Sanctioned Russian Billionaire Usmanov Doubles Down On Uzbekistan
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Say what you will about sanctioned Russian billionaire and yachtsman (once, anyway) Alisher Usmanov – he’s a business genius; he’s a fan of fencing; he’s a gentle globalist philanthropist; he’s tied to Vladimir Putin – but one thing is certain. He is one of a growing number of Russian billionaires being punished for the war in Ukraine. Business as usual is dead.

He lost his mega-yacht Dilbar – which the childless Usmanov put into a family trust to the benefit of his sister — to the long arm of European sanctions law in April. And his private jet – which is an Airbus 340-300 – is no longer flying the friendly skies with Usmanov sitting on sofa seats up front.

It’s increasingly difficult for his companies to make money in Europe, let alone Russia. This is what the sanctions were meant to do. Make the Russian elite feel pain. Maybe they could talk some sense into Putin.

But that’s not happening. Usmanov is not talking sense to Putin if he is talking to Putin at all.

Usmanov is an Uzbek. He received an honorary Uzbekistan citizenship four years ago. The country was part of the Soviet Union when Usmanov was born, so there was no such thing as Uzbekistan citizenship back then.

What he’s been doing since then instead is sending investment capital to his former childhood homeland and spending more time in the ancient city of Tashkent. It’s a far cry from the gleaming, high-rise modernity of Moscow, with its neon lights and classical architecture and the occasional Maclaren screeching down Krasnopresnenskaya along the Moscow River. This is as do-over as a billionaire jet-setter can possibly get. It’s a wonder he’s not living in a traditional mahalla house (with a crystal chandelier, of course).

“The sanctions against me are based on unjust and unsubstantiated accusations,” Usmanov told me. “Donating personal funds and attracting investments is more difficult: in effect, these restrictions hit not only me, but all the people who are in need of my help. That’s why my current task is to have them lifted.”

He was sanctioned by the U.S., European Union, United Kingdom and Switzerland in February and March.

The allegation: Usmanov provides “direct and indirect support to the Government of the Russian Federation through business empires, wealth, and other resources, Treasury stated on March 3. Through holding company USM, of which Usmanov owns 49%, Usmanov holds significant interests in metals and mining, telecom, and in technology businesses.

According to Treasury, Usmanov is known to be close to Putin as well as Dmitry Medvedev, the Deputy Chairman of the Security Council of Russia and former President and Prime Minister of Russia. Usmanov denies any relevant ties to both men.

“I have not been involved in politics and I never received anything from the Russian state – not during the privatization of state property in the 1990s, or ever since,” he told me. “Those who impose sanctions would do well to rely less on clichés. Contrary to popular stereotypes, there are people out there who have earned their fortunes through honest work and by using their own brain.”

Usmanov said sanctions against him have created roadblocks to his usual way of getting around, and for his businesses. “They do create obstacles – including for my activities in Uzbekistan, where I have been spending most of my time in the last few years,” he says.

Usmanov is working with lawyers to reverse some sanctions. He filed an appeal in May with the European Court of Justice.

The Russian billionaire, once a major shareholder of the popular Arsenal football club, now finds his wealth ringfenced, and surveilled. With the Russian economy looking difficult at the moment (despite being cheap), and Europe and the U.S. off limits, Uzbekistan might seem like an oddball alternative, if not for the fact that he is from there.

It also fits with the frontier investor narrative that a handful of private equity and investor superstars like Jim Rogers have discovered this former Soviet backwater.

Usmanov is the biggest A-list player putting money into this land-locked state. Like neighboring Kazakhstan a few years ago before a change of leadership slowed progress, Uzbekistan, with its new leadership, is trying to make massive leaps forward. This is very much an ancient world.

“Look, the Uzbek economy is expanding at 7% a year, is by far the most populous country in Central Asia with a young and growing population and unlike other frontier markets, it’s got a well-diversified economy,” says Quinn Martin, a partner at a boutique investment bank called Bluestone, now in Uzbekistan.

Some of those sectors include agriculture, manufacturing, some gas, quite a lot of copper and gold and sectors like consumer and retail are growing fast.

“The government is packed with smart, western-trained ‘repats’ who are reforming everything at a blistering pace,” Martin says.

The Turks are there, the Emiratis, the Saudis, the Koreans and after some social unrest in Kazakhstan during the pandemic, the Chinese are looking for it to join its Belt and Road Initiative. Russia wants to maintain a significant foothold there, still, and they do this through finance and investment by state oil and gas.

Uzbekistan is courting Russian techies as Western IT outsourcers have been looking to get out of Russia due to political risk. Some are going to Tashkent.

“Uzbekistan is undergoing an impressive journey of reforms after several lost decades under Islam Karimov’s regime,” says Usmanov. Karimov passed away a few years ago and was succeeded by Shavkat Mirziyoyev. “I could have never lived nor worked here in those times,” Usmanov says about the previous government. “But today I see my purpose as helping Uzbekistan to realize its full potential. It is a country gifted with talented and hardworking people” he says, adding that Mirziyoyev is putting “all his strength” into bringing Uzbekistan out into the world.

Usmanov talks about the same sectors that Rogers has mentioned in previous interviews with me on Uzbekistan — most of them commodity-based. Some high-tech.

“The most interesting areas for investment are cotton processing, production of fruits and vegetables, and the development of the country’s mining resources, namely mining and processing of nonferrous metal ores,” Usmanov says. This is his core business.

Uzbekistan is privatizing its largest state enterprises over the next few years, including through IPOs.

“Uzbekistan is an almost unparalleled case in the sense it is an opportunity to invest in a country that has recently experienced a ‘fall of the Berlin Wall’ moment: the rapid and widespread shift from a closed socialist state to a free market economy,” says Alex Branton, a partner at Sturgeon Capital in London. They are invested in Uzbekistan.

“We don’t rely on it for our investment strategy but expect economic growth to be both higher and relatively decorrelated to broader emerging and developed countries,” he said, comparing it to Kazakhstan and the much smaller state of Georgia. “Uzbekistan has effectively skipped the offline era – with the associated baggage and infrastructure – starting instead from the digital age. The country has high smartphone penetration and a young tech-savvy population without preconceived ideas of how things ‘should be’,” he says.

Kazakhstan is a little further ahead in this regard, with well-known investable companies like Kaspi that are effectively the fintech/e-commerce play for the country, raking in around $1 billion in net income last year, and in a country half as populous as Uzbekistan.

Sturgeon is invested in the Uzbekistan version, called ZoodPay. “It’s our attempt to replicate the success of Kaspi,” Brenton says. Sturgeon runs the largest private equity fund in Kazakhstan.

Usmanov doesn’t need his yacht in Tashkent. His Airbus might come in handy. But inadvertently or advertently, the sanctions regime could end up being beneficial to his native country, if not for the natural obstacles it creates.

He isn’t the first to discover Uzbekistan post-Karimov. Putting capital to work there, however, will at least add to the positive sentiment in Uzbekistan, at a time when positive sentiment on a market, any market, is hard to come by. Neighboring Kazakhstan, once the best of the ‘Stans by far, is going through a crisis few saw coming.

“I think now is a good time for investors to enter the Uzbek market,” Usmanov says. “I’ve been encouraging everyone to invest here. The companies where I’m a shareholder are investing here in metallurgy, cement production and telecommunications,” he says, adding that he will be investing more there, and that all the money he makes in Uzbekistan will stay in Uzbekistan.

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