Uzbekistan Investments

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The goal of the economic liberalization reforms carried out by the president of Uzbekistan, Shavkat Mirziyoyev, is a dynamically growing, competitive, diversified economy. One of the key roles in the implementation of this plan is given to foreign investors who will receive the most favorable conditions to work in Uzbekistan.

A year ago, on 7 February 2017, the president of Uzbekistan, Shavkat Mirziyoyev, approved a new strategy of state and public development of the country for the next five years. The document contains five priority areas, which the country will develop until 2021. They include measures to improve the system of state and public construction, a reform of the judicial and legal system and internal affairs bodies, as well as a set of measures fostering economic transformation. The latter, according to the goals stated in the document, should provide the Uzbek economy with a seven percent growth rate and improve its stability and competitive advantages.

One of the key priorities is to create conditions favorable for the inflow of foreign investment through consistent improvement in the investment climate. In particular, President Mirziyoyev’s decree last March created the State Investment Committee of the Republic of Uzbekistan, which will formulate and coordinate the country’s policy in attracting investors, develop and implement measures to improve the business environment, and interact with international institutions, companies, and banks in this area. This work should result in a manyfold increase in the flow of investment and technology to Uzbekistan, which can become one of the main production hubs in Central Asia, as well as a base for the production of a wide range of export goods, that should ultimately lead to achieving the government’s goals for economic development.

WHY UZBEKISTAN?

Stability and favorable business conditions

Uzbekistan is one of the most stable countries in Central Asia in terms of macroeconomics and its political system. During the last decade, the growth rate of the Uzbek economy consistently stayed at eight percent. In 2017, the official growth of Uzbekistan’s GDP was 7.8% – the fifth best result in the world when looking at this indicator.

Uzbekistan’s foreign debt is less than 18.5%. The national internal debt is nearly zero. For 10 years, at the beginning of the reforms, Uzbekistan recorded a threefold budget surplus, and within 14 years – a surplus of the balance of payments. The country’s foreign exchange reserves cover 24 months of its total imports.

In its latest “Ease of Doing Business” ranking for 2018 (published in October 2017), the World Bank ranks Uzbekistan 74th in the world, having improved its placement by 13 positions. The country has become one of the top 10 states that demonstrated the greatest improvement of their business environment. The greatest progress was made in such areas as business registration, obtaining a loan, and resolving insolvency.

Capacity and accessibility of the market

The population of Uzbekistan is more than 32 million people, which makes it the largest consumer market in Central Asia. The country has an advantageous geographical location in the very heart of Central Asia. To the country’s advantage are its proximity and connectivity with the region’s largest markets, including Russia, China, and Kazakhstan. Participation in the Free Trade Agreement with the CIS countries and Georgia provides products from Uzbekistan duty-free access to regional markets with an aggregate population of over 300 million people. Uzbekistan enjoys most-favored-nation status with 48 countries, including the United States, the EU, China, South Korea, Japan, and India, among others.

Economic growth and diversification

Uzbekistan’s development strategy states that its high GDP growth rates will continue in the near future, which should help double the country’s GDP by 2030. Thanks to structural reforms, industrial growth rates are expected to increase, with its share growing to 40% against 33.5% in 2015.

At the same time, today, the Uzbek economy is one of the most diversified in Central Asia. In addition to its well developed mining and oil and gas industry, the country produces a wide range of modern cars and trucks, high-quality agricultural machinery, mineral fertilizers, textile and pharmaceutical products, construction materials, electrical goods, and much more. One of the main priorities of the country’s development strategy is increasing the competitiveness of the manufacturing industries, primarily through attracting foreign investors.

Labor force

Uzbekistan’s young and educated population is an important competitive advantage and a valuable economic resource for the country. The local labor market, numbering about 18.5 million people, or about 60% of the population, is the largest in the region. At the same time, 63% of the population of Uzbekistan is younger than 30 with nearly 100% literacy rate.

The country has about 70 higher educational institutions, including state universities in each of the regional centers, as well as representative offices of major international institutions of higher education. Among them are Westminster International University, Moscow State University, Russian University of Oil and Gas, Singapore Institute of Development and Management, Turin Polytechnic University, and INHA University in Tashkent. A branch of US Webster University is expected to open its doors in 2018. The country has a state education program, the “Istedod” Foundation, which finances scholarship programs at leading universities in the world for Uzbek students.

TRADE, EXPORT, INVESTMENT

The task of stimulating the production and processing of industrial goods within the country, which is included among the most important priorities of Uzbekistan’s new economic policy, is complex. To solve it, the government took steps in several key areas simultaneously

First of all, measures to develop trade and economic relations with its main strategic partners have been introduced. During President Mirziyoyev’s first visit to Kazakhstan, 75 trade contracts worth more than $1 billion were signed. Also, the trade turnover with Russia grew by more than 250% (to about $5 billion) in 2017, and a total of 50 contracts were signed during the Uzbek president’s April visit to Moscow, totaling over $16 billion. More than 100 contracts have been signed with China for a total of more than $23 billion, and 30 new contracts have also been signed with Turkey, totaling $3.5 billion. Such activity indicates an unprecedented expansion of trade, which the Uzbek government intends to continue further.

