Executive Summary

At the end of 2016, newly elected president Shavkat Mirziyoyev launched an aggressive economic reform program to recast the Soviet-style centralized system of economic governance that prevailed under late President Karimov’s administration. These sweeping changes culminated in the September 5, 2017, introduction of a liberalized foreign exchange regime. In 2017, the overall investment climate demonstrated other improvements– the government simplified business registration procedures, introduced some additional tax incentives for investors, improved private property protection legislation, and streamlined customs regulations. By mid-September the currency reform had eliminated the gap between the overvalued official rate and the black market rate of the national currency and allowed currency conversion transactions for current import operations. The government also released exporters from the mandatory confiscation of a portion of their foreign currency earnings. Business registration and tax administration procedures also were simplified and some onerous inspection procedures were banned. The president announced upcoming legislation to liberalize the banking sector and improve the tax administration system.

Women’s economic participation received a boost as Uzbekistan ratified the Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). The government also began work to improve women’s economic status by allowing special credit access to female employers and businesses that employ women. In an effort to demonstrate an increase in women’s political roles, Uzbekistan’s election laws now require that women constitute at least 30 percent of candidates nominated for the parliament.

The Government of Uzbekistan (GOU) still has much work to do if it intends to move away from a state-controlled economic model that prizes import-substitution, export-oriented growth, and state-owned enterprises. A range of issues related to the business environment remain unaddressed and are an impediment to sustained growth. These include the domination of state-owned enterprise (SOE) monopolies in some key sectors, the limited access of private businesses to commodity resources, the restrictive nature of the banking sector, poor protection of private property rights and intellectual property rights (IPR), non-transparent government procurement practices, and corruption. The five-year development strategy approved by the president in February again demonstrated a self-reliant approach and focused on improving the situation of local export oriented industries, which could restrain further liberalization in areas such as foreign trade, banking, and privatization of SOEs.

Uzbekistan has a long entrepreneurial and trading heritage, and has the potential to become the largest economy in Central Asia. Delays in the implementation of previously announced liberalization reforms may result in a low inflow of private investments, which, combined with declining household incomes and a drop in the living standards that usually accompanies liberalization reforms, may undermine the success of the government’s economic policies.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2017 157 of 180 http://www.transparency.org/
World Bank’s Doing Business Report “Ease of Doing Business” 2018 74 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2017 N/A of 127 https://www.globalinnovationindex.org/
U.S. FDI in partner country ($M USD , stock positions) 2016 USD 90 http://www.bea.gov/
World Bank GNI per capita 2016 USD 2,220 http://data.worldbank.org/

Policies Towards Foreign Direct Investment

By the end of 2016, President Mirziyoyev recognized the Uzbek economy needed new drivers, such as a more active private sector and increased foreign direct investment (FDI). He repeatedly prioritized improvement of Uzbekistan’s economic situation and initiated a series of government reshuffles to remold the system of economic governance.

The GOU adopted a Five-year Development Strategy in February 2017 as an official roadmap of the reforms, which includes liberalization measures and calls for the removal of ineffective administrative barriers that slow development of the private sector. In general, the GOU seeks to increase private investment in the economy through an improved business environment, changing Uzbekistan’s international reputation as a difficult investment destination, and building confidence among domestic investors. Mirziyoyev has also challenged all regional governments to improve the attractiveness of their territories for foreign investors and provide progress reports in this area on a quarterly basis.

Mirziyoyev also abolished some particularly egregious GOU practices, such as selectively awarding duty-free import privileges to well-connected individuals. Tax and customs systems reforms are expected to simplify and streamline export and import tax and customs procedures, improve the quality and efficiency of tax administration, and minimize tax payment/collection costs. To improve the business environment, the GOU in 2017 introduced a number of legislative changes, including the cancellation of unscheduled, and seemingly arbitrary or punitive, inspections of businesses as of January 1, 2017; elimination of the requirement to convert certain percentages of hard currency export earnings at the official (artificially low) exchange rate; simplification of business registration procedures; creation of a Business Ombudsman office; and a Law on Countering Corruption that attempts to increase transparency in GOU functions.

Despite this progress, the government has yet to address a number of fundamental problems plaguing businesses and investors. The cumulative inflow of FDI is still one of the lowest in the former Soviet Union due to factors such as the underdeveloped and overregulated banking sector, high taxes, trade restrictions, and a lack of transparency. According to official statistics, the share of companies with foreign capital is only 1.8 percent (5,517 firms) of the total number of registered enterprises operating in the country; of these firms, 2,438 operate in production industries, 1,055 in trade, 291 in construction, 220 in tourism and catering, and 126 in IT and communications. One bright spot is that Uzbekistan moved up 16 places in the World Bank’s Ease of Doing Business 2018 rating (74thout of 190 countries). The World Bank named Uzbekistan one of the top 10 global improvers.

By law, foreign investors are welcome in all sectors of the Uzbek economy and the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin. However, government control of key industries has discriminatory effects on foreign investors. For example, the GOU retains strong control over all economic processes and maintains controlling shares of key industries, including energy, telecommunications, airlines, and mining. The government still regulates investment and capital flows in the raw cotton market and controls all silk sold in the country, dampening foreign investment in the textile and rug-weaving industries. Partial state ownership and government influence are common in many key sectors of the economy.

