Republic of UZBEKISTAN

The Republic of Uzbekistan gained independence in 1991, after being part of the former Soviet Union since 1924, and it has begun its transition to a market economy. Uzbekistan is a presidential republic, and conducts presidential and parliamentary elections on a regular basis.

Uzbekistan is a resource-rich, doubly-landlocked country, strategically located in the heart of Central Asia. Its population of about 32 million (as recorded in the beginning of 2017), approximately half of which lives in urban areas. Uzbekistans population accounts for approximately 46 percent of Central Asias population of 68 Million people. In 2011, the World Bank re-classified Uzbekistan from a low-income to a lower middle-income nation.

Since the early 90s, Uzbekistan has pursued a cautious and gradual approach to economic reforms. The national trade regime is rigid, with extensive tariff and non-tariff barriers in place. Main economic policies have included active state interventions designed to achieve self-sufficiency in cereal and energy resources, import substitution, and the accumulation of foreign exchange reserves.

WHY INVEST IN UZBEKISTAN

As you know, a favorable investment climate is a prerequisite for ensuring a stable high development of the economy, attracting investments in regions and industries, and enhancing entrepreneurial activity. It contributes to the influx of foreign direct investment in important industrial and social projects, expands the possibilities for innovation, and improves the quality of socio-economic development. Over the years of independence, Uzbekistan has gone through a difficult stage of restructuring the entire economy, accompanied by certain difficulties in terms of developing a suitable concept and mechanisms for its implementation.In particular, it must be admitted that for a long time certain issues remained unresolved in the field of doing business (including currency conversion, free repatriation of profits, attracting international financial institutions, etc.), and this, in turn, seriously affected the investment attractiveness of the country .

However, in recent years the situation in this regard has begun to change drastically, and reforms aimed at improving the investment climate have gained a dynamic character. Already now, in Uzbekistan, one of the drivers of economic growth is the attraction of foreign capital to the national economy. In the first half of 2019, the volume of utilized foreign investments grew by 4.3 times compared to the same period in 2018 and amounted to $ 5.6 billion. By the end of 2019, the development of foreign direct investment in the amount of at least $ 7 billion is expected. For comparison, this figure in 2018 amounted to $ 2.8 billion. In addition, over two years, the number of enterprises with foreign investment doubled – the figure is more than 10 thousand. The share of investments in the GDP of Uzbekistan for the first time amounted to 38%. According to the results of January-March 2019, Uzbekistan conducted trade relations with more than 150 countries of the world. Over the past year, total turnover increased by 37%. The main trading partners of the Republic are countries such as China, Russia, Kazakhstan, Korea and Turkey.

The achievement of positive results is facilitated by the implementation of structural reforms aimed at improving the business environment, including:

– Reducing the time, number of documents and costs associated with registering a business (registration takes 30 minutes).

– Liberalization of the foreign exchange market, which allowed to remove restrictions on the repatriation of profits.

– Simplification of tax and customs administration – introduction of a risk analysis system, reduction of documents and time required for customs clearance

– Strengthening measures for the execution of contracts (introduction of the institution of mediation), protection of minority shareholders, as well as others.

As a result, Uzbekistan was ranked 69th among 190 countries in the Doing Business 2020 ranking and entered the top 20 reformer countries in terms of creating the most favorable conditions for doing business. For comparison, we note that in 2012, the country in this rating occupied only 166 place. Also, during the second half of 2018 and the past period of 2019, Uzbekistan managed to get the first ratings from agencies such as Fitch and Standard & Poors. At the same time, such factors as a strong sovereign balance, low level of state debt, as well as a decrease in state participation in the countrys economy positively influenced the rating of Uzbekistan. The republic granted visa-free entry to citizens of 86 countries, which in turn contributed to obtaining the status of the second country in terms of openness for tourists among the CIS countries.

