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U.S. Department of State

Diplomacy in Action

2013 Investment Climate Statement - Uzbekistan


2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013
Report
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Openness To, and Restrictions Upon, Foreign Investment

Uzbekistan has the potential to become a strong regional economy due to its dynamic, literate, and entrepreneurial population, the largest in Central Asia, a solid infrastructure, and a large potential consumer market. Although the Government of Uzbekistan ("government" or “GOU”) declares that attracting foreign direct investment is a core priority in its policymaking, in practice foreign investors have limited business opportunities in Uzbekistan without support of the government or entities affiliated with the state. The government generally welcomes investors and investment projects that are in line with its import-substitution and export-oriented industrialization policy, and discourages investments in import-consuming sectors by controlling access to foreign exchange. Currency convertibility is cited by foreign firms as one of the greatest obstacles to normal investment operations. Existing legislation on its face grants foreign direct investors a host of incentives on a case-by-case basis, including tax holidays, duty-free import of capital goods, and protection against expropriation. However, the requirements for obtaining these benefits are ambiguous, the processes and procedures are cumbersome, and the regulatory environment is capricious. The GOU prefers ‘strategic’ investors with long-term technical assistance commitments and usually does not welcome portfolio investors. The country’s commodity and capital markets are far from being efficient, market-oriented, and well-functioning. The lack of transparency and predictability has deterred many potential investors.

Primary legislation protecting foreign investment includes the Law on Foreign Investments, the Law on Guarantees and Measures on Protection of Foreign Investments, the Law on Guarantees of the Freedoms of Entrepreneurial Activity, the Production Sharing Agreements Law, the Law on Investment Activities, and a number of relevant GOU decrees and resolutions.

A foreign investor may participate in a variety of legal forms of business, ranging from partnerships to joint-stock companies to wholly-owned enterprises. Businesses with foreign investment must register with both the Ministry of Justice and the regional governor’s office (Khakimyat). Depending on the extent of foreign participation, a business may be considered an “enterprise with foreign capital” (less than 30% foreign-owned) or receive special status as an “enterprise with foreign investment” (more than 30%, with a minimum charter capital). Foreign companies may also maintain a physical presence in Uzbekistan as “permanent establishments” without registering if they do not conduct commercial activities and only have representative functions. A permanent establishment is not required to open a bank account or pay taxes.

The following rights are guaranteed under Uzbekistani law to foreign investors:

  • To decide on the amount, kinds and channels of investments;
  • To conclude agreements to carry-out investment activity;
  • To own, use and dispose of investments and the results of investment activity;
  • To patent inventions, models and industrial samples belonging to the foreign investor;
  • To repatriate profits from Uzbekistan or to reinvest them into Uzbek entities;
  • To obtain financial resources in the form of credits and loans;
  • To convert local currency into foreign currency;
  • To possess and use land on terms provided by the legislation;
  • To receive compensation for investments/other assets in case of expropriation by the state; and
  • To receive compensation for losses incurred due to the illegal activity or decisions of the state.

Though the government nominally guarantees these rights, the legislation is ambiguous and self-contradicting. Several of the rights, such as converting and repatriating profits and conducting business without government interference, are routinely violated by government action, and currency conversion difficulty is cited most frequently by foreign firms as the greatest impediment to doing business in Uzbekistan.

In principle, the judicial system upholds investor rights and the sanctity of contracts. The judiciary is not independent, however, and regularly favors state-owned or government-affiliated entities. Foreign investors have reported numerous procedural infractions in both the Economic and Criminal courts of Uzbekistan and the Embassy knows of a number of cases in which foreign companies did not receive timely payments from local partners.

Local legislation contains a number of disapplications (deeming that they do not apply to the state), which allows state interference and concedes equivocation of the law within the judicial system. Corruption is a constituent factor in legal proceedings, primarily in disputes between private businesses.

The legislation of Uzbekistan provides a wide range of guarantees for foreign investors, including:

  • protection against discrimination based on nationality, place of residence or country of origin;
  • protection from harm caused by retroactive implementation of legislation;
  • in the case of changes to legislation, the right to apply at their own discretion those provisions of the new legislation which provide for better conditions for their investments;
  • protection from interference by the state in the economic activity of foreign investors which are carried out in accordance with the law; and
  • any change in legislation that worsens foreign investment conditions shall not be applied to those investments until ten years following the date of the investments.

Despite these guarantees, the government's involvement and control in key industries can have discriminatory effects on foreign investors. The GOU retains strong control over all of the economic processes in the country and maintains controlling shares of key industries, including energy, telecommunications, airlines and mining. The government regulates investment and capital flows in the raw cotton market and also controls all silk sold in the country, dampening foreign investment in the textile and rug-weaving industries. Partial state ownership and influence are common in almost all sectors of the economy.

There are several official limits on foreign investment. Foreign ownership and control are prohibited for airlines, railways, power generation, and other sectors deemed to be related to national security. Restrictions also apply to media, banking, insurance and tourism. Foreign investment in media enterprises is limited to thirty percent. In banking, foreign investors may operate only as joint venture partners with Uzbek firms, and banks with foreign participation face set charter funding requirements (€10 million for commercial banks, €5 million for private banks), while the required size of the charter funds for Uzbek firms is set on a case-by-case basis. In the tourism sector, foreign ownership cannot exceed forty-nine percent.

The government closely scrutinizes all proposed foreign investments, with special emphasis on sectors of the economy that it considers strategic, including mining, cotton processing, oil and gas refining, and transportation. The aim of this policy is to protect domestic industries and limit competition from abroad. Screening can be used to limit investment in certain industries and by certain countries, depending on Uzbekistan’s current policy priorities.

The government also uses licensing as a tool to control enterprises in sectors such as energy, telecommunications, retail sales, and tourism. Often licenses for business operations in these sectors are issued by agencies that themselves have commercial interests in the sector.

The government reserves the right to cancel the registration of any business or withdraw its license, and government inspections may lead to punitive sanctions or closure of a business. The Ministry of Justice is the primary agency that decides the outcome of business screening reviews. The Economic Court can close an enterprise and its decisions can be appealed to the Superior Economic Court in accordance with Economic Procedural Code or other applicable local law. Reviews usually are slow and some foreign investors, including U.S. firms, have characterized the process as unpredictable and non-transparent, making it a tool for forcible takeovers of businesses.

