The pandemic and subsequent stagnation of the global economy had an impact on the economy of Uzbekistan and the dynamics of market reforms launched in 2016. Addressing public health and social support issues became a higher priority and required the mobilization of significant resources. Quarantine measures, domestic lockdowns, and travel restrictions led to the bankruptcy of a significant number of private businesses and an increase in unemployment, especially in the first half of the year. Mining, services, transportation, and tourism sectors suffered the most. In the second half of the year, however, business activity began to recover after quarantine restrictions were relaxed. The government has taken measures to mitigate the impact of the pandemic on business, including the introduction of temporary tax holidays, concessional lending, and other incentives.
In general, Uzbekistan’s economy demonstrated relative resilience in 2020 with 1.6% GDP growth. Despite 2020’s challenges, foreign direct investment (FDI) inflows continued – about $6.6 billion in 2020 compared to $9.3 billion in 2019 – which is undoubtedly the result of pre-pandemic reforms. Over 11,780 companies with foreign capital were operating in Uzbekistan as of January 1, 2021, including 1,399 created in 2020. While the government encouraged investors to develop processing and manufacturing industries in support of its import-substitution and export diversification policy, there was a notable increase of FDI in the service, retail, and banking sectors. In November, Uzbekistan successfully placed $750 million in dual-tranche sovereign international bonds denominated both in U.S. dollars and Uzbekistani so’m on the London Stock Exchange.
In 2020, Uzbekistan’s leadership continued to implement reform policies targeted at boosting economic growth and improving public welfare by creating a supportive climate for private and foreign direct investment and reducing the share of the public sector in the economy. To further develop anti-corruption measures, Uzbekistan established an Anti-Corruption Agency to inspect governmental bodies and legal entities, including state-owned banks, and to prevent and combat corruption in public procurement based on the ISO 37001 standard. President Mirziyoyev signed a decree to reduce government involvement in the economy, prohibiting the establishment and operation of state-owned enterprises (SOE) in commodity markets, where SOEs might compete with private firms or have conflicts of interest. The decree also called for compliance with anti-monopoly statutes by nine large SOEs, including the national airline, car producers, and energy companies. In October, Mirziyoyev announced plans to perform internal corporate governance reforms at 39 SOEs and privatize 548 SOEs, including strategic assets in the oil and gas, mining, chemical, transportation, banking, and manufacturing industries which had been considered off-limits in previous rounds of privatization. The pandemic delayed the process of SOE reorganization and privatization, and slowed further liberalization and development of Uzbekistan’s capital market.
During the reporting period, foreign businesses continued reporting cases of non-transparent public procurement practices, and cases where government agencies and state-owned enterprises inconsistently complied with official policy guidelines and regulations. Enforcement of legislation on protection of intellectual property rights also remains insufficient. Uzbekistan has the potential to become one of the most successful economies in Central Asia, but to achieve this goal, it needs to ensure that market reforms become entrenched by improving legislation and ensuring laws are then properly enforced.
|TI Corruption Perceptions Index||2020||146 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||69 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||93 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||$82 million||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||$1,800||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
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 2020, the GOU improved the business environment by creating additional tax incentives for enterprises affected by the pandemic, reducing government involvement in the economy, promoting public-private partnership projects, announcing plans to reorganize and privatize SOEs, and implementing additional anti-corruption measures. 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. The Law on Investments and Investment Activities, which entered into force on January 27, 2020, guaranteed unrestricted transfer of funds out of Uzbekistan and the protection of investments from nationalization. Established in November 2019, the Presidential Council of Foreign Investors became a new enhanced platform of communication with foreign investors, experts and the business community, though pandemic restrictions forced postponement of its planned plenary session with the president.
The government has yet to address several fundamental problems reported by businesses and investors, such as the lack of transparency in public procurements, its poor record of enforcing public-private contracts, poor protection of private property rights, and insufficient enforcement of intellectual property rights. Uzbekistan is ranked 179 in Transparency International’s Corruption Perceptions Index, and ranked 69 in 2020 Ease of Doing Business (DB) with a DB Score indicator of 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 and at these events officials stress their interest in seeing new companies establish operations in Uzbekistan. To improve direct communication with foreign businesses, international financial institutions, banks, and other structures operating in Uzbekistan, the GOU has established the Council of Foreign Investors, which operates as an institutional advisory body. The GOU established the Institute of the Business Ombudsperson (IBO) in 2017 to protect the rights and legitimate interests of businesses and provide legal support. The Law on Investments and Investment Activities, which entered into force on January 27, 2020, obliges Uzbekistan state bodies, diplomatic missions and consular institutions abroad to provide advisory and informational assistance to investors. The Law also obliges the IBO to assist foreign businesses in resolving emerging disputes through extrajudicial and pre-trial procedures.
During the reporting period, various GOU officials attended dozens of in-person and virtual meetings with representatives of U.S. companies, business facilitation agencies, the U.S. International Development Finance Corporation (DFC), and other American entities. Earlier, in 2019, Uzbekistan hosted the first U.S. Department of Commerce Certified Trade Mission, supported by the American Chamber of Commerce in Uzbekistan. The event provided 35 representatives of 13 U.S. companies with an opportunity to meet senior GOU officials and their Uzbekistani business counterparts.
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 is still 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 2020, President Mirziyoyev ordered measures to reduce government involvement in the economy, including enforcement of an antimonopoly compliance system in SOE operations, reorganization for optimized corporate governance of 39 SOEs, and privatization of 548 SOEs and state-owned assets. This ambitious SOE reorganization program covers large state-owned monopolies, including the largest mining company, national monopolies in the energy sector, the information, technology and communications sector and postal operators, chemical plants, national air and railway companies, automotive companies, banks, insurance firms, and other formerly off-the-table state assets. President Mirziyoyev formally ended SOE Uzpaxtasanoat’s monopoly over the raw cotton trade, giving private investors the right to create integrated value chain systems, called clusters, in the cotton sector. The clusters allow businesses to manage cotton cultivation, harvesting, processing, and exports independently of SOE-run supply chains. 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 2020) 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 Uzbekistan’s law, local companies with at least 15% foreign ownership can qualify as having foreign investment. The minimum fixed charter-funding requirement for a company with foreign investment is 400 million s’om ($1 equals about 10,600 s’om as of March 2021). The same requirement for companies registered in the Republic of Karakalpakstan and the Khorezm region is 200 million s’om. Minimum charter funding requirements can be different for business activities subject to licensing. For example, the requirement for banking activities is 100 billion s’om; for activities of microcredit organizations – 2 billion s’om; for pawnshops – 500 million s’om; for production of ethyl alcohol and alcoholic beverages – 10,000 Base Calculation Rates (BCR) (one BCR equals 245,000 s’om or about $23, as of March 2021); lotteries – 200 million s’om; and for tourism operators – 400 BCRs. Foreign investment in media enterprises is limited to 30%.
The government may scrutinize foreign investment, with special emphasis on sectors of the economy that it considers strategic, such as mining, energy, transportation, banking and telecommunications. 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, such as a list created in 2020 of several hundred imported items banned from the public procurement process. 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 has been growing by over 200,000 people per year over the past decade. 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 12 industrial, seven pharmaceutical, two agricultural, and one tourism-focused free economic zones (FEZ), as well as 64 special small industrial zones (SIZ) in all regions of the country 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 BCR for local investors and 10 BCR for foreign investors (one BCR equals 245,000 s’om, or about $23, as of March 2021). Applicants receive a 50% 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% foreign-owned, or as an “enterprise with foreign investment” (EFI) if more than 15% foreign-owned and holding a minimum charter capital of 400 million s’om (about $38,000 as of March 2021). 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. The Ministry of Investments and Foreign Trade coordinates outward investments mainly in the form of bilateral economic cooperation engagements. 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, manufacturing, transportation, 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.
2. Bilateral Investment Agreements and Taxation Treaties
Uzbekistan has signed bilateral investment agreements with 51 countries, though the 1994 agreement signed with the United States has not been ratified, and those with several other countries, including Turkey, Bahrain, Belarus, and South Korea, have not yet entered into force. In 2004, Uzbekistan and Russia signed a Strategic Framework Agreement with free trade and investment concessions, and an alliance agreement in 2005. Uzbekistan has signed bilateral free trade agreements with 11 CIS countries (Russia, Belarus, Ukraine, Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan and Tajikistan). In 2004, Uzbekistan and Ukraine agreed to remove all bilateral trade barriers. Uzbekistan joined the CIS Free Trade Zone Agreement in 2014. In 2020, Uzbekistan assumed observer status in the Eurasian Economic Union (EAEU). In December 2015, the GOU officially announced that Uzbekistan would not join the Free Trade Zone within the Shanghai Cooperation Organization (SCO). See UNCTAD’s database for more details: https://investmentpolicy.unctad.org/international-investment-agreements/by-economy.
Since its independence in 1991, Uzbekistan has signed double taxation agreements with 55 countries, of which three have not yet entered into force. The U.S. Internal Revenue Service (https://www.irs.gov/businesses/international-businesses/uzbekistan-tax-treaty-documents) considers Uzbekistan to be one of the former Soviet republics now covered by a taxation treaty with the Commonwealth of Independent States (CIS), as the successor to the dual taxation treaty signed between the United States and the Union of Soviet Socialist Republics (USSR) (signed in 1973 and entered into force in 1976). However, the Government of Uzbekistan argues that this agreement cannot be considered in effect and has proposed signing a new double taxation treaty. Uzbekistan officially presented a draft of a new dual taxation treaty to the U.S. government in December 2017. In 2015, Uzbekistan and the United States signed the Intergovernmental Agreement to Improve International Tax Compliance with respect to the United States Information Reporting Provisions, commonly known as the Foreign Account Tax Compliance Act (FATCA). The FATCA agreement entered into force in July 2017.
