Tashkent, Uzbekistan (UzDaily.com) -- After a brief period of uncertainty earlier this year, Uzbekistan appears to have evaded the international economic crisis. According to Komil Ruzaev, partner at research and investment firm Essential Investments, foreign investors may still be shunning the Tashkent Stock Exchange for more mainstream stocks, but confidence among both consumers and the business community is back, BusinessNewEurope reported.

A few months ago, all the talk in Tashkent was about the expected onset of the crisis. "There was a lot of noise about the crisis at the beginning of this year. Everyone from entrepreneurs to taxi drivers was talking about it," says Ruzaev. "Everyone was afraid that the crisis was about to start in Uzbekistan. There were fewer people out on the streets, in the shops, in the bazaars." At the time, locals pointed out, the black market dollar exchange rate - a key indicator - was up and imported goods were becoming more expensive.

Since then, however, there has been a remarkable turnaround in confidence. "The situation isn’t getting worse; it has even started to improve. Commodity prices have started to go up. It’s my personal opinion and that of the entrepreneurs we talk to that the crisis is coming to an end, at least in Uzbekistan," says Ruzaev.

The isolationist economic policies pursued by Tashkent largely insulated Uzbekistan from the first wave of the crisis. The international liabilities of Uzbek banks were minimal; their only international borrowings were from multilateral institutions. But from late 2008, the fall in commodity prices and the slowdown in its main trading partners Russia and Kazakhstan started to cause fears the crisis would at least arrive on Uzbekistan’s shores. Now the prices of commodities are rising again, it appears the crisis is over before it really began.

Foreign flows

Foreign direct investment (FDI) into Uzbekistan is also flowing, with major projects, especially in the oil and gas sector, continuing. For the most part, though, interest appears to outweigh action so far. "Officially, there have been many statements that Asian and Middle Eastern investors are interested. We get about two delegations every month, they discuss the issues and sign agreements, but I don’t think we will see a large increase in FDI before the end of this year. People are looking at Uzbekistan, but there is not much actual investing."

Ruzaev also points out that the revival of the economy hasn’t extended to the Tashkent Stock Exchange. "The exchange’s foreign currency platform is almost dead. There is almost no foreign investment, especially from international institutional investors," he says. "I think, firstly, that international investors started to be more careful, to think much more than they used to before going to difficult frontier markets. Secondly, prices in more developed markets are low, so they go to Russia and more developed Asian markets more than Uzbekistan."

As a result, Essential Investments’ turnover on the stock market and over-the-counter trades declined in the first few months of 2009, compared with a significant increase last year when investment into Uzbekistan was still growing rapidly.

Transparency being a problem for those trying to trade in Uzbek stocks, Essential Investments has been working to develop a meaningful index for investors to use. According to Ruzaev, preliminary information on the "Essential 50," which is currently being finalised, shows that while the index almost doubled last year, in the first three months of 2009 it was down 25%.

Despite these issues, Essential Investments is still going strong and is positioning itself for when the financial crisis is past. Uzbekistan lacks a central business district, but Komil and his colleagues recently moved to a more prestigious new building, where Essential Investments’ neighbours are one of Tashkent’s top business school and the football grounds being built by Uzbekistan’s richest and most successful club Bunyodkor.

The firm was formed from the merger of two young entrepreneurial companies - one financial services company and a team of software developers. It is now planning to go international. According to Ruzaev, Essential Investments will set up new offices in Kazakhstan and Kyrgyzstan within the next one to two months.

"Our plan is to expand in the region. Or understanding is that Uzbekistan, Kyrgyzstan and even Kazakhstan are quite small markets for big international investors. Therefore, it is better to offer the three countries together - this increases the attractiveness," Ruzaev says. "We have spoken with companies in the Baltic states, who say they never offer a single country alone, always the whole region. We believe it is the same situation here."