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Investment Policy of the Republic of Uzbekistan
During the years of Independence, Uzbekistan formed favorable investment environment, broad system of legal guarantees and privileges for foreign investors, developed integral system of measures on encouragement of activity of the enterprises with the foreign investments.
The investment legislation of Uzbekistan is one of advanced amongst legislations of the CIS countries, and it incorporated major provisions of the international investment law, in particular, regulations on guarantees of the rights of foreign investors, certain preferences for investors and others. The following laws form the basis of investment environment in Uzbekistan:
On Foreign Investments;
On Guarantees and Measures of Protection of Rights of Foreign Investors;
On Protection of Rights of Investors on Securities’ Market.
In addition there is number of legislative normative acts issued in the form of Decrees of the President and/or Resolutions of the Government of Uzbekistan.
In accordance with current legislation the concept of foreign direct investment includes:
investing by foreign investors of material and non-material welfares and rights for them including IPR;
any income from foreign investments in facilities of enterprise and other types of activities.
Foreign investments in Uzbekistan could be made in different forms, and in particular:
equity participation in charter funds and other property of business entities, banks, insurance institutions and other enterprises established together with legal entities and/or with natural persons of Uzbekistan;
creation and development of business entities, banks, insurance institutions and other enterprises completely belonging to foreign investors;
purchase of property, shares and other securities, including the promissory notes emitted by residents of Uzbekistan;
investment of intellectual property rights, including copyrights, patents, trade marks, useful model, industrial samples, company names and a know-how, and also business reputation (goodwill);
purchase of concessions, including concessions on prospecting, exploration, extraction or use of natural resources;
purchase of the rights for property for facilities of trade and sphere of services, for premises together with the land plots on which they are located, and also the rights of possession and using the land (including on the basis of rent) and natural resources.
The Republic of Uzbekistan has no restrictions concerning the form of capital investment. Foreign investors are entitled to create within the county the enterprise in any organizational-legal form allowed by the legislation.
As of today, the most different forms of capital investment are offered to potential foreign investors:
creation of joint venture;
creation of the enterprise with 100 % foreign capital;
purchase of a part or full package of shares of privatized enterprises.
The enterprises with foreign investments are newly created enterprises meeting the following terms and conditions:
the size of the charter capital of the enterprise not less than the sum, equivalent to US $ 150 thousand;
one of participants of the enterprise is the foreign legal entity;
the share of foreign investments makes not less than 30 % of the charter capital of the enterprise.
Besides, if the enterprise with foreign investments earns over 60% of incomes from sale of produced goods or services, it is considered the industrial enterprise with foreign investments. Such enterprises are provided with additional tax, customs and other preferences and privileges.
Investment potential of the sectors of economy
The economy of Uzbekistan has a huge investment potential. For the years of independence, such sectors as automobile, agricultural machinery, biotechnology, pharmaceutical industry, information technologies received new development.
Uzbekistan is rich in various types of minerals. Over 100 types of mineral resources have been explored in the depths of country. Uzbekistan is one of the advance places in the world for its deposits of copper, silver, gold, lead, zinc, tungsten, natural gas and some other minerals. The explored deposits of minerals themselves are estimated at 3.3 trillion USD.
It’s necessary to attract 3.7 billion USD of investments in coming three years to upgrade and technically reequip the processing enterprises.In general, investment appeal of industries is caused by rather low expenses for production factors (electric power, natural gas, labor), a significant selling market (more than 26,3 million of resident population) and a duty-free access to the markets of the CIS countries (280 million of population). Thus, the cost of thousand cubic meter of natural gas costs 45 500 Soums (36 USD), one megawatt of electric power – 38 000 Soums (30.4 USD). The average real wages in the country is about 185 000 Soums (150 USD).
The enterprises of the oil-and-gas industry are incorporated into “Uzbekneftegaz” national holding company. The “Uzbekneftegaz” includes 6 joint-stock companies: JSC “Uzgeoburneftegazdobicha” (oil and gas production), JSC “Uztransgaz” (transportation), “Uznefteproduct” (oil processing), “Uzneftegazmash” (manufacture of technological equipment), the Shurtan gas-chemical complex (manufacture of polythene, popped gas, sulfur and tank gas).
The oil and gas industry of Uzbekistan provides the energy engineering of the republic with initial energy resources for 93%. About 65 billion of cubic meters of gas and 6.7 million tons of liquefied hydrocarbons are extracted in the republic annually. Only 5% of extracted raw resources are processed, where 197 thousand tons of liquefied gas and 125 thousand tons of polyethylene are produced.