Reform of the taxation system, which for many years had been considered discouragingly burdensome and inadequate, was among the most desired reforms by the new administration. President Mirziyoyev first announced tax reform initiatives in 2016, and active discussions on their parameters started in 2017. The new Tax Code went into effect on January 1, 2020. The tax reform has led to a notable decrease of the tax burden to businesses and simplification of tax reporting. Key changes included: the 8% social security contributions and all mandatory payments to various state funds were abolished; corporate and individual income taxes were reduced from a progressive rate of up to 24% to a single flat rate of 12%; the income tax rate on dividends was reduced from 10% to 5%; the VAT tax rate also decreased from 20 to 15%; and 13 forms of tax inspections were consolidated into two.
3. Legal Regime
Transparency of the Regulatory System
Uzbekistan has a substantial body of laws and regulations aimed at protecting the business and investment community. Primary legislation regulating competition includes the 2012 Law on Competition (last updated in 2019), the Law on Guarantees of the Freedoms of Entrepreneurial Activity, the 2003 Law on Private Enterprise (last updated in 2018), the 2019 Law on Investments and Investment Activities and a body of decrees, resolutions and instructions. In late 2016, the GOU publicly recognized the need to improve and streamline business and investment legislation, which is still perceived as complicated, often contradictory, and not fully consistent with international norms. In some cases, the government may require businesses to comply with decrees or instructions that are not publicly available. To simplify and streamline the legislation, Parliament and the GOU adopted 35 laws and over 100 regulations on amendments to the legislation, which abolished nearly 1000 laws and regulations in 2020. For example, the Law on Changes in the Legislation for the Reduction of Bureaucracy (ZRU-638 of September 28, 2020) and the Presidential Decree on Improvement of the Business Environment through Systematic Review of Irrelevant Legislation (UP-6075 of September 27, 2020) abolished and simplified more than 600 outdated decrees, resolutions and regulations. To avoid problems with tax and regulatory measures, foreign investors often secure government benefits through Cabinet of Ministers decrees, which are approved directly by the president. These, however, have proven to be easily revocable.
For additional information, please review the World Bank’s Regulatory Governance assessment on Uzbekistan: https://rulemaking.worldbank.org/en/data/explorecountries/uzbekistan.
Practices that appear as informal regulatory processes are not associated with nongovernmental organizations or private sector associations, but rather with influential local politicians or well-connected local elites.
Most rule-making and regulatory authority exists on the national level. Businesses in some regions and special economic zones can be regulated differently, but relevant legislation must be adopted by the central government and then regulated by national-level authorities.
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.
Parliament and GOU agencies publish some draft legislation for public comment, including draft laws, decrees and resolutions on the government’s development strategies, tax and customs regulation, and legislation to create new economic zones. Public review of the legislation is available through the website https://regulation.gov.uz.
Uzbekistan’s laws, presidential decrees, and government decisions are available online. Uzbekistan’s legislation digest (http://www.lex.uz/) serves as a centralized online location for current legislation in effect. As of now, there is no centralized nor comprehensive online location for Uzbekistan’s legislation, similar to the Federal Register in the United States, where all key regulatory actions or their summaries are published. There are other online legislative resources with executive summaries, interpretations, and comments that could be useful for businesses and investors, including http://www.norma.uz/ and http://www.minjust.uz/ru/law/newlaw/.
Formally, the Ministry of Justice and the Prosecutor’s Office of Uzbekistan are responsible for oversight to ensure that government agencies follow administrative processes. In some cases, however, local officials have inconsistently interpreted laws, often in a manner detrimental to private investors and the business community at large.
GOU officials have publicly suggested that improvement of the regulatory system is critical for the overall business climate. In 2020, Uzbekistan adopted several laws and regulations to simplify and streamline business sector legislation and regulations, including eight decrees on providing additional support to the economy and entrepreneurs affected by the pandemic, and two decrees on the improvement of anti-corruption measures. In May 2020, the GOU said it planned to present 24 laws to the Parliament by the end of the year (Resolution 278 of May11, 2020), but its implementation was slowed by the pandemic. In general, Presidential Decree UP-5690 “On Measures for the Comprehensive Improvement of the System of Support and Protection of Entrepreneurial Activity,” adopted in March 2019, set enforcement mechanisms for effective protection of private businesses, including foreign investors. The Law on Investments and Investment Activities, adopted in December 2019, guarantees free transfer of funds to and from the country without any restrictions. This law also guarantees protection of investments from nationalization. The GOU has implemented several additional reforms in recent years, including the currency exchange liberalization, tax reform, simplification of business registration and foreign trade procedures, and establishment of the business Ombudsperson.
The government’s development strategies include a range of targets for upcoming reforms, such as ensuring reliable protection of private property rights; further removal of barriers and limitations for private entrepreneurship and small business; creation of a favorable business environment; suppression of unlawful interference of government bodies in the activities of businesses; improvement of the investment climate; decentralization and democratization of the public administration system; and expansion of public-private partnerships.
Previously implemented regulatory system reforms often left room for interpretation and were, accordingly, enforced subjectively. New and updated legislation continues to leave room for interpretation and contains unclear definitions. In many cases, private businesses still face difficulties associated with enforcement and interpretation of the legislation. More information on Uzbekistan’s regulatory system can be reviewed at the World Bank’s Global Indicators of Regulatory Governance (http://rulemaking.worldbank.org/data/explorecountries/uzbekistan).
The Ministry of Justice and the system of Economic Courts are formally responsible for regulatory enforcement, while the Institute of Business Ombudsperson was established in May 2017 to protect the rights and legitimate interests of businesses and render legal support. The state body responsible for enforcement proceedings is the Bureau of Mandatory Enforcement under the General Prosecutor’s Office. Several GOU policy papers call for expanding the role of civil society, non-governmental organizations, and local communities in regulatory oversight and enforcement. The government also publishes drafts of business-related legislation for public comments, which are publicly available. However, the development of a new regulatory system, including enforcement mechanisms outlined in various GOU reform and development roadmaps, has yet to be completed.
Uzbekistan’s fiscal transparency still does not meet generally accepted international standards, although the government demonstrated notable progress in this area in 2019. A Presidential Resolution, dated August 22, 2018, called for transparency of public finances and wider involvement of citizens in the budgetary process. One positive step was the publication of the detailed state budget proposals for the 2018-2021 fiscal years (FY) within the framework of Budget for Citizens project. In 2019, the GOU introduced amendments to the Budget Code mandating the publication of the conclusions of the Accounts Chamber of the Republic of Uzbekistan, which are based on the results of an external audit and evaluation of annual reports on the implementation of the state budget and the budgets of state trust funds. The Law on the State Budget for 2021 introduced amendments to the Administrative Code, which establishes fines for senior officials of ministries and departments who fail to publish reports on the execution of budgets, off-budget funds and state trust funds, or commit other violations that undermine the transparency of the budget process.
In accordance with the law, the Ministry of Finance now posts state budget related reports on its Open Budget website: https://openbudget.uz. Recent legislation also contains measures to harmonize budget accounting with international standards, provides for international assessment of budget documents through the Public Expenditure and Financial Accountability (PEFA) process, and submitting the budget for an Open Budget Survey ranking. In 2019, the GOU officially requested the U.S. Government’s technical assistance to improve fiscal accountability and transparency, initiating an assistance program that began in 2020.
In line with the December 2019 Law on the State Budget, in 2020, government agencies, state trust funds, and the Reconstruction and Development Fund of Uzbekistan (FRDU) published quarterly reports on: distribution of budget funds by subordinate budget organizations; financial statements; implementation of budget funded projects; and all major public procurements. By law, such reports must be published within 25 days after the end of the reporting quarter. The GOU uses https://openbudget.uz/ to ensure transparency of state budget funds directed to the Investment Program of Uzbekistan, tax and customs benefits provided to the taxpayers, measures to control and combat financial violations, and spending of above-forecasted budget incomes.
Despite this progress, the government is still not releasing complete information on its off-budget accounts or on its oversight of those accounts, publishing only some generalized parameters at https://www.mf.uz/en/deyatelnost/deyatelnost-ii/mestnyj-byudzhet.html. In FY2019 and FY2020, the GOU’s budget implementation reports were less itemized than in previous years.
International Regulatory Considerations
Uzbekistan is not currently a member of the WTO or any existing economic blocs although it is pursuing WTO accession. In 2020, Uzbekistan assumed observer status in the Eurasian Economic Union. No regional or other international regulatory systems, norms, or standards have been directly incorporated or cited in Uzbekistan’s regulatory system – although GOU officials often claim the government’s regulatory system incorporates international best practices. Uzbekistan joined the CIS Free Trade Zone Agreement in 2014, but that does not constitute an economic bloc with supranational trade tariff regulation requirements.
Legal System and Judicial Independence
Uzbekistan’s contemporary legal system belongs to the civil law family. The hierarchy of Uzbekistan’s laws descends from the Constitution of the Republic of Uzbekistan, constitutional laws, codes, ordinary laws, decrees of the president, resolutions of the Cabinet of Ministers, and normative acts, in that order. Contracts are enforced under the Civil Code, the Law “About the Contractual Legal Base of Activities of Business Entities” (No. 670-I, issued August 29, 1998, and last revised in 2020), and several other regulations.
