Academic journal article Current Politics and Economics of South, Southeastern, and Central Asia

Uzbekistan: Investment Climate Statement 2015

Academic journal article Current Politics and Economics of South, Southeastern, and Central Asia

Uzbekistan: Investment Climate Statement 2015

Article excerpt

U.S. Department of State Bureau of Economic and Business Affairs

Executive Summary

Uzbekistan, with a population of approximately 31 million - the largest population in the region, also has the potential to become the largest economy in Central Asia, but its economy currently is only 1/4th the size of Kazakhstan. The country has an abundance of natural resources, a well- developed transport infrastructure, and a highly literate workforce.

Despite government efforts to attract foreign capital, foreign direct investment (FDI) has fallen precipitously over the past four years. The government has created several special investment zones and other incentives, including tax holidays and customs waivers, to draw investment, but its focus on specific strategic industry sectors, where government and state-owned enterprises (SOEs) exert substantial influence, limits investor interest.

In many areas, including intellectual property rights, investor protections, and worker rights, the government has a substantial body of laws and regulations to protect the business and investment community. However, foreign investors still experience substantial difficulties due to variances in enforcement and interpretation of these laws.

The greatest operational concerns facing foreign and private investors are access to currency conversion, frustrating bureaucratic processes, an onerous tax system, overregulated banking, and punitive customs laws and procedures. In addition, a pattern of expropriations and politically motivated business inspections has damaged Uzbekistan's reputation as an investment destination and sharpened a critical element of risk in its business climate.

1.Openness to, and Restrictions upon, Foreign Investment

Attitude toward Foreign Direct Investment

The government of Uzbekistan ("the government" or "the GOU") has declared attracting foreign direct investment a core policy priority, but has one of the lowest cumulative inflows of FDI in the former Soviet Bloc due to a range of factors. These include limited access to foreign currency, an underdeveloped and overregulated banking sector, trade restrictions, government involvement in trade and commerce, and widespread corruption.

Without support of the government or state-affiliated entities, foreign investors have limited business opportunities in Uzbekistan. The government generally welcomes investors and investment projects that are in line with its import-substitution and export-oriented industrialization policy, and discourages investments in import-consuming sectors by controlling access to currency exchange.

FDI levels fell well below government targets in 2011 and 2012, prompting President Karimov to create the Working Committee on Improvement of Uzbekistan's Ranking on the World Bank's Doing Business report, and to issue a number of decrees aimed at improving the business environment. These decrees emphasized one-window practices and electronic reporting systems aimed at reducing direct contacts between entrepreneurs and government entities. Although Uzbekistan's ranking was improved from 166th in 2012 to 141st in 2015, the GOU's measures have not addressed a number of fundamental problems plaguing businesses and investors.

Formally, foreign investors are welcome in all sectors of the Uzbek economy. According to law, the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin. However, the government control of key industries can have discriminatory effects on foreign investors. For example, the GOU retains strong control over all economic processes and maintains controlling shares of key industries, including energy, telecommunications, airlines, and mining. The government regulates investment and capital flows in the raw cotton market and controls all silk sold in the country, dampening foreign investment in the textile and rug-weaving industries. …

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