Uzbekistan is Central Asia’s biggest market both in terms of economy and population. It is strategically located in the heart of the region with land border spreading over 6,893 kilometres with Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan and Turkmenistan. Despite being a double landlocked country, Uzbekistan has a unique advantage of being connected to all neighbouring states which makes it a trade hub for the region.
Uzbekistan covers an area of 447,400 square kilometres and is home to a population of over 33 million people. Approximately 50% of the population in Uzbekistan lives in the Urban areas and mostly concentrated in cities of Tashkent, Samarkand, Namangan, Andijan, Navoi and a few others. The rate of urbanization has slowed down over the last few years as the population in the rural areas is growing faster than the urban population. The population growth rate in Uzbekistan has been maintained at 1.5% for the past few years and it is estimated that at this rate of growth, the population of Uzbekistan will exceed 41 million people by 2050.
Economic Growth Post Structural Reforms
After the death of its long serving authoritarian leader Islam Karimov in September 2016, the country started liberalizing some of the major areas of business which were previously strictly controlled by the government.
In September 2017, the newly installed president, Mr. Shavkat Mirziyaev, launched an ambitious economic reforms plan which included unifying exchange rate, liberalizing the foreign exchange market, development of Free Economic Zones (FEZ), reduction in tax rates and import duties and simplifying the business registration and operating procedures to attract more foreign companies to invest in Uzbekistan. These reforms were implemented over the period of two years and are helping to address some major issues which were restricting the growth of private sector. One of the key economic reform was the liberalization of foreign currency which has made the import of key products and raw materials more accessible and has also helped in local job creation.
These economic measures
have started to show positive results towards the growth of key economic
indicators. There has been a noticeable surge in investments and consumption
which has led to increase in the read GDP from 4.5% in 2017 to 5.1% in 2018.
The GDP is anticipated register a growth of 5.5% in 2019.
Oils & Fats Market of Uzbekistan
Uzbekistan is the largest edible oil market in Central Asian Republics, both in terms of consumption and import. The following table gives an overview of the total consumption of oils and fats in the last 5 years.
Total Consumption of Oils & Fats – Uzbekistan
|Products||2015 (MT)||2016 (MT)||2017 (MT)||2018 (MT)||2019 (MT)|
|Palm kernel oil||5,700||4,100||6,800||7,900||10,000|
|Tallow & Grease||37,200||39,100||36,900||36,300||46,000|
Source: Oil world data
The total consumption of oils and fats in Uzbekistan currently stands at approximately 599,000 MT, out of which 56% is met with locally produced oils and fats and 44% is met with imports. Total consumption of oils and fats in Uzbekistan has grown steadily over the years and is registering an average growth of 2.4% in the last 5 years. The per capita consumption of oils and fats in Uzbekistan currently stands at 18 kgs.
Domestic production of edible oil and oilseed in Uzbekistan recorded a figure of 339,000 MT in 2019 which was 2.5% lower than the total production of 2018. Cottonseed oil, which is the biproduct of textile industry is the largest oilseed crop in Uzbekistan with a share of 53.3% in the total production. However, the production and consumption of cottonseed in Uzbekistan is declining due to a government policy of shifting focus from the textile industry. The consumption of cottonseed oil has declined from 287,500 MT in 2015 to 163,000 in 2019. This reduction in supply of cottonseed oil and increase in overall consumption would create a wider gap in supply and demand which would be met by imports.
Sunflower oil is the highest consumed edible oil in Uzbekistan with a share of 48% in the total consumption. Sunflower oil is primarily used as a household premium cooking oil and is largely imported from Russia, Kazakhstan and other CIS countries.
Palm Oil in Uzbekistan
Palm oil is the second largest imported edible oil in Uzbekistan and is fast becoming a key ingredient in the confectionary and food industries. The import of palm oil in this region has registered an impressive growth of 173% in the last 5 years. This is clear indication of the increasing use of palm oil and its various fractions in food and non-food industry in Uzbekistan. Food industry is the primary consumer of palm oil in Uzbekistan and this industry has registered double digit growth in the last 3 years. Margarine, confectionary and ice cream are the main industries which are using palm oil and its various fractions in their production all over the country.
