Uzbekistan’s Allure Starts to Fade for German Businesses

It would seem that German foreign policy, which often emphasizes exports at the expense of human rights, is pushing up against the point of diminishing returns when it comes to Uzbekistan.

Until very recently, Germany generally went easy on Uzbek President Islam Karimov’s regime, a government ranked among the most repressive on earth by various watchdog groups. A variety of economic and strategic interests encouraged this ‘tread softly’ approach. Berlin, for instance, was (and still is) interested in opening new pipeline routes out of Central Asia in order to diminish the European Union’s dependence on Russian energy. German diplomats also were on the lookout for ways to boost trade in ways that benefited German manufacturers. In addition, the German military was eager to retain access to a military base at Termez, near the Uzbek-Afghan border.

German policy has generated decidedly mixed returns in Uzbekistan so far. Berlin managed to retain access to the Termez base even after Tashkent booted U.S. forces out of the Karshi-Khanabad air base in 2005. At the same time, German businesses have found Uzbekistan to be a disappointing market.

Berlin’s frustration was evident during Uzbek First Deputy Foreign Minister Vladimir Norov’s 24-26 May visit. The Uzbek official heard loud, public complaints about Tashkent’s rights record, something that marked a sharp departure from the traditional German reliance on a quiet, closed-door approach to such matters. The sharp criticism raised hopes among rights activists that Berlin is ready to make a significant policy shift on Uzbekistan, one that takes a much tougher line on the Uzbek government’s habitual rights violations.

It is still too early to say whether rights advocates will see their expectations fulfilled. When it comes to Central Asia, German Chancellor Angela Merkel’s government appears deeply attached to German diplomatic dogma. Berlin’s recent experience in Kazakhstan offers a case in point: the meltdown of Kazakhstan’s banking sector in early 2009 cost German firms an estimated 500 million euros in lost investments, 300 million euros of which will have to be borne by German taxpayers. Yet the economic debacle did nothing to diminish Merkel’s enthusiasm for engagement with Astana.

Merkel even vigorously backed Kazakhstan’s campaign to host the OSCE summit in Astana late last year after President Nursultan Nazarbaev flatly refused to guarantee state safety mechanisms for further German investments. Of course, the difference between Kazakhstan and Uzbekistan is that there is actually money to be made in the former, but not so much in the latter. German exports to Uzbekistan amounted to 327 million euros in 2009, while exports to Kazakhstan accounted for 1.4 billion euros.

Conversations with senior German policy makers suggest that there is a deeply held belief in Berlin that the cornerstone of Ostpolitik, or change through engagement, still holds true in Central Asia – even though Uzbekistan has not made tangible progress on democratization during its two decades of independence. Tashkent’s occasional releases of jailed human rights activists, hailed by German diplomats as proof that the engagement strategy works, has not led to the liberalization of the Uzbek political system. Indeed, signaling that it is not really interested in democratization, the Uzbek government has been known to release one political prisoner for the sake of appeasing Western states only to arrest another dissenter shortly afterward.

The stance of German executives may well be the deciding factor in whether German policy toward Uzbekistan takes a lasting turn. And there are signs that the patience of German business leaders is wearing out.

A feature in the German daily Süddeutsche Zeitung on 24 May offers a stark example of growing German disenchantment. It tells the tale of how German small- and medium-size enterprises were contracted to build a huge new palace in Tashkent with an estimated 700 million-euro price tag – only to see the deal end badly. The story focused on a couple of German entrepreneurs, an interior design architect and an owner of a construction company, who had been contracted by Zeromax to help build the palace. After Zeromax, once the biggest conglomerate in Uzbekistan, went bust for unknown reasons last year, German investors were left sitting on a heap of unpaid bills.

While Uzbekistan has long been a rough environment for Western investors, the article in Süddeutsche Zeitung represented a significant development for German entrepreneurs. The Süddeutsche is one of Germany’s most widely read newspapers and is taken much more seriously among the political establishment in Berlin than other papers that occasionally publish stories critical of Uzbekistan. The fact that German executives, usually a secretive bunch, went public with their complaints, timing the appearance of the story to coincide with Norov’s arrival in Berlin, suggests that the Mittelstand is thoroughly exasperated with Uzbekistan. It also reflected alarm that the German government, the traditional protector of German businesses abroad, seemed incapable of exerting influence that might have eased the Mittelstand’s financial pain.

Many German executives are now waking up to the grim realities of working in Uzbekistan and are perhaps permanently turned off. As one representative of a mid-size company put it: “I now realize that this is a hardcore dictatorship. I am not sure that I would [deal with Uzbekistan] ever again.”