 Investment Climate |
Uzbekistan is an emerging market economy loaded with dynamic business potential especially in natural resources, and therefore an ideal environment for greenfield operations. Legislation regarding business operations, foreign currency transactions and tax incentives are constantly evolving as the government revises current policies in order to move towards a total economic reform.
The overall economic policy of the country, set down by President Karimov, has been to implement reforms gradually. The basis of this reform policy derives from a five-point plan, which was announced soon after the country's independence in 1991. According to these particular points the emphasis became the following: the economic reform must have priority over politics, the state should lead economic reform, the law must reign supreme, strong policies must be adopted according to the demographic structure of the population, and the transition into a market economy must be a gradual process. It was acknowledged that points are to be implemented in order to maintain stability and to avoid any shocks or surprises as they have already occurred in other transition economies in the post-Soviet countries.
Consequently, this economic foundation, laid by President Karimov at the outset of independence, has created confidence for foreign investors to enter the market, which is perceived as having an enormous potential and a great future. In addition, it has served as catalyst for a surge in entrepreneurship and the on-going successful privatisation process, particularly in the telecommunications, mining, energy, and tourism sectors. In accordance with his five-point foundational economic principals, President Karimov in his speech in January in 2001, stated that certain economic tasks should be explored and adopted by the government in the very near future in order to slowly and peacefully move towards more secure economic progress. These tasks include macroeconomic stability and stable economic growth, the implementation of the necessary structural reforms in the country, and the development of a multi-structure economy with a leading role played by the private sector. Moreover, President Karimov also emphasised the liberalisation of foreign economic activities, the gradual liberalisation of the foreign currency market, and the creation of a modern and integrated market infrastructure. Furthermore, on a more social level, President Karimov suggests that the government pursues a more active policy towards employment and the labour market, and ensures a stable and consistent increase in people's well being by strengthening the social security.
Part of the President's foreign investment policy was the introduction of a privatisation phase in 1998 with around 200 medium-and large enterprises offered for sale to investors during 1999-2000. To date, over 1 800 joint ventures have been registered with participants from more than 257 foreign companies representing 70 foreign countries. A good and successful example is the privatisation of Uzbektelekom, which is currently selling off 70% of its shares to foreign investors.
A comprehensive foreign economic reform program, prepared with advice from the World Bank was implemented in 1994 introducing measures to stimulate private enterprises, reduce state control, accelerate privatisation and encourage foreign investments making it attractive through tax incentives and legal protection. As new economic policies were introduced, organisations such as the IMF, EBRD, ADB and World Bank have come to the fore granting loans amounting in excess of $800 million.
Unlike other newly independent states in this region, the separation from the Soviet Union did not result in a drastic fall in Uzbekistan's GDP. Rather, the GDP in 1996 showed an increase of 1.6% followed by a 5.2% increase in 1997 and a further 4.4% in 1998. In 1997 the GDP reached 3.5% for the first time after independence and the country reached a 4,4% for 1999.
Total export figures for the period 1995 - 1999
were around $13,8 million. A fall in export figures
in 1999 led to a reduction in export quotas and
licensing as well as the phasing out of tariffs
and restrictions. Imports totalled almost $2,5 billion
in 1999, while the majority of Uzbekistan's export
earnings are derived from cotton with grain as a
key import item. Uzbekistan will continue to focus
on developing the internal manufacturing market
in order to avoid a negative balance of trade. |
At the end of 2000, Uzbekistan's foreign debt, since the outset of independence, amounted to $4 billion (mostly long term) with reserves in excess of one billion USD. Strong budgetary discipline has seen the servicing of this debt dramatically increasing, bringing the budget deficit to 1,5%. A drain on the budget has been maintaining and upgrading the country's present infrastructure for example reconstructing some of the major airports in the country, improving and building new roads, bridges and tunnels, upgrading transport facilities has drained the budget.
A solution to fund negatively balanced current accounts, which are a result of the government's accrual of deficits on foreign trade, is to introduce the concept of foreign direct investment (FDI). In turn they would create investment opportunities for foreign businessmen who could enjoy working in Uzbekistan without some of the restrictions that have been a hindrance in the past. This has eased by removing layers of bureaucracy, introducing tax benefits and priority convertibility in certain sectors.
The total amount of Uzbekistan's foreign investment exceeds $8 billion, including foreign loans and state guaranteed credits. More than 60% of foreign investment is aimed at the development of production. Moreover, $2.5 billion of direct risked capital is comprised of more than 3000 foreign investments from more than 80 different countries and industries such as oil and gas processing, motor car engineering, and electronics are being developed. Present investors such as British American Tobacco, led by Carlos Wagner, Newmont directed by Wayne Murdy UzDaewoo, CASE, Coca Cola, led by Nick Evangelopoulos, Oxus Resources Corporation, directed by Richard Wilkins, Daewoo Unitel, Siemens and Ericsson will agree that Uzbekistan is more welcoming to foreign investors, showing greater commitment to economic reform. They furthermore say that Uzbekistan is prepared to unify the exchange rate but they should introduce convertibility of foreign currency in order to make Uzbekistan a more attractive place in which to operate. President Karimov and his Minister of Finance are currently addressing this issue, taking positive steps in favour of the future of foreign trade in Uzbekistan. Some free trade of foreign currency has been allowed but it is necessary to open up the economy of the country even faster, providing equal opportunities for a variety of economic activities, regardless of status. Uzbekistan has applied to join the WTO as a positive step towards a deep-rooted commitment towards capitalism.
Uzbekistan operates on a multiple exchange rate system with two official currency exchange rates namely the official rate and the inter-banking government rate. The black market rate, however, is more telling of the actual value of the local currency, the Soum. The government, along with the IMF, is working on unifying these three rates. It is approaching the liberalisation of currency exchange with extreme caution. In the past it was only favoured firms and high profile joint ventures which had access to hard currency at the preferential official rate, but since a further step was taken on May 1, 2000 the currency market was further liberalised allowing currency to leave the country as dividends. Currently, the free capital outflow is discouraged. The next step will be to allow enterprises to buy and sell currency freely using the inter-banking rate, not the official rate. Full convertibility of currency has been promised and is anticipated for the very near future. |
