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Successfully investing in Uzbekistan

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last updated on 19 May 2021 | reading time approx. 6 minutes

 

 

 

How do you assess the current economic situation in Uzbekistan?

The Re­pub­lic of Uzbek­istan pur­sued a pro­tec­tion­ist eco­nom­ic policy to en­sure the form­a­tion of na­tion­al in­dus­tri­al pro­duc­tion un­der strict state con­trol. On the one hand, this guar­an­teed the coun­try's eco­nomy's res­ist­ance to glob­al eco­nom­ic crises, but on the oth­er hand, it served as a de­terrent to the growth of a com­pet­it­ive private sec­tor and the wide­spread at­trac­tion of for­eign in­vest­ment, with the ex­cep­tion of re­sources and ex­tract­ive in­dus­tries.


Since 2016, the gov­ern­ment has ini­ti­ated large-scale leg­al and eco­nom­ic re­forms aimed at en­sur­ing trans­par­ency, com­pet­it­ive­ness and in­vest­ment at­tract­ive­ness of the eco­nomy, as well as at a sig­ni­fic­ant re­duc­tion in the state's share in the real sec­tor.


Des­pite the neg­at­ive con­sequences of the glob­al crisis last year, the eco­nomy of Uzbek­istan has shown sta­bil­ity. The avail­able eco­nom­ic growth po­ten­tial and the timely ad­op­ted anti-crisis meas­ures made it pos­sible to avoid a re­ces­sion and main­tain pos­it­ive dy­nam­ics by the end of 2020 dur­ing a glob­al pan­dem­ic. Ac­cord­ing to the State Stat­ist­ics Com­mit­tee, from Janu­ary to Decem­ber, Uzbek­istan's GDP in­creased by 1.6 per cent and amoun­ted to 580.2 tril­lion Uzbek­istani soʻm, while GDP in oth­er neigh­bor­ing coun­tries and main trade part­ners of the coun­try de­clined. Am­bi­tious goals and prac­tic­al meas­ures taken to real­ise the eco­nom­ic po­ten­tial, in­clud­ing a de­crease in the state's share in the real sec­tor and re­lated ex­pect­a­tions, make it pos­sible to as­sess the eco­nom­ic situ­ation at the cur­rent mo­ment as fa­vor­able.


In­dus­tri­al sec­tor ac­counts for a third of GDP in the coun­try. Man­u­fac­tured products in­clude tex­tiles, food pro­cessing, mech­an­ic­al en­gin­eer­ing, me­tal­lurgy, min­ing, and hy­dro­car­bon pro­duc­tion. The coun­try is also rich in coal, gold, zinc, cop­per, tung­sten, urani­um and sil­ver. Al­though the pan­dem­ic had its con­sid­er­able im­pact on the in­dus­tri­al sec­tor, the 43 per cent of Uzbek­istan's Anti-Crisis Fund has been al­loc­ated to the in­dus­tri­al sec­tor, which is aimed at to mit­ig­ate the neg­at­ive im­pact of the pan­dem­ic on the coun­try's eco­nomy.


The ser­vice sec­tor, con­sist­ing of mainly from trans­port­a­tion and tour­ism, ac­counts for more than 30 per cent of GDP. However, in 2020, tour­ism was hit hard­est by the ef­fects of the pan­dem­ic. One of the not­able con­sequences of the pan­dem­ic was also a de­crease in the coun­try's in­vest­ment activ­ity.


Ag­ri­cul­tur­al sec­tor still plays an im­port­ant role in the Uzbek eco­nomy and ac­counts for over a quarter of GDP. The sec­tor em­ploys more than 20 per cent of the total work­ing-age pop­u­la­tion. Ma­jor ag­ri­cul­tur­al products in­clude cot­ton, wheat, bar­ley, rice, corn, pota­toes, ve­get­ables, fruits, and cattle. The coun­try also pro­duces silk and wool and is try­ing to di­ver­si­fy its ag­ri­cul­ture to­wards fruits and ve­get­ables.

   

How would you describe the investment climate in Uzbekistan? Which sectors offer the largest potential?

Since 2017, the gov­ern­ment has ini­ti­ated large-scale re­forms, where the Strategy of Ac­tions on Fur­ther De­vel­op­ment of Uzbek­istan set out ac­tion plans for the peri­od 2017 to 2021. An im­port­ant point in this doc­u­ment was the im­prove­ment of the in­vest­ment cli­mate in the coun­try.


Over­all, Uzbek­istan has the ad­vant­age of mac­roe­co­nom­ic sta­bil­ity, which, com­bined with on­go­ing re­forms, opens up op­por­tun­it­ies in vari­ous sec­tors of the eco­nomy in­clud­ing the fin­an­cial ser­vices, con­struc­tion or tour­ism. Dy­nam­ic de­vel­op­ment leads to an in­crease in de­mand for elec­tri­city, mod­ern­isa­tion of ex­ist­ing power grids and road in­fra­struc­ture.


The fol­low­ing state agen­cies and con­di­tions have been cre­ated in the coun­try in or­der to ef­fect­ively guar­an­tee the rights and le­git­im­ate in­terests of com­pan­ies and in­vestors:

 

 

On 28 Decem­ber 2020, the ad­op­ted Pres­id­en­tial Res­ol­u­tion set out a list of prom­ising projects that will be real­ised un­der the state pro­gram.