Uzbekistan has also resumed active negotiations on accession to the World Trade Organization (WTO). Joining the WTO will provide an opportunity, for Uzbek entrepreneurs, to raise the prospects for increasing scientific and technological progress in the sectors through the acquisition and purchase of efficient and reliable imported equipment. In addition, upon entry into the WTO, domestic exporters will gain easier access to foreign markets. Uzbekistans potential is baised on solid macroeconomic fundamentals – it is a country with a strong domestic market, relatively young and cheap labor, rich natural resources, a relatively diversified economy and a rapidly developing infrastructure. In general, Uzbekistan has the advantage of macroeconomic stability, which, combined with ongoing reforms, opens up opportunities in various sectors of the economy, be it financial services, construction or tourism. The work on further integration into the international stock market was intensified. Thus, in February 2019, Uzbekistan placed the first 5-year and 10-year Eurobonds totaling $ 1 billion with a four-fold oversubscription, eventually orders were distributed among more than 150 investors from England, Europe, America and Asia.

MACROECONOMIC STABILITY

A distinctive feature of Uzbekistan is political and macroeconomic stability. For the 26 years since the country gained independence Uzbekistan has not been affected by serious financial crisis or political unrest. Democratic elections of December 2016 is another indicator of stability and adherence to democratic values and principles of the countrys leadership. Uzbekistan has recorded a trade surplus of US$ 455 million in 2016. Balance of trade of the country averaged US$ 808.26 million starting from 2006 through 2016. Another indicator of stable economic growth is low external debt, which does not exceed 18.5% of GDP. Since 2014 the state internal debt equaled to zero, indicating healthy monetary and fiscal system. Uzbekistan has recorded a triple budget surplus for 10 consecutive years and surplus of balance of payment for over 14 years. The countrys foreign exchange reserves cover 24 months of import.

MARKET ACCESS

With over 32 million inhabitants a nearly half of the total population of Central Asia Uzbekistan has the largest consumer market in the region. Advantageous geographical location and proximity to the largest markets of Russia, Kazakhstan and China make Uzbekistan an attractive destination for foreign investors. In addition, the country has a Free Trade Agreement with CIS countries that provides duty-free access of Uzbek products to regional markets with more than 300 million consumers.

INDUSTRY DIVERSIFICATION

Economy of Uzbekistan is one of the most diversified in Central Asia. The country produces a wide range of modern cars, trucks, high-quality agricultural machinery, mineral fertilizers, textile products and other. According to the Action Strategy 2017-2021 approved by President Sh.Mirziyoev, one of the five priority areas for development of the Republic of Uzbekistan is the increase in competitiveness of the national economy through the extension of structural transformations, modernizing and diversifying its leading sectors; ensuring the balance and stability of the national economy, increasing the share of industry, services, small businesses and private entrepreneurship within its structure; implementation of active investment policy aimed at modernization, technical and technological renovation of production, implementation of industrial, transport, communication and social infrastructure projects; further modernization and diversification of the industry by transferring it to a qualitatively new level aimed at outstripping the development of high-technology manufacturing industries, primarily for the production of finished products with high added value based on deep processing of local raw materials; creation of an effective competitive environment for the economy and gradual reduction of monopoly in the markets of goods and services; – Mastering the release of fundamentally new types of products and technologies, ensuring on this basis the competitiveness of domestic goods in foreign and domestic markets; the continuation of the policy of stimulating the localization of production and import substitution, primarily of consumer goods and components, the expansion of interindustry industrial cooperation.

– Reduction of energy intensity and resource intensity of the economy, widespread introduction of energy-saving technologies into production, expansion of the use of renewable energy sources, increase of labor productivity in the sectors of the economy; creation of new and increasing efficiency of existing free economic zones, techno parks, small industrial zones; accelerated development of the service sector, increasing the role and share of services in the formation of the gross domestic product, radically changing the structure of the services provided, primarily through modern high-tech services; accelerated development of the tourism industry, enhancing its role and contribution to the economy, diversifying and improving the quality of tourism services, expanding the tourist infrastructure; liberalization and simplification of export activities, diversification of the structure and geography of exports, expansion and mobilization of export potential of the economy and territories; further development of road and transport infrastructure, implementation of information and communication technologies in the economy, social sphere, management systems.