Now export potential of the total extracted gas makes 1.4 billion USD if processed into the finished articles (polyethylene, polypropylene and other petrochemical products) the gas resources allow to increase the cost of ready production by 10 times.
Such well known companies as LUKOIL, GAZPROM (Russian Federation), CNPC (China), Korean Gaz Corporation KOGAZ (Korea), Petronas Charigali (Malaysia) and others are working in this sector.
Foreign companies attracted in oil and gas prospecting and exploration works are exempted from:
all types of taxes and payments in force in the territory of the Republic of Uzbekistan for the period of prospecting and exploration works;
customs duties in import of equipment, material and technological resources and services needed for carrying out prospecting, exploration and other associated works.
Oil and gas joint ventures established with participation of foreign companies, which carried out oil and gas prospecting exploration works, are exempted from
income (profit) tax for 7 years from the moment of starting extraction of oil or gas. Upon expiry of the above term, income (profit) tax rate for the said enterprises shall be determined as 50% of current rate;
property and income of foreign participants’ tax from equity participation share in joint ventures;
mandatory surrender of a part of hard currency proceeds from sales of products received as a result of activity on extraction and refinement of oil and gas, for the period of compensation of invested capital for search and prospecting works.
The first enterprises in the chemical industry of Uzbekistan have been created in the beginning of 30th of the XX century which are consequently became the strong base of creation of one of the most powerful chemical complexes in the Central Asia.
Enterprises of the chemical industry are incorporated into state stock company “Uzkhimprom”. Be the end of 2006, the production growth of this industry was 14.8% and its export increased by 29%.
The enterprises of this sector produce mineral fertilizers, organic and inorganic components, artificial fibers, polymers, chemical reagents for energy, gold, chemical industries, as well as chemical components for protection of flora. Gas, oil, coal, sulfur, ozokerite, table salt, various waste of non-ferrous metals, raw cotton and kenaf can be used as raw materials in this sector.
Enterprises established with participation of foreign investors from such countries as Austria, Russian Federation, Turkey, India, China and others are working in this sector.
Investment capacity of this sector is 800 million USD, which would finance the production of potassium, polyvinyl chloride, vinyl chloride, increase the production volumes of phosphor fertilizers, methanol, carbamide, ammonium nitrate, sodium chloride, melamine, and other products.
Today in Uzbekistan it is concentrated about 50% of generating capacities of the Incorporated Power system of the Central Asia.This system includes also power supply systems of Turkmenistan, Tajikistan, Kyrgyzstan and the South of Kazakhstan.
The power industry of Uzbekistan functions within the framework of the state joint-stock company "Uzbekenergo" formed in the form of open joint-stock company and including the enterprises of the coal industry.
Now the company includes 53 enterprises and organizations, including 39 open joint-stock companies, 11 unitary enterprises, 2 limited liability companies and the branch of the "Energosotish" company.
The basis of the power system of Uzbekistan are thermoelectric power stations with the gross station output - 10,6 million kilowatt. In five large thermoelectric power stations installed power units with the capacity of from 150 up to 800 Ìegawatt.
The extension of power line of the company exceeds more than 235 thousand km. The configuration of power line with the voltage of 220 - 500 kilovolt and with the extension of 7,5 thousand km provides stable work of system of power industry.
The main directions of development of the branch are construction of new sources of generating capacities – replacement of old ones, satisfaction of needs of forecasted growth of power consumption, introduction of modern technologies of energy production, reduction of negative influence of power on an environment.
It is intended to implement large investment projects on production and distribution of the power into the industry: modernization of Tashkent thermoelectric power station with attraction of credits of Japanese Bank of International Cooperation, construction of external energy saving objects in Tashkent (studied with the Eximbank of China), construction of high voltage electricity transmission (studied with the IsDB).
It is planned to attract about 300 million USD of investments in order to develop the electric power industry in the coming three years.
Clean Development Mechanism
In 1993 Uzbekistan signed the UN Framework Convention on Climate Change and in 1999 ratified the Kyoto Protocol within the Clean Development Mechanism (CDM). The CDM provides an opportunity to attract foreign investments and up-to-date ecologically friendly technologies from developed countries to implement technological projects aimed at decreasing of the greenhouse gas emissions. Many number of developed countries of the world including Japan, Great Britain, Denmark and others express interest in implementing the CDM projects in Uzbekistan.