Uzbekistan’s contractual law is established by the Law “About the Contractual Legal Base of Activities of Business Entities.” It establishes the legal basis for the conclusion, execution, change, and termination of economic agreements, the rights and obligations of business entities, and also the competence of relevant public authorities and state bodies in the field of contractual relations. Economic disputes, including intellectual property claims, can be heard in the lower-level Economic Court and appealed to the Supreme Court of the Republic of Uzbekistan. Economic court judges are appointed for five-year terms. This judicial branch also includes regional, district, town, city, Tashkent city (a special administrative territory) courts, and arbitration courts.
On paper, the judicial system in Uzbekistan is independent, but government interference and corruption are common. Government officials, attorneys, and judges often interpret legislation inconsistently and in conflict with each other’s interpretations. In recent years, for example, many lower-level court rulings have been in favor of local governments and companies which failed to compensate plaintiffs for the full market value of expropriated and demolished private property, as required under the law.
In December 2020, President Mirziyoyev approved additional measures to eliminate corruption in the courts and ensure the independence of judges (Decree UP-6127). Starting from February 1, 2021, these measures include the introduction of a transparent selection of judicial candidates with the process streamed online, electronic systems for assessment of their qualifications and performance evaluation. The Decree also creates new inspections for combating corruption in the judicial system.
Court decisions or enforcement actions are appealable though a process that can be initiated in accordance with the Economic Procedural Code and other applicable laws of Uzbekistan, and can be adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
Several laws, presidential decrees, and government resolutions relate to foreign investors. The main laws are:
- Law on Investments and Investment Activities (ZRU-598, December 25, 2019)
- Law on Guarantees of the Freedoms of Entrepreneurial Activity (ZRU-328, 2012)
- Law on Special Economic Zones (ZRU-604, February 17, 2020)
- Law on Production Sharing Agreements (№ 312-II, 2001)
- Law on Concessions (№ 110-I, 1995)
- Law on Investment and Share Funds (ZRU-392, 2015)
- Law on Public-Private Partnership (ZRU 537, 2019)
In 2020, Parliament, the President and the government of Uzbekistan adopted 62 laws, 125 decrees, and over 4,000 resolutions, regulations, and other judicial decisions. New legislation that could affect foreign investors includes:
The Law on the State Budget for 2021, (ZRU-657, adopted December 25, 2020). The law establishes Uzbekistan’s macroeconomic outlook and consolidated state budget parameters for FY 2021, and budget targets for 2022-2023. It also amends some tax regulations and introduces additional measures to improve fiscal transparency.
The Law on Innovative Activities (ZRU-630, adopted July 24, 2020). The law determines subjects and objects of innovation and establishes a conceptual framework with legal interpretation of innovation-related activities and other relevant terms. The text is available in English: https://lex.uz/docs/5155423.
The Law on Special Economic Zones (ZRU-604, adopted February 17, 2020). The law sub-categorizes special economic zones (SEZ) into free economic zones, special scientific and technological zones, tourism-recreational zones, free trade zones, and special industrial zones. It sets both general rules for SEZs and specific rules for each category of zones, with provisions for the creation, terms of operation, liquidation, management, customs regulation, taxation, land use, and the legal status of participants. The law also establishes local content requirements, such as a requirement to have at least 90% of the labor force sourced locally. The text is available in English: https://lex.uz/docs/4821319.
The Law on State Fees (ZRU-600, adopted January 6, 2020). The law specifies the state fee as a mandatory payment charged for the commission of legally significant actions and (or) the issuance of documents (including consular and patent) by authorized institutions and (or) officials. It also defines the rates of the fees.
The Law on Joining the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto, May 18, 1973, as amended on June 26, 1999) (ZRU-654, adopted December 12, 2020).
The Law on Ratification of the Statute of the Hague Conference on Private International Law (The Hague, October 31, 1951) (ZRU-605, adopted March 2, 2020).
Presidential Decree on Measures to Reduce the Grey Economy and Improve the Efficiency of Tax Authorities (UP-6098, adopted October 30, 2020). The decree simplifies taxation for small businesses, real estate developers, and employers in the construction sector.
Presidential Decree on Measures for Accelerated Reform of Enterprises with State Participation and Privatization of State Assets (UP-6096, adopted October 27, 2020). The decree orders the optimization and transformation of the structure of 32 large SOEs, the introduction of advanced corporate governance and financial audit systems in 39 SOEs, the privatization of state-owned shares in 541 enterprises through public auctions, and the sale of 15 public facilities to the private sector.
Presidential Decree on Improvement of Licensing and Approval Procedures (UP-6044, adopted August 28, 2020). The decree cancels 70 (out of 266) licensing requirements and 35 (out of 140) permit requirements.
Presidential Decree on Measures for Development of the Export and Investment Potential of Uzbekistan (UP-6042, adopted August 28, 2020). The decree, along with GOU Resolution PKM-601 of October 6, 2020, orders the creation of the Governmental Commission for the Development of Export and Investment. The Commission, headed by the Deputy Prime Minister for Investments and Foreign Economic Relations, will coordinate investment attraction and ensure implementation of investment projects.
Presidential Decree on Measures for Development of a Competitive Environment and Reduction of State Participation in the Economy (UP-6019, adopted July 7, 2020). This document elevates the status of the Anti-Monopoly Committee and introduces requirements to improve the transparency of public procurements, among other provisions.
Presidential Decree on Cancellation of some Tax and Customs Privileges (UP-6011, adopted June 6, 2020). This decree abolished privileged groups’ exemptions from paying social tax and says that VAT exemptions for services procured from foreign entities shall not apply to services provided by foreign entities operating in Uzbekistan through permanent establishments. It also abolishes VAT privileges in compliance with the Tax Code and other legislation.
Presidential Decree on Banking Sector Reform Strategy (UP-5992, adopted May 12, 2020). The decree approves a five-year strategy for reforming the banking sector with a goal to reduce the state share in its capital from the current 85% to 40%. It also orders the privatization of six large state-owned banks in close cooperation with international financial institutes.
As of now, there is no real “one-stop-shop” website for investors that provides relevant laws, rules, procedures, and reporting requirements in Uzbekistan. In December 2018, the GOU created a specialized web portal for investors called Invest Uz (http://invest.gov.uz/en/), which provides some useful information. The website of the Ministry of Investments and Foreign Trade (http://mift.uz/) offers some general information on laws and procedures, but mainly in the Uzbek and Russian languages.
Competition and Antitrust Laws
Competition and anti-trust legislation in Uzbekistan is governed by the Law on Competition (ZRU-319, issued January 6, 2012, and last revised in 2019). The main entity that reviews transactions for competition-related concerns is the State Antimonopoly Committee (established in January 2019). This government agency is responsible for advancing competition, controlling the activities of natural monopolies, protecting consumer rights and regulating the advertisement market. There were no significant competition-related cases involving foreign investors in 2020.
Expropriation and Compensation
Private property is protected against baseless expropriation by legislation, including the Law on Investments and Investment Activities and the Law on Guarantees of the Freedoms of Entrepreneurial Activity. Despite these protections, however, the government potentially may seize foreign investors’ assets due to violations of the law or for arbitrary reasons, such as a unilateral revision of an investment agreement, a reapportionment of the equity shares in an existing joint venture with an SOE, or in support of a public works or social improvement project (similar to an eminent domain taking). By law, the government is obligated to provide fair market compensation for seized property, but many who have lost property allege the compensation has been significantly below fair market value.
Uzbekistan has a history of alleged expropriations. Profitable, high-profile foreign businesses have been at greater risk for expropriation, but smaller companies are also vulnerable. Under the previous administration, large companies with foreign capital in the food processing, mining, retail, and telecommunications sectors oftenfaced expropriation. In cases where the property of foreign investors is expropriated for arbitrary reasons, the law obligates the government to provide fair compensation in a transferable currency. However, in most cases the private property was expropriated based upon court decisions after the owners were convicted for breach of contract, failure to complete investment commitments, or other violations, making them ineligible to claim compensation.
Decisions of Uzbekistan’s Economic Court on expropriation of private property can be appealed to the Supreme Court of the Republic of Uzbekistan in accordance with the Economic Procedural Code or other applicable local law. Reviews usually are quite slow. Some foreign investors have characterized the process as unpredictable, non-transparent, and lacking due process.
ICSID Convention and New York Convention
Uzbekistan is a member of the International Center for the Settlement of Investment Disputes (ICSID) and a signatory to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
By law, foreign arbitral awards or other acts issued by a foreign country can be recognized and enforced if Uzbekistan has a relevant bilateral or multilateral agreement with that country. According to new Law on International Commercial Arbitration (which will enter into force by September 2021), the arbitral award, regardless of the country in which it was made, is recognized as binding, and must be enforced upon submission of a written application. Implementation of the law shall be in full compliance with existing bilateral agreements of Uzbekistan with foreign states and multilateral agreements.
Investor-State Dispute Settlement
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. The Law on Guarantees to Foreign Investors and Protection of their Rights requires that involved parties settle foreign investment disputes using the methods they define themselves, generally in terms predefined in an investment agreement. 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.
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 to which Uzbekistan is a signatory, including the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1992 CIS Agreement on Procedure for Settling Disputes Arising Out of Business Activity, and other bilateral legal assistance agreements with individual countries. Currently there is no such bilateral treaty that covers U.S. citizens.