Uzbekistan has recently embarked on a new phase of reforms with a Program of further reforms, structural transformation and diversification of the economy in the years 2015-2019 based on the seven key areas: Drastic reduction in the public sector of economy, further expanding the share and the value of private property, a large-scale transfer of state property into private hands; program for improving business environment, providing greater freedom for entrepreneurship, providing priority to development and strengthening of the legal protection of private property; fundamental reforms of the corporate management system, introduction of modern and approved in advanced economies methods of increasing efficiency of joint-stock companies; large-scale program of structural transformation of the economy, modernization and diversification of industrial production; deepening of localization of production of finished goods, components and materials, thus reducing economic dependence on imports; program for further development and modernization of engineering communication and road-transport infrastructure; reduction of energy intensity, introduction of energy-saving technologies in all sectors of economy and social sphere.

INVESTMENT OPPORTUNITIES BY INDUSTRIAL SECTORS

PHARMACEUTICAL INDUSTRY

As part of the program of measures for further development of pharmaceutical industry of the Republic of Uzbekistan for 2016-2020 tax incentives for drug manufacturers came into force. Starting from September 2016 and through 01 January 2021 pharmaceutical companies are exempt from income and property tax, a single tax payment for micro-firms and small businesses, as well as compulsory contributions to the Republican Road Fund. In addition, these enterprises are exempt from customs duties (except for customs clearance fees) for technological equipment, materials, component parts, and spare parts not produced in Uzbekistan, imported as part of investment projects, as well as imported substances and auxiliary materials, not produced in the Republic of Uzbekistan and used in the manufacture of medicines and medical products.

TEXTILE INDUSTRY

In order to ensure further structural transformations in the economy, modernization, diversification and dynamic development of textile and apparel-knitting industry, expansion of the volume and assortment of production of export-oriented finished products that are in high demand on foreign markets through deep processing of cotton fiber and silk raw materials and wider attraction of foreign investments the following incentives were decreed: Starting 01 January 2017 obligatory sale to authorized banks of the part of proceeds in foreign currency received from the export of non-food consumer goods of the textile and apparel-knitted industry to be canceled; Until 01 January 2020 the following items are exempt from customs duties (with the exception of customs clearance fees):

– Technological equipment, components and spare parts not produced in the republic, imported as part of the implementation of investment projects, according to the lists approved by the Cabinet of Ministers of the Republic of Uzbekistan.

In addition to that enterprises specializing in the production of non-food consumer goods of textile and apparel-knitted industry are provided with tax and customs privileges and preferences active through 01 January 2020 in the form of:

– Exemption from income tax and property tax, a single tax payment for micro-firms and small enterprises, payment of mandatory contributions to the Republican Road Fund.

– Exemption from payment of customs payments (except for customs clearance fees) for imported equipment, component parts not produced in the Republic of raw materials and materials, including on the basis of commission contracts used for the production of nonfood consumer goods, according to the lists approved by the Cabinet of Ministers of the Republic of Uzbekistan.

– A delay in the payment of customs duties (except for customs clearance fees) for up to 60 days from the date of acceptance of the customs declaration for the import of raw materials, materials and accessories required for the own production of non-food consumer goods approved by the Cabinet of Ministers of the Republic of Uzbekistan.

TOURISM

This culturally rich and historically compelling country, along with the rest of central Asia, has been named the No. 1 travel region for the new year by travel website Lonely Planet due to its easy access and new visa-free travel ability. The Economist highlighted the country as well, naming it the most improved nation in 2019 due to significant government reforms that have accelerated over the past year. All of that, plus its untouched history and remarkable food, are making Uzbekistan an increasingly popular destination.

