Over the past 10 years, Uzbekistan has benefited significantly from the boom in the Kazakh and Russian economies, especially in the building industry, through remittances from its labor migrants. The global financial crisis has now moved to the real estate and construction sectors. As a result, construction activities are decreasing considerably in both Russia and Kazakhstan. Labor migrants from Uzbekistan as well as from other Central Asia countries are now losing their jobs. Some of the migrants have started returning home, as the demand for labor has dropped dramatically while the number of workers has not. It is inevitable that remittances sent to Uzbekistan will decrease. While no one can foresee the exact depth and breadth of the event, preliminary forecasts can be drawn at this stage.

BACKGROUND: No exact data exists on the number of labor migrants from Uzbekistan. Figures vary between 250,000-300,000 according to official statistics and 1-1.5 million according to other sources. The primary destination countries are Russia, where an estimated 70 percent go, and Kazakhstan, with perhaps 10-15%. Labor migrants from Uzbekistan are mainly employed in the construction sector due to the high demand for labor as a result of the construction boom in these countries. According to Rosstat, 40 percent of guest workers in Russia are in the construction sector, with the share of migrants from Uzbekistan constituting a fifth of all migrants, the fastest growing as well as the largest contingent from the Central Asian countries.

For the last ten years, the economic well-being of the Uzbek population has been increasingly stable. Statistical data shows a considerable GDP increase, as well as increases in average income, spending and saving. For example, car sales doubled between 2005 and 2007. This is partially due to the remittances of labor migrants, who send money or bring it personally after the end of a working season. According to the Central Bank of Uzbekistan, only over the 2002-2006 period the annual inflow of official remittances to the country increased fivefold, reaching almost US$1.4 billion or 8.2 percent of GDP in 2006. If one considers that unofficial remittances are often estimated to constitute up to 50-100 percent of the official remittance reports, the figure might double. As data from the Center for Economic Research (CER) for 2007 suggests, the overwhelming portion of money was transferred from Russia (78 percent). Kazakhstan (5 percent), the U.S. and Korea (3,3 percent) account for most of the remainder. Remittances sent to Uzbekistan directly or indirectly increase the national and currency income, and improve the balance of payments.

By leaving the country in search of work, labor migrants vacate jobs in the internal labor market, which is important in a densely populated country like Uzbekistan, with an excess of workforce in the labor market. This helps keep the unemployment rate relatively low. According to research performed by the Uzbek State Committee on Demonopolization, for the last ten years the number of able-bodied adults in Uzbekistan increased by 2.65 million people, or by 26.5 percent. In other words, the number increased by 3 percent each year, i.e. 300,000-400,000 yearly. This creates a serious demographic pressure on the Uzbek labor market.

IMPLICATIONS: The fallout of the current situation in the building sector in both Russia and Kazakhstan is already being felt: official data from Southern Kazakhstan, a region with booming construction over the last 10 years, has reported a decrease in workers from Uzbekistan between January and June 2008, when 38,875 people officially entered, compared to 46,070 during the same period in 2007. How long the crisis in the real estate sector will last, and to what extent it will affect the economies of Russia and Kazakhstan, will determine the future of labor migrants and policies towards them in the receiving countries. Most Russian experts report that it is impossible to produce such forecasts at this stage, since the climax of the crisis will be reached in mid-2009. Experts claim that in theory, it will take 15-18 months for the economy to recover once the crisis hits the real estate sector. IMF forecasts of GDP growth in Russia confirms this: 3.5 percent in 2009, compared with 6.8 percent in 2008 and 8.1 percent in 2007. Moreover, more recent reports suggest the Russian economy may not grow at all this year. Considering that Kazakhstan and Russia have similar economic structures, especially regarding their dependence on the global financial system, similar forecasts can be applied.

On December 4, Prime Minister Vladimir Putin proposed a cut in quotas for labor migrants by 50 percent. There is also a widespread attitude among the Russian public that unemployed migrants may resort to crime, especially robbery. It is thus likely that both Russian and Kazakh migration policy for 2009 will not be welcoming toward labor migrants at all. Therefore, some of the migrants will probably be forced to come back to Uzbekistan, while others will try to stay and struggle to find work in other sectors. Whichever path labor migrants decide to take, the economy of Uzbekistan will most probably start feeling the consequences of this situation from the beginning of 2009. In particular, once remittances decrease, GDP growth will slow down, and the income of the population and their spending will decline as well. Returning migrants will increase pressure on the domestic labor market, and unemployment will increase. National income, currency income, and the balance of payment will most probably drop.

It is worth mentioning the positive side of remittance decreases to the economy of Uzbekistan that was projected in the CER’s research as well. First, this process might retard the growth of inflation, which has resulted in skyrocketing prices for all items. In 2006 alone, there was a 40 percent price increase in staples. Second, decreased remittances will slow down the revaluation of the national currency that has been affecting exports negatively.

CONCLUSIONS: Overall, labor migration has had many positive outcomes for Uzbekistan:  remittances contributed to GDP growth, the country’s balance of payments improved, national and currency income increased considerably and stabilized, the population’s income and savings went up and unemployment-related tensions were eased on the domestic labor market. Also, the government budget was relieved from high social benefits payments. In other words, remittances have been a significant contributor to the economic growth of the country. Now that remittances are falling, perhaps dramatically, in combination with other economic factors related to the global crisis, such as falling commodity prices and reduced foreign direct investment, there will be an inevitable economic and possibly social impact. According to forecasts, 2009 is likely to be the most difficult year as the real estate sector crisis reaches the highest point in Russia combined with less favorable migration policies, and Uzbekistan can expect the return of at least half its labor migrants. To mitigate these negative implications, the authorities in Tashkent have started undertaking some steps aimed at supporting public work inside Uzbekistan and promote export. Still, the ability of the Uzbek government to foresee the challenges and respond to them in a timely manner will determine the extent of their impact on the economic and social stability in the country.

AUTHOR’S BIO:  Umida Hashimova is a Content Manager for Economic Policy Institutes’ Network web-site at the Center for Economic Research, Tashkent, Uzbekistan