If the parties fail to specify an international mechanism, Uzbekistan’s economic courts can settle commercial disputes arising between local and foreign businesses. The economic courts have subordinate regional and city courts. Complainants may seek recognition and enforcement of foreign arbitral awards pursuant to the New York Convention through the economic courts. When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling.
Currently Uzbekistan does not have a ratified Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with an investment chapter with the United States. The governments of the United States and Uzbekistan signed a BIT in 1994, but ratification documents have not been exchanged and the agreement never entered into force.
Since President Mirziyoyev came to power, investment disputes have been more limited in scope, but still exist: 1) Following a two-year delay, during which the government refused to honor the terms of a power purchase agreement signed in 2018, stating that adhering to the terms would violate its fiduciary duty, the government agreed to honor the original contract terms. The project is now moving forward.
1) Following a two-year delay, during which the government refused to honor the terms of a power purchase agreement signed in 2018, stating that adhering to the terms would violate its fiduciary duty, the government agreed to honor the original contract terms. The project is now moving forward. 2) The government unilaterally cancelled an agricultural equipment purchase contract on the grounds that the imported equipment was more expensive than it had thought and did not meet the government’s new requirements for local content. The company has stated that it considers the matter closed and is focusing on bringing other products to the market.
2) The government unilaterally cancelled an agricultural equipment purchase contract on the grounds that the imported equipment was more expensive than it had thought and did not meet the government’s new requirements for local content. The company has stated that it considers the matter closed and is focusing on bringing other products to the market. 3) A chemical company in partnership with a SOE alleged that the SOE breached its contract obligations and violated Uzbekistani law by withholding dividends, intending to create leverage to buy out the U.S. investor at a reduced price. The U.S. firm has stated it is willing to leave, as long as it earns a reasonable return on its investment.
3) A chemical company in partnership with a SOE alleged that the SOE breached its contract obligations and violated Uzbekistani law by withholding dividends, intending to create leverage to buy out the U.S. investor at a reduced price. The U.S. firm has stated it is willing to leave, as long as it earns a reasonable return on its investment. 4) An agricultural firm reported its farmland, on which it held a 99-year lease, had been illegally reassigned to other agricultural producers by the local government. Post assisted the company in raising its complaints to the attention of the Presidential Administration and the Supreme Court.
4) An agricultural firm reported its farmland, on which it held a 99-year lease, had been illegally reassigned to other agricultural producers by the local government. Post assisted the company in raising its complaints to the attention of the Presidential Administration and the Supreme Court. 5) An invoice on a refinery remains unpaid, following the suspension of work on the project, despite the U.S. firm having passed the contractual threshold for work provided that would require payment.
5) An invoice on a refinery remains unpaid, following the suspension of work on the project, despite the U.S. firm having passed the contractual threshold for work provided that would require payment.
Post is aware of a number of cases of commercial or investment disputes involving foreign investors which occurred nearly a decade ago. These have included alleged asset seizures, alleged expropriations, or liquidations; lengthy forced production stoppages; pressure to sell off foreign shares in joint ventures; and failure to honor contractual obligations. These cases have involved a variety of sectors, including food production, mining, telecommunications, agriculture, and chemicals. Although government actions in such cases have been taken under the guise of law enforcement, some observers have claimed more arbitrary or extralegal motives were at play.
In September 2012, the Tashkent City Criminal Court seized the assets of a cellular telecom provider for financial crimes. An appeals court reversed this decision in November 2012, but upheld the $600 million in fines imposed. The company wrote off its total assets in Uzbekistan of $1.1 billion and left the market. In 2013, the government transferred all of the company’s assets to a state-owned telecom operator after twice trying unsuccessfully to liquidate them. In 2014, the company dropped legal proceedings against Uzbekistan and signed a settlement.
In October 2011, the government halted the production and distribution operations of a brewery owned by the Danish firm Carlsberg during a dispute over alleged tax violations. The interruption of business lasted 18 months before the company re-opened.
Earlier in 2011, the government liquidated the Amantaytau Goldfields, a 50-50 joint venture of the British company Oxus Gold and an Uzbekistani state mining company.
In March 2011, government authorities also seized a large chain grocery store and approximately 50 smaller companies owned by Turkish investors.
By the Law on International Commercial Arbitration (will enter into force by September 2021), foreign arbitral awards, including those issued against the government, regardless of the country in which it was made, are recognized as binding, and must be enforced upon written application to the court. Foreign arbitral awards or other acts issued by a foreign country also can be recognized and enforced if Uzbekistan has a relevant bilateral or multilateral agreement with that country. If international arbitration is permitted, awards can be challenged in domestic courts.
Although in many cases investor-state disputes in Uzbekistan were associated with immediate asset freezes, almost all of them were followed by formal legal proceedings.
International Commercial Arbitration and Foreign Courts
Alternative dispute resolution institutions of Uzbekistan include arbitration courts (also known as Third-Party Courts), and specialized arbitration commissions. Businesses and individuals can apply to arbitration courts only if they have a relevant dispute-settlement clause in their contract or a separate arbitration agreement. The Civil Procedural Code and the Commercial Procedural Code also have provisions that regulate arbitration. The Law on International Commercial Arbitration, drafted in late 2018 and approved in February 2021, will enter into force by September 2021. It states that contractual and non-contractual commercial disputes can be referred to international commercial arbitration by agreement of the parties. The parties can determine the number of arbitrators and the language or languages that can be used in the arbitration. The interim measure prescribed by the arbitration court shall be recognized as binding. The award must be made in writing.
The main domestic arbitration body is the Arbitration Court. General provisions of the Law on Arbitration Courts are based on principles of the UNCITRAL model law, but with some national specifics – namely that Uzbekistani arbitration courts cannot make reference to non-Uzbekistani laws. According to the Law, parties of a dispute can choose their own arbiter and the arbiter in turn choses 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. Either party to the dispute can appeal the verdict of the Arbitration Court to the general court system within thirty days of the verdict. Separate arbitration courts are also available for civil cases, and their decisions can be appealed in the general court system. Arbitration courts do not review cases involving administrative and labor/employment disputes.
The Tashkent International Arbitration Center (TIAC) under the Chamber of Commerce and Industry of Uzbekistan was created in late 2019 as a non-governmental non-profit organization. The main function of this organization is to facilitate dispute resolution for businesses, including foreign investors. The Center may employ qualified arbitration lawyers, both local and foreign. The Center has the right to resolve disputes through mediation or other alternative methods permitted by the law.
The Law on International Commercial Arbitration was approved by Parliament in 2020 and signed by the president in February 2021. It will enter into force by September 2021. According to the law, the arbitral award, regardless of the country in which it was made, is recognized as binding, and must be enforced upon submission of a written application. Implementation of the law shall be in full compliance with existing bilateral and multilateral agreements of Uzbekistan with foreign states.
Most investment disputes involving Uzbekistan’s state-owned enterprises (SOEs) that were brought into Uzbekistan’s have either been decided in favor of the SOEs or have been settled out of court. When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling. In some cases, the Ministry’s authority is limited and co-opted by other elements within the government. Judgments against SOEs have proven particularly difficult to enforce.
The Law on Bankruptcy regulates bankruptcy procedures. Creditors can participate in liquidation or reorganization of a debtor only in the form of a creditor’s committee. According to the Law on Bankruptcy and the Labor Code, an enterprise may claim exemption from paying property and land taxes, as well as fines and penalties for back taxes and other mandatory payments, for the entire period of the liquidation proceedings. Monetary judgments are usually made in local currency. Bankruptcy itself is not criminalized, but in August 2013, the GOU introduced new legislation on false bankruptcy, non-disclosure of bankruptcy, and premeditated bankruptcy cases. In its 2020 Doing Business report, the World Bank ranked Uzbekistan 100 out of 190 for the “Resolving Insolvency” indicator (https://www.doingbusiness.org/en/data/exploreeconomies/uzbekistan).
4. Industrial Policies
All investment incentives to foreign investors are regulated by national level legislation, which can be adopted only by the president. Regional and local governments have limited authorities to offer any additional preferences. Exceptions can be made for tax incentives granted by special government resolutions or presidential decrees. By the new Tax Code, the GOU may provide holidays for land taxes, property taxes and water use taxes to some companies with foreign direct investments on a case-by-case basis.
Foreign Trade Zones/Free Ports/Trade Facilitation
The first law on free economic zones in Uzbekistan appeared in 1996. After dozens of modifications, in February 2020 it was finally replaced by the Law on Special Economic Zones (SEZ) (ZRU-604), which entered into force May 19, 2020 (the text is available in English: https://lex.uz/docs/4821319 ). The law provides the following classification of special economic zones:
Free Economic Zone (FEZ) – territory allocated for the construction of new high-tech, competitive, import-substituting, and export-oriented industrial production capacities, and for development of industrial, engineering, telecommunications, road, and social infrastructure, as well as appropriate logistics services.
Special Scientific and Technological Zone – territory allocated for the development of innovation infrastructure by scientific and science-related organizations, including technology parks, technology distribution/transfer centers, innovation clusters, venture funds, and business incubators.
Tourist-Recreational Zone – territory allocated for tourism infrastructure development investment projects, including construction of hotels, cultural and recreational facilities, and functional and seasonal recreation areas.
Free Trade Zones – territories for consignment warehouses, areas of special customs and tax regimes, facilities at border crossing points for processing, packing, sorting, storing goods, airports, railway stations or other custom control sites.
Special Industrial Zone – territory with special economic and financial regulations of production and logistical business activities.