The main entity that reviews transactions for unfair competition is the State Committee for Privatization, Demonopolization and Development of Competition. This agency is responsible for developing a competitive environment, limiting monopolistic activities and regulating natural monopolies, reorganizing economically insufficient ventures, supporting the development of entrepreneurship, protecting consumer rights, and controlling advertising activities. The Committee operates both directly and through its territorial units, as well as through its non-profit consulting unit, the Antimonopoly Policy Improvement Center.

The Law on Denationalization and Privatization (November 1991) lists state assets that cannot be privatized, including: land with mineral and water resources, the air basin, flora and fauna, cultural heritage sites, state budget funds, foreign and gold reserves, state trust funds, the Central Bank, enterprises that facilitate monetary circulation, military and security-related assets and enterprises, firearms and ammunition producers, nuclear research and development enterprises, some specialized producers of drugs and toxic chemicals, emergency response, civil protection and mobilization facilities, public roads, and cemeteries.

The GOU does encourage foreign direct investment (FDI) in the following sectors: oil & gas exploration, extraction and processing; renewable energy; production of building materials, textiles, machines and mechanical components; and tourism infrastructure.

Uzbekistan subscribes in principle to institutional and economic reform, such as restructuring and privatization, but implementation has been limited, reflecting an incremental approach to reform. The main mechanisms for selling state assets are open tender and auction, but the process is transparent only at the initial stage. The government uses local or international financial consultants for privatization of large enterprises, and only after they evaluate an enterprise are foreign investors invited to participate. Many investors note a lack of transparency at the final stage of the bidding process, when the government negotiates directly with bidders before announcing the results. In some cases, the bidders have been foreign-registered companies associated with influential Uzbek families who have tenuous foreign addresses.

Foreign and local investors suffer from government interference in investments, and bureaucratic obstacles consume significant time and resources. The current system of taxation is complicated and ambiguous, leading to widespread corruption and rent seeking. Offset of current losses is not possible under current tax laws, and a company that does not show a concrete profit for six months is considered bankrupt.

Currency restrictions through the banking system hamper business and economic development, as do restrictive trade policies. International surveys and rankings routinely assign Uzbekistan low scores for corruption and economic freedom. For example, Transparency International (TI) ranked Uzbekistan 170 out of 176 countries for corruption. Uzbekistan’s Corruption Perceptions score is 17 on a scale of 0 - 100, where 0 means that a country is perceived as highly corrupt and 100 means it is perceived as very clean. Heritage Economic Freedom Index placed Uzbekistan 164 out of 184, and the World Bank’s Doing Business Index ranked Uzbekistan 154 out of 185.

Business Environment Indicators:

Measure

Year

Index or Rank

TI Corruption Index

2012

17 / 170

Heritage Foundation’s Economic Freedom index

2012

45.8 / 164

World Bank’s Doing Business Report

2012

154

MCC Government Effectiveness

FY2013

0.11 / 62%

MCC Rule of Law

FY2013

-0.48 / 15%

MCC Control of Corruption

FY2013

-0.47 / 11%

MCC Fiscal Policy

FY2013

5.6 / 98%

MCC Trade Policy

FY2013

66.1 / 46%

MCC Regulatory Quality

FY2013

-0.83 / 11%

MCC Business Start Up

FY2013

0.985 / 96%

MCC Land Rights and Access

FY2013

0.56 / 43%

MCC Natural Resource Protection

FY2013

12.9 / 16%

MCC Access to Credit

FY2013

26 / 55%

MCC Inflation

FY2013

12.8 / 28%

Conversion and Transfer Policies

Uzbekistan adopted Article VIII of the International Monetary Fund’s Article of Agreement in October 2003 and, thus, committed to currency convertibility for current account transactions. In practice, access to foreign currency is under restrictive government control.

There are two legal exchange rates in Uzbekistan: the commercial (wire-transfer) rate and the exchange booth rate, as well as semi-official and unofficial (black market) rates. By law, all citizens have access to the exchange booth rate, but in practice exchange booths don’t sell foreign cash. These restrictions have created a thriving currency black market. As of December 2012, the black market rate of 2,720 soum per U.S. dollar exceeded the official exchange booth rate of 2,003 by roughly 36%. The Uzbekistan Commodity Exchange developed a semi-official exchange rate for import operations, which was about 3,200 soum per U.S. dollar in 2012.

Foreign investors are guaranteed transfer of funds in foreign currency into and out of Uzbekistan without limitation, provided they have paid all taxes and other financial obligations in accordance with legislation. In practice, multiple informal restrictions remain in place. All legal entities must obtain permission from the Central Bank to access foreign currency and applicants must expend significant time navigating the bureaucracy. The government reportedly issues banks confidential instructions regarding which orders are to be filled and Uzbek authorities may stop the repatriation of a foreign investor’s funds in cases of insolvency and bankruptcy, criminal acts by the foreign investor, or when directed by arbitration or a court decision.

Banking regulations mandate that the currency conversion process should take no longer than two weeks, but current lag times range from three months to more than a year, making import of intermediate goods, raw materials, and manufacturing components difficult or impossible. During these delays, the entire amount to be converted is impounded by the Central Bank of Uzbekistan (CBU) in a non-interest bearing account.

Currently, there is no legal private market in Uzbekistan for investors to remit funds. Private money transfer businesses provide services only to individuals and have limits for remittances in foreign currency. Exchange booths provide services only to individuals and usually have strong limits for transactions with foreign currency, leaving investors at the mercy of the Central Bank for hard currency.

According to Uzbek law, 50% of foreign currency earned from exports must be immediately exchanged for local currency through authorized banks at the official exchange rate. Exemptions to this requirement may be provided to some smaller companies or to majority foreign-owned companies that export manufactured goods for not less than 60 percent of their total profit.

The goal of the government's tight fiscal and monetary policies is to minimize capital outflow, regulate imports, stimulate local manufacturing and reduce the country dependency on external factors. The GOU believes that this course minimizes Uzbekistan’s exposure to risk stemming from global financial woes, but in practice, deters potential foreign investments.

Expropriation and Compensation

The government may seize foreign investor assets for violation of legislation, breach of contract, failure to complete investment commitments, and for arbitrary reasons such as revaluation of assets and site development programs. Although the government is obligated to make fair market compensation for legally seized property, it has offered less than market value in several recent cases with foreign and local businesses, and with individuals. Compensation to foreign partners must be made in a transferrable currency, but in most cases is made in local currency.

