Attracting foreign investments in Uzbekistan

During the years of independence, a favorable investment climate has been created in the Republic of Uzbekistan, a wide system of legal guarantees and privileges for foreign investors, and a holistic system of measures has been developed to stimulate the activities of enterprises with foreign investments. The investment legislation of the Republic of Uzbekistan is one of the most advanced in the legislation of the CIS countries, incorporating the main provisions of international investment law, in particular, the provisions on guarantees of the rights of foreign investors, the provision of certain preferences for investors and others. The basis of legal regulation in the field of attracting foreign investment in the Republic of Uzbekistan is the Law “On Foreign Investments”, the Law “On Investment Activities”, the Law “On Guarantees and Measures to Protect the Rights of Foreign Investors”, as well as a number of regulatory acts adopted in the form of decisions President of the Republic of Uzbekistan and government decrees. Foreign investments in the territory of the Republic of Uzbekistan can be made in various forms.

In particular:

• -    equity participation in statutory funds and other property of business companies and partnerships, banks, insurance organizations and other enterprises established together with legal entities and (or) individuals of the Republic of Uzbekistan;

• -    creation and development of economic societies and partnerships, banks, insurance organizations and other enterprises fully owned by foreign investors;

• -    acquisition of property, shares and other securities, including debt obligations issued by residents of the Republic of Uzbekistan;

• -    investment of intellectual property rights, including copyrights, patents, trademarks, utility models, industrial designs, brand names and know-how, as well as business reputation (goodwill);

• -    the acquisition of concessions, including concessions for the exploration, development, extraction or use of natural resources;

• -    the acquisition of ownership of the objects of trade and services, housing, together with the land on which they are located, as well as the right to own and use land (including on the basis of rent) and natural resources.

Today it has become clear that a prerequisite for the sustainable development of the republic is high investment activity, which is achieved by attracting and effectively using internal and external resources. Further liberalization of the economy, the expansion of economic freedoms of economic entities and the scale of private property in all spheres of the national economy, the strengthening of international economic relations stimulate the successful implementation of work to attract and use foreign investment. In 2000, the first President of the Republic of Uzbekistan, I.Karimov, emphasized that in the republic “... even more favorable legislative conditions, guarantees and economic incentives should be created for the broad attraction of foreign investment in the country's economy, especially direct investment. It is necessary to ensure that foreign investment is actively involved in the structural transformation of our economy, the acceleration of technical re-equipment and the modernization of production.”

The experience gathered over the past period shows that foreign investments, combined with national natural production and labor resources, create a high cumulative effect when introducing advanced technologies, modern management methods and production organization, more active involvement of local, often previously unused, wealth into the economic turnover. Foreign investors not only invest their money in national enterprises, reconstruct and technically re-equip them, but also open up access to global sales markets, which improves the adaptation of business entities to civilized market relations, helping to raise their production and financial and economic activities to relevant world standards. Therefore, the stimulation of foreign investments, the increase in the efficiency of their use determine their need to preserve and improve the favorable conditions and preferential market in the republic. World experience convincingly enough shows that the attraction and use of foreign investment contributes to the development of the economy and serves as a powerful incentive for social and economic reforms. The idea that investment is the engine of the economy, ensuring its movement forward, is an axiom of any economic theory. Each state should make efforts to attract, first of all, to the sphere of material production of both domestic and foreign investors. For this purpose, a certain investment policy is being developed and implemented, an appropriate investment climate is being formed.

