Uzbekistan’s textile sector is booming. Cotton has long been Uzbekistan’s “white gold.” Its importance to the country is so great that the cotton plant features in its national emblem; exports of its high-grade cotton sustained the country during the worst of the economy crisis that followed the collapse of the Soviet Union in 1991.

 

But in 2017 newly elected President Shavkat Mirziyoyev took the radical step of banning exports of raw cotton entirely. Industry was forced to go up the value chain overnight and massively expand the production of textiles. Private cotton farms were then set up starting in 2018 in what in effect was a large-scale privatisation of the entire cotton sector.

It was bold gamble and, as bne IntelliNews reported, it has paid off handsomely. Production is up five-fold since the textile modernisation campaign was launched at the start of the Mirziyoyev era and exports are up four-fold, of which only 10% comprise raw cotton and the rest are finished goods.

At the same time, the sector was privatised, broken up into just under 150 “clusters” where private investors were given long-term leases on land to grow raw cotton and were expected to set up complete vertically integrated production chains called clusters that run from growing cotton through to producing finished apparel and other products.

Today Uzbekistan exports to more than 80 counties, earning $3.4bn in 2023 from textiles based on the production of 1.3mn tonnes per year (typ) of raw cotton. More than $3.2bn has been invested in the sector, almost entirely by private companies, and the investment is ongoing as the sector continues to expand.

“Uzbekistan has moved very fast in the last five years. A total of 142 clusters have been set up that are responsible for 100% of the country’s textile production,” says Karim Shafei, a textile expert based in Switzerland who was speaking to the delegates of the International Textile Manufacturers Federation (ITMF)  Annual Conference and fashion convention in Uzbekistan on September 9. The ITMF is an international trade federation for the world’s textile industries. “In the last eight years textile exports are up 200% from less than $3bn [in] 2022 to almost $4bn for this year. Within that, apparel exports have grown from $300m in 2017 to $1.4bn 2023 – a huge gain – and finished product exports are up five-fold.”

Kamalak Cluster

Just outside the legendary city of Samarkand is the Kamalak Cluster. The total of 16,000 hectares of cotton fields, stretching away from the administrative buildings, are almost ready to harvest. The yellow flowers of the small shrubs have given way to fat green pods full of cotton that will burst in the coming weeks ready for the mix of advanced John Deer harvesters and a workforce of 1,500 professional cotton-pickers to move into the fields.

From there the raw cotton is transported to factories less than an hour’s drive away to be processed into thread before finally being worked into textiles and turned into finished products by companies that belong to the group.

The cluster already generates some $20mn worth of finished products every year that are exported to over 58 countries, according to Tadjiev Mukhiddinovich, the chairman of the cotton-textile cluster association, who travelled to Kamalak to show-case the farm.

The company is owned by Zafar Hakberdiev, a local entrepreneur, who invested $30mn into the business, partly from his own funds and partly using a credit from Germany’s LBBW Bank. One of the weaknesses of the Uzbekistan economy is that borrowing rates in soum, the local currency, are still prohibitively high, leading companies to prefer the much cheaper credits denominated in foreign currencies; however, these expose the economy to an FX risk, should a shock cause a deep devaluation.

Like all the clusters, it is privately owned and the investment capital comes from investors who are free to funds the project, as they are able. The distribution of over a hundred lots means no one company dominates the business, although there are no formal restrictions on how many clusters a company can own, which suggests eventually the sector will consolidate into a few large players. The only aid the government offers is through long 25-year leases on the land and some so-called loose loans to buy machinery.

In addition to its own business, Kamalak has a joint venture with the Singaporean multinational company Indorama, which is investing into the development of the textile sector around the world. It also cooperates with the US financiers Silverleafe and the Turkish Maroqand Development Cluster. Germany’s Federal Ministry for Economic Cooperation and Development (BMZ) is acting via the German Cooperation Agency for International Development (GIZ), a German state-owned company, and implements the majority of BMZ's technical development cooperation, which is active in Uzbekistan.

“After the 2016 reforms, foreign investors are treated like locals and given the same opportunities,” says Mukhiddinovich. “The foreign investors are allowed to open a cluster and the right to rent the land for up to 25 years, which remains owned by the state.”

Mukhiddinovich says the reforms have been very successful. Previously the sector was divided into farmers and textile producers, but now it has been united in the cluster system and under private management, the output of the farms has soared.

Closer to town on the outskirts of Samarkand is the textile factory where the raw cotton is transformed into thread and even closer to the city is the Samarkand Carpets (SAG) rug and clothes showroom, and shirt factory.

On the first two floors of the modern business is a swanky showroom for the company’s carpets, for which Uzbekistan is famous, and these are a must-have household item in Uzbek culture. Families and couples are strolling in the air-conditioned showroom, looking over a wide selection of the large carpets that are made with the cotton from the Kamalak farm. The walls are lined with a wide selection of shirts, some under the company’s own SET brand and other using the designs of famous international designers.

Upstairs on the third floor is a small factory with lines of women working at sewing machines producing the shirts on sale downstairs.