Profitable, high profile foreign businesses are at greater risk for expropriation, but smaller companies are also vulnerable. A number of companies have faced expropriation in the mining, retail, and telecommunications sectors: In September 2012, the Tashkent City Criminal Court seized assets cellular telecom provider Uzdunrobita, a 100% subsidiary of Russian MTS Company for financial violations. An appeals court reversed this decision in November 2012, but MTS must still pay of USD600 million in fines. Industry experts believe that MTS will leave the market, though the company continues to lobby to be reinstated. In October 2011, beer production operations of a company owned by Danish Carlsberg were temporarily halted and legal proceedings are still in progress. Earlier in 2011, the government began liquidation of the Amantaytau Goldfields, a 50-50 joint-venture between British Oxus Gold and a state mining company. Government authorities seized a large grocery store chain and approximately fifty smaller companies owned by Turkish investors. In 2010 the government seized a Russian food processing plant with the explanation that the company was inefficiently implementing investment commitments. In 2010 the government seized assets of Omega Optical Company, owned by U.S. investors, allegedly for tax violations.

Dispute Settlement

There have been a number of investment disputes involving foreign investors and contractors in Uzbekistan in recent years, mainly in the mining, textile, telecommunications, food processing and trade sectors. Most disputes involved nonpayment or delayed payment for goods or services by state entities. Recent cases relating to non-payment include a U.S. construction contractor and a U.S. supplier of ag-chemical products.

Disputes within joint ventures are also common, as local partners must balance their commitments against heavy government pressure and corruption. Some disputes are further complicated by tax authorities, who can seize assets or sequester funds from a company account before a court reviews the case. The general public has limited information about investment disputes, as official media either do not cover the disputes at all or present biased comments. Because of this, and due to limited access to the media, the reaction of nascent civil society business organizations on these disputes is minimal.

The Law on Guarantees to Foreign Investors and Protection of their Rights requires that disputes directly or indirectly associated with foreign investments be settled by agreement of the parties through consultation between them. Investors are entitled to use any international dispute settlement mechanism specified in their contracts and agreements with local partners, and these agreements should define the methods of settlement. Dispute settlement processes are also included in some bilateral treaties, but there is currently no treaty covering U.S. citizens. If no international mechanism is specified, disputes are settled directly by the Economic Court of Uzbekistan. Separate arbitration courts are also available for civil cases, and their decisions can be appealed in the general court system.

Dispute settlement methods are regulated by the Economic Procedural Code, the Law on Arbitration Courts, and the Law on Contractual Basics of Activities of Commercial Enterprises. According to the Law on Arbitration Courts, parties of a dispute can chose their own arbiter and they in turn chose a chair. The decisions of these courts are binding. The Law says that executive or legislative bodies, as well as other state agencies, are barred from creating arbitration courts and cannot be a party to arbitration proceedings. The verdict of the Arbitration Court can be appealed by either party to the dispute to the general court system within thirty days of the verdict. Monetary judgments are usually made in local currency.

Bankruptcy procedures are regulated by the Law on Bankruptcy. Creditors can participate in liquidation or reorganization of the debtor only in the form of a creditor’s committee. According to the bankruptcy law and the Labor Code, re-solvency receivers should act with consideration of workers’ rights.

It should be noted that government officials interpret laws and decrees inconsistently and in conflict with each other. Government interference and corruption are common and should be expected.

Foreign investors have no reasonable expectation that the government will honor an international arbitration verdict in favor of the foreign plaintiff. The Law on Guarantees to Foreign Investors and Protection of their Rights permits resolution of investment disputes in line with the rules and procedures of the international treaties of which Uzbekistan is a signatory. However, in November 2006 the Constitutional Court of Uzbekistan discovered that this law does not stipulate the so-called consent of the involved parties—that of Uzbekistan in this case—to have their dispute settled at the international level. In other words, Uzbek justice is not going to recognize foreign business attempts to defend their interests in international courts unless the written consent of all involved parties is provided.

If international arbitration is permitted, awards can be challenged in domestic courts. Domestic arbitration bodies in Uzbekistan are represented by Arbitration Courts. When the Economic Court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling. However, its authority is limited and frequently co-opted by more influential powers within the government. Judgments against state-owned enterprises are particularly difficult to enforce. Monetary awards are usually made in local currency.

Uzbekistan is a member of the International Center for the Settlement of Investment Disputes and a signatory to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

Performance Requirements and Incentives

Uzbekistan is not a member of the World Trade Organization (WTO) and has several practices that do not conform to WTO requirements on Trade-Related Investment Measures (TRIMS). Many of these practices reflect Uzbekistan’s import substitution policy, including tax breaks for exporters, non-tariff barriers for imports, and poor records in protecting intellectual property rights. Uzbekistan’s application for WTO membership was submitted in 1994, but its Working Party has not met since 2005. Throughout 2012, the GOU made positive statements suggesting a more active WTO accession effort.

Import substitution is a cornerstone of the GOU’s economic policy. The government welcomes foreign investors mainly in the area of localization or building local production capacities and export potential. Investors are often required to present long-term investment commitments with set target investments and job creation goals before their registration and licensing are approved.

Current legislation of Uzbekistan provides a number of incentives for foreign investment, including tax breaks and exceptions from custom duties. Under the general tax legislation, tax incentives for foreign investment are mainly the same as for local enterprises participating in the investment program, localization or modernization program. In addition, enterprises with significant foreign investment (more than USD20 million) in priority sectors or regions can negotiate special benefits by concluding an investment agreement with the Government, including additional tax and customs incentives, government guarantees and co-financing. These incentives generally require approval by the Cabinet of Ministers.

In 2012 the government introduced new incentives to raise the attractiveness of Uzbekistan for investment potential. These include:

  • New foreign investors are granted ten-year immunity to changes in tax legislation if they invest at least USD5 million.
  • The government at its own expense is committed to build all required external utilities, engineering, and communication networks for projects where investments exceed USD50 million and the share of foreign investors exceeds fifty percent;
  • Foreign investors are able to buy state-owned, low-liquidity facilities at zero redemption cost if they make specific investment commitments;
  • Enterprises with foreign investments operating in specified industries and located outside of Tashkent city and Tashkent province are granted tax holidays for a period of three years if the FDI exceeds USD300 thousand; five years if it exceeds USD3 million; and seven years if it exceeds USD10 million. (Applies to the production of electronics, leather products, textiles, apparels, silk, various building materials, foodstuffs, chemical products, pharmaceuticals, packaging materials, renewable energy generators, coal, industrial and agricultural machinery, glass, microbiological products, and toys.)