The economic changes carried out over the years of independence in Uzbekistan, based on their own model of transition to a market economy in a short period of time, undoubtedly yielded tangible positive results. Despite the fact that only 22 years have passed since independence, Uzbekistan has become a country with a stable economy, steady economic growth, a liberal foreign exchange market, low inflation rates, and a dominant place for finished goods that are not raw materials in the export structure. An important role in achieving these successes is undoubtedly played by ongoing reforms in the property sphere, which is based on large-scale privatization carried out in the country - the transfer of state property into the hands of real investors. Today, new horizons are being opened in Uzbekistan for investing - the most favorable conditions for business have been created, including political and macroeconomic stability, strong guarantees have been established to protect the rights of foreign investors and an extensive system of benefits has been provided for them. In addition, foreign investors are attracted by the low prices of raw materials, materials, energy, and highly skilled labor, which are vital for the production, compared to neighboring countries. The Government of the Republic of Uzbekistan pursues an active policy in order to create the most favorable conditions for foreign investors. Speaking about the forms of participation of foreign investors in the privatization process in Uzbekistan, the following can be noted. Foreign investors can participate in the privatization process by acquiring the state-owned share, realized by the methods listed above. In general, investors are interested in creating an enterprise with foreign investments, since such enterprises have been granted large tax breaks. An enterprise with foreign investments is an enterprise in which the share of a foreign investor in the authorized capital is at least 30%, and the size of the authorized capital is at least 150 thousand US dollars. Such a share of 30% can be redeemed in a privatized enterprise from among those blocks of shares sold on the stock market, then re-register this enterprise with the Ministry of Justice of the Republic of Uzbekistan as an enterprise with foreign investments. The process of attracting foreign investment in the economy of the republic is also carried out in the form of creating joint ventures with the participation of foreign capital. In addition, it is one of the most modern forms of production organization in Uzbekistan.

If we talk in more detail about the benefits, then the investments that are made by investors in the privatization process in the form of importing spare parts and components to the process equipment to the territory of the Republic of Uzbekistan against the investment obligations of foreign investors for technical reequipment and modernization of production are exempted from customs duties (except for charges for customs clearance) for the investment period from the moment the investor makes investment commitments. In this regard, many investors prefer to enter into agreements with the adoption of investment commitments. Foreign experience clearly shows that during the transition period, investments are becoming the most important factor not only for reconstruction and renovation, but also for the creation of new industries and enterprises. Therefore, the attraction and use of foreign capital in the economy of Uzbekistan is a significant regularity of the investment process at the present stage. At the same time, attracting foreign investment should be based on the principles of socioeconomic efficiency, environmental and economic security, mutual benefit and maintaining the priority of the state structural and reproduction policies. Based on these principles, it is necessary to determine the criteria for the correct choice of the optimal forms of investment activity. These criteria include: scope and type of products (knowledge-intensive, technically complex, etc.); scope of the project (small, medium, large); the strategic goal of attracting (from the import of equipment to the use of production and management experience). Studying the advantages and disadvantages of the existing forms of attracting foreign investment shows that direct investment can be considered as the most acceptable, since they are characterized by the presence of long-term interests of the investor in the economy of the host country and result in a greater profit compared to foreign loans [3]. For example, As follows from the company's report on US GAAP, in January-September 2013, LUKOIL’s oil company increased its investments in its projects in Uzbekistan by one third compared to the same period last year, to $ 444 million. The Russian company is currently producing gas at the Khauzak-Shady field in the Bukhara region, as well as at the Dzharkuduk-Yangi Kyzylcha block field in the South-West Gissar. In addition, LUKOIL conducts geological exploration of the Uzbek part of the Aral Sea as part of an international consortium. As part of the first two projects under the PSA, “LUKOIL” plans to produce 18 billion cubic meters of gas by 2017, and the volume of investments will increase to $ 5 billion against almost $ 2 billion invested so far.

Summing up, one can make an unequivocal conclusion: the implementation of market reforms in Uzbekistan, including the deepening of privatization processes, the achievement of macroeconomic stabilization and ensuring sustainable economic growth, fundamental structural changes in the national economic complex are inextricably linked with the active investment policy. As first President I.Karimov rightly noted in his report, “we must always remember the simple truth - without investment there is no progress, there is no technical, technological renewal and modernization of production and the whole country”