Manufacturing (machinery)

Brief market overview. Machinery, equipment and components market is estimated at $7.5bn (~$2.7bn domestic production and $4.8bn imports); +10.5% CAGR production for the past 5 years. Passenger cars and LCVs (light commercial vehicles) manufacturing dominates the machinery market of Uzbekistan. With strong government support, state-owned automaker UzAutoSanoat JSC, which includes 30 large factories, is a monopolist in the local auto market. Established in 1996, the automaker has been instrumental in creating a whole supply chain with 160 SMEs and foreign companies that supply parts, instruments and components.

Production and exports of passenger cars & LCVs.  Uzbekistan continues to remain 2nd largest auto producer in CIS after Russia (1.4mn units), followed by Kazakhstan (estimated 10,427), Belarus (7,900) and Ukraine (4,400). Total vehicles production was down to 94,000 in 2016 vs 249,000 in 2014 due to weak demand in traditional markets of Russia and Kazakhstan amid economic slowdown and national currencies substantial devaluations. Exports of Ravon, re-branded from previous Daewoo in mid-2016, to Russia, for instance, plunged to 1,800 units in 2H2016 vs 20,500 in 2015.

Uzbekistan-US JV GM Uzbekistan produced 88,000 cars and JV Isuzu (Japan) and JV MAN (Germany) – 4,400 buses and trucks in 2016. Recently launched JV with Peugeot Citroën is building the factory with the capacity of manufacturing 16,000 light commercial vehicles a year. Most of the cars and LCVs produced are sold locally – appr. 58,000 in 2016e. Local brands dominate the passenger car sales in the country due to high level of protectionism by the government by applying high import duties and excise taxes.

Plans and investments. UzAutoSanoat JSC has announced a 5-year program for 2017-2021 suggesting to increase its production 3x by 2021 and attract investments $800mn, as well as raise the localization level to 74.2% from current 69.9%. The program, adopted by the President’s resolution on June 1, 2017, also grants preferences in the form of being free from paying import duties and taxes by 2020.

Machinery exports and imports. In total $220mn worth machinery products were exported in 2016 (1.7% of total exports, incl 30,000 cars), primarily to Russia, Kazakhstan, Ukraine, and the MENA region. $4.8bn worth machinery imports were made in 2016 (41.4% of total), primarily from EU, and Korea, Japan, China.

We expect the machinery industry to see substantial growth in coming years due to rise in economic activities in imports, exports and investments. We already witnessed early interests of investing and selling their products by US giants such as General Electric, Honeywell, Caterpillar, CNH Industrial, John Deere, ExxonMobil, whose top executives signed agreements with Uzbekistan during President Mirziyoeyv’s visit to New York on September 20-22 this year. These and other US companies signed $2.6bn worth MoUs and deals with Uzbekistan during the US-Uzbekistan Business Forum in New York.

Imports of machinery may surge to $5-6bn a year across various industries such as food processing, textiles, agriculture, medical and pharma, construction, construction materials, auto, telecom/IT, aviation, power, infrastructure, oil & gas, mining. In 2017 alone $4.5bn worth 199 foreign investment projects are planned by both SOEs and private businesses, most of which will be spent on machinery equipments and parts.

We also believe there will be more of similar agreements with global groups from US, European (Germany, France, Italy, Spain, UK, Switzerland, The Netherlands and others) and Asian (Japan, South Korea, China) economies with advanced technological capabilities.