The General Prosecutor’s office is responsible for preventing abuse of foreign investors by local governments or administrative bodies. Any requirement introduced by banks, agencies or other authorities extending beyond this legislation are illegal and the Cabinet of Ministers, Ministries of Economy, Finance, Foreign Economic Relations, the Central Bank, and the State Statistics Committee are required to provide free access to economic information that foreign investors require.

Other tax incentives for enterprises with foreign investments include:

  • Joint ventures with foreign participation in the oil and gas sector carrying out explora­tion works have a seven-year tax holiday from income tax from the extraction start date, and thereafter a fifty percent reduction and exemptions from property taxes and dividend tax­es. (President’s Decree on Means for Attracting Foreign Direct Investments to Exploring and Extraction of Oil and Gas, UP-2598, 28 April 2000);
  • Goods produced and imported by a foreign investor who invested more than USD50 million are exempt from customs duties; and
  • Enterprises where the share of foreign investment exceeds USD300 thousand are exempt from unified tax payment, income (profits) tax, property tax, infrastructure development tax, and road tax for three to seven years, depending upon the amount invested. The investor share must be at least thirty-three percent; the investment must be made in hard currency or new equipment; at least fifty percent of tax savings are re-invested; and the investor received no sovereign guarantee.

The corporate income tax rate is nine percent for businesses, fifteen percent for commercial banks, and thirty-five percent for entertainment firms. Taxed profit can be reduced to expand production through new construction or reconstruction of existing buildings and structures and to modernize and re-equip the technical means of production or procure new equipment.

Enterprises that export goods or services (except raw materials) benefit from a fifty percent reduction in income tax if the company's exports account for not less than thirty percent of the total sales of produced goods, and a thirty percent reduction in income (profit) tax if the company's exports account for 15-30 percent of the total sales of produced goods.

Companies that build new production facilities are exempt from property tax for two years from the moment of their registration. This incentive does not apply to enterprises created as a result of liquidation or re-organization of existing manufacturing enterprises or their separate divisions, nor does it apply to entities created under existing enterprises or to production facilities that rent their property and equipment.

The property tax base can be reduced by the cost of equipment obtained on five-year credit (measured from the moment it is put into operation but not longer than the credit reimbursement term) and for leased property for the duration of the lease contract and for new production equipment over a period of five years. In the case of the sale or transfer of new equipment within three years from the moment of its procurement, this privilege can be annulled and income tax will be due for the entire period over which the privilege had been applied.

Various types of new technological equipment are exempt from customs duty and VAT. The list of such equipment is approved by the Inter-ministerial Resolution of the Ministry of Economy, Ministry of Finance, Ministry of Foreign Economic Relations and Trade, and the State Customs Committee. Production-related assets imported by a foreign investor or an enterprise with foreign share above thirty-three percent are exempt from the customs duty. In the event of the sale or transfer of imported equipment for export within three years from the moment of its import, this privilege must be annulled and VAT must be paid. Assets imported as a part of investment commitments under a privatization agreement with the GOU are exempt from VAT payments. Laboratory equipment is also included on the exemptions list, as well as raw materials and semi-finished goods used for children’s footwear production.

Enterprises can receive exemptions from customs duties for: 1) industrial and technological assets imported by foreign investors and enterprises with foreign investments for their own use; 2) production parts, components and materials imported by foreign legal entities with more than USD50 million of direct investments; 3) goods, works, and services required for operations under a Production Sharing Agreement (PSA) imported by a foreign investor within the project documentation; 4) goods of foreign investors exported in accordance with the PSA; and 5) equipment and spare parts imported in line with contracts that have GOU approval and support.

Foreign investors must contribute at least thirty percent to the charter capital of a company to be legally considered a business with foreign investments. The charter capital has to total USD400,000 in joint-stock companies that operate in the real sector of the economy in order to qualify for certain incentives. For ventures in other sectors of the economy, the required level of the charter fund is USD150, 000 (except in Karakalpakistan and in Khorezm province, where the requirement is USD75, 000).

According to Uzbek legislation, requirements to use domestic products in manufacturing are to be applied uniformly to enterprises with both domestic and foreign investments, but in practice this is not always the case. The legislation does not require transfer of technology or proprietary information; such transfers are negotiated between the foreign investor and its local partner.

Investors in non-priority sectors should expect to have more difficulty importing capital and consumer products than those in GOU-determined priority industries. Officially, permission is not required to invest in Uzbekistan and there are few restrictions on foreign workers. There are no requirements for using only local sources of financing. In banking and auditing companies, the chief accountant must be an Uzbek national, as should either the CEO or any one member of the Board of Directors. In the tourism sector, only Uzbek nationals can be tour guides.

In 2009, the government raised the floor level of charter capital for new open and closed joint-stock companies with the intent to increase their financial stability. There are no regulatory requirements for foreign investors to disclose proprietary information. General legislation, such as the Civil Code (Chapter 64) and the Law on Monopolistic Activity (Article 8), provides protection for commercial and trade secrets.

The Government welcomes participation of foreign investors in research and development programs, and is currently developing a national prioritization of innovation projects. Participation of foreign firms in government/authority-financed and/or subsidized research and development programs is not regulated, but major state-owned R&D enterprises cannot be privatized or owned by foreign or local private investors.

All foreign citizens, except those from some countries of the former Soviet Union, need visas to work in Uzbekistan and all individuals must register their residence with the authorities. Foreign investors and specialists can obtain multi-entry visas for a period of twelve months. To apply, American citizens must submit documents regarding the company they are affiliated with an Uzbek Embassy or Consulate. Foreign workers must also register with the Ministry of Labor.

Right to Private Ownership and Establishment

Uzbekistan's laws and decrees guarantee the right of foreign and domestic private entities to establish and own business enterprises and to engage in most forms of remunerative activity. The state reserves for itself the export of gold, and the government maintains a monopoly on cotton exports. Natural gas, cotton and gold are Uzbekistan's largest sources of foreign exchange earnings. There are isolated cases of foreign companies which have, however, entered the natural gas and cotton production sectors and been successful.

In theory, private enterprises may freely establish, acquire, and dispose of equity interests in businesses. In practice, it can be difficult to do this as Uzbek securities markets are underdeveloped.

Protection of Property Rights

Uzbek and foreign entities may own buildings, but not the underlying land. Property ownership is generally respected by local and central authorities. District governments have a department responsible for managing commercial real estate, from asset valuations to sale and purchase, but private property can be confiscated by local authorities or can become the subject of a hostile takeover action of a well-connected business or individual. In this case, the owner should not expect remuneration at market value.