In gen­er­al, the in­vest­ment cli­mate in Uzbek­istan can be char­ac­ter­ised as fa­vor­able and dy­nam­ic­ally de­vel­op­ing. Prom­ising areas for in­vest­ment in Uzbek­istan in­clude man­u­fac­tur­ing, en­ergy sec­tor, en­vir­on­ment­al projects, edu­ca­tion, medi­cine and phar­ma­ceut­ic­als, and in­fra­struc­ture. At the same time, the chem­ic­al, en­ergy, geo­lo­gic­al, elec­tric­al and light in­dus­tries are es­pe­cially at­tract­ive to in­vestors.


What challenges do German companies face during their business ventures into Uzbekistan?

In ad­di­tion to the re­cog­nised achieve­ments in the in­vest­ment field, such as im­prov­ing the leg­al en­vir­on­ment for com­pan­ies, cre­at­ing fa­vor­able con­di­tions, guar­an­tees and tax in­cent­ives for in­vestors, sim­pli­fy­ing the pro­ced­ure for ob­tain­ing per­mits and li­censes, as well as ab­ol­ish­ing the re­quire­ment to ob­tain some li­censes and per­mits, there are still some is­sues and tasks that need solu­tions.


Des­pite in­sti­tu­tion­al and leg­al re­forms, there is a ser­i­ous short­age of qual­i­fied per­son­nel in Uzbek­istan. In ad­di­tion, the is­sue of at­tract­ing in­vest­ments has been set as a task for vari­ous state bod­ies, which leads to a dif­fu­sion of ef­forts and of­ten to a con­flict of de­part­ment­al in­terests.


The main iden­ti­fied prob­lems in­clude the con­tinu­ing non-trans­par­ent prac­tice of pub­lic pro­cure­ment, in­con­sist­ent com­pli­ance by the state with con­trac­tu­al ob­lig­a­tions, con­flict of in­terests between the reg­u­lat­or, the state and share­hold­ers, dif­fi­culties in the IT sys­tem, and a ban on the pur­chase of bank shares by for­eign­ers. Fur­ther, the dom­in­ant role of state-owned com­pan­ies in the GDP share neg­at­ively af­fects the com­pet­i­tion and ef­fi­ciency in sec­tors of the eco­nomy, in­clud­ing in key sec­tors such as en­ergy, auto­mot­ive, aerospace, chem­ic­als and min­ing. However, all of the above mat­ters are in the fo­cus of cur­rent re­forms and are ex­pec­ted to be solved in the near fu­ture.

 

Why should com­pan­ies de­cide to enter/re­main in the Uzbek­istan mar­ket?

Be­low we list a few key factors con­trib­ut­ing to the de­vel­op­ment of com­pan­ies in the Uzbek mar­ket:

  • Uzbek­istan has the largest and fast­est grow­ing mar­ket in Cent­ral Asia;
  • Eco­nom­ic growth de­term­ines the de­mand for new and en­ergy ef­fi­cient pro­duc­tion and tech­no­lo­gies;
  • A young and edu­cated work­force is an im­port­ant growth factor (69 per cent of Uzbek­istan's pop­u­la­tion are aged between 15 and 65);
  • Leg­al and in­sti­tu­tion­al re­forms im­ple­men­ted since 2016, an am­bi­tious state in­vest­ment pro­gram;
  • Im­prov­ing tax policy, es­pe­cially re­du­cing the tax bur­den;
  • Uzbek­istan is rich in nat­ur­al re­sources (gas, gold, cot­ton, hy­dro­power);
  • So­cio-polit­ic­al, mac­roe­co­nom­ic and fin­an­cial sta­bil­ity;
  • Re­l­at­ively low en­ergy prices;
  • Uzbek­istan, the most pop­u­lous coun­try (over 33 mil­lion people) with his­tor­ic­ally sig­ni­fic­ant cit­ies in Cent­ral Asia (Samarkand, Bukhara, Khiva) that are the largest con­sumer mar­kets in the Cent­ral Asi­an re­gion;
  • The coun­try has an ad­vant­age­ous geo­graph­ic­al po­s­i­tion due to its prox­im­ity to ma­jor mar­kets and is the key to Cent­ral Asi­an coun­tries. There is a free trade agree­ment with the CIS coun­tries, which provides duty-free ac­cess for Uzbek products to re­gion­al mar­kets with a pop­u­la­tion of over 300 mil­lion people.

 

In your opinion, how will Uzbekistan develop?

Uzbek­istan re­mains op­tim­ist­ic about the fu­ture. Prob­lems that hinder the im­ple­ment­a­tion of all prom­ising eco­nom­ic re­forms are gradu­ally be­ing elim­in­ated. It is well known that the con­sequences of the glob­al pan­dem­ic have also neg­at­ively af­fected the eco­nom­ic situ­ation of many coun­tries. To mit­ig­ate the im­pact of the Cov­id-19, prom­ising meas­ures have been taken that are be­ing im­ple­men­ted and will be im­ple­men­ted in the com­ing years.


The gov­ern­ment of the coun­try re­cog­nises that due to the situ­ation around the world, 2021 will also be dif­fi­cult for the eco­nomy, in con­nec­tion with which spe­cif­ic, tar­geted meas­ures are be­ing taken to at­tract and de­vel­op in­vest­ments and in­crease ex­port share. It is ex­pec­ted that more than 7,5 bil­lion US dol­lars will be at­trac­ted as FDI in 2021.


The main drivers of the eco­nomy in this and next years will be struc­tur­al changes and eco­nom­ic re­forms in the real sec­tor of the eco­nomy aimed at de­vel­op­ing com­pet­i­tion, in­vest­ment cli­mate and in­fra­struc­ture, ex­tens­ive privat­iz­a­tion of large state-owned en­tit­ies and the im­ple­ment­a­tion of large-scale in­fra­struc­ture projects with the par­ti­cip­a­tion of for­eign cap­it­al.

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