UZBEKISTAN: REMITTANCES DOWN, BUT NOT AS MUCH AS EXPECTED

UNCLAS SECTION 01 OF 03 TASHKENT 000154

SENSITIVE
SIPDIS
SIPDIS
DEPARTMENT FOR SCA/CEN
EEB/IFN/OMA
EEB/EPPD

E.O. 12958: N/A
TAGS: ECON EFIN SOCI UZ
SUBJECT: UZBEKISTAN: REMITTANCES DOWN, BUT NOT AS MUCH AS EXPECTED

REF: 08 Tashkent 951; 09 Tashkent 67; 09 Tashkent 441
09 Tashkent 1029


1. (SBU) SUMMARY. Initial estimates from Western Union and
other sources indicate that the picture surrounding remittances to
Uzbekistan from citizens working abroad in 2009 remains mixed.
Official remittances to Uzbekistan (e.g., remittances processed
through the formal banking system) weakened from their 2008 levels,
but the drop is not as catastrophic as predicted earlier in the
year. Anecdotal evidence, however, suggests that informal
remittances (e.g., remittances processed outside formal channels)
have dropped more significantly, resulting in increased hardships
for poorer Uzbek families, particular in rural areas. END SUMMARY.



REMITTANCES - IMPORTANT SOURCE OF EXTERNAL FINANCING

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2. (SBU) Remittances are an important source of external
financing for the Uzbek economy, accounting for more than 10
percent of national Gross Domestic Product (GDP). (See refs A, B,
C and D) Over the past 10 years, Uzbekistan has benefited
significantly from the boom in the Kazakh and Russian economies,
especially in the construction industry, through remittances from
its labor migrants. Estimates of the number of Uzbek migrant
workers abroad vary widely from 500,000 to five million, although
most observers believe the figure is likely around 2 million. As
the financial crisis pressures the Russian and Kazakh markets,
Uzbek migrants are now losing their jobs or finding their salaries
reduced. Some workers wish to return home but discover they do not
have the money to travel. One bright spot is the continuing
construction of the 2014 Olympic complex in Sochi, Russia, which
continues to employ a large number of CIS migrant workers. (Note:
In the wake of the crisis, Kazakhstan and Russia cut their
immigration quotas by half by the end of 2008. Contrary to this,
reports from both countries of destination claim that Uzbek migrant
workers can still find work, because they are often willing to work
for less money than the locals, and they also work informally.)



FORMAL REMITTANCES BETTER-THAN-EXPECTED

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3. (SBU) Concrete figures on the value of remittances from
migrant workers are difficult to pinpoint as this number is not
released in Uzbekistan. The period from 2004 to 2007 showed steady
growth in remittances to Uzbekistan with 2006 and 2007 remittances
reaching USD 1.6 and 1.9 billion, respectively (Asian Development
Bank estimates). 2008 saw a drastic uptick in remittances both
world-wide and to Uzbekistan, in part due to a capital amnesty
period enacted by the GOU to bolster confidence in the banking
system and to grow domestic deposits. New estimates from the
Central Bank of Russia and Western Union indicate remittances to
Uzbekistan will shrink between 20-40 percent in value for the 12
month period ending December 2009.




4. (SBU) According to the Central Bank of Russia, money
remittances from Russia to Uzbekistan approximated USD 703 million
for the nine month period ending September 2009 - 40 percent less
than the prior year. Uzbekistan was the largest recipient of
remittances in the CIS from Russia, accounting for 23 percent of
all remittances from the country, followed by Tajikistan with USD
573 million (down from USD 925 million for the same period in
2008). Remittances to Uzbekistan have a seasonal character, with
peak money transfer taking place between March-July (the most
active parts of the agricultural and construction seasons) and
December (when workers return home for the winter); thus, fourth
quarter remittances are expected push this nine-month figure number
higher. Exact figures from the Central Bank of Russia (including
average dollar amount, number of transactions, etc.) will be made
available in late February 2010.

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5. (SBU) Western Union, the largest money transfer agent in
the Uzbek market, estimates that, based on numbers seen to date,
its value of remittances will be down between 20-30 percent for all
of 2009 (e.g., 12 month period). Western Union Country Director Mr.
Djalil Haydarov told Embassy representatives that that the average
dollar value of transactions processed by his company fell from USD
550 per transaction in 2008 to only USD 385 per transaction this
year. Mr. Haydarov attributes the drop to both a decrease in
overall employment abroad, real wages, and the devaluation of the
Russian ruble over the last twelve months. (Note: The ruble lost
25 percent of its value against the US dollar in the first half of
2009 compared to its average value in the same period the previous
year). Mr. Haydarov noted that Western Union recently decreased
the fee for a money transfer by 35 percent to encourage senders.
This dollar value decline places increasing pressure on Uzbeks,
especially retired individuals, who rely upon remittances from
younger family members to meet monthly expenses. In particular,
the Uzbek government abolished some pension allowances for teachers
and certain classes of nurses in December 2009, and this segment
will likely face increased economic hardships this winter. In
addition, the Tashkent utilities authorities recently announced a
20 percent increase for citizens' hot and cold water and central
heating costs.



INFORMAL REMITTANCES DROP MORE SIGNFICANTLY

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6. (SBU) More than half of all remittances go through illegal
or undocumented channels, such as "hawala" brokers or family
members transporting cash. Mr. Haydarov estimates that formal
transfer agents initiated about 300,000 transactions year to date
to Uzbekistan. Based upon an estimated migrant workforce of almost
2 million, it is clear that significant sums of money are
unaccounted for in official statistics. It is likely that the
informal remittances dropped as much as formal ones.




7. (SBU) The Embassy has received reports from credible human
rights activists that the situation in the regions is more dire
than the official numbers indicate. One activist from Khorezm
reported that remittances in that area have dropped almost 75
percent in value (based on banking deposits). These sources also
report that many Uzbek migrants returning from abroad have found
little work and often have trouble reintegrating to their families
after their prolonged absence.



WESTERN UNION - Increasing Competition from Russian Banks

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8. (SBU) Western Union currently controls approximately 25
percent of the Uzbek money transfer market, down slightly from
around 30 percent of market share last year. Mr. Haydarov
believes that this decline in market share is attributable
partially to increased competition from Russian banks, which
recently have expanded operations in the Uzbek market. As of the
end of 2008, Western Union estimates only eight Russian banks
offered money transfer services to Uzbekistan - now the number is
fifteen. Mr. Haydarov declined to name the competitors but
mentioned that Western Union has struggled against Russian
competitors, which sometimes have "unsporting" advantages operating
in Russia.




9. (SBU) Despite increasing competition, Mr. Haydarov is
bullish about the company's prospects in the region. Western Union
recently launched a targeted marketing campaign - the "Leaving Home
Initiative" at the "Vokzal" train station in Tashkent and the
Tashkent International Airport. Twenty Western Union promoters
routinely distribute glossy, printer brochures to outbound
travelers headed to Russia at these locations. The brochures
contain information about Western Union's money transfer services,
telephone and addresses for Western Union locations in Russia, and

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a map of the Moscow metro station. There is also a campaign
targeting Uzbek workers travelling to South Korea, which is a
growing destination country for individuals seeking seasonal
employment.



Comment




10. (SBU) The year has undoubtedly been difficult for Central
Asian workers abroad and their dependents at home. With jobs more
scarce and real dollar wages declining, many Uzbeks who already
straddle the poverty line may find it difficult to make ends meet.
Despite officials denials, the return of migrant laborers to their
homeland has in fact placed additional strains on the country's
social infrastructure. However, despite dire predictions early last
year, social upheaval is not evident.
NORLAND