The Law on Protection of Private Property was issued in September 2012. Legislation governing the acquisition and disposition of property poses relatively few problems for foreign investors and is similar to laws in other CIS countries. All land in Uzbekistan is owned by the state.

Uzbekistan has been on the Watch List of the U.S. Trade Representative’s (USTR) Special 301 Report since 2000 due to a lack of significant progress on intellectual property rights (IPR). The USTR noted that current enforcement remains weak and criminal penalties for IPR violations are insufficient to provide a deterrent effect.

Uzbekistan has, however, made a real effort to improve IPR protection by setting up the Uzbek Agency for Intellectual Property, which unifies responsibility for IPR issues. Uzbekistan also introduced several amendments to IPR law, as well as amendments to Civil and Criminal Codes to enforce stricter punishment for IPR violations. Uzbekistan is a consumer, but not a significant producer, of pirated material.

Uzbekistan is not a member of the Geneva Phonograms Convention, though the government explains that it is in the process of bringing its domestic legislation in line with the Convention. Uzbekistan has also not dropped its reservation over Article 18 of the Berne Convention, which protects works created before 2005, although there is legislation pending in the parliament to do so. The country is not a signatory of the WTO TRIPS agreement.

Transparency of the Regulatory System

U.S. companies report that local officials inconsistently interpret laws, often in a manner that is detrimental to private investors and the business community at large. In addition, the government occasionally issues secret decrees or instructions that businesses are required to comply with, despite having no knowledge of them. Companies are particularly concerned with the lack of consistent and fair application of the Law on Foreign Investment, which outlines specific protections for foreign investors. To avoid problems with the tax and regulatory measures, foreign investors often secure incentives through Cabinet of Ministers decrees, which are approved directly by the President. These, however, are easily revocable.

Bureaucratic procedures, particularly licensing and financial reporting, are time-consuming and often contradictory and government-owned banks, ministries, and agencies routinely interfere in business operations. Requirements for licensing, registration and other permits are often amended without notice, creating opportunities for rent-seeking as documents can frequently be rejected on the grounds of a minor technicality.

Publishing drafts of laws and regulations for public comment is uncommon in Uzbekistan. Regulatory bodies often introduce changes and amendments to commercial legislation without notice, which creates many disputes and misunderstandings even among state institutions. In 2011-2012, however, foreign and local investors had the opportunity to review and comment on some upcoming legislation, but these instances are rare.

Only a few local legal, regulatory, and accounting systems are transparent and fully consistent with international norms. Although the GOU has started to unify local accounting rules with international standards, local practices are still document and tax-driven with an underdeveloped concept of accruals. There are almost no legal restrictions on foreign participation in industry standards-setting consortia or organizations, with exceptions in the media and tourism industries.

Efficient Capital Markets and Portfolio Investment

Although Uzbekistan has made progress in financial sector reform, it is far from having an efficient market-oriented banking system or well-functioning commodity and capital markets. Reforms in the financial sector have focused on creating an adequate legal and regulatory framework for financial intermediation and developing the sector's technical and institutional capacity. Enforcement of regulations is undermined by government interference and institutions must follow rules and regulations which are not always in compliance with the legislation. International accounting standards were adopted in 1997, but are not fully implemented because they conflict with the Uzbek Tax Code and Central Bank regulations.

A major operational challenge for foreign firms in Uzbekistan is restricted access to cash. All inter-firm transactions must be conducted by bank transfer and cash withdrawals by legal entities are only permitted for payment of wages and travel expenses. All cash receipts must be deposited the day they are received. The government improved this situation somewhat several years ago by allowing individual entrepreneurs, some small enterprises, and joint ventures with foreign capital to withdraw cash from their bank accounts up to the amount deposited within the previous ninety days. However, later the government issued several new decrees instructing local administrations, commercial banks, and tax authorities to tighten control of cash circulation. There are stiff penalties for firms that fail to deposit their cash receipts in banks, but the pervasive restrictions on cash withdrawals have forced many small enterprises to operate illegally. This situation is aggravated by the fact that the largest denomination bill is 1,000 soum (about 50 U.S. cents at the official exchange rate), turning cash transactions of any significant value into major logistical undertakings.

The authorities argue that in the absence of a developed inter-bank market, it is too early to switch to a market-based system of money and credit management. Foreign investors have access to local credit, although the terms and interest rates do not make for a competitive or realistic source of financing. The isolated and overregulated financial system makes finding reliable credit terms very challenging.

The private sector has access to a limited variety of credit instruments. The government-led banking sector, burdened with non-core functions and excessive bureaucracy, cannot meet the lending demands of its clients as efficiently as market-responsive institutions. Restrictions on cash movement also limit resources flowing through the banking system, ultimately reducing the pool of funds available for small and medium business lending. Access to foreign banks is limited and usually goes through local banks. Commercial banks can, to a limited degree, use credit lines from international financial institutions to finance small and medium businesses.

In general, the government welcomes portfolio investments. A number of international fund management companies were working in the country in the past, investing in various industries through the stock markets or in the real estate and construction sectors. Most funds left the market by 2010 due to capital outflows caused by the global financial crisis. The remaining few portfolio managers are investing primarily in the insurance and leasing sectors. The Stock Exchange mainly hosts equity and secondary market transactions with shares of state-owned enterprises. In most cases, government agencies decide who can buy and sell shares and at what prices and it is often impossible to locate accurate financial reports for traded companies.

The government declares that Uzbekistan has no problems with liquidity and that foreign reserves in 2012 were estimated at more than USD 15 billion, not including about USD 9 billion in the government-controlled Fund for Reconstruction and Development. The average capital adequacy ratio of local banks exceeds 24.1 percent. From 2009 through 2011, the government initiated a forty percent increase of capitalization in state-owned banks and encouraged private banks to do the same. However, stringent government control and the overregulated financial sector make sizeable deposits and withdrawals difficult.

Total assets of Uzbekistan’s commercial banks in 2012 were expected to exceed 35 trillion soum (USD21 billion), with consolidated capital exceeding 5.7 trillion soum (USD3.4 billion). The largest banks in the country are the state-owned National Bank for Foreign Economic Activity of Uzbekistan (NBU) and Asaka Bank. NBU controls most of the commercial bank loan portfolio and more than fifty percent of Uzbekistan's foreign exchange business. NBU's assets totaled about USD4.4 billion and Asaka Bank's assets totaled USD2 billion in January 2012.

