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Case Uzbekistan

Aktia Asset Management

Case Uzbekistan

Aktia has a long history in cooperating with supranational AAA-rated institutions. Through the use of these AAA-investments we have managed to widen our investment universe into several attractive markets that would otherwise be in practice hard to enter and therefore non-investable. The latest example of these kind of investments is the Uzbekistan som-denominated issue by IFC, the private sector arm of the World Bank.

IFC is an organization within the World Bank, whose aim is to support the private sector and the financial market in emerging economies. The som-denominated issue – the first of its kind – had a total volume of approximately USD 10 million and its aim was to help small and medium sized companies to borrow funds in local currency in order to support economic growth. On a practical level the funding is done via the local Hamkorbank.

One key element in the bonds issued by these multinational institutions is that they focus on resolving actual problems with a sustainable angle so that the funds in fact are being used for the intended projects. The IFC is the largest institution financing the private sector in the emerging markets and it has the capability to monitor the use of the funds.

We have currently rated Uzbekistan as a country where we are not willing to finance the government directly. This rating is based on our fundamental country analysis model that takes into consideration economic, social and political factors. We have kept Uzbekistan in this rating although there has been positive development after the change in the governments administration two years back that has improved e.g. the freedom of press, political prisoners have been set free and human rights observers have been let into the country. Furthermore, there has been an easing of capital controls and local corporates are no longer forced to sell their FX revenue to the government with an unfavorable FX rate. According to a report by the ILO the systematic use of child labor in the cotton harvests has stopped and overall the government has taken clear steps to put an end to the use of forced labor. The use of forced labor in the cotton production that is critical for the country has been one of Uzbekistan's clearest controversies since the 1970's.

Although we have seen some positive development in the country we would still want to see some more evidence that the positive development will continue also in the future and that there would be a clearer understanding that the government funds will also be used for a common good that supports the development of the society.