DOD Business Opportunities in Uzbekistan
2012-11-08 by Richard Weitz
In Uzbekistan and elsewhere in Central Asia, the U.S. Department of Defense is trying to acquire more defense items locally.
Central Command (CENTCOM) wants to expand economic partnerships with the Central Asian States (CAS) by encouraging the increased acquisition of products and services from CAS vendors in ways that will promote their long-term economic development.
The Pentagon sees several possible gains in buying more goods locally, Such purchases are closer to the customer, which allows for quicker deliveries. Buying locally also reduces transportation costs by shortening the supply chain. Due to labor costs and other factors, sometimes the prices can be lower than for goods sold in the United States and transported to the field.
In addition, such purchases can help build local capacity, often in unrecognized ways such as imparting Western business practices, as well as develop new lines of local business or make local enterprises more efficient.
Pentagon procurement can help build internal expertise to conduct business on an international scale. Many local companies lack experience in exporting goods to international markets. Selling to the U.S. military can improve production and distribution techniques, which can lower prices to local consumers–and establish local stakeholders supportive of U.S. policy.
The U.S. Agency for International Development (USAID) has been trying to promote U.S. business capacity building in Central Asia for more than a decade, but the U.S. Defense Department can brings more resources due to its large purchases and other resources.
The Pentagon has launched several initiatives to achieve the strategic objective of increased spending via local procurement from Uzbekistan and other Central Asian vendors in partnership with U.S. Government contracting organizations and prime vendors.
For example, it is currently negotiating with the local branch of General Motors to receive locally made trucks and convertibles as well as trying to arrange for some contracts to be available exclusively for Uzbekistan’s bidding.
When I was in Uzbekistan representatives of the General Services Administration (GSA), the Defense Logistics Agency (DLA), the U.S. Army Corps of Engineers, Surface Tenders CENTCOM Region, the U.S. Air Force Central Command and several prime vendors were in Tashkent on an “Industry Day” designed to build increased business partnerships with Uzbekistani vendors. The CENTCOM Joint Theater Support Contracting Command (C-JTSCC) led this effort. These entities all have a mission to provide contracting support to U.S. Forces Afghanistan as well as the Afghan Security Forces.
CENTCOM has directed its contracting officers to make every effort to procure products mined, produced, or manufactured in Uzbekistan (or other CAS countries) or to procure services that will be performed by citizens of Uzbekistan (or other CAS countries). CENTCOM has also established a CAS Buying Cell (at the U.S. Manas Transit Center in Kyrgyzstan. And CENTCOM has assigned a Liaison Officer to the U.S. Embassy in Uzbekistan.
C-JTSCC is advertising its contract opportunities on its dedicated CAS website (http://www.uscascontracting.com). GSA, DLA, the U.S. Army Corps of Engineers, Surface Tenders CENTCOM Region, and the U.S. Air Force Central Command will post opportunities on that site as well.
As local procurement is transitioned to Afghanistan contracting personnel, Uzbekistan vendors will be positioned to continue providing vital goods, construction materials, and services to Afghanistan with an eye towards building enduring, long term business partnerships with the Afghan people for years to come.
George Krol, United States Ambassador to Uzbekistan, attended the Industry Day event.
Furthermore, the U.S. Embassy in Tashkent and the American-Uzbek Chamber of Commerce collaborate with American companies to promote business opportunities. Two major U.S. companies, Boeing and Lockheed Martin, recently signed major agreements with Uzbekistan.
At a recent congressional hearing, several members of Congress complained that Russian and Chinese companies still dominate Central Asian markets.
Testifying for the administration, Robert O. Blake, Assistant Secretary of State for South and Central Asian Affairs, assured members that the Obama administration had “made it a priority to try to support American business, not just because we want to create American jobs, but also because we believe there are some quite significant opportunities.”
