Business Environment in Uzbekistan for Foreign Direct Investment

...

As per indicators of EBRD transition, investment climate of Uzbekistan would remain in the least favorable in CIS, with Turkmenistan and Belarus ranking lower. Inflows of foreign investment have been caused by climate of unfavorable climate in order to decrease to trickle. It has been established that lowest level of per capita FDI in CIS is held by Uzbekistan. The data of investment reveals that since the independence of Uzbekistan, approximately 500 million dollars have been invested by various firms of US. However, owing to reduction in investor confidence, convertibility problems of the currency and harassment, most of the international investors left country or are deciding to leave (Global Traders).

It has been regularly stressed by the government that top priority should be given to attract the FDI. However, it was observed that quite selective approach has been followed in reality by the Tashkent management. The investments, which are considered appropriate with the export industrialization and import substitution policies, are generally welcomed by the government. In this pretext, government also welcomes the investments which discourage the import consuming sectors. Therefore, the FDI is lower as compared to other countries of Central Asia and plays marginal role in strategy of economic development of the country. In year 2012, it was reported that the GDP of Uzbekistan is lower than 2 % as FDI. Concentration was focused on the investment to the sectors of gas and oil and comes mainly from China and Russia. The role of South Korea is also tremendous as it has invested heavily in Uzbekistan for creation of automotive sector. In this context, the action of European Union may also be appreciated, who eased out recently the sanctions imposed upon Uzbekistan due to human rights poor record of the country. This lifting of sanctions resulted in enhanced activities of European investors (Roberto BENDINI, 2013).

Although there is huge availability of minimum wage rate, less market prices and lots of natural resources in Uzbekistan which are the sources of attraction for FDI investment, yet the lack of FDI concerning laws, good infrastructure and few other concerns are the causes by which the investors avoid to invest (Abdurakhmonov and Mukhsinkhu, 2003).

In the year 1996, the inflows reduced due to lower prices of commodities along with official exchange rate, restriction of the convertibility and deterioration of climate of business generally caused reduction in FDI and exports in the country. Due to these reasons the capital unofficial outflows also increased (ROSENBERG and ZEEUW, 2001).

As per the studies conducted for FDI inflows, it is established that in Uzbekistan inflows of cumulative net FDI per capita is less than that of received by CEB countries. This is due to the weak investment in CIS, especially weak structural reforms (Yakubova, 2015, pp.234-241).

There are estimates fixed for FDI inflows which depend upon the availability of sources. The figures of the foreign investment from government side comprised of guarantee of FDI and foreign loans to the firms. Official figures, even after subtraction, for FDI still are many multiples of figures which are shown in various international publications. There are chances that international publication may miss deals of FDI in Uzbekistan (UNDP, 2009).

There is exemption for the import of the goods which are in the use of foreign investors personally. This law also entitles the foreign citizens who are residing in Uzbekistan. This law is as per the policy incorporated in labor contract with foreign investors (PWC, 2014).

In order to encourage the flow of FDI, many positive measures by government of Uzbekistan have been carried out. If a foreign partner is involved in joint venture, they are exempted for seven years for tax payment provided that the project is related to Program of National Investment. This exemption is also valid for foreign ownership having more than fifty percent joint ventures (FAO INVESTMENT CENTRE / EBRD).

There is scarcity in Uzbekistan regarding experience of EKN which provide guarantee to the buyers, rather it is negative. In most of the cases, it is revealed that necessary licenses have been lost by the companies and the operation of the business is expropriated by government. Moreover, government may sometime imprison the employees of the companies. Exposure of EKN presently is dominated in gas sector by a guarantee (EKN, 2015).

It has been declared in one of the official reports that most of the ingredients which are needed by a country to be economic force regionally are possessed by Uzbekistan. These include dynamic, young and educated population. Moreover, good infrastructure, central location of the country in Central Asia, availability of natural resources and huge market of potential customers also included in resources. These are the factors which can easily attract FDI. In order to enhance the FDI investment in Uzbekistan, it is pre requisite to explore the reasons of low FDI. These factors can contribute tremendously in increasing the FDI in country if properly utilized. The recent developments in business climate may also be utilized. The constraints on the investment must be settled down and the advantages of location of the country worldwide must be utilized. In this context, the policy makers may be altered and potential investors may be allowed to take actions appropriately to overcome these obstacles and make the Uzbekistan attractive for FDI. It was planned by the country that about 77 investments programs be invited so that more than one billion USD foreign investments may be made. It was guaranteed by the government that 326 million dollars should be the foreign loans and rest would be the FDI. It is decided that in the sectors of gas and oil, largest FDI amount would be invested. The economy’s sectorial composition is being changed by these investments and production is also being shifted towards industry from agriculture (UNDP, 2009).

It was recorded that during the period of Jan 03 to Jun 14 in Uzbekistan, about 175 FDI projects have been initiated with a capital investment of more than 23.15 billion US dollars. One of main the advantages of these investments was that number of jobs which were created as consequence and it is reported that 46,225 jobs were produced (UHY, 2014).

As for as investment by western side is concerned, it is very less in average. In the year 2002, this investment by Westerns was reduced by 22% to 65 million UD dollars, and the FDI per capita also reduced and reported just dollars 2.5 in that particular year. Due to this drastic reduction, poverty in Uzbekistan was raised (Zasada, 2008).

Although it was the policy of government