According to the new Law of SEZ (Article 39) and the Tax Code (Article 473), investors to special economic zones of Uzbekistan may expect:
Holidays for paying property taxes, land taxes and taxes for the use of water resources. The term of the holiday shall be determined by a separate presidential resolution depending on the size of investments. Such tax holidays can be applied only to business activities stipulated in the relevant investment agreement with administration of a special economic zone. Participants of special economic zones also may get some VAT exemptions and other tax benefits.
Exemption from paying customs payments (except for value added tax and customs clearance fees) for construction materials that cannot be sourced locally; technological equipment that cannot be sourced locally, raw materials, materials and components used to produce export-oriented output.
The following activities are prohibited within the SEZs:
- Businesses that violate environmental and labor protection standards.
- Businesses related to weapons and ammunition.
- Businesses related to nuclear materials and radioactive substances.
- Production of alcohol and tobacco products.
- Rawhide processing, livestock corrals, or slaughter of animals.
- Production of cement, concrete, cement clinker, bricks, reinforced concrete slabs, coal, lime and gypsum products.
- Processing, decomposition, incineration, gasification, chemical treatment, final or temporary storage or burial underground of all types of waste.
- Placement of oil refineries, nuclear power plants, nuclear installations, or radiation sources, or points and installations designed for storage, disposal, and processing of nuclear fuel, radioactive substances, and waste, as well as other radioactive waste.
The first Free Industrial and Economic Zone (FIEZ) was created in 2008 in the Navoi region. By the end of 2020, the GOU had created 12 industrial, seven pharmaceutical, two agricultural, and one tourism free economic zones, as well as over 143 special small industrial zones in all regions of the country. According to official statistics, about 380 investment projects have been implemented in these zones, creating nearly 31,000 new jobs.
Performance and Data Localization Requirements
The GOU considers attraction of foreign investments as one of the key instruments for addressing rural poverty and growing unemployment in Uzbekistan.
There are several restrictions and quantitative limitations on employment of foreign nationals in Uzbekistan. The chief accountants in banking and auditing companies must be Uzbekistani nationals. The law also requires that either the CEO or one member of a board of directors be a citizen of Uzbekistan. In the tourism sector, only Uzbekistani nationals can be professional tour guides. The Law on Special Economic Zones (ZRU-604) requires having at least 90% locally sourced labor force in projects operating within special economic and small industrial zones. The Agency on Foreign Labor Migration under the Ministry of Employment and Labor Relations is responsible for enforcing limits on employment of foreign nationals in various industries. For example, the number of foreign nationals in energy companies that operate in the country under Production Sharing Agreement terms cannot exceed 20% of the total number of employees, and additional foreign personnel can be hired only if there is no qualified local labor.
All foreign citizens, except those from certain countries of the former Soviet Union, need visas to work in Uzbekistan and all individuals must register their residences with authorities. Legislation permits foreign investors and specialists to obtain multiple entry visas for the period of their contract. To apply for a work visa, American citizens must submit documents regarding their company to an Uzbekistani embassy or consulate. American investors have complained in the past about the short validity of visas and the limited number of entries, though we understand that practice is changing, and investors can specifically request multiple entry/longer term visas.
Foreign workers must also register with the Ministry of Employment and Labor Relations.
Formally, permission from the government is not required to invest in Uzbekistan except for investments in the special economic zones and businesses that are subject to licensing. At the same time, the GOU’s economic policy still maintains an intense focus on import substitution and export-oriented industrialization. Investors in non-priority sectors can expect less support in importing capital and consumer products than those in priority industries.
The government welcomes foreign investors mainly in the areas of localization, building local production capacities, and developing export potential. To support local producers, the GOU introduced a rule (GOU Resolution PKM-41, adopted January 29, 2021), which says import contracts of enterprises and joint ventures with at least a 50% state share exceeding 50,000 BCRs ($1,155,660 as of March 2021) are subject to mandatory review by the supervisory boards of these entities on a quarterly basis. The government also bans import of 529 categories of goods and certain services through public procurement processes. The list includes food products, construction materials, fertilizers, industrial products, textile and clothing products, footwear and leather goods, furniture, household goods, household electrical appliances, vehicles, paper and cellulose products, medical products, and others. The GOU also has established a procedure for public procurement of these imported goods through the portal website of the Center for Electronic Cooperation under the Ministry of Economic Development and Poverty Reduction.
Uzbekistan’s legislation stipulates that the government must apply requirements to use domestic inputs in manufacturing uniformly to enterprises with domestic and foreign investments, but in practice, this is not always the case. There are no requirements for using only local sources of financing.
To qualify as an enterprise or business with foreign investment and be eligible for tax and other incentives, the share of foreign investment must be at least 15% of the charter capital of a company. The investment must consist of hard currency or new equipment, delivered within one year of registering the enterprise. The minimum requirements for charter capital for incentives (except financial institutions) is 400 million s’om (about $38,000 as of March 2021).
Tax incentives for foreign investment are essentially the same as for local enterprises participating in an investment, localization, or modernization program. Enterprises with significant investment in priority sectors or registered in one of free economic or special industrial zones can expect additional benefits.
On February 20, 2020, the GOU announced its plan to require localization of personal data storage, in line with the Law on Personal Data (ZRU-547), adopted July 2, 2019. Per the law, large internet companies like Facebook, Google, and Russian search engine Yandex are encouraged to move their server equipment with local users’ personal data to the territory of Uzbekistan. According to the law, the GOU may block services in the country in the event of non-compliance.
As of now, the legislation of Uzbekistan prevents or restrict companies from freely transmitting customer or other business-related data outside the country.
Transfers of technology or proprietary information are not required by the law and can be the subject of an agreement between the foreign investor and its local partner.
5. Protection of Property Rights
Property ownership is governed by the Law on Protection of Private Property and Guarantees of the Owner’s Rights. Uzbekistani and foreign entities may own or lease buildings, but not the underlying land. Mortgages are available for local individuals only, but not for legal entities. There are no mortgage lien securities in Uzbekistan.
The new Law on Privatization of Non-agricultural Land Plots (ZRU-522, August 13, 2019) allows private land ownership for plots that do not fall under the definition of agricultural land by the Land Code of Uzbekistan. Land ownership is granted only to entities and individuals who are residents of Uzbekistan. Foreign citizens and entities do not have land property rights in Uzbekistan. Effective March 1, 2020, Uzbekistan residents can privatize:
- Land plots of entities, on which their buildings, structures and industrial infrastructure facilities are located, as well as the land extensions necessary for their business activities;
- Land plots provided to citizens for individual housing construction and maintenance;
- Unoccupied land plots;
- Land plots allocated to the Urban Development Fund under the Ministry of Economy and Industry.
The following types of land cannot be privatized:
- Land plots located in territories that are not covered by officially documented layout plans.
- Land plots that contain mineral deposits or state property of strategic importance. The list of such land plots shall be specified by appropriate legislation.
- Land plots reserved for environmental, recreational, and historical-cultural purposes, state owned land and water resources, and public areas of cities and towns (e.g. squares, streets, roads, boulevards).
- Land plots affected by hazardous substances or susceptible to biogenic contamination.
- Land plots provided to residents of special economic zones.
However, according to Article 55 of Uzbekistan’s Constitution, the land, its subsoil, waters, flora and fauna and other natural resources are national wealth, subject to rational use and are protected by the state. The Land Code also states that the land is state property (Article 16). Contradictions in the legislation are still to be resolved.
Land privatization is a new concept for Uzbekistan. All agricultural land in Uzbekistan is still owned by the state. As of March 1, 2020, a new law on privatization allows for the privatization of non-agricultural land plots.
Legislation governing the acquisition and disposition of immoveable property (buildings and facilities) poses relatively few problems for foreign investors and is similar to laws in other CIS countries. Immoveable property ownership is generally respected by local and central authorities. District governments have departments responsible for managing commercial real estate issues, ranging from valuations to sale and purchase of immoveable property. Legally purchased but unoccupied immoveable property can be nationalized for several reasons, including by an enforcement process of a court decision, seizure for past due debts on utility or communal services, debts for property taxes, and, in some cases, for security considerations. Unauthorized takeover of unoccupied immoveable property by other private owners (squatters) is not a common practice in Uzbekistan. Usually, authorities inspect the legitimacy of immoveable property ownership at least once every year.
Intellectual Property Rights
While the concept of registering intellectual property (IP) is still new to Uzbekistan, the GOU recognizes intellectual property rights (IPR) as critical to its economic goals. As Uzbekistan prepares for accession to the World Trade Organization (WTO), its leaders have further reiterated the importance of IPR protections. In 2018 and 2019, Uzbekistan completed accession to the Geneva Phonograms Convention and two WIPO Internet Treaties. Responsibility for IPR issues lies with the formerly independent Uzbekistan Agency for Intellectual Property (AIP), which was subsumed under the Ministry of Justice (MOJ) (AIP, ) in February 2019.
Uzbekistan’s Customs Code, entered into force April 2016, allows rights holders to control the importation of intellectual property goods. The Code introduced a special customs record procedure, which is based on a database of legal producers and their distributors. Uzbekistan also introduced several amendments to its IPR law, as well as amendments to civil and criminal codes meant to enforce stricter punishment for IPR violations.
Uzbekistan’s patent protections are generally sufficient, but enforcement remains one of the biggest challenges. Foreign companies face obstacles proving IP violations and receiving compensation for losses sustained due to violations. IP violators are rarely obligated to cease infringing activities or pay meaningful penalties. AIP lacks any kind of enforcement power, as does the MOJ. Enforcement is weak across different kinds of IP. Copyright cases are almost never brought before the Antimonopoly Committee (the body responsible for responding to IP complaints) because companies makes the decision that the cost of fighting copyright violations outweighs the benefits. Trademark cases often take years to settle in the courts, driving up costs and consuming time and resources. For companies who cannot meet the demands of a multiyear court battle it becomes cost prohibitive to pursue action to protect their IP.
