and the Nexia sedan so ubiquitous in Tashkent, the country's capital, are a throwback to the 1990s, when South Korea's Daewoo Motor Co was Uzbekistan's joint venture partner at the plant.

Daewoo Motor Co split from its parent, Daewoo Group, in 2001 and later became part of General Motors. In its current incarnation, GM Uzbekistan is owned 25 percent by GM and 75 percent by state company UzAvtosanoat.

"We appreciate the great support of the Uzbek government, which clearly recognises the fundamental role car manufacturing can make to a nation's economy," a GM spokesman wrote in an emailed reply to questions.

GM sold 121,584 vehicles in Uzbekistan last year, making the country the eighth-largest market for its Chevrolet brand. The joint venture produced more than 225,000 cars last year and will raise output to 250,000 units this year.

On Wednesday, the company rolled out a new model, the Chevrolet Cobalt, a family-size sedan aimed both at the local Uzbek market and other former Soviet states.

Reuters text correspondents are not accredited to report in Uzbekistan and permission was not granted to attend the launch. But an accredited TV cameraman was admitted and also visited GM's Asaka plant and engine plant in Tashkent with a photographer.

Marimjon Jumabayev, manager of the production line at the Asaka plant which rolls out the Chevrolet Spark, described the launch as a "great achievement".

"I am happy to glorify my nation, Uzbekistan," he said. A Foreign Ministry official accompanied Reuters on the visit.

'RISKY ENVIRONMENT'

Not every foreign investor has met with success in Uzbekistan. Russia's top mobile phone operator, MTS, which trades on the New York Stock Exchange, has written off $1.1 billion after its Uzbek licence was permanently revoked on Aug. 13.

Uzbekistan's State Inspectorate for Communications cited "repeated and systematic" violations when it first suspended the MTS licence in July.

But the company says it is facing a "classic shakedown" of the type that has forced out London-listed miner Oxus Gold , U.S. company Newmont Mining Corp and Russia's Wimm-Bill-Dann, now part of PepsiCo.

The dispute prompted the GSMA, an organisation uniting nearly 800 mobile operators worldwide, to write an open letter on Wednesday asking Karimov to intervene directly in a case that has seen four local MTS managers imprisoned.

"The mobile communications industry is a lucrative source of potential foreign investment to Uzbekistan, and other providers may be hesitant to make investments after seeing what has happened to MTS-Uzbekistan," GSMA Director-General Anne Bouverot wrote.

A U.S. State Department official raised the matter on a visit to Tashkent last month, while the Helsinki Commission, an independent U.S. government agency that monitors human rights, has also written to Karimov to express its concern.

Ties between the West and Uzbekistan that soured after the Andizhan massacre are warming again, however, in anticipation of the drawdown of NATO troops from Afghanistan in 2014.

Neighbouring Uzbekistan has been a vital cog in the transit route to supply NATO-led forces fighting the Taliban. U.S. influence also acts as a counter-balance to Russia's strategic designs on its former Soviet hinterland.

Secretary of State Hillary Clinton last year toured the GM Powertrain-Uzbekistan plant in Tashkent, a separate joint venture between GM and its Uzbek partner to make fuel-efficient engines for its light vehicles.

"The U.S. hopes that having its businesses operating in Uzbekistan will only help to cement their strategic relations," said Gevorgyan.

And GM is not alone. Case New Holland, for example, has been manufacturing agricultural equipment in Tashkent for 15 years, Robert Blake, Assistant Secretary of State for South and Central Asia, said during a recent visit by a U.S. business delegation.

"I hear a consistent message that Uzbekistan has great potential as an investment destination. However, to reach its full economic potential, it should address persistent challenges in the business and investment climate," Blake said in a speech in Tashkent on Aug. 17.

"Delays in currency conversion prevent manufacturers from importing the supplies they need to produce their finished goods, and the problem can be compounded by complex and uncertain customs procedures."

YEAR-LONG QUEUES

For GM, the launch of the Cobalt reinforces its presence in the emerging markets now driving the growth of the world's top auto makers. The car, which has optional six-speed transmission, will also be built in Brazil for the South American market.

The Chevrolet Spark, the Captiva sport utility vehicle and the glitzy Malibu sedan vastly outnumber the Russian-made Lada, a relic of the Soviet era, on the dusty alleys of the ancient Silk Road cities of Samarkand and Bukhara.

In a country where the economy is tightly regulated and monthly wages average $300 in Tashkent and less in rural areas, many would-be Chevy owners wait as long as a year to buy their car, after making a deposit of up to 85 percent of its price.

The overwhelming popularity of the Chevrolet in Uzbekistan can also be explained, in part, by prohibitive customs duties and other taxes on imported cars.

A local journalist with knowledge of the car market, who asked not to be identified, said by telephone that the myriad costs incurred when importing a car could add up to 150 percent of the actual purchase price.

Umid, a 21-year-old university graduate who, like many Tashkent residents, makes a living driving his private car as a taxi, said he had once tried to buy a second-hand Mercedes in Dubai to replace his old Nexia.

"I called home and my friends made me drop the idea. The old Mercedes would have cost me nearly as much as a brand new limo in Uzbekistan," he said.

Humming a melody to himself as he weaved his tiny Matiz through a leafy Tashkent suburb, Bahauddin, a 50-year-old former shop assistant, is happy enough with his Chevy.

After quitting his job to undergo cancer surgery, the income he earns ferrying passengers around the capital is just enough to get by.

"I had no money to buy food," he said. "Now I have this car. It's a real life-saver." (Reporting by Almaty newsroom; Editing by Andrew Osborn)