Palm oil distribution in Uzbekistan is controlled by a few main importers who import from Malaysia, Ukraine and Russia and then distribute to the local industry. Most of the industry does not buy directly which was mainly due small relatively small quantities required per month and easy access to foreign currency. After the economic reforms introduced from 2017, more industry members are now taking interest in buying directly from suppliers to get a better price, consistent quality and after sales support.
Malaysian Palm Oil Performance
Malaysia is the largest supplier of palm oil and its fractions to Uzbekistan and enjoy market leader position. The import of Malaysian palm oil and palm oil products in Uzbekistan has increased from 48,737 MT in 2015 to 74,667 MT in 2019.
Uzbekistan palm oil Import 2015-2019
|RBD Palm Kernel Oil||5,479||4,258||6,729||7,457||9,911|
Source: MPOB data
The import of palm oil in Uzbekistan is heavily taxed and Malaysian suppliers must compete with the suppliers in CIS region who enjoy lower import taxes. In 2019, as part of reduction of import duties on essential import items, government of Uzbekistan removed the import duty of 5% on palm oil fractions under HS code 1516 (hydrogenated oils).
This reduction in duty resulted in a spike in the import of palm oil from Malaysia and the imports jumped from 42,625 MT in 2018 to 74,667 MT in 2019, registering an increase of 75% in one year. This sharp increase in the import of palm oil attracted a negative campaign on palm oil which was instigated by the anti-palm oil lobbies in the region and was also picked up by some circles within the government.
In January 2020, the government once again revised the duty structure on the imports of oils and fats and all fractions of palm oil are now subjected to 5% duty besides other applicable taxes. Following is the existing applicable duty structure on palm oil for CIS countries and other regions:
Existing Duty Structure for CIS Countries
|Commodity||Customs Charges||Import Duty||Excise||VAT|
|Palm Oil and fractions HS codes 1511 & 1516||Nil||Nil||Nil||15%|
|Palm Oil and fractions HS codes 1517||Nil||Nil||10%||15%|
Existing Duty Structure for Most Favoured Nations (Including Malaysia)
|Commodity||Customs Charges||Import Duty||Excise||VAT|
|Palm Oil and fractions HS codes 1511 & 1516||Nil||5%, but not less than 100 USD/MT||Nil||15%|
|Palm Oil and fractions HS codes 1517||Nil||5%, but not less than 100 USD/MT||10%||15%|
However, despite of the application of 5% import duty the imports of Malaysian palm oil in Jan – Mar period of 2020 increased from 11,345MT in 2019 to 16,615 MT in 2020, registering an increase of 46%. This was primarily because the price offered by Malaysian suppliers was still cheaper than the price offered by their Ukrainian counterparts.
Outlook for Palm Oil in Uzbekistan
Uzbekistan is one of the high potential markets for Malaysian palm oil in the Central Asian Region. With a long-term investment approach, this market can become a hub for Malaysian palm oil exports to the entire Central Asian and Commonwealth of Independent States (CIS) region. The government of Uzbekistan has developed seven special Free Economic Zones (FEZ), offering a wide range of tax breaks for investors. These FEZs offer exemptions from taxes (income tax, VAT), customs duties and taxes for goods imported for production and manufacturing needs for a period from 3 up to 10 years, depending on the amount of the investments. The government is encouraging foreign companies to establish processing plants in Uzbekistan to take advantage of these tax breaks.
Malaysian palm oil industry players should capitalize on these investment opportunities in Uzbekistan and consider investing in the downstream sector in this growing market. The food industry which is the primary user of palm oil in Uzbekistan has shown consistent growth and further growth can be achieved in the home cooking oil segment which is currently dominated by sunflower oil.
Prepared By Faisal Iqbal
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