If second marriages are the triumph of hope over experience, what about one’s 16th, or 17th, or 18th, attempt at privatization within two decades? Are we, the doubting public, to believe Uzbekistan is finally opening its doors to let fresh air flow through its gold mines, its banking systems, and its Coca-Cola bottlers? Are things actually different this time?
Maybe.
On December 24, 2024, Uzbek President Shavkat Mirziyoyev approved the creation of the National Investment Fund of the Republic of Uzbekistan, or UzNIF. UzNIF will hold 20-40 percent of 18 state-owned entities, a roster spanning industrials, transportation, energy production and a few mid-size banks. By the end of 2026, up to 25 percent of the fund will be dual-listed in Tashkent and, most likely, London.
The assets included in the fund are middling state-owned enterprises (SOEs). Uzbekistan’s crown jewels, Navoi and Almalyk, top global gold and copper producers, respectively, are excluded and will likely (eventually) list on their own, as well as the nation’s primary banks. Still, UzNIF represents a broad swath of the state-run economy and has a sizable net asset value of $1.7 billion. U.S. investment firm Franklin Templeton was appointed fund manager and trustee in May.
Privatization efforts in the Mirziyoyev era have focused on one-off private sales of minority stakes, which raised funds while allowing the state to retain control over governance of the enterprises. A 2023 directive highlighted public auctions and instruments as routes for privatization under the purview of Uzbekistan’s State Assets Management Agency (UzSAMA), a state agency plagued by the same politics and challenges that created and maintained Uzbekistan as one of the most centrally planned and inefficient economies in the world. Even Mirziyoyev has expressed dissatisfaction with the “sluggish” pace of reforms.
Seen in this light, UzNIF – managed by a Western asset manager and steered toward an international IPO – could be a significant step forward. Romania’s Fonduel Proprietatea (FP), which was also managed by Franklin Templeton, was a success by almost every measure. Established to return value to citizens whose property was seized during the communist era, Fonduel appointed Templeton as trustee in 2010, after which it listed in Bucharest in 2011, and in London in 2015, returning $6.9 billion to shareholders. Franklin Templeton and FP ended their engagement in late 2024, but the model – a large-scale, piecemeal, public markets-oriented approach to privatization – lives on in UzNIF. Marius Dan, a Franklin Templeton executive who oversaw the Fonduel Proprietatea project, will lead the trusteeship at UzNIF.
There are practical advantages to choosing an outside manager like Franklin Templeton. Theoretically, an outside manager has more space to make politically unpopular decisions, like reducing headcount. Reliable employment statistics in Uzbekistan are difficult to come by, but the Asian Development Bank (ADB) estimated in 2021 that up to 50 percent of the Uzbek working population is employed by SOEs. But as per Derek Urben of the Imperium Project, “The research that I’ve done from the outside looking in says many of these companies are overemployed by a factor of five to seven times.”
The most important unknown is the as-yet untested ability of Franklin Templeton to make substantive changes to the companies within UzNIF. Franklin has governance and certain economic rights on paper, but will they be enforced? Will the Ministry of Finance listen to Franklin’s recommendations? This is key.
Per Urben, “Franklin can put in independent boards and inject technology and do all things that are pretty table stakes at the end of the day, but all of this going to be marginal in comparison to the fact that you have a multiple of the amount of people that you probably should have on a rational commercial basis.”
Kiyan Zandiyah, CEO of Sturgeon Capital, said, “You can see the potential problem right away. Franklin Templeton is only managing minority stakes in all of these companies.”
This impacts both the reforms themselves and the market’s perception of the listing. The long term vision for UzNIF, as with its Romanian counterpart, is that the larger companies within the fund are stood up as their own public entities – Fonduel culminated in the largest European IPO in 2023, the IPO of Hidroelectrica – or sold to strategics. For UzNIF to succeed, Franklin Templeton must have the requisite authority to bring the companies under its purview in line with market standards, despite its minority position.
And it’s possible that they will. The SOEs in the fund are, as Urben politely put it, “fiscal and financial headaches” for the Uzbek state. Even arguably unreliable official financial reports make it clear these businesses are a drag on state finances.
Whither Uzbekistan? China, its top trading partner, is politically unpopular, and Uzbekistan joined the West in sanctioning Russia, another key trading partner. Signs – like its advancing efforts toward WTO membership – point towards deeper integration with the West, but this requires Uzbekistan to hew closer to international trade and governance norms. Reliable employment statistics may be difficult to come by, but it’s a fact that 60 percent of Uzbekistan’s population is under 30, making Uzbekistan one of the youngest populations outside of sub-Saharan Africa. Over the coming decade, Uzbekistan must balance a necessary reduction in the SOE sector with growth in the private and formal sectors to ensure social and economic stability. This is the path promoted by the IMF, WTO, and soon, Franklin Templeton.
Historically, Uzbekistan’s leadership has been in no rush to privatize, and little progress has been made despite decades of prodding from Western institutions. Depending on the degree to which UzNIF cedes power to its trustee, UzNIF could be another failed attempt – or it could be the gateway to real structural change. We’ll have to wait and see.