The generation of electricity and thermal power, oil and gas sector, housing sector, transport, agriculture and chemical industry are the most attractive sectors of economy for carrying out the work on decreasing the emissions.
Investment potential of CDM projects in chemical, oil and gas, and energy production enterprises makes around 300 million USD.
To the foreign partners which are carrying out direct investments into the projects within the framework of CDM, is granted additional benefit in the form of exemption from income tax received in the frame of projects in the territory of the Republic of Uzbekistan.
One of the priority directions in the development of export policy of Uzbekistan is to develop the textile sector, where the basic export commodities are cotton yarn, cotton fabrics, and knitted garments.
This sector has a stable raw material basis – around 1 mln. tons of cotton fiber are produced in the republic annually, out of which only 23% is processed. The most of the existing capacities is concentrated in spinning manufacture and there is a huge opportunity to invest into the projects of weaving and sewing production creation.
The branch is lead by the Program of modernization and technical re-equipment for 2006-2008, which envisages the exemption from tax and customs payments. The purpose point of further development of a branch is the reduction for 50% of the volume of processed fabric and complete products of cotton fiber, which demands the attraction of investments for more than 700 million USD.
Enterprises established with participation of foreign investors from such countries as Germany, Italy, South Korea, Turkey, the USA, India, the Great Britain, Austria and others.
With a view of stimulation of investment activity in light industry the legislation of Uzbekistan stipulates following privileges and preferences:
enterprises specialized on manufacture of finished clothes (sewing, knitted and leather products), hosieries and footwear, are exempted from all kinds of taxes and fees, except for VAT;
enterprises are exempted from customs payments (except for customs registrations) on manufacturing and support equipments, production tools and spare parts, imported just for own use.
Thus it is necessary to note that released means are a subject to the subsequent direction on reequipment and modernization of manufacture, development of new kinds of complete products, updating of own turnaround means, stimulation of workers
The Program of development of the Silk branch of the Republic also stipulates following privileges and preferences:
are exempted from VAT till January 1st, 2010, - Grain factories, regarding realization of grains of own manufacture to cocoon producing facilities under direct contracts and through cocoon preparing organizations; And the enterprises on preparation and initial processing of cocoons - regarding realization of dry cocoons to the processing enterprises of silk branch of the republic;.
are exempted from customs payments (except for fees for customs registrations) till January 1, 2008, imported raw materials, inks, chemicals and support materials that are not produced in Uzbekistan, by SJS “Uzbekengilsanoat” for own use.
Production and processing of fruit and vegetable products
The agriculture, including fruit-and-vegetable sector of the country develops due to structural transformations, growth of population and activity of farms, realization of mechanisms of their preferential crediting, on-time financial support, and also enhancement of efficiency of use of material resources.
Uzbekistan has a significant agricultural resource potential and has an opportunity to produce over 10 million tons of fruit-and-vegetable production annually. Nowadays in the republic over 1,7 million tons of production of gardening and viticulture, about 5 million tons market gardening cultures and potato are annually made. The fruit and vegetables have unbeaten flavoring qualities. Uzbekistan is famous for its apples, peaches and pears, sweet cherry and plums, quince and grapes, melons and water-melons from ancient times. In the Republic are raised subtropical cultures such as a fig, a pomegranate, a persimmon, etc.
Enterprises established with participation of foreign investors from such countries as Germany, the Netherlands, Austria, the USA, Turkey, Russian Federation, Switzerland, Italy, Spain and others are working in this sector.
The potential of fruit-and-vegetable branch of the Republic much more exceeds present indexes. Thereupon, it is necessary to organize a deep processing of fruit and vegetable products with competitive quality on foreign markets with such products as juices, jams, fresh-frozen, vacuum-dried and other dried fruits.
The food industry of Uzbekistan is based mainly on processing of local agricultural raw material and presented by the enterprises of fat-and-oil, confectionary and processing industry.
87 enterprises of industry are consolidated into the Association of fat-and-oil and food industry including 20 joint stock companies, 38 joint ventures, 28 private and 3 unitary enterprises.
According to forecasts of the Association of fat-and oil and food industry, in 2007 rate of growth of industrial outputs, in comparison with the last year, would make up 117.6%, and on producing of consumer goods – 118%.
Joint Venture on production of soft drinks and milk with the participation of “Nestle” (Switzerland), “Vimm-Bill-Dann-Foodstuff” (Russian Federation), “British American Tobacco” (the Great Britain) successfully operating in Uzbekistan, as well as enterprises formed with the participation of companies from the Great Britain, China, Turkey and others.
