Uzbek President Shavkat Mirziyoyev has instructed the national government to boost the production of the domestic coatings by a factor of four times roughly to 600,000 tons per year in the next few years. With these production quantities, Uzbekistan targets to become the biggest coatings exporter in Central Asia.

This is a part of a comprehensive program of the building industry development in Uzbekistan, Mirziyoyev signed early June 2019.

In addition to expanding coatings production, Uzbek President ordered to raise the production of wallpapers by a factor of 47 times, parquet by a factor of 19 times from the current level as well as to significantly boost the production of other building materials. Basically, under this program, the production quantities must be raised in every particular segment of the domestic building industry.

The government will fully reimburse the interest rate on loans taken under the new investment projects in the coatings industry before July 1, 2022, the program stipulated. Aside from this, all coatings plants in Uzbekistan would be exempted from the payment of import duties on imported raw materials at least until Jan. 1, 2021.

To supervise the project the Uzbek government plans to create a Science and Engineering Board jointly with the national building industry association O‘zsanoatqurilishmateriallari. The new body among others is called to propose adjustments to the national legislation that would give an additional growth impetus to the industry.

Basically, over the past two years there was a 70 percent hike in operations in the domestic building industry, the national government estimated. Although there were some major achievements in the area of import-replacement, a broad range of construction materials, including coatings, is still being imported into the country.

“Giving the gradually increasing amount of creative efforts [construction operations] in Uzbekistan, the building materials industry should become a leading industry, one of the points of economic growth in the country. Through the introduction of energy-efficient technologies at industrial facilities, it is possible to save our natural wealth and reduce the cost of materials,” Mirziyoyev said.

The state aid to the industry in the next several years is expected to be approximately $2 million, Mirziyoyev added. The main emphasis should be made not only on increasing the production quantities, but also on making production highly efficient, including through the introduction of the energy saving solutions and promoting products of the Uzbek origin on the foreign markets.

In particular, the Uzbek government is currently considering subsidizing logistics costs associated with the delivery of construction materials, including coatings to the non-Uzbek customers, O‘zsanoatqurilishmateriallari said in a statement on its website May 14.
In addition, in order to fuel the growth in the industry the government targets to stimulate the expansion of the raw material base.

So far Uzbekistan has been primarily importing almost all raw materials for the coatings industry, but the country has huge resources and huge plans to boost production in the chemical industry.

Economy crisis takes a toll

The overall sales of coatings in Uzbekistan ranged between 240,000 and 290,000 tons per year over the past decade. The country meets the domestic demand by slightly more than 50 percent, producing from 140,000 to 150,000 tons per year. The average coatings consumption in 38-million Uzbekistan is nine kg per capita, which is lower as compared to Russia, Belarus or Ukraine, but noticeably higher than in neighboring Central Asian countries.

Coatings production in Uzbekistan has been steadily growing at least until 2014, said Tohtasyun Jalilov, a spokesperson for O‘zsanoatqurilishmateriallari. It was estimated that the overall sales on the market were increasing by nine percent per year, and the domestic production was growing even faster.

In 2011, the Uzbek government has adopted a new importing policy, subjecting imports of a broad range of different coatings to a protective import duty of $0.5 per kg. This was called to ensure that all market players, both importers and local manufacturers, had equal opportunities, Jalilov said. At that time, the coating industry in Uzbekistan was considered to be investment-attractive with numerous foreign companies were mulling plans to build coatings plant in the country, Jalilov said.

It is believed that the Uzbek coatings industry has been heavily impacted by the economic crisis in the post-Soviet space in 2014. The country experienced certain difficulties associated with the fast devaluation of the national currency and the shrinking flow of money transactions of Uzbek citizens living and working in Russia.

For instance, in 2013 these transactions accounted for 12 percent of Uzbekistan GDP. In 2015, they collapsed by 54 percent as compared to 2013 to $3.06 billion, Russian Central Bank estimated. This proved to be a major blow for the Uzbek economy and lowered the demand for a broad range of different goods on the domestic market.

The economic difficulties in the country were among the factors that had put an end to the Tashkent Coatings Plant, one of the oldest coatings manufacturers in Central Asia. Production had been stopped in 2015 reportedly because it was running old equipment and was manufacturing coatings that were not matching the modern requirements on the market.

The Tashkent Coatings Plant was occupying the territory of around 20 ha, according to Bahadyr Bakiev, a spokesperson for the regional government. From that space, 2 ha have been purchased by the Uzbek-Polish joint venture Tehnocolour that planned to begin producing coatings, Bakiev said.

Although there is no official statistical data, it is believed that several other coatings manufacturers in Uzbekistan ceased to exist. Prior to the 2014 crisis, there were 10 major coatings plants in the country, with the biggest being Lok Kolor Sintez, Tashkent Lok Buek Savodi, East-Kolor and Link Paints Trading, O‘zsanoatqurilishmateriallari reported. In addition, roughly 20 percent of coatings in the country were manufactured by small-scale companies.

Achieving the declared goals Uzbekistan would be able to not only fully meet the domestic demand on coatings, but also to establish some export supplies.

The country has been importing coatings primarily from Russia and the European Union, with small quantities have been also supplied by South Korea, O‘zsanoatqurilishmateriallari estimated. All imported production in Uzbekistan is considered to be of premium quality and the imported coatings are not an exception.

“Uzbekistan could really take advantage from exporting coatings to Kyrgyzstan, Tajikistan and Turkmenistan and possibly to Afghanistan,” commented a source in the Uzbekistan government. “In truth, we are not expecting to export a lot, since the main goal of the [new government] program is to meet the domestic demand, and, which is also very important, to increase the domestic demand by increasing the volume of affordable products on the market”.

“We believe that export supplies could be of interest primarily to the non-Uzbek investors who would opt to open their production facilities in our country,” the source added.

Over the past few years, Uzbekistan has been putting a lot of efforts to attract some foreign investors into the domestic economy. In February 2019, the national government announced that the Malaysian coatings manufacturer KCC Paints Sdn. Bhd. might invest some money into building a coatings plant in the country.

KCC Paints Sdn. Bhd was going to send an expert team to Uzbekistan to consider building the plant, the government reported. Although no additional details have been given the government noted that the plant may be built at a territory of Hazorasp free economic zone.

Hazorasp was established by Shavkat Mirziyoyev in 2017 with the main objective to attract direct foreign investments and to create some modern production capacities and for import-replacement of the products with high added value.

The idea of the project was that in exchange for investments the foreign company could get residency status in the free economic zone, which involves some substantial tax breaks and other bonuses.

In addition, starting from 2019 Uzbekistan reduced the income tax for the companies exporting more than 15 percent of the products manufactured in the country.

Mirziyoyev has also established a National Export Agency with the main goal to promote products of the Uzbek-origin on the foreign markets. The new body began operating in early 2019 and has an annual budget of $15 million.

Uzbekistan took a course towards an increase in export supplies in all possible directions in 2017 when the exchange rate of the national currency slumped by nearly 100 percent. Giving this, export supplies are believed to be of a great benefit for the local companies.