While Uzbekistan took important steps in recent years to address longstanding issues pertaining to IPR, there remain serious deficiencies in trademark and copyright protections, judicial processes related to IPR, and enforcement of actions against IPR violations and violators.
In December 2018, President Mirziyoyev signed a bill into law for Uzbekistan to accede to the Geneva Phonograms Convention. The GOU forwarded signed copies of the law to WIPO and the UN, thus completing the formal ratification of these conventions. In February 2019, the President approved adoption of two bills into the law for Uzbekistan to accede to the WIPO Copyright Treaty and the WIPO Performance and Phonograms Treaty (“Internet Treaties”). The GOU is working on amendments to national legislation to bring it in line with the requirements of the IPR Treaties. These measures represent the necessary short-term actions for Uzbekistan to maintain its benefits under the U.S. Generalized System of Preferences (GSP). The full list of IPR-related international agreements/treaties that Uzbekistan has acceded to is available here: .
In April 2018, the GOU provided greater authority to a new inspectorate under the Ministry of Information Technologies and Communications to monitor compliance and enforce copyright protections on the internet. The GOU is also establishing a system of licensing for companies that sell software legally, in order to stem the flow of pirated software to the marketplace, as described in GOU Resolution #72 of 2012 (https://www.lex.uz/acts/1982899).
There are no publicly available reports on seizures of counterfeit goods in 2020. In 2020, the AIP recorded 111 cases of trademark violations and many cases of trading counterfeit goods, including about 540 cases of selling counterfeit alcohol. The agency also recorded production and sale of counterfeit Head & Shoulders products (a brand owned by Procter & Gamble) and Mars candy bars. The Board of Appeal had reviewed cases of five American companies (Colgate-Palmolive Company, Under Armour Inc., Delta Hotels by Marriott, Apple Inc., and Emerson) and issued rulings in their favor.
Under current Uzbekistani law, the court considers copyright infringement cases only after the copyright holder submits a claim of damages. Similarly, for imported products, customs officials do not have an ex-officio function, and the onus is on the rights holder to initiate an action against a suspected infringer. The Prosecutor General’s Office (PGO) has the authority to both penalize violators and order them to desist from producing, marketing, or selling infringing goods, but few cases ever make it to the PGO. The burden of proving an IP violation is so high that most cases never leave the Antimonopoly Committee or the administrative court system. While these cases are stalled in the court system, infringing companies may continue to operate without restrictions.
Uzbekistan has been on the Watch List of the U.S. Trade Representative’s (USTR) Special 301 Report since 2000. The political will to improve IPR protection seems to exist at the highest levels of the government, but effective enforcement policies are still not in place. Although Uzbekistan has taken some important first steps to address concerns raised in previous USTR’s reports, the country will have to demonstrate measurable and sustained progress before removal from the Special 301 Watch List.Uzbekistan is not, listed in USTR’s notorious market report.
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.
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 of October 22, 2019) fully liberalized currency operations, current cross-border and capital movement transactions.
In 2019, the GOU considerably simplified repatriation of capital invested in Uzbekistan’s industrial assets, securities, and stock market profits. According to the law (ZRU-531), 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.
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 January 2021, 32 commercial banks operate in Uzbekistan. Five commercial banks are state-owned, 13 banks are registered as joint-stock financial organizations (eight of which are partly state-owned), seven banks have foreign capital, and seven banks are private. Commercial banks have 884 branches and a network of exchange offices and ATMs throughout the country. State-owned banks hold 84% of banking sector capital and 85% of banking sector assets, leaving privately owned banks as relatively small niche players. The nonbanking sector is represented by 63 microcredit organizations and 64 pawn shops.
In May 2020, President Mirziyoyev approved a five-year strategy for reformation of the banking sector to address existing weaknesses of the banking sector, such as excessive share of state assets, insufficient competition, poor quality of corporate governance and banking services in comparison with best international standards, as well as a relatively low penetration of modern global technologies. The goal of the strategy is to reduce the state share in the sector from the current 84% to 60% and to increase the market share of the non-banking sector from current 0.35% to 4%. The government will privatize its shares in six banks and facilitate modernization of banking services in remaining state-owned banks.
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. Moody’s notes high resilience of the country’s banking system to the impact of the COVID pandemic in comparison with other CIS countries. The average rate of capital adequacy within the system is 18.4%, and the current liquidity rate is 67.4%. 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.
According to the Central Bank of Uzbekistan, the share of nonperforming loans out of total gross loans is 2.1% (as of January 1, 2021). The average share of nonperforming loans in state-owned banks is about 2.1% and 1.9% in private banks. A majority of Uzbekistan’s commercial banks have earned “stable” ratings from international rating agencies.
As of January 1, 2021, the banking sector’s capitalization was about $5.8 billion, and the value of total bank assets in the whole country was equivalent to about $37 billion. The three largest state-owned banks – the National Bank of Uzbekistan, Asaka Bank, and Uzpromstroybank – hold 46% of the banking sector’s capital ($2.7 billion) and 47.7% of the assets ($17.5 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 seven banks with foreign capital operating in the market, and five 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 (10,600 s’om per one U.S dollar as of March 2021). On February 15, 2015, trade sessions at the local FX Exchange transferred from the previous “fixing” methods to the combination of “call auction” and bilateral continuous auctions (“matching”). The CBU publishes the official exchange rate of foreign currencies at 1600 every business day for accounting, statistical and other reporting purposes, as well as for the calculation of customs and other mandatory payments in the territory of Uzbekistan.
After the almost 50% devaluation of the national currency in September 2017, the exchange rate had been relatively stable in 2018 with an average of 2.4% annual devaluation. In 2019, the devaluation of s’om accelerated to 14%, although the CBU reported it had made $3.6 billion in interventions in the forex market to support the local currency. In 2020, the annual devaluation was held below 10%. The local currency’s relative stability in 2020 was supported by reduced imports and strong FX reserves ($34.9 billion by January 1, 2021).
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.
7. State-Owned Enterprises
State-owned enterprises (SOEs) dominate those sectors of the economy recognized by the government as being of national strategic interest. These include energy (power generation and transmission, and oil and gas refining, transportation and distribution), metallurgy, mining (ferrous and non-ferrous metals and uranium), telecommunications (fixed telephony and data transmission), machinery (the automotive industry, locomotive and aircraft production and repair), and transportation (airlines and railways). Most SOEs register as joint-stock companies, and a minority share in these companies usually belongs to employees or private enterprises. Although SOEs have independent boards of directors, they must consult with the government before making significant business decisions.
The government owns majority or blocking minority shares in numerous non-state entities, ensuring substantial control over their operations, as it retains the authority to regulate and control the activities and transactions of any company in which it owns shares. The Agency for Management of State-owned Assets is responsible for management of Uzbekistan’s state-owned assets, both those located in the country and abroad. There are no publicly available statistics with the exact number of wholly and majority state-owned enterprises, the number of people employed, or their contribution to the GDP. According to some official reports and fragmented statistics, there are over 3,500 SOEs in Uzbekistan, including 27 large enterprises and holding companies, about 2,900 unitary enterprises, and 486 joint stock companies, which employ about 1.5-1.7 million people, or about 13% of all domestically employed population. In 2020, the share of SOEs in the GDP was about 55%, and taxes paid by 10 largest SOEs contributed 63.3% of total state budget revenues.
The published list of major Uzbekistani SOEs is available on the official GOU website (listing large companies and banks only): http://www.gov.uz/en/pages/government_sites .
By law, SOEs are obligated to operate under the same tax and regulatory environment as private businesses. In practice, however, private enterprises do not enjoy the same terms and conditions.
In certain sectors, private businesses have limited access to commodities, infrastructure, and utilities due to legislation or licensing restrictions. They also face more than the usual number of bureaucratic hurdles if they compete with the government or government-controlled firms. Most SOEs have a range of advantages, including various tax holidays, as well as better access to commodities, energy and utility supplies, local and external markets, and financing. There are cases when gaps in the legislation are used to ignore the rights of private shareholders (including minority shareholders and holders of privileged shares) in joint stock companies with a state share.
A May 2019 IMF Staff Report concluded that SOEs absorbed disproportionate shares of skilled labor, energy, and financial resources, while facing weak competition enforcement and enjoying a wealth of investment preferences. The GOU has officially recognized the problem. President Mirziyoyev said strong involvement of the state in the fuel and energy, petrochemical, chemical, transport, and banking sectors was hampering their development. In 2020, he issued several decrees and resolutions to improve the competition environment and reduce the dominance of SOEs in the economy. New legislation has strengthened the role of the Anti-Monopoly Committee, overturned over 600 obstructing laws and regulations, abolished 70 (out of 266) types of licenses and 35 (out of 140) permits for various types of businesses. The Presidential decree on SOE reformation and privatization (adopted October 27, 2020) orders 32 large SOEs to optimize and transform their corporate structure, 39 SOEs to introduce advanced corporate governance and financial audit systems, the privatization of state-owned shares in 541 enterprises through public auctions, and the sale of 15 public facilities to the private sector. The reform covers large SOEs in the energy, mining, telecommunications, transportation, construction, chemical, manufacturing, and other key industries. Another decree orders large-scale privatization in the banking sector. In 2020, the government started projects to privatize six state-owned banks in cooperation with international financial institutions. In addition to privatization efforts, the GOU intends to attract private investments to the public sector through promotion of public-private partnerships (PPP). The new law on PPP, adopted in 2019, and a number of follow-up regulations introduced in 2020 create a more favorable environment for such partnerships.