Uzbekistan's financial sector is dominated by archaic banking rules, underdeveloped capital markets and large state-owned banks, and marked by a lack of openness and competition. Local banks perform a number of non-core functions, such as withholding taxes and monitoring tax payments, registering export and import contracts, and accounting for payments between creditors and debtors. The banking system is the primary conduit for the government's directed loans to state-owned enterprises at negative real interest rates. In previous years, a large portfolio of such credits posed a serious threat to the soundness of the banking system, but in 2009 the government introduced stricter controls and the Central Bank has undertaken measures to remove loans to bankrupt enterprises from bank balance sheets. Information on non-performing assets of local banks is not publically available.

"Cross-shareholding" and "stable shareholder" arrangements are common in Uzbekistan, with state enterprises or large private companies associated with influential Uzbek families frequently acting as shareholders.

Competition from State-Owned Enterprises (SOEs)

State-owned enterprises (SOEs) dominate those sectors of the economy recognized by the government as strategic. Most SOEs in Uzbekistan were created by renaming government entities and in some cases they still exercise delegated governmental powers. For example, Uzbekneftegaz National Holding Company dominates the oil and gas industry and foreign investors need its approval for doing business in the sector, though this is not clearly required by legislation. The situation in the transportation, energy, and automotive industries is similar.

The government heavily controls activities of companies where it has partial or minority interest, although they are formally registered as private enterprises. All such companies are required to procure goods (with a value over USD100 thousand) and services through the open tender process, and tender procedures are established by the legislation (Government Resolution No. 456 issued in 2000, and updated on November 8, 2012).

By law, state businesses must operate in the same tax and regulatory environment as private businesses. In practice, however, the government uses leverage such as registrations, licensing, and permissions for currency conversion to protect quasi-government institutions and companies from commercial competition. Currently, almost all U.S. businesses in Uzbekistan operate in partnership with the government, state-owned enterprises, or firms affiliated with the elite.

In the existing business environment, private enterprises cannot compete with SOE under the same terms and conditions. Private businesses face more than the usual amount of bureaucratic hurdles if they compete with the government or a government-controlled firm. Most SOEs have a range of advantages, including better access to local and external markets, smoother access to financing, and more predictable currency conversion. Additionally, SOEs are usually not subject to legislative budget constraints unless they are in low-priority industries.

SOEs are active in key sectors of the economy, such as energy (power generation and transmission, oil and gas refining, transportation and distribution), metallurgy, mining (non-ferrous metals and uranium), telecommunications (fixed telephony and data transmission), agriculture (cotton processing), machinery (automotive industry, locomotive and aircraft production and repair) and transportation (airlines, railways, municipal public transportation, etc.). The Law on Privatization and Denationalization with a number of subordinate acts contains a list of sectors/industries where participation of private businesses is banned.

Some government measures limit private enterprise activity in the sectors in which SOEs operate. For example, in 2004 the government granted exclusive control of international telecommunication networks to the state-owned Uztelecom Company. All providers of voice and data transmission services, including internet and IP-telephony, can access long-distance/international channels only through Uztelecom’s switches. All financial transactions between local telecom operators and their international partners must be conducted through Uztelecom and with its approval.

Most SOEs in Uzbekistan are registered as national holding companies or joint-stock companies and usually a minority share in these companies belongs to employees or private enterprises. Although SOEs have boards of directors, typically one or more members will be a government official and senior executives report directly to relevant ministries or the Cabinet of Ministers. Generally, SOEs must consult with the government before making significant business decisions.

Uzbekistan’s Fund for Reconstruction and Development (FRD) was established in 2006 and has been used for sterilization and accumulation of foreign exchange revenues, but officially it was presented as a financial institution for providing government-guaranteed loans and equity investments to strategic sectors of the domestic economy. It was established by Uzbekistan’s Cabinet of Ministers, Ministry of Finance and the five largest state-owned banks. The equity capital of the fund reached USD9 billion by 2012. The FRD provides debt financing for modernization and technical upgrade projects in sectors that are strategically important for the Uzbek economy. FRD loans require government approval; the FRD provided USD758 million in loans in 2012.

State-owned businesses and financial institutions are required to submit annual reports to the government, but they are not required to publish them. Local state-owned enterprises in the financial sector are required to submit their books to independent audit. SOEs, as well as other Uzbek entities, are subject to domestic accounting standards and rules, which are still not fully comparable to International Financial Reporting Standards (IFRS). Uzbekistan has been gradually adopting IFRS since the early 2000s and currently about ninety percent of domestic accounting standards are comparable with IFRS.

Corporate Social Responsibility (CSR)

There is no legislation on Corporate Social Responsibility (CSR) in Uzbekistan, and the concept has not been widely adopted, though many companies are active in charity activities, either through their own initiative or at the direction of local government officials. Currently there are no independent NGOs in the country that promote or monitor CSR.

The Law on the Securities Market says that all businesses that issue securities (except government securities) must publish annual reports, which should include a summary of business activities for the previous year, financial statements with a copy of an independent audit, and material facts on the activities of the issuer during the corresponding period.

Political Violence

Supporters of extremist groups such as the Islamic Movement of Uzbekistan (IMU), al-Qaida, and the Eastern Turkistan Islamic Movement remain active in Central Asia although the GOU has made it a security priority to prevent these groups from operating in Uzbekistan, and these groups have expressed anti-U.S. sentiments. In 2004, the al-Qaida linked "Islamic Jihad Group" claimed credit for a suicide bomb attack against the U.S. Embassy and terrorist attacks in Tashkent and Bukhara that killed forty-seven people.

In May 2005, armed militants stormed a prison in the city of Andijon, released its prisoners, and took control of the regional administration and other government buildings. Fighting broke out between government forces and the militants, and several hundred civilians were killed in the ensuing violence. While there were no reports of U.S. citizens affected by these events, U.S. citizens and other foreigners in Uzbekistan experienced much closer scrutiny from authorities and local residents in the following years. The degree of harassment has since lessened.

In May 2009, militants attacked a police check post near Khonobod in the Namangan region, injuring one police officer. In May 2009, a suicide operative detonated explosives in central Andijon near a police station, killing at least one police officer and injuring several bystanders. In September 2009, there was a shoot-out in Tashkent between government authorities and suspected extremists that resulted in several deaths. In November 2011, an explosion damaged a railway bridge in the south of Uzbekistan on the line connecting Termez and the town of Kurgan-Tyube in Tajikistan. Uzbek law enforcement authorities declared the explosion a terrorist act, but no one has claimed responsibility and the GOU has never brought anyone to justice.. No casualties were recorded as a result of the explosion.

In light of domestic and international threats, the government has implemented heightened security measures, such as establishing security checkpoints, restricting access to certain streets and buildings, and deporting nationals of suspect countries. Continued instability in southern Kyrgyzstan following the 2010 political and ethnic violence have raised tensions and led to substantially increased controls at the Uzbek-Kyrgyz border. In addition, border crossing points with both Kyrgyzstan and Tajikistan, both borders of security concern for the GOU, are often closed for periods of time. Although the border between Uzbekistan and Afghanistan is officially open to traffic, travel restrictions for the region remain in place. Uzbeks need permission from the National Security Service (NSS) to cross the border, and only select Afghans are allowed into Uzbekistan.

Corruption

Uzbekistan legislation, including the Criminal Code, prohibits corruption. Enforcement is arbitrary, however, and there is considerable anecdotal evidence that senior officials regularly use their latitude in interpreting regulations to extract bribes. Several major incidents of bribe solicitations have been reported to U.S. Embassy officers, and foreign investors who refuse to pay bribes have experienced difficulties. Uzbekistan ranks 170th out of 176 rated countries in Transparency International’s 2012 Corruption Perceptions Index.

Uzbekistan joined the UN Anticorruption Convention in 2008, but is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and does not participate in any notable local or regional anti-corruption initiatives.

Low wages in public service stimulate widespread corruption within government bodies and in almost all sectors of the economy, especially those with government involvement. Lack of transparency in bureaucratic processes, including procurement tenders and auctions, and limited access to currency convertibility stimulate rent-seeking. Bribery is commonly used to obtain lucrative positions, government contracts, preferences, and exemptions, and is also used to escape criminal prosecution. Citizens routinely pay bribes to receive public services.

Bribery is considered a crime in Uzbekistan and local companies cannot deduct any bribes from taxes. A number of officials are prosecuted under anti-corruption laws every year. Depending on the court verdict, punishment can vary from a fine to imprisonment with confiscation of property. Often, prosecutions tend to focus on political dissenters rather than on corrupt but loyal government officials or individuals affiliated with the elite.

Government officials often express support for toughening the fight against corruption, but they have taken few effective measures toward that aim. Reports that senior members of the government and their families abuse state power for rent seeking and financial gain are common.

Three main arms of the government are tasked with fighting corruption: the NSS, the Ministry of Internal Affairs (MVD), and the General Prosecutor's Office. There is no evidence that the government requires or encourages companies to establish internal codes of conduct that prohibit bribery of public officials, and only a few local companies created by or with foreign investors have effective internal ethics programs. Currently, no international or local nongovernmental "watchdog" organizations have official permission to monitor corruption in Uzbekistan.

Bilateral Investment Agreements

Uzbekistan has signed bilateral investment agreements with forty-nine countries. Several agreements, including those with Iran, Japan, and the United States, have not yet entered into force. In 2004, Uzbekistan and Russia signed a Strategic Framework Agreement that also includes free trade and investment concessions. Uzbekistan has signed bilateral free trade agreements with eleven CIS countries (Russia, Belarus, Ukraine, Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan and Tajikistan). In 2005, the government signed an alliance agreement with Russia, which provides for economic cooperation, and Uzbekistan and Ukraine agreed in 2004 to remove all bilateral trade barriers. In 2012, Uzbekistan began the accession process to the CIS Free Trade Zone Agreement.

A bilateral investment protection treaty between the U.S. and Uzbek governments was signed in Washington DC, in 1994 and ratified soon after by the Uzbek Parliament. The U.S. has not ratified the agreement. In 2004, Uzbekistan signed the regional Trade Investment Framework Agreement (TIFA) with the U.S. Trade Representative's Office and its four Central Asian neighbors. The TIFA is a forum to encourage regional trade development in Central Asia.

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) has worked in Uzbekistan since the country signed a bilateral investment incentive agreement in 1992 and has loaned approximately USD229 million over the course of its operations in Uzbekistan, but had no projects in FY2012. Uzbekistan is a developing country member of the Multilateral Investment Guarantee Agency.

The Embassy can purchase local currency at the exchange rate set by the local bank. Local currency is moderately depreciating by approximately 10 percent per year. Depreciation of the local currency could accelerate in the future if the government chooses to narrow the spread between the official exchange rate—which is administratively set—and the black-market rate. The spread between the official and the black-market rates is about 40 percent.

Labor

Uzbekistan has the largest labor force in the region—about seventeen million, or fifty-seven percent of the total population. The official rate of unemployment is five percent, though a large number of unemployed or underemployed people are not registered as such. With the closure or downsizing of many businesses, it is easy to find qualified employees, and salaries are low by western standards. At 97%, literacy is almost universal, but most local technical and managerial training does not meet international business standards. Foreign firms report that younger Uzbeks are more flexible in adapting to changing international business practices, but are also less educated than their Soviet-trained elders. Widespread corruption in the education sector has lowered educational standards as students purchase grades and even entrance to prestigious universities and lyceums. In the last twelve years there has also been a dramatic increase in the number of workers immigrating to other countries, notably Russia, Korea, and Kazakhstan, leaving less-qualified workers at home to fill the gaps

Labor-management relations are regulated by the Labor Code. The law establishes a standard workweek of forty hours and requires a 24-hour rest period. Compensation for overtime work needs to be specified in the employment contract or agreed with employee’s Trade Union and can be implemented in the form of additional pay or leave. In practice, overtime limitations are not widely observed and compensation is rarely paid.

Payroll taxes are the highest in the region. Employee income taxes, compulsory social security charges, and a number of other contributions are collected and paid by employers on wages. These mandatory payments and deductions total nearly 100% of a worker’s wage, effectively doubling employer costs attributed to labor. Local regulations on wages also include salary caps. The taxation system and strict limits on cash withdrawal prevent many foreign firms from paying their workers as much as they would like.

Uzbekistan ratified thirteen conventions of the United Nations’ International Labor Organization (ILO), (Forty-Hour Week Convention, Holidays with Pay Convention, Right to Organize and Collective Bargaining Convention, Equal Remuneration Convention, Maternity Protection Convention (Revised), Abolition of Forced Labour Convention, Discrimination (Employment and Occupation) Convention, Employment Policy Convention, Workers' Representatives Convention, Minimum Age Convention, Collective Bargaining Convention, and Worst Forms of Child Labour Convention, but the provisions of these conventions are often ignored.