The State Committee for Investments (http://www.invest.gov.uz/en/ ) and the Chamber of Commerce and Industry of Uzbekistan (http://www.chamber.uz/en/index ) on a contractual basis provide foreign investors with consulting services, information and analysis, and business registration and other legal assistance.

Senior GOU officials throughout 2017 regularly organized or participated in government-business forums and meetings with local and foreign business representatives, including at least five meetings with U.S. companies. During President Mirziyoyev’s visit to New York City for the UN General Assembly, he and his high-level delegation participated in a September 20 business forum and gala dinner with representatives of over 80 U.S. firms. The government also published drafts of some legislation and policy papers for public review. In May, the Parliament established the Institute of the Business Ombudsperson (IBO) to protect the rights and legitimate interests of businesses and render them legal support. In public forums, Uzbek officials continue to stress an interest in seeing new companies establish operations in Uzbekistan, but tangible liberalization measures are still under consideration.

Limits on Foreign Control and Right to Private Ownership and Establishment

Formally, 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. Last year the GOU started the process of reconsidering the role of large state-owned monopolies, especially in the commodities and services sectors. Reforms in the cotton industry were the first step in implementing this policy. In 2017, President Mirziyoyev ended the monopoly of government-controlled enterprise Uzpaxtasanoat to buy and sell raw cotton. In January 2018, the GOU launched pilot projects for a new integrated value chain system in the industry to allow private investors to independently manage cotton cultivation, harvesting, processing, and exports. The state still reserves the 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 2017) lists state assets that cannot be privatized, including land with mineral and water resources, the air basin, flora and fauna, cultural heritage sites, state budget funds, foreign and gold reserves, state trust funds, the Central Bank, enterprises that facilitate monetary circulation, military and security-related assets and enterprises, firearms and ammunition producers, nuclear research and development enterprises, some specialized producers of drugs and toxic chemicals, emergency response entities, civil protection and mobilization facilities, public roads, and cemeteries.

There are several other official limits on foreign investment. Foreign ownership and control are prohibited for airlines, railways, power generation, long-distance telecommunication networks, and other sectors deemed related to national security. Foreign nationals cannot obtain a license or tax permission for individual entrepreneurship in Uzbekistan.

Restrictions also apply to media, finance, and insurance. Foreign investment in media enterprises is limited to 30 percent. In finance, foreign investors may operate only as joint venture partners with Uzbek firms, and banks with foreign participation face minimum fixed charter funding requirements (100 billion Soum for commercial and private banks, and 7.5-30 billion Soum for insurance companies – equivalent to USD 12.2 million and USD 1-3.7 million respectively), while the required size of charter funds for Uzbek firms is set on a case-by-case basis.

The government closely scrutinizes all foreign investment, with special emphasis on sectors of the economy that it considers strategic, such as mining, cotton processing, oil and gas refining, and transportation. There is no standard and transparent screening mechanism, and some elements of the legal framework are designed to protect domestic industries and limit competition from abroad. The government also uses licensing as a tool to control enterprises in several important sectors such as energy, telecommunications, wholesale trade businesses, and tourism.

There are no legislative restrictions to create selective disadvantages for U.S. investors.

Other Investment Policy Reviews

There were no investment policy reviews of Uzbekistan completed by the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), or the United Nations Conference on Trade and Development (UNCTAD) in recent years.

Business Facilitation

The GOU has declared that business facilitation and improvement of the business environment are among its top policy priorities. Uzbekistan’s working-age population is growing by over 250,000 people annually. Therefore, the GOU prioritizes private businesses and joint ventures that create additional jobs and help the government address the employment issue. Business registration procedures were considerably simplified and streamlined by the introduction of one-window and on-line registration practices and electronic reporting systems. The GOU has created a number of new special economic zones to attract more FDI. New legislation has also created additional tax incentives for private businesses and sought to increase their protection against unlawful actions by government authorities. In 2016, the Ministry of Justice established a special department responsible for the protection of private businesses and foreign investors from meritless claims, unjustified inspections, and other abusive practices of state bodies. In 2017, the GOU banned a wide range of inspections and other forms of coercion and interference in the activities of private businesses.

New legislation adopted on February 9, 2017, simplifies business registration procedures for all businesses except banks and credit bureaus. Beginning April 1, 2017, foreign and domestic private investors can register their business in Uzbekistan using one of 194 Single Window Registration (SW) offices or 24/7 online services of the Electronic Government (EG) website – https://my.gov.uz/en . The procedure requires only electronic submission of an application, company name or trademark, and foundation documents. The SW/EG service will register the company in the Ministry of Justice, Tax Committee, local administration, and other relevant government agencies. The registration fee is equivalent to one minimum wage monthly salary (172,240 Soum (USD 21) as of March 2018) for local investors and 32 minimum wage monthly salaries (5,511,680 Soum (USD 645) as of March 2018) for foreign investors. Applicants receive a 50 percent discount for using the EG website. The new system reduces 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, or EFC (less than 30 percent foreign-owned), or as an enterprise with foreign investment, or EFI (more than 30 percent foreign-owned and with a minimum charter capital of USD 150,000). Foreign companies may also maintain a physical presence in Uzbekistan as permanent establishments without registering as separate legal entities (other than with tax authorities). A permanent establishment may have a bank account.