Implementation of this SOE optimization and reform program will likely take some time, as the GOU seeks to avoid high social costs, such as mass unemployment. In September 2020, the IMF staff noted, “The crisis should not delay the reform of the state-owned banks and state-owned enterprises—including by improving their governance—and the agricultural sector. As the crisis abates, the authorities should also continue with reducing the role of the state in the economy, opening up markets and enhancing competition, and improving the business environment.”
GOU policy papers indicate it is prioritizing further privatization of state-owned assets. The GOU’s goal is to reduce the public share of capital in the banking sector and business entities through greater attraction of foreign direct investments, local private investments, and promotion of public-private partnerships.
The new public sector optimization policy was first announced in 2018. A special working group headed by the Prime Minister performed careful due diligence on about 3,000 enterprises with state shares and developed proposals for their reorganization and privatization. Based on the results, the GOU approved a program that covers over 620 SOEs in the energy, mining, telecommunications, transportation, construction, chemical, manufacturing, and other key industries. The program foresees privatization of 541 state-owned enterprises, six state-owned banks, and the sale of 15 public facilities to the private sector. In a longer-term perspective, the government plans to privatize over 1,115 SOEs and offer about 50 SOEs for public-private partnership projects. Companies that operate critical infrastructure and enterprises that qualify as companies of strategic importance will remain in full state ownership.
Senior government officials see privatization and public-private partnerships as a solution to improve the economic performance of inefficient large SOEs and as an instrument to attract private investments. They view such investments as critical for the creation of new jobs and mitigation of state budget deficits. The GOU believes it needs to prepare SOEs for privatization by introducing advanced corporate governance methods and restructuring the organization and finances of underperforming SOEs.
By law, privatization of non-strategic assets does not require government approval and can be cleared by local officials. Foreign investors are allowed to participate in privatization programs. For investors that privatize assets at preferential terms, the payment period is three years, and the investment commitment fulfillment term is five years. Large privatization deals with the involvement of foreign investment require GOU approval. Formally, such approval can be issued after examination by the Contracts Detailed Due Diligence Center under the Ministry of Economy.
C. Do these programs have a public bidding process? If so, is it easy to understand, non-discriminatory and transparent? Please provide a link to the relevant government website.
Privatization programs officially have a public bidding process. The legislation and regulations adopted in 2020 for acceleration of the privatization program are intended to ensure the transparency and fairness of the process, as well as facilitating greater involvement of international financial institutions and foreign experts as consultants. In the past, however, privatization procedures have been confusing, discriminatory, and non-transparent. 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 front companies associated with influential Uzbekistani families. The State Assets Management Agency of Uzbekistan coordinates the privatization program (https://davaktiv.uz/en/privatization).
8. Responsible Business Conduct
There is no legislation on responsible business conduct (RBC) in Uzbekistan, and the concept has not been widely adopted, though many companies are active in charitable and corporate social responsibility activities, either through their own initiative or because they were mandated by local government officials.
Historically, the level of forced labor involved in the annual cotton harvest (September – November) was high, as citizens were pressed into service in the fields to meet government targets for cotton production. However, much has changed since President Mirziyoyev took office and the GOU has reversed course and worked hard to eradicate forced labor from the harvest and move away from Soviet-era cotton production targets. According to the International Labor Organization (ILO) 2020 monitoring reports, the total percentage of the approximately two million pickers recruited for the 2020 harvest who experienced some coercion fell from 6% to 4% – a year-over-year reduction from approximately 102,000 to 80,000 pickers.
Efforts to eliminate trafficking in persons and forced labor leaped forward in 2020 with the government’s February 2020 decision to end the state quota system for cotton. Dismantling the complex quota system required further development of the cluster system, first introduced in 2018 as a means to reduce forced labor. By the end of 2020, the number of clusters (privately operated, vertically integrated, cotton textile producing enterprises, including those with foreign capital) in Uzbekistan exceeded 90 and the percentage of land cultivated by or on behalf of private businesses grew considerably. With increased privatization of cotton production, the government ceded decisions about labor to private businesses.
Relevant government agencies and departments inspect both newly registering and operating local businesses and enterprises for enforcement of the Labor Code in respect to labor and employment rights; the Law on Protection of Consumer’s Rights for consumer protections; and the Law on Protection of Nature for environmental protections. Labor or environmental laws and regulations are not waived for enterprises with private and foreign investments.
Legislation, including the Law on Joint-Stock Companies and Protection of Shareholder’s Rights, issued in 1996 and last updated in 2018, sets a range of standards to protect the interests of minority shareholders. In 2018, the GOU approved corporate governance rules for SOEs. Their introduction is in progress.
The Law on the Securities Market requires businesses that issue securities (except government securities) to 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.
There are no independent NGOs, investment funds, worker organizations/unions, or business associations promoting or monitoring RBC in Uzbekistan. Some international organizations, like the Asian Development Bank, provide technical and advisory assistance to the government and local enterprises.
Uzbekistan adopted its Corporate Governance Code in 2015 as a voluntary requirement. The same year, the GOU set corporate governance requirements for joint-stock companies (Decree UP-4720).
At present, Uzbekistan does not adhere to the OECD guidelines regarding responsible supply chains of minerals from conflict-afflicted and high-risk areas, and there has been no substantial evidence to suggest the government encourages foreign and local businesses to follow generally accepted CSR principles such as the OECD Guidelines for Multinational Enterprises. Uzbekistan does not participate in the Extractive Industries Transparency Initiative (EITI).
Uzbekistan’s legislation prohibits the private security industry or use of private security companies within the country.
Department of State
- Country Reports on Human Rights Practices;
- Trafficking in Persons Report;
- Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
- North Korea Sanctions & Enforcement Actions Advisory
Department of Labor
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 June 29, 2020, Presidential Decree UP-4761 created an Anti-Corruption Agency. Subordinate to the president and reporting to Parliament, the agency is responsible for developing and implementing state policy to prevent and combat corruption. Earlier in 2019, the GOU adopted the 2019-2021 Anti-Corruption Program to strengthen the independence of the judiciary system, develop a fair and transparent public service system requiring civil servants to declare their incomes and establishing mechanisms to prevent conflicts of interest, and facilitate civil society and media participation in combating corruption.
Along with the Anti-Corruption Committee, the Prosecutor General’s Office of Uzbekistan (PGO) is the government arm tasked with fighting corruption. Since Mirziyoyev took office in September 2016, the number of officials prosecuted under anti-corruption laws has increased. According to official statistics, roughly 2,300 corruption-related crimes were registered in 2018-2019. In January-September 2020, Uzbekistani law enforcement agencies initiated 838 corruption related criminal cases and prosecuted 647 government officials, including, six tax collectors, 57 healthcare managers, 89 police officers, 140 education officials, 184 SOE managers, and seven deputy governors. By preliminary assessments, the damage caused by budget embezzlement crimes in 2020 exceeded $24 million, while corruption cost over $20 million. Punishment has varied from fines to imprisonment with confiscation of property.
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. In May 2020, the GOU published a new draft of the Law on State Civil Service. It requires obligatory income and asset declaration by all civil servants and their families. The requirement applies to the president, deputies of the Legislative Chamber, members of the Senate, the Central Election Commission, the Ombudsman, deputies of the Parliament of the Republic of Karakalpakstan and local representative bodies of state power, as well as judges. The draft version caused heated discussions among the public and government officials. In October 2020, Director of the Anti-Corruption Agency stated that all waivers must be excluded from the draft of the law. The law is still under consideration.
C. Does the country/economy have laws or regulations to counter conflict-of-interest in awarding contracts or government procurement?
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.
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.
Corruption is still a notable factor in the economy and social sphere of Uzbekistan due to the insufficiency of law enforcement practices and relatively low wages in the public sector. Recognizing the issue, the country’s leadership has initiated legislative and institutional reforms, which has already raised Uzbekistan’s rating in Transparency International’s Corruption Perceptions Index from 157 (out of 180 rated countries) in 2017 to 146 in 2020. 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 Anti-Corruption Agency, 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 the Anti-Corruption Agency of Uzbekistan:
- Address: 8A, Shota Rustavely St., 100070, Tashkent, Uzbekistan
- Website: https://anticorruption.uz/en/item/report-corruption
- Hotline telephone numbers: +998(71) 202-0400 (Ext 709), 271-1007
- Email: firstname.lastname@example.org
Contact information for the office of Uzbekistan’s Prosecutor General:
- Address: 66, Akademik Gulyamov St., 100047, Tashkent, Uzbekistan
- Website: www.prokuratura.uz
- Hotline telephone numbers: +998(71) 1007, 202-0486
Contact information for the office of Uzbekistan’s Ministry of Justice:
10. Political and Security Environment
Uzbekistan does not have a history of politically motivated violence or civil disturbance. There have not been any examples of damage to projects or installations over the past ten years. Uzbekistani authorities maintain a high level of alert and aggressive security measures to thwart terrorist attacks. The environment in Uzbekistan is not growing increasingly politicized or insecure.