Blake added that it was “incumbent upon all these countries to do their part to open up their markets and to make it a more accessible and more friendly business environment.” He insisted that “we’re doing whatever we can to try to support American companies but.., at the same time we also were consistently advocating for open markets and transparency and so forth. And so we’ve got to be also be true to our values now.”
Blake also stressed the need to promote local economic reforms: “we want to support our companies. But our companies are ultimately going to succeed because they’re the best and the most efficient, and they’re going to benefit from an open system. So it’s really in our interest to promote that kind of an open, competitive system.” After Blake reviewed how he and the local ambassadors have sought to open doors for U.S. companies, he stressed that “it’s also incumbent upon all these countries to do their part to open up their markets and to make it a more accessible and more friendly business environment.”
Uzbekistani officials state that they are seeking to create a modern economy on the basis of the rule of law. The government has recently introduced a number of legislative and judicial reforms. For example, new legislation provides more guarantees for freedom of entrepreneurship, reduces inspections of business entities, and specifies the rights and responsibilities for a new form of entrepreneurship–family business.
The World Bank ranks Uzbekistan 166 out of 183 in terms of “ease of doing business.” Uzbekistan’s economy could perform better if it strengthened its infrastructure, improved overall levels of education, allowed for the freer flow of information, relaxed its rules on currency conversion, did not require 100% prepayment for all purchases, made it easier to secure long-term visas for foreign employees, clarified an opaque government procurement process, permitted more repatriation of profits, and reduced formal and informal trade barriers with neighboring countries.
Other challenges to Uzbekistan’s economic development include maintaining security in the country despite the turmoil in neighboring Afghanistan, and transitioning to a new generation of political and economic leaders to replace the Soviet-era elite that has governed the country and determined economic policy since Uzbekistan gained independence two decades ago. Additionally, pending further diversification, the country is vulnerable to a decline in the world prices for its cotton and energy exports.
The security of Central Asia partly depends on the ability of these countries to transition further away from the state-controlled and inefficient command economic systems they inherited from the Soviet Union to more dynamic free-market economies, which can more easily attract foreign investment and generate employment and economic growth.
These enhancements in turn could reduce potential sources of domestic alienation and provide their governments with more resources to support regional security initiatives in Afghanistan and elsewhere. The silk road strategies of the United States and other countries also would achieve greater success if the Central Asian countries were more dynamic and better integrated into global economic processes.
In support of the Department of Defense’s broader strategy to improve efficiencies within its global supply chains, the U.S. General Services Administration (GSA) has contracted Theodor Wille Intertrade (TWI) to locally source common consumables used by U.S. Forces in Afghanistan. Identifying and sourcing from vendors throughout the Central Asia region, TWI supplies over 100 of the top products used by GSA customers in Afghanistan. GSA seeks to improve the purchasing and delivery of their products while at the same time bolster the capacity of local vendors through their acquisitions.
At a recent event at the Center for Strategic and International Studies, TWI representatives offered insights on how to gain local business.
They recommended focusing on items having a high sales volume to entice local interest and using the lure of profits to overcome their natural hesitations in working with the U.S. government.
They also stressed the need to have local people in the field to undertake “due diligence” of potential companies, including through site visits to examine first-hand production capabilities, quality control procedures, and sustainability, making sure that they will be in business for a while. Demanding full transparency helps minimize corruption and ensure competitive bidding.
Avoiding criminals and terrorists is also important. One must obtain intelligence from host governments or from quasi-governmental organizations such as local chambers of commerce. The GSA also has a database of debarred vendors, while the Treasury Department and other U.S. government agencies have lists of terrorist financiers. CENTCOM has its own vetting cell.
The TWI representatives noted the complexity of meeting U.S. specifications, allowing for some variance, such as the occasional need to crosswalk with Russian standards or sometimes make up new standards. One also needs to be flexible regarding the distribution and production of goods. In Uzbekistan, purchases are almost all domestically made because of these difficulties of importing goods and then re-exporting them. In Kazakhstan, most of the items (such as printer cartridges) have been produced elsewhere and then sent to Kazakhstan as a hub.