The policy formulated by the state provides for unprecedented measures for drastic reforms of the tourism industry that signify transition to a qualitatively new level of state policy in this area which identifies the following main objectives and priorities:

– Formation of favorable conditions for activities of the subjects of the tourism industry, removal of all barriers that impede tourism development, simplification of visa and registration procedures, passport and customs control.

– Implementation of a set of measures to ensure the safety of life and health of tourists and excursionists in the organization of tourist services;

– Accelerated development of new potential types of tourism – pilgrimage, ecological, cognitive, ethnographic, gastronomic, sports, health-improving, rural, industrial, business, children, youth and family tourism.

– Expansion of cooperation with international and national organizations in the sphere of tourism, large foreign brands and companies, introduction of advanced world standards for the provision of tourist services.

– Accelerated development of modern tourist infrastructure facilities in the regions of the republic, first of all, hotel, transport and logistics, engineering and communications, and broad attraction of foreign investments for these purposes.

– Development of competitive tourist products, the creation of new tourist routes in the regions, their promotion in the world tourist markets.

– Radical improvement of the system of qualitative training of qualified personnel for the tourism industry.

Another important feature of the decree is measures to stimulate entrepreneurial activities in the sphere of tourism, the development of tourism infrastructure, the provision of additional benefits and preferences to tourism organizations. In particular:

– Tour operators are exempt from forced sale of foreign currency proceeds from the provision of tourist services.

– Hotels carry out mandatory sales of only 25% of proceeds in foreign currency in accordance with the established procedure.

– Payment for hotel services by foreign citizens is carried out in freely convertible currency, except for cases when payment for them is made by state and budgetary organizations of the republic.

– Legal entities booking hotels and motels of at least four stars are exempted within five years from the payment of corporate income tax, land tax and property tax, as well as a single tax payment.

– When new tourism vehicles are acquired by the subjects of tourist activity with the capacity of more than nine people, the collection to the Republican Road Fund is reduced from 20% to 3% of the cost of vehicles.

CHEMICAL INDUSTRY

The country’s leadership approved the Chemical Industry Development Program until 2020 to implement structural changes in the economy, modernize and diversify the chemical industry, provide deeper processing of rich mineral resources, expand the volume and range of finished export-oriented chemical products and attract foreign investment for this purpose, according to which it is expected to implement 23 projects for a total of US$ 2.65 billion.

As a result, productions of 15 new products will be organized – PVC, tires, conveyor belts, agricultural machinery, carbon black, potassium sulfate, synthetic detergents, potassium hydroxide and others. This will ensure the diversification of products. In particular, the share of non-fertilizer products by 2019 will increase from 25% to 37% compared to 2014, and from 2021 will exceed 50% of total production output.

FOOD AND FOOD PROCESSING

Large-scale economic measures implemented throughout the years of independence with an aim to develop the industry made it possible to establish production of almost all types of food products in our country.

Increase in the volume of production of food products contributes to consistent development of the food processing industry. Currently the industry employs nearly 10,000 enterprises that produce more than 3,000 types of food products.

A holding company “O’zbekoziqovqatholding” was established in 2016 to create more opportunities for expanding production and processing of fruits and vegetables, meat, dairy and other food products, attracting direct investments into the industry.

The company has about 300 enterprises engaged in the processing of fruits and vegetables, meat and milk, the production of confectionery and other products, including more than 20 joint ventures with the participation of the capital from the United States, England, Switzerland, Belgium, Austria, Turkey, South Korea, Russia and a number of other countries.

The program for the development of the food industry for 2016-2020 implies implementation of 180 projects totaling about US$600 million, production of semi-finished and finished products for the food industry by 2020 should increase by 1.5 to 3 times. In addition, the program envisages creation of 14 trade and logistics centers in the regions specializing in storage, processing and export of fruit and vegetable products.