The World Bank ranked Uzbekistan as 11th in the world for the Starting a Business indicator in its 2018 Doing Business report.

The government has committed to gender equality in its national legislation and seeks to improve women’s economic status through special credit access to female employers and businesses that employ women. Gender issues are included in various national development plans and programs. In 2017, about 25 percent (or over 120,000) small businesses were owned by female entrepreneurs. Gender targets are being pursued as part of the country’s commitment to Millennium Development Goals.

Outward Investment

In general, the GOU does not promote or incentivize outward investments. There is no institution or agency that promotes outward investment from Uzbekistan. Some state-owned enterprises invest in development of their marketing networks abroad as part of efforts to boost export sales. Private companies that operate primarily in retail, construction and textile businesses use outward investments for a number of reasons, including market outreach, accessing foreign financial resources, trade facilitation, and in some cases for expatriation of capital. The most popular destinations for outward investments are Russia, China, Kazakhstan, Singapore, the United Arab Emirates (UAE), and Germany.

Formally, outward investments are not restricted. However, financial transactions with some foreign jurisdictions (such as Afghanistan, Syria, Libya, and Yemen) and offshore tax havens can be subjected to additional screening by the authorities.

BITs or FTAs:

Uzbekistan has signed bilateral investment agreements with 53 countries, though the signed 1994 agreement with the United States has not been ratified and those with several other countries, including Turkey, Bahrain, and Saudi Arabia, have not yet entered into force. In 2004, Uzbekistan and Russia signed a Strategic Framework Agreement that also includes free trade and investment concessions. Uzbekistan has signed bilateral free trade agreements with eleven Commonwealth of Independent States (CIS) countries (Russia, Belarus, Ukraine, Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, and Tajikistan). In 2005, the government signed an alliance agreement with Russia, which provides for economic cooperation, and Uzbekistan and Ukraine agreed in 2004 to remove all bilateral trade barriers. Uzbekistan joined the CIS Free Trade Zone Agreement in 2014. 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: http://investmentpolicyhub.unctad.org/IIA/CountryBits/226#iiaInnerMenu .

Bilateral Taxation Treaties:

Since its independence in 1991, Uzbekistan has signed double taxation agreements with 48 countries, of which seven have not entered into force. The country also has other bilateral taxation treaties with CIS countries, Georgia, Ukraine, Mongolia, and the UAE. The U.S. Internal Revenue Service (https://www.irs.gov/businesses/international-businesses/uzbekistan-tax-treaty-documents considers Uzbekistan as one of the former Soviet republics that are now covered by a taxation treaty with the 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 Tax Committee of Uzbekistan presumes that this agreement cannot be considered in effect and has proposed signing a new one. Uzbekistan officially presented the draft of 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.

In general, businesses note that existing taxation rates are discouragingly high and the system is inadequate, which discourages keeping money in the official banking system and leads to money accumulating and circulating in various shadow economy sectors. Radical reforms of the taxation system and its administration are expected in 2018. The reforms should simplify and streamline export and import taxation, improve the quality and efficiency of tax administration, and ensure tax payment and collection costs are minimized.

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 Law on Competition and Restrictions of Monopolistic Activity (2016), the Law on Competition, the Law on Guarantees of the Freedoms of Entrepreneurial Activity, the Law on Private Enterprise (2003, last updated in 2017), the Law on Investment Activities, and a number 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 to be 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 avoid problems with tax and regulatory measures, foreign investors often secure government benefits through Cabinet of Ministers decrees, approved directly by the president. These, however, have been easily revocable.

For additional information, please review the World Bank’s Regulatory Governance assessment on Uzbekistan: http://rulemaking.worldbank.org/data/explorecountries/uzbekistan .

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 has to be adopted by the central government and then regulated by national-level authorities.

The scope of business-related regulations in Uzbekistan includes a large number of laws, decrees, resolutions, rules, specific guidelines, and instructions. Usually regulations and rules are developed by relevant government agencies and are approved by the president or relevant ministers, as appropriate. Public laws are subject to parliamentary approval.

There are a number of research centers and think tanks that are involved in the development and review of regulations. These include experts that work in various government agencies or state-owned enterprises, as well as research centers funded by the government and international organizations like the United Nations Development Programme (UNDP). However, except under rare circumstances, their scientific studies or analysis on the impact of regulations are not publicly available. In February 2017, the president ordered the creation of a new Strategy Development Center. The Center, which is to function as a nongovernmental organization (NGO), will involve the work of a number of local organizations, including the Independent Civil Society Monitoring Institute, the Legislation Monitoring Institute, the Chamber of Commerce and Industry, the Chamber of Advocates, the Academy of Public Administration, the National Association of Electronic Media, and the National Association of NGