With over 34 million citizens – the largest population in Central Asia, rich reserves of natural resources, and relatively well-developed infrastructure, Uzbekistan has the potential to become one of the strongest economies in the post-Soviet area. Uzbekistan has demonstrated stable economic development in recent years, reporting 5.6% GDP growth in 2019. The country’s leadership continues to implement large-scale economic reform policies targeted at boosting growth through modernization of state-owned monopolies and creating a supportive climate for private and foreign direct investment. During the reporting period, policy priorities were focused on improving Uzbekistan’s investment attractiveness including through adoption of a new currency regulation law to guarantee freedom of current cross-border and capital movement transactions; a new law on investment activities to guarantee foreign investors’ rights; and, a new tax code featuring lower and more equitable tax rates and simplified reporting requirements.
The policy of liberalization reforms, initiated by the government in 2016, is paying off: the total volume of foreign direct investment (FDI) attracted to Uzbekistan has grown from about $1.6 billion in 2018 to $4.2 billion in 2019. Uzbekistan was named as one of the top 20 “global improvers” in the World Bank’s 2020 Doing Business report, and the 2019 Country of the Year award winner by The Economist magazine. Over 10,600 companies with foreign capital were operating in Uzbekistan as of February 1, 2020; approximately 3,000 of them were created in 2019. FDIs and private investments are critical for sustaining Uzbekistan’s economic development; however, the government continues to channel investments into export-oriented and import substituting industries. According to Uzbekistan’s official statistics, the total volume of capital investments exceeded $21.5 billion in 2019. Financing sources included $4.2 billion FDIs and $5.6 billion as foreign loans. Major industries include mining, oil, and gas extractives, electricity generation, construction, agriculture, textiles, transportation, metallurgy, non-metal/non-mineral production, and chemical production.
In November 2019, President Mirziyoyev created the Council of Foreign Investors, a body where executives and representatives of foreign companies, banks, investment companies, international financial institutions and foreign government financial organizations will be given the opportunity to advise the GOU on measures it could take to improve the investment climate. In February 2019, Uzbekistan for the first time placed five- and ten-year Eurobonds worth $1 billion in the London Stock Exchange. This success opened the country to foreign fixed income investors and set a benchmark for future foreign bond issuances by Uzbekistan-based companies.
At the same time, the government’s poor progress in reducing the domination of state-owned monopolies in the economy, continued non-transparent public procurement practices, and cases of government agencies’ and state-owned enterprises’ inconsistent compliance with contract commitments have negatively impacted Uzbekistan’s investment climate. Furthermore, private businesses have expressed concerns about local government development policies failing to adhere to recently adopted legislation on the protection of private property. Small businesses have reported expropriation of their property in favor of well-connected companies or development projects supported by regional or municipal authorities. Enforcement of legislation on protection of intellectual property rights also remains insufficient.
|TI Corruption Perceptions Index||2019||153 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||69 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||N/A||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||$71 million||http://apps.bea.gov/international/
|World Bank GNI per capita||2018||$2,020||http://data.worldbank.org/indicator/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Government of Uzbekistan (“the government” or “the GOU”) has declared attracting foreign direct investments (FDI) one of its core policy priorities, acknowledging that greater private sector involvement is critical for economic growth and addressing social challenges caused by relatively high unemployment and poverty rates. In 2019, the GOU launched a policy to improve the business environment through simplification of registration procedures for new businesses, combatting corruption, and increasing transparency. To attract more foreign investors, the government simplified entry visa procedures and extended residence permits for foreigners. The new Tax Code, which became effective on January 1, 2020, lowered corporate and individual income taxes by almost 50% and considerably simplified taxation procedures for private entrepreneurs. President Mirziyoyev challenged all regional governments to improve the attractiveness of their territories to foreign investors and provide FDI progress reports on a quarterly basis. He also created a Supreme Economic Council, envisioned as a platform for coordination of further economic reforms with international businesses, expert communities, and development banks.
The government has yet to address several fundamental problems plaguing businesses and investors, such as the domination of state-owned monopolies in key sectors of Uzbekistan’s economy, the lack of transparency in public procurements, its poor track record on enforcing public-private contracts, an underdeveloped and overregulated banking sector, poor protection of private property rights, and insufficient enforcement of intellectual property rights. Uzbekistan’s 2020 Ease of Doing Business (DB) rank rose from 76th to 69th place and its DB Score indicator improved by 2.1 points to 69.9 (100 is the standard of excellence).
By law, foreign investors are welcome in all sectors of Uzbekistan’s economy and the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin. However, government control of key sectors, including energy, telecommunications, transportation, and mining has discriminatory effects on foreign investors. The government has demonstrated a continued desire to control capital flows in major industries, encouraging investments in a preapproved list of import-substituting and export-oriented projects, while investments in import-consuming projects can generally expect very little support.
The Ministry of Investments and Foreign Trade (https://mft.uz/en/, http://www.invest.gov.uz/en/) provide foreign investors with consulting services, information and analysis, business registration, and other legal assistance, as does the Chamber of Commerce and Industry of Uzbekistan (http://www.chamber.uz/en/index), on a contractual basis.
The GOU organizes and attends media events and joint government-business forums on a regular basis. In June 2019, Uzbekistan hosted the first U.S. Department of Commerce Certified Trade Mission to Tashkent. Supported by the American Chamber of Commerce in Uzbekistan, this event provided a valuable opportunity to meet and discuss business opportunities with senior GOU officials and Uzbekistan business counterparts for 35 representatives of 13 U.S. companies. The Presidential Council of Foreign Investors was established in November 2019 as an enhanced platform of communication with foreign business and the expert community. In May 2017, the Parliament established the “Institute of the Business Ombudsperson” to protect the rights and legitimate interests of businesses and provide them legal support. In public forums, GOU officials continue to stress their interest in seeing new companies establish operations in Uzbekistan.
Limits on Foreign Control and Right to Private Ownership and Establishment
By law Uzbekistan guarantees the right of foreign and domestic private entities to establish and own business enterprises, and to engage in most forms of remunerative activity. However, due to the prevalence in state-owned monopolies in several sectors, in reality the right to establish business enterprises has been limited in some sectors. The GOU has started the process of reconsidering the role of large state-owned monopolies, especially in the transportation, banking, energy, and cotton sectors. In 2017, President Mirziyoyev ended the monopoly of state-owned enterprise Uzpaxtasanoat to buy and sell raw cotton. In January 2018, the GOU launched pilot projects for a new integrated value chain system in the industry to allow private investors to independently manage cotton cultivation, harvesting, processing, and exports. In 2020, the GOU committed to eliminate the monopoly of state-owned carrier Uzbekistan Air in the air cargo, airport service, and domestic air transportation market. The state still reserves the exclusive right to export some commodities, such as nonferrous metals and minerals. In theory, private enterprises may freely establish, acquire, and dispose of equity interests in private businesses, but, in practice, this is difficult to do because Uzbekistan’s securities markets are still underdeveloped.
Private capital is not allowed in some industries and enterprises. The Law on Denationalization and Privatization (adopted in 1991, last amended in 2019) lists state assets that cannot be sold off or otherwise privatized, including land with mineral and water resources, the air basin (atmospheric resources in the airspace over Uzbekistan), flora and fauna, cultural heritage sites and assets, state budget funds, foreign capital and gold reserves, state trust funds, the Central Bank, enterprises that facilitate monetary circulation, military and security-related assets and enterprises, firearm and ammunition producers, nuclear research and development enterprises, some specialized producers of drugs and toxic chemicals, emergency response entities, civil protection and mobilization facilities, public roads, and cemeteries.
Foreign ownership and control for airlines, railways, power generation, long-distance telecommunication networks, and other sectors deemed related to national security requires special GOU permission, but so far foreigners have not been welcomed in these sectors. By law, foreign nationals cannot obtain a license or tax permit for individual entrepreneurship in Uzbekistan. In practice, therefore, they cannot be self-employed, and must be employed by a legally recognized entity.
According to the law, local companies with at least 15 percent foreign ownership can qualify as having foreign capital. The minimum fixed charter funding requirement for such companies is 400 million soum ($42,000 as of March 2020). Some restrictions apply: foreign investment in media enterprises is limited to 30 percent; in finance, foreign investors may operate only as joint venture partners with Uzbekistani firms, and banks with foreign participation face minimum fixed charter funding requirements (100 billion soum for commercial and private banks, and ranging from 7.5 to 30 billion soum for insurance companies – equivalent to $10.5 million and $0.8-$3.1 million respectively), while the required size of charter funds for Uzbekistani firms is set on a case-by-case basis.
The government closely scrutinizes all foreign investment, with special emphasis on sectors of the economy that it considers strategic, such as mining, cotton processing, oil and gas refining, and transportation. There is no standard, transparent screening mechanism, and some elements of Uzbekistan’s legal framework are expressly designed to protect domestic industries and limit competition from abroad. The government also uses licensing as a tool to control enterprises in several important sectors such as energy, telecommunications, wholesale trading, and tourism. There are no legislative restrictions that specifically disadvantage U.S. investors.
Other Investment Policy Reviews
The Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD) have not conducted investment policy reviews of Uzbekistan in the past three years.
The GOU has declared that business facilitation and improvement of the business environment are among its top policy priorities. Uzbekistan’s working-age population grew by about 200,000 people in 2019. Therefore, the GOU prioritizes private businesses and joint ventures with the potential to create additional jobs and help the government address unemployment concerns. The introduction of one-window and on-line registration practices and electronic reporting systems simplified and streamlined business registration procedures. The GOU has created three special economic zones (Navoi, Jizzakh, and Angren) to attract more FDI. New legislation has created additional tax incentives for private businesses and promised firms protection against unlawful actions by government authorities.
By legislation (effective from January 2018), foreign and domestic private investors can register their business in Uzbekistan using any Center of Government Services (CGS) facility, which operate as “Single Window” (SW) registration offices, or the Electronic Government (EG) website – https://my.gov.uz/en. The registration procedure requires electronic submission of an application, company name or trademark, and foundation documents. The SW/EG service will register the company with the Ministry of Justice, Tax Committee, local administration, and other relevant government agencies. The registration fee is equivalent to one base calculation value (BCV) (223,000 soum ($24) as of March 2020) for local investors and 10 BCV (2,230,000 soum ($234) as of March 2020) for foreign investors. Applicants receive a 50 percent discount for using the EG website. The new system has reduced the length of the registration process from several weeks to 30 minutes.
Depending on the extent of foreign participation, a business can be defined as an “enterprise with foreign capital” (EFC) if less than 15 percent foreign-owned, or as an “enterprise with foreign investment” (EFI) if more than 15 percent foreign-owned and holding a minimum charter capital of 400 million soum ($42,000 as of March 2020). Foreign companies may also maintain a physical presence in Uzbekistan as “permanent establishments” without registering as separate legal entities, other than with the tax authorities. A permanent establishment may have its own bank account.
The World Bank ranked Uzbekistan as eighth in the world for the “Starting a Business” indicator in its 2020 Doing Business report.
In general, the GOU does not promote or incentivize outward investments. There is no official institution or agency that promotes outward investment from Uzbekistan. Some state-owned enterprises invest in development of their marketing networks abroad as part of efforts to boost export sales. Private companies that operate primarily in the retail, construction, and textile sectors use outward investments for market outreach, to access foreign financial resources, for trade facilitation, and, in some cases, for expatriation of capital. The most popular destinations for outward investments are Russia, China, Kazakhstan, Singapore, UAE, and Germany.
There are no formal restrictions on outward investments. However, financial transactions with some foreign jurisdictions (such as Afghanistan, Iran, Syria, Libya, and Yemen) and offshore tax havens can be subject to additional screening by the authorities.
6. Financial Sector
Capital Markets and Portfolio Investment
Prior to 2017, the government focused on investors capable of providing technology transfers and employment in local industries, and had not prioritized attraction of portfolio investments. In 2017, the GOU announced its plans to improve the capital market and use stock market instruments to meet its economic development goals. The government created a new Agency for the Development of Capital Markets (CMDA) in January 2019 as the institution responsible for development and regulation of the securities market and protection of the rights and legitimate interests of investors in securities market. CMDA is currently implementing a capital markets development strategy for 2020-2025. According to CMDA officials, the goal of the strategy is to make the national capital market big enough to attract not only institutional investors, but to become a key driver of domestic wealth creation. The U.S. Government is supporting this strategy through a technical assistance program led by the Department of the Treasury.
Uzbekistan has its own stock market, which supports trades through the Republican Stock Exchange “Tashkent,” Uzbekistan’s main securities trading platform and only corporate securities exchange (https://www.uzse.uz). The stock exchange mainly hosts equity and secondary market transactions with shares of state-owned enterprises. In most cases, government agencies determine who can buy and sell shares and at what prices, and it is often impossible to locate accurate financial reports for traded companies.
The GOU is continuing to liberalize banking sector regulations to facilitate free flows of financial resources into the market. The law adopted on March 20, 2019 (ZRU-531) has considerably simplified repatriation of capital invested in Uzbekistan’s industrial assets, securities and stock market profits. According to the new rules, foreign investors that have resident entities in Uzbekistan can convert their dividends and other incomes to foreign currencies and transfer them to their accounts in foreign banks. Non-resident entities that buy and sell shares of local companies can open bank accounts in Uzbekistan to accumulate their revenues.
Uzbekistan formally accepted IMF Article VIII in October 2003, but due to excessive protectionist measures of the government, businesses had limited access to foreign currency, which stimulated the grey economy and the creation of multiple exchange rate systems. Effective September 5, 2017, the GOU eliminated the difference between the artificially low official rate and the black-market exchange rate and allowed unlimited non-cash foreign exchange transactions for businesses. The Law on Currency Regulation (ZRU-573), which fully liberalized currency operations, current cross-border and capital movement transactions, received final approved on October 22, 2019.
Under the law, foreign investors and private sector businesses can have access to various credit instruments on the local market, but the still-overregulated financial system yields unreliable credit terms. Access to foreign banks is limited and is usually only granted through their joint ventures with local banks. Commercial banks, to a limited degree, can use credit lines from international financial institutions to finance small and medium sized businesses.
Money and Banking System
As of March 2020, 30 commercial banks operate in Uzbekistan. Five commercial banks are state-owned, thirteen banks are registered as joint-stock financial organizations (eight of which are partly state-owned), six banks have foreign capital, and six banks are private. Commercial banks have 854 branches and about 1,100 retail offices throughout the country. State-owned banks hold 87% of banking sector capital and 84% of banking sector assets, leaving privately owned banks as relatively small niche players. The nonbanking sector is represented by 56 microcredit organizations and 61 pawn shops.
According to assessments of international rating agencies, including Fitch and Moody’s, the banking sector of Uzbekistan is stable and poses limited near-term risks, primarily due to high concentration and domination of the public sector, which controls over 80% of assets in the banking system. The average rate of capital adequacy within the system is 23.4%, and the current liquidity rate is 98.1%. The growing volume of state-led investments in the economy supports the stability of larger commercial banks, which often operate as agents of the government in implementing its development strategy. Privately owned commercial banks are relatively small niche players. The government and the Central Bank of Uzbekistan (CBU) still closely monitor commercial banks.
Official information on non-performing assets is not publicly available. According to the IMF’s 2019 Article IV Consultation report, the share of nonperforming loans out of total gross loans is about 1.3-1.4%. A majority of Uzbekistan’s commercial banks have earned “stable” ratings from international rating agencies.
In February 2020, the banking sector’s capitalization was about $5.5 billion, and the value of total bank assets in the whole country was equivalent to $28.9 billion. The three largest state-owned banks – the National Bank of Uzbekistan, Asaka Bank, and Uzpromstroybank – hold 50% of the banking sector’s capital ($2.7 billion) and 49.1% of the assets ($14.4 billion).
Uzbekistan maintains a central bank system. The Central Bank of Uzbekistan (CBU) is the state issuing and reserve bank and central monetary authority. The bank is accountable to the Supreme Council of Uzbekistan and is independent of the executive bodies (the bank’s organization chart is available here: http://www.cbu.uz/en/).
In general, any banking activity in Uzbekistan is subject to licensing and regulation by the Central Bank of Uzbekistan. Foreign banks often feel pressured to establish joint ventures with local financial institutions. Currently there are six small banks with foreign capital operating in the market, and six foreign banks have accredited representative offices in Uzbekistan, but do not provide direct services to local businesses and individuals. Information about the status of Uzbekistan’s correspondent banking relationships is not publicly available.
Foreigners and foreign investors can establish bank accounts in local banks without restrictions. They also have access to local credit, although the terms and interest rates do not represent a competitive or realistic source of financing.
Foreign Exchange and Remittances
Uzbekistan adopted Article VIII of the IMF’s Articles of Agreement in October 2003, but full implementation of its obligations under this article began only in September 2017. In accordance with new legislation (ZRU 531 of March 2019 and ZRU-573 of October 2019), all businesses, including foreign investors, are guaranteed the ability to convert their dividends and other incomes in local currencies to foreign currencies and transfer to foreign bank accounts for current cross-border, dividend payments, or capital repatriation transactions without limitations, provided they have paid all taxes and other financial obligations in compliance with local legislation. Uzbekistan 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 so directed by arbitration or a court decision.
The exchange rate is determined by the CBU, which insists that it is based on free market forces (9,514 soum per U.S dollar as of March 3, 2020). After the almost 50% devaluation of the national currency in September 2017, the exchange rate has been relatively stable, supported by strong FX reserves ($29.4 billion by February 1, 2020). The CBU reported it had made $3.6 billion interventions in 2019 in the forex market to support the local currency.
President Mirziyoyev launched foreign exchange liberalization reform on September 2017 by issuing a decree “On Priority Measures for Liberalization of Monetary Policy.” The Law on Currency Regulation (ZRU-573), adopted on October 22, 2019, has liberalized currency exchange operations, current cross-border, and capital movement transactions. Business entities can purchase foreign currency in commercial banks without restrictions for current international transactions, including import of goods, works and services, repatriation of profits, repayment of loans, payment of travel expenses and other transfers of a non-trade nature.
Banking regulations mandate that the currency conversion process should take no longer than one week. In 2019 businesses reported that they observed no delays with conversion and remittance of their investment returns, including dividends; return on investment, interest and principal on private foreign debt; lease payments; royalties; and management fees.
Sovereign Wealth Funds
The Fund for Reconstruction and Development of Uzbekistan (UFRD) serves as a sovereign wealth fund. Uzbekistan’s Cabinet of Ministers, Ministry of Finance, and the five largest state-owned banks were instrumental in establishing the UFRD, and all those institutions have membership on its Board of Directors.
The fund does not follow the voluntary code of good practices known as the Santiago Principles, and Uzbekistan does not participate in the IMF-hosted International Working Group on sovereign wealth funds. The GOU established the UFRD in 2006, using it to sterilize and accumulate foreign exchange revenues, but officially the goal of the UFRD is to provide government-guaranteed loans and equity investments to strategic sectors of the domestic economy.
The UFRD does not invest, but instead provides debt financing to SOEs for modernization and technical upgrade projects in sectors that are strategically important for Uzbekistan’s economy. All UFRD loans require government approval.
Uzbekistan’s legislation and Criminal Code both prohibit corruption. President Mirziyoyev has declared combatting widespread corruption one of his top priorities. On January 3, 2017, he approved the law “On Combating Corruption.” The law is intended to raise the efficiency of anti-corruption measures through the consolidation of efforts of government bodies and civil society in preventing and combating cases of corruption, attempted corruption, and conflict of interest, ensuring punishment for such crimes. On May 27, 2019, Presidential Decree UP-5729 launched the State Anti-Corruption Program for 2019-2021 and created the Interagency Commission for Combating Corruption. The program is focused on strengthening the independence of the judiciary system, developing a fair and transparent public service system requiring civil servants to declare their incomes and establishing mechanisms to prevent conflicts of interest, facilitating civil society and media participation in combating corruption, and other measures.
Formally, the anti-corruption legislation extends to all government officials, their family members, and members of all political parties of the country. However, Uzbekistan has not yet introduced asset declaration requirements for government officials or their family members, although legislation with such a requirement was drafted in October 2019 and is expected to be enforced from January 2020 onwards. Currently, the Prosecutor General’s Office of Uzbekistan (PGO) is the main government arm tasked with fighting corruption. Since Mirziyoyev took office in September 2016, the government has prosecuted a number of officials under anti-corruption laws, and punishment has varied from a fine to imprisonment with confiscation of property. According to official statistics, 1,200 corruption-related crimes were registered in 2018 and 1,071 in 2019.
The process of awarding GOU contracts continues to lack transparency. According to a presidential decree issued on January 10, 2019, all government procurements must now go through a clearance process within the Ministry of Economy. Procurement contracts involving public funds or performed by state enterprises with values of over $100,000 need additional clearances from other relevant government agencies.
The law “On Combating Corruption” prescribes a range of measures for preventing corruption, including through raising public awareness and introduction of transparent rules for public-private interactions. The law, however, does not specifically encourage companies to establish relevant internal codes of conduct.
Currently only a few local companies created by or with foreign investors have effective internal ethics programs.
Uzbekistan is a member of the OECD Anti-Corruption Network (ACN) for Eastern Europe and Central Asia. One of the latest OECD reports on anti-corruption reforms in Uzbekistan (March 21, 2019) says that, although Uzbekistan has already undertaken a number of key anti-corruption reforms, the GOU now needs to systematize its anti-corruption policy by making it strategic in nature. Uzbekistan is ranked 153 out of 180 rated countries in Transparency International’s 2019 Corruption Perceptions Index.
There are very few officially registered local NGOs available to investigate corruption cases and Embassy Tashkent is not aware of any genuine NGOs that are presently involved in investigating corruption. The law “On Combating Corruption” encourages more active involvement of NGOs and civil society in investigation and prevention of crimes related with corruption.
U.S. businesses have cited corruption and lack of transparency in bureaucratic processes, including public procurements and licensing, as among the main obstacles to foreign direct investment in Uzbekistan.
Resources to Report Corruption
The government agencies that are responsible for combating corruption are the Prosecutor General’s Office and the Ministry of Justice. Currently, no international or local nongovernmental watchdog organizations have permission to monitor corruption in Uzbekistan.
Contact information for the office of Uzbekistan’s Prosecutor General:
Address: 66, Akademik Gulyamov St., 100047, Tashkent, Uzbekistan
Hotline telephone numbers: +998(71) 1007, 232-4391, 232-4550,
Contact information for the office of Uzbekistan’s Ministry of Justice:
Address: 5, Sayilgoh Street, 100047, Tashkent, Uzbekistan
Website: http://www.minjust.uz/en/, http://www.minjust.uz/ru/anticorruption/feedback/
Hotline telephone numbers: +998(71) 1008, 233-2610, 233-1305, 236-0509
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||58,000||2019||N/A||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source||USG or international statistical source||USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||N/A||N/A||2019||N/A||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||N/A||2019||N/A||BEA data available at
|Total inbound stock of FDI as % host GDP||2019||9,800||2019||N/A||UNCTAD data available at
* Source for Host Country Data: The State Statistics Committee of Uzbekistan
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.