12.01.2019

Foreign direct investment (FDI) in Uzbekistan

FDI in Figures

Uzbekistan ranks as the 74th in the 2018 Doing Business report by the World Bank, including a ranking as the 11th easiest country to start a business in. The country also ranks 157th out of 180 countries in Transparency International's 2017 Corruption Perceptions Index. According to the 2018 World Investment Report by the UNCTAD, FDI inflows slightly decreased drastically in 2017, to USD 96 million (-72%). The total stock of FDI stood at USD 9.2 billion (13.5% of GDP).

Seven special economic zones that offer tax breaks for investors have been created. The World Bank also claims investment growth moderated from 9.5% in 2016 to 7.1% in 2017; it is one of the main engines of growth. Uzbekistan plans to sell up to USD 300 million in Eurobonds during 2018 to be used production and infrastructure projects (Bloomberg).

Cooperation with China gained new momentum in 2011 with the launch of a construction project to build a pipeline extension linking the country to the Central Asia-China gas pipeline that has since been completed. China also pledged to invest USD 5 billion in infrastructure and in the mining sector. South Korea has also been an important partner investing over USD 2.6 billion in constructing a chemical plant. Japan has also expressed interest in Uzbek economy as the two countries signed an agreement to explore new hydrocarbon deposits; Japan contributed USD 5 billion to the project via the Japanese company JOGMEC. Russia has approached Saudi Arabia and Uzbekistan to construct a nuclear plant in these countries through Rosatom, Russia's nuclear corporation (TASS). Finally, USD 2.7 billion in money transfers from Russia to Uzbekistan was reported by the Russian central bank in 2017) (Reuters).

Restructuring of large state enterprises and joining the World Trade Organisation would bolster Uzbekistan's plea for FDI, but the country has been slow to advance on said fronts (Reuters).

Country Comparison For the Protection of Investors

Source: Doing Business, 2018

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Source: UNCTAD, 2018

Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

What to consider if you invest in Uzbekistan

Strong Points

Uzbekistan's key assets attracting FDI include:

- abundant and diversified natural resources (gas, gold, cotton, hydropower potential);
- low level of debt and comfortable foreign exchange reserves;
- ambitious public investment program;
- important size of the domestic market (population of 32 million)
- strategic position between China and Europe ("New Silk Road").

Weak Points

The major obstacles to FDI in Uzbekistan are :

- low economic diversification and dependence on commodity prices;
- low competitiveness;
- underdeveloped banking sector;
- state interventionism and difficult general business climate;
- autocratic regime.

Government Measures to Motivate or Restrict FDI

To improve the business environment, the Governement of Uzbekistan introduced in 2017 a number of legislative changes, including the cancellation of unscheduled, and seemingly arbitrary or punitive, inspections of businesses as of January 1, 2017; elimination of the requirement to convert certain percentages of hard currency export earnings at the official (artificially low) exchange rate; simplification of business registration procedures; creation of a Business Ombudsman office; and a Law on Countering Corruption that attempts to increase transparency in Government of Uzbekistan functions. 

By law, foreign investors are welcome in all sectors of the Uzbek economy and the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin. However, government control of key industries has discriminatory effects on foreign investors. For example, the Governement of Uzbekistan retains strong control over all economic processes and maintains controlling shares of key industries, including energy, telecommunications, airlines, and mining. The government still 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. Partial state ownership and government influence are common in many key sectors of the economy.

The state still reserves the right to export some commodities, such as nonferrous metals and minerals. In theory, private enterprises may freely establish, acquire, and dispose of equity interests in private businesses, but in practice, this is difficult to do because Uzbekistan’s securities markets are still underdeveloped.

Investment programmes were launched in order to encourage big investments in the priority sectors. Programmes include 86 foreign direct investment projects totaling 1.8 billion dollars, of which more than half is for the energy sector.

To encourage foreign investment, the Government provides tax incentives to joint stock companies for which foreign investment participation accounts for at least 15% of the authorised capital.

Bilateral investment conventions signed by Uzbekistan

The bilateral treaties on investment signed by Uzbekistan may be found on the Investment policy hub website.

Find out more about Investment Service Providers in Uzbekistan on GlobalTrade.net, the Directory for International Trade Service Providers.

https://www.nordeatrade.com/en/explore-new-market/uzbekistan/investment