The big prospects are expected in such directions as manufacture of infant’s foodstuff, dry breakfasts, confectionery, cheese and sausage products. The investment potential of the industry is about 200 million USD.
In Uzbekistan the main kinds of electrotechnical productions are cabel-conducting productions, light bulbs, electronic engineering, power transformers, various electronic devices and engines.
The enterprises of the industry are consolidated into the Association "Uzeltekhsanoat" formed in 1994 on the basis of the Uzbek state concern of the radio-electronic, electrical industry and instrument engineering "Radioelectrontechpribor".
At present the Association includes 31 enterprise of various pattern of ownership, including 14 open joint-stock companies and 11 enterprises with foreign investments, formed by the companies of Germany, the USA, Russia, the Great Britain, Turkey, Switzerland and Italy.
The production of copper, silver, gold, zink, derived aluminium, which are the main raw materials for electrical industry, is established in Uzbekistan.
Prospective directions are manufacture of semiconductors, dry cast transformers, illuminant halogen light bulbs and integrated microcircuits. Stably the growing demand characterizes the market of cellular telephones. As a whole, the investment capacity of the branch is estimated as 120 million USD.
Manufacture of construction materials
Uzbekistan has significant stocks of constructionmaterials: 49 deposits of a building stone, 76 - sand-gravel materials, 198 - brick and tile raw materials, and also limestone, building sand, plaster, haydite, chalk, talc, etc.
The enterprises of the industry of the constructionmaterials, incorporated in joint-stock company "Uzstroymateriali", provide constructionobjects with all kinds of materials: cement, lime, plaster, walling, roofing, finishing materials (glass, marble and granite plates), sanitary ceramics, waterproofing materials - all more than 100 kinds of basic construction products.
The enterprises and the organizations specialized on manufacture of construction materials, products and designs are exempted from customs payments (except for fees for customs registrations), at import of the equipments and utilities for their production.
The additional factor of promoting increase of consumption of construction materials, especially construction brick, is the exhilaration of rebuilding in the Republics of the Central Asia. This tendency will be kept in prospects.
Internationally known company “Knauff” (Germany), as well as companies from Spain, USA, Austria and other countries work in the Republic. Development of the manufacture of building materials needs 430 million USD of investments for expansion of production of cement, sanitary ceramics, ceramic plates, heat-insulating materials, glue, varnishes and paints.
The enterprises of automobile industry in the Republic are incorporated into joint-stock company "Uzavtosanoat" which includes 20 enterprises. The company cooperates with a number of enterprises which are not included in its structure.
For all period of its activity have been made out about 682 thousand automobiles, including in 2006 - 140 thousand automobiles.
JSC "UzDaewooavto" and the other enterprises are to develop 253 new details and parts for production. Realization of the given actions will allow to reach an average level of localization on all models of automobiles of JSC "UzDaewooavto" not less than 60%, including models as Nexia – 61.4%, Matis – 57%, Damas – 58.9%.
Enterprises established with participation of foreign investors from such countries as South Korea, Turkey, Iran, the Czech Republic, Belorussia.
With the attraction of foreign investments to the realization are offered projects on manufacture of parts of mechanisms and internal furnish of automobiles as "Matis", "Damas", "Nexia", such as systems of ventilation, heating and air conditioning, toolbar, headlights and lanterns, general mechanical rubber goods and others.
Association "Uzselkhozmashkholding” is the professional organization in the sphere of engineering. In this branch functions dozen of industrial enterprises producing digger, tractor, trailers and hinged agricultural machinery. With the attraction of foreign investments to the realization are offered projects on manufacture of transmissions for tractors with the capacity of up to 120 h.p. and more, and also realization of holding share of open society "Compressor", open society "Suvmash" and others.
Uzbekistan is one of few countries of the world having own aircraft construction. Manufactured more than 10 modifications of the cargo liner IL-76, under the orders of corporation Boeing parts of the instrument panel of planes are made. Manufacture of new perspective model of the passenger airplane of average range - turboprop IL-114-100 is started.
One of leading industries of Uzbekistan is ferrous and non-ferrous industry, including manufacture of copper, refractory and heat resisting metals, gold. The largest enterprises of the branch are – Navoi and Olmaliq mining plants. The Uzbek plant of refractory and heat resisting metals (city of Chirchik) operates on the basis of tungsten ores and molybdenum, found out in the Republic. The other plant located in the city of Bekobod (Tashkent province) produces steel and rolled metal by processing scrap metal of metallurgical plant.