11. Labor Policies and Practices
During 2020, the population of Uzbekistan increased by 653,113 people (1.8%) to 34,558,913. According to publicly available statistics, about 30% of the population is under 16 years old; 60% is working age (16-60); and 10% are 60 years old and older. Uzbekistan’s State Statistics Agency reports indicate the total number of laborers, as of January 1, 2021 was 19,142,300 people (0.7% increase year-on-year). 13,239,600 of them were considered employed (0.2% increase year-on-year). The share of the non-agricultural workforce is about 73.1%. There are about two million Uzbekistani citizens who work abroad as labor migrants. The official number of unemployed is 1.55 million people, or 10.5%. Note: The accuracy of given statistics is based on records of the residents’ registration offices and studies conducted by the Ministry of Labor, but does not always reflect the actual situation in the country. The next national census in Uzbekistan is expected in 2023, while the last one was in 1989. End note.
It is relatively easy to find qualified employees in Uzbekistan, and salaries are low by Western standards. According to both government and independent analysts’ statistics, about 12-15% of the population live below the poverty level, and approximately 48% of the employed population have low-productivity and low-income jobs. Accordingly, Uzbekistan is one of the largest suppliers of labor migrants among former Soviet Union republics.
At 99%, literacy is nearly universal, but most local technical and managerial training does not meet international business standards. Foreign firms report that younger Uzbekistanis 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 unqualified students purchase grades and even admittance to prestigious universities and lyceums.
Legislation requires companies to hire Uzbekistani nationals for specified positions in banking and auditing companies. The chief accountant must be an Uzbekistani national, as should either the CEO or any one member of the board of directors. Only Uzbekistani nationals can be tour guides. Businesses registered within special economic and industrial zones must have at least 90% locally sourced labor force.
According to Uzbekistan’s Labor Code, labor-management relations should be formalized in a fixed-term or temporary employment contract. The maximum length of a single fixed-term contract is 60 months (https://www.doingbusiness.org/en/data/labormarketeconomy/uzbekistan). The Labor Code and subordinate labor legislation differentiate between layoffs and firing. Employees can terminate their employment by filing written notice two-weeks prior or applying for leave without pay. Layoffs or temporary leave without pay can be initiated by an employer if the economic situation declines. For firing (severance), the employer should personally give two months’ advance notice in the case of corporate liquidation or optimization, two weeks’ advance notice in the case of an employee’s incompetence, and three days’ advance notice in the case of an employee’s malpractice or unacceptable violations. In case of severance caused by corporate liquidation or optimization, an employee should receive compensation, which should not be less than two average monthly salaries paid during their employment plus payment for unused leave (if another form of compensation was not agreed to in the employment contract). In reality, however, many businesses choose to avoid signing formal contracts with employees, especially those involved in seasonal agricultural or construction work.
Officially, labor legislation cannot be waived or applied differently for private or foreign-owned enterprises, including those that operate in special economic and industrial zones. On March 4, 2020, Uzbekistan joined the Hague Conference on Private International Law.
The new Law on Trade Unions (ZRU-588) was adopted in December 2019. According to this law, all trade union activities should be based on the principles of the compliance, voluntariness, non-discrimination, independence and self-governance, equality, transparency and openness. The law guarantees rights of trade unions and their associations and protects them from illegal interventions of government agencies, officials and employers. Currently, the Board of the Federation of Trade Unions of Uzbekistan incorporates 37,659 primary organizations and 14 regional trade unions, with official reports of 6.1 million employees in the country participating. These trade unions are all government owned and operated, including the Federation of Trade Unions.
By law, all employees of either local or foreign-owned enterprises operating in Uzbekistan have the right to: fair and timely payment of wages that should not be less than the minimum monthly salary amounts set by the government;
- fair and timely payment of wages that should not be less than the minimum monthly salary amounts set by the government;
- a standard workweek of forty hours, with a mandatory rest period of twenty-four hours and annual leave;
- overtime compensation as specified in employment contracts or agreed to with an employee’s trade union, which can be implemented in the form of additional pay or leave. The law states that overtime compensation should not be less than 200% of the employee’s average monthly salary rate (broken down by hours worked). Additional leave time should not be less than the length of actual overtime work;
- working conditions that meet occupational health and safety standards prescribed by legislation;
- compensation of any health or property damages incurred as a result of professional duties through an employer’s fault;
- professional training;
- formation and joining of labor unions;
- pensions; and
- legal support in protection of workers’ rights.
There is no single state institution responsible for labor arbitration. The general court system, where civil and criminal cases are tried, is responsible for resolving labor-related disputes. This can be done on a regional or city level. Formally, workers can file their complaints through the Prosecutor General’s Office. The Ministry of Employment and Labor Relations should provide legal support to employees in their labor disputes.
The law neither provides for nor prohibits the right to strike. In recent years, SOE employees in the mining and petrochemical industries and workers involved in various public projects conducted strikes, protesting against salary payment delays and demanding improvement of their working conditions. Reportedly, ministerial and local government officials met with strike initiators and promised to resolve issues raised by the workers. There is no public information about the role of official unions in these negotiations.
Although employees in Uzbekistan enjoy many rights by law, in practice these laws are subject to arbitrary and inconsistent interpretation. For example, the law prohibits compulsory overtime – and only 120 hours of overtime per year is permitted. In practice, overtime limitations are not widely observed, and compensation is rarely paid. Wage violations have become more common in recent years. 17 conventions and one Protocol of the UN’s International Labor Organization (ILO) are officially in force in Uzbekistan:
17 conventions and one Protocol of the UN’s International Labor Organization (ILO) are officially in force in Uzbekistan:
- Forced Labor Convention;
- Freedom of Association and Protection of the Right to Organize Convention
- Right to Organize and Collective Bargaining Convention;
- Equal Remuneration Convention;
- Abolition of Forced Labor Convention;
- Discrimination [Employment and Occupation] Convention;
- Minimum Age Convention;
- Worst Forms of Child Labor Convention;
- Labor Inspection Convention;
- Employment Policy Convention;
- Labor Inspection (agriculture) Convention;
- Tripartite Consultation (International Labor Standards) Convention;
- Forty-Hour Week Convention;
- Holidays with Pay Convention;
- Maternity Protection Convention [Revised];
- Workers’ Representatives Convention;
- Collective Bargaining Convention; and
- Protocol of 2014 to the Forced Labor Convention.
The most recent observations of the ILO’s Committee of Experts on the Application of Conventions and Recommendations (CEACR) can be reviewed here: https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:11200:0::NO::P11200_COUNTRY_ID:103538.
The law prohibits all forms of forced or compulsory labor, including by children, except as legal punishment for offenses such as robbery, fraud, or tax evasion, or as specified by law. Uzbekistan has eliminated the systematic use of child labor in the annual cotton harvest and has implemented reforms to significantly improve its record on adult forced labor. Despite strong political will in the central government to eradicate adult forced labor, at the local level its use in the cotton harvest is still reported, albeit in steadily decreasing numbers. The Ministry of Employment and Labor Relations establishes and enforces occupational health and safety standards. Labor inspectors conduct routine inspections of small and medium-sized businesses once every four years and inspect larger enterprises once every three years. The labor inspectorate – significantly expanded in size — was previously unable to conduct unscheduled inspections, but these are now legal and in regular use.
In 2020, Uzbekistan adopted a number of labor related laws and regulations, including:
- The Law on Employment of the Population (ZRU-642, adopted October 20, 2020, entered into force January 21, 2021). This law applies to citizens of Uzbekistan, foreign citizens, and individuals without citizenship, as well as foreign citizens permanently residing or employed in the country. The law obliges government bodies to pursue a policy of developing the labor market and ensuring employment, developing family entrepreneurship, handicrafts, agricultural production on personal subsidiary plots, and home-based employment. The law establishes the status of a self-employed person, the procedure for their taxation, and their rights to have benefits. The law also specifies the rights of unemployed people.
- The Law on Persons with Disabilities (ZRU-641, adopted October 15, 2020, entered into force January 16, 2021). The law defines the rights of persons with disabilities, and stipulates issues of their education, vocational training, advanced training, and employment.
- The Law on Ratification of the Statute of the Hague Conference on Private International Law (The Hague, October 31, 1951) (ZRU-605, adopted March 2, 2020, entered into force March 3, 2020).
- The Law on Special Economic (ZRU-604, adopted February 17, 2020). The law establishes local content requirements, such as a requirement to have at least 90% labor force sourced locally.
- The Law on Amendments to the Criminal Code and the Administrative Code of Uzbekistan (ZRU-673, adopted February 12, 2021). The amendments establish direct criminal liability for child forced labor in any form.
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)||2020||$57,698||2019||$57,921||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international
Source of data: BEA;
IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2019||N/A||2019||$82||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2019||N/A||2019||$0||BEA data available at
|Total inbound stock of FDI as % host GDP||2020||5.7%||2019||4.1%||UNCTAD data available at https://stats.unctad.org/
* Source for Host Country Data: BEA and the World Bank
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$2,484||100%||Total Outward||$1,032||100%|
|Republic of Korea||$269||10.8%||Latvia||$36||3.5%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$1,003||100%||All Countries||Amount||100%||All Countries||Amount||100%|
|Luxemburg||$502||50%||Country #1||N/A||N/A%||Country #1||N/A||N/A%|
|Netherlands||$100||10%||Country #2||N/A||N/A%||Country #2||N/A||N/A%|
|Germany||$100||10%||Country #3||N/A||N/A%||Country #3||N/A||N/A%|
|Denmark||$63||6.3%||Country #4||N/A||N/A%||Country #4||N/A||N/A%|
|Ireland||$61||6.1%||Country #5||N/A||N/A%||Country #5||N/A||N/A%|