Secondly, active work has begun to increase non-oil exports. In the first years of Uzbekistan’s independence, the share of raw materials in the country’s exports exceeded 70%, but today it is no greater than a quarter of total supplies abroad. With a thirtyfold increase in total exports over the past 20 years, export of automobiles increased twelvefold, mineral fertilizers elevenfold, and yarn nearly 4.5-fold. Numerous tax, customs, and other benefits have been introduced to support export-oriented enterprises.

Finally, a new investment program has been adopted. Among other steps, the program outlines 199 priority projects, which have attracted $4.5 billion worth of foreign direct investments, corresponding to more than 20% growth of this indicator. In total, there are more than 5,000 foreign investor companies working in Uzbekistan.

FREE ECONOMIC ZONES

Free economic zones (FEZ) are a basic element of the economic infrastructure of Uzbekistan created to attract investment in modern production facilities. Today, the country boasts 14 FEZs that host a total of 62 projects with a total cost of about $500 million. Over $270 million is foreign direct investment. Another 137 projects worth about $1 billion, including $206 million of FDI, are in the implementation phase.

In the fall of last year, the government of Uzbekistan consolidated the tax and customs regimes for all participants of the FEZs, granting them a privileged status for three to 10 years, depending on the amount invested. In particular, they received exemption from payment of a number of taxes, including land tax and corporate income tax, mandatory contributions to state funds, customs duties on equipment, commodities, materials and components imported from abroad for the implementation of local projects, provided that they are not produced in Uzbekistan.

WHERE TO INVEST

Investors are offered a wide range of opportunities to invest in a large number of industries, the development of which should contribute to further diversification of the Uzbek economy, speeding up the pace and quality of its growth. Among them are:

Pharmaceutical industry

A new program intended to further develop the pharmaceutical industry in Uzbekistan in 2016–2020 spells out the main tax incentives for manufacturers of medicinal products in the country. In addition, seven new pharmaceutical industrial zones have been established in Uzbekistan in accordance with President Mirziyoyev’s decree. Among them are Boysun Pharm in the Surkhandarya region; Bustonlik Pharm, Parkent Pharm and Kosonsoy Pharm in the Tashkent region; Zaamin Pharm in the Djizak region; Syrdarya Pharm in the the Syrdarya region; and Nukus Pharm in the Republic of Karakalpakstan. A number of large investment projects have already been implemented or planned, including the setting up or expansion of the production of medicines for children, disposable medical instruments and systems, etc.

Textile industry

Uzbekistan’s traditionally strong position in the production of cotton and other raw materials creates a strong base for the development of the textile, clothing, and knitting industry in the country. With the aim of creating capacities for the production of finished products based on cotton fiber and silk, including export-oriented production, three-year tax and customs privileges have been introduced for industry investors since 2017. In the next two years, Uzbekistan will implement several large investment projects, including the creation of textile hubs in the Jondor region in the vicinity of Bukhara, worth more than $65 million, as well as similar production facilities using Denov cotton (cotton yarn, sewed and knit wear) and in the Jizah region (more than $20 million each).

Tourism

In December 2016, President Mirziyoyev signed a decree on measures to ensure accelerated development of tourism, with unprecedented measures planned for Uzbekistan to develop the tourism industry in the country. In practice, we are talking about the transition to qualitatively new government policies to regulate this industry. Among the goals and priorities identified in the document are the removal of all barriers to the development of tourism, including visa, registration procedures, and measures of passport and customs control; measures to ensure tourist safety; expansion of cooperation with international and national organizations in the tourism sector; and accelerated development of modern tourist infrastructure facilities in various regions of the country, first and foremost, hotel businesses, transport and logistics, communication networks, etc.

Measures to support the industry include, among others, the extension of a preferential tax regime to tourism operators and investors. The largest investment projects to be implemented in the next two years include the construction and reconstruction of tourist attractions in Samarkand and Bukhara, as well as the construction of a new year-round sports and entertainment facility in Chimgan in the Tashkent region.

Chemical industry

The program of chemical industry development until 2020 plans for a deep modernization of the industry in order to expand the range of products and increase the degree of processing of raw materials. To this end, 23 projects with a total value of about $2.7 billion are expected to be implemented. In particular, it is planned to create 15 new production facilities for the production of PVC, tires, conveyor belts, agricultural machinery, soot, potassium sulfate, synthetic detergents, potassium hydroxide, and other products.

Food industry

Thanks to the measures taken in the last 25 years, Uzbekistan has developed a sophisticated food industry, established production of almost all types of food, and created processing facilities. Today, the industry has almost 10,000 enterprises producing more than 3,000 kinds of food products.

The program for the development of the food industry until 2020 sees the implementation of 180 projects worth a total of about $600 million. It also provides for the establishment of 14 trade and logistics centers in the regions specializing in the storage, processing, and export of fruit and vegetable products.

Manufacture of construction materials

The construction materials industry of Uzbekistan is represented by more than 4,000 enterprises that produce about 50 kinds of construction materials. It not only plays an important role in the country’s economy, but it also has significant export potential. Increasing the production of high-quality competitive products from local raw materials to meet the growing needs of the domestic market and exports is an urgent step for this industry’s development.

The largest investment projects for the next two years include the production of architectural and construction glass in the Bukhara region, which is a $100-million project; bathroom fixtures in the Tashkent region; heat insulation materials and basalt reinforcement in the Navoi region; as well as porcelain ceramic products in the Fergana region ($20 million each).