Foreign Trade Zones/Free Trade Zones

The law on free economic zones, passed in 1996, envisaged the establishment of free trade zones including consigned warehouses, customs-free zones, and zones for the processing, packing, sorting, and storage of goods.

In 2008 the President of Uzbekistan issued a decree creating a free industrial and economic zone (FIEZ) in the Navoi region. The FIEZ was established for a period of thirty years, beginning in 2009, with possible extensions. Businesses in the territory of the FIEZ are promised a special customs, currency, and tax regime, a simplified procedure for entering, staying, and leaving, and provisions by which non-residents can receive labor licenses. Businesses registered within the Navoi FIEZ are exempt from most taxes for 7-15 years, depending on the size of investment. For five years after the expiration of the tax holiday, businesses enjoy an income tax reduction of 50%, which extends to ten years for large investments (over €30 million).

In April 2012, the President issued a decree on creating a special industrial zone (SIZ) in Angren City in Tashkent province. Businesses in the SIZ enjoy tax holidays from three to seven years, based on the volume of direct investments. Preferences will be effective for thirty years. The government will direct USD59.4 million for infrastructure development in the SIZ.

Foreign Direct Investment and Foreign Portfolio Investment Statistics

Statistics on foreign direct investments (FDI) are not readily available and official figures are not always reliable, as the GOU includes international loans and grants in its FDI figures. FDI was USD2.4 billion in 2010 and dropped to USD2.18 billion in 2011. The government projected USD2.3 billion of direct foreign investment in 97 projects for 2012, but only attracted USD1.3 billion in the first nine months of the year. About 70% of foreign investment goes to energy sector. There are no statistics available on Uzbekistan's direct investments abroad and no reliable statistics on the current FDI stock and FDI inflows as a percentage of GDP.

Since Uzbekistan’s independence in 1991, U.S. firms have invested over USD500 million in the country. Due to difficulties in the investment climate, numerous investors have left the country in the past few years or are considering leaving. A list of foreign direct and portfolio investments in Uzbekistan follows:

U.S. Investments:

  • Texaco Overseas Holding set up operations in Uzbekistan in 1992 and invested about USD1.5 million in local production of lubricants for the Uzbek and regional markets, but sold its stake in the joint venture to Bulgarian Prista Oil Holding EAD in 2011.
  • Coca-Cola has been operating in Uzbekistan since 1992 as Coca-Cola Bottlers Uzbekistan (CCBU). CCBU invested more than USD140 million to build three state-of-the-art production facilities, and began bottling soft drinks in 1993. A string of difficulties began with a criminal case against Coca-Cola’s joint venture partner, and after the case was settled (2007) the business continued with a new partner owned by the hydrocarbon-oriented holding company Zeromax Group. When Zeromax was declared bankrupt in 2010, its assets were nationalized. CCBU is owned by the Turkish division of Coca-Cola and Muzimpex Company, its local shareholder.
  • After its 2001 acquisition of Daewoo, General Motors Corporation invested in a previous joint venture between Daewoo and Uzavtosanoat and created GM-Uzbekistan in 2007 to produce passenger cars under the Chevrolet brand in Asaka, in the Andijan region. GM holds 25% plus one share in the business. In 2008, GM and Uzavtosanoat set up another joint venture, GM Power Train Uzbekistan, to build engine and casting plants in the Tashkent region. GM owns 52% of the new venture.
  • AIG and the Uzbek Ministry of Finance formed the joint venture UzAIG in 1996. UzAIG provides insurance services but with a very limited exposure of USD2 million. In 2010, following the global financial crisis, UzAIG was reorganized and rebranded as Chartis and management of the joint venture moved to Kazakhstan.
  • Nukem Inc. has been working in Uzbekistan since 1992, selling uranium from Uzbekistan to the world market.

Non-U.S. Foreign Investments: China and Russia are the largest foreign investment sources, mostly operating in the oil, gas and telecommunications sectors. Other large foreign investors in Uzbekistan include:

  • Chinese CNPC (USD5 billion of investments and commitments)
  • Russian companies include:
    • Gazprom (more than USD400 million in investments)
    • Lukoil (about USD2.5 billion in investments out of USD5 billion of commitments)
    • VimpelCom (Beeline) (about USD200 million in investments)
    • TeliaSonera (about USD200 million in investments)
    • Uzdunrobita (A wholly-owned subsidiary of Russian MTS Company, was the largest cellular communication provider in the country with over 9.5 million subscribers. In September 2012, the company’s assets in Uzbekistan were seized for alleged for financial violations. The verdict was overturned in November, but the company is still obligated to pay damages of USD600 million. Industry experts believe that MTS will leave the market but this is not yet certain.)
  • Italian Case New Holland (about USD5 million) entered Uzbekistan in 1997 and established four joint ventures with state-owned companies: tractor production, other equipment production, equipment service, and leasing. They produce several different models of tractors, planters and other implements with a robust program to localize manufacture of components.
  • German MAN Nutzfahrzeuge AG and Uzavtosanoat created MAN AUTO-Uzbekistan Joint-Venture Company in July 2009. The company produces commercial vehicles. The assembly plant is located in Samarkand. The production capacity is expected to rise later to more than 2000 trucks a year.
  • Malaysian PETRONAS (more than USD800 million in investments since 2006)
  • Swiss-owned Nestle (about USD20 million in investments)
  • UK-owned British American Tobacco (more than USD300 million in investments since 1994)
  • In 2011, the British company Oxus Gold saw its Amantaytau Goldfields joint venture liquidated by the government. The mining firm announced that it was ceasing operations in Uzbekistan and planned to challenge an Uzbek government audit to determine the value of the enterprise, saying it was being conducted in bad faith. The company’s former chief metallurgist, a citizen of Tajikistan, was arrested for espionage and remains in prison.
  • Denmark’s Carlsberg Uzbekistan is a large local beer producer owned by the Carlsberg Group. In October 2011, its operations were suppressed by local authorities for questionable reasons. Legal proceedings are still in progress, but Carlsberg hopes to begin production again in 2013.
  • A chain of Turkish-owned stores, Turkuaz, and about fifty smaller companies owned by Turkish investors were closed or expropriated in the first half of 2011. Authorities officially said that Turkish investors premeditatedly violated tax and customs legislation.



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