“Most of the workers are women, but things have changed, as they work in shifts and usually do few days on and then take a few days off,” says Shukhrat Makhsudov, SAG’s director, who oversees the production and sales. The factory is brightly lit with windows all around the floor and a large ventilator blasts out cool air, creating a pleasant breeze on the shop floor where the women work at their machines.

Samarkand SEZ

The ancient Silk Road way station of Samarkand is once again buzzing with foreign visitors. An Uzbek innovation hub, there are more than 600 international companies present and 60 fast growing production facilities that have doubled their output in the last five years, according to the region’s governor, Erkinjon Turdimov.

The state has established a Special Economic Zone (SEZ) that offers tax breaks and other benefits to attract investors. The local entrepreneurs say wryly that the investors have it better than them, as there is a special foreign investment law that gives foreign investors even more rights than they enjoy – the government has been full focused on attracting foreign investment to accelerate the country’s development, but only if they can bring added value.

Uzbekistan has one of the fastest growing populations in the world, adding more than 1mn people a year, and 100,000 per year in Samarkand alone. With a regional population of 4.2mn people, Samarkand is one of more populous regions in the country, the local governor says.

Shafei points out that although the EU markets are only a few days away, one the problems that Uzbekistan still faces is that it remains largely under the radar for most Europeans and Americans firms, and for those that know the country, the legacy of the previous ban on Uzbek cotton means they are reluctant to do business.

Starting in Soviet times and extending into the regime of former president Ismail Karimov, the first present of independent Uzbekistan who died in 2016, the government routinely pressed students and children into service to bring in the cotton harvest. This led to an international boycott of Uzbek textiles. After taking office, one of the first things Mirziyoyev did was end the practice and the ban was eventually lifted in 2019, but it has sullied Uzbekistan’s reputation. 

The fact that the ITMA chose to hold its global annual general meeting in Uzbekistan is a testimony that the Republic has been forgiven for its past transgressions and has been welcomed back into the fold of respectable textile manufacturers as delegates from around the world travelled to Samarkand for the meeting that was not exclusively focused on the rapid growth of Uzbek textiles.

“Uzbek textiles needs to work on its image and showcase the changes. It needs to create a new image as a dynamic, low cost, high quality producer of textiles,” Shafei said. “Uzbekistan [is] not known to EU [or] US buyers or [has] a negative image, so there is a lot of work to inform the world and change the reputation.”

The already vibrant textile sector still has more work to do if the country is to fulfil its ambition of becoming a global textile production powerhouse. The first multinationals are starting to arrive, with small deals with Nike and Adidas in 2020, but the really big household fashion and apparel names have yet to move in and source large volumes from Uzbekistan.

Key to the initiative has been reaching out to new partners. The government is now building four industrial zones that are totally dedicated to textiles and include infrastructure such as renewable energy, water treatment plants and other sustainable development elements that have become essential for the industry. A speaker from the EU at the ITMF event gave a presentation explaining that the EU will implement new sustainable production regulations for textiles in 2025 that will lift the barrier to entry a little higher for the EU’s import partners and force them to implement higher ESG standards.

The US and EU have already become key export destinations, especially after Uzbekistan signed a key GSP+ preferential trade deal in 2021, and it also has free trade agreements with all of the other members of the Commonwealth of Independent States (CIS) countries. But it is seeking to expand its reach further both in terms of market and investment partners.

 “German, Korea, Singaporean companies and many other have invested and playing in our market,” says Samarkand Governor Turdimov. “But we are hoping to attract more investment from other countries.”

Part of the government’s decision to step beyond the cotton sector entirely has been motivated by its efforts to join the WTO; the trade club’s rules preclude countries that subsidise sectors such as textiles.

Another goal is to provide jobs for the burgeoning population. With an average of age of only 28, Uzbekistan needs to generate decent jobs for its young population.

“The goal is not simply to provide new job opportunities but decent job opportunities,” Turdimov told the summit’s delegates in Samarkand.

The local brands also need to be developed and here Uzbekistan’s Silk Road history can be a big advantage, as cities like Samarkand are already the stuff of legend and its fame has already driven the explosive growth in tourism in recent years.

In the next phase Uzbekistan needs to diversify its markets and embrace new materials. “Uzbekistan has regional market but there is a ceiling. We have to look at non-traditional markets like North Africa, further afield in Europe and Asia,” Shafei told the delegates at the ITMF event.

“There has been lots of investment into machines with huge factories and state-of-the-art equipment, but Uzbekistan is double-landlocked and logistics remain difficult to manage with the current geopolitical situation. The government has provided support to logistics but it remains a challenge and it is still not fully utilising the closeness to Europe,” Shafei said.

Uzbekistan would love to export textiles to Southeast Asia as well, but currently its southern route into Asia is blocked by the instability in Afghanistan. Delegates from Asia to the ITMF annual summit told bne IntelliNews that currently there are no direct textile exports to Pakistan or India, but some Uzbek textiles goods are traveling there via intermediaries like Indonesia.

Delegates at the event also said that in the next phase Uzbekistan needs to embrace man-made fibres as part of its textile sector. Some polyester is starting to be used, but as bne IntelliNews reported, Uzbekistan’s plastics industry is still in its infancy. But that will change when the very large MTO petrochemical complex in Bukhara comes online in about four years’ time to produce the raw materials to create a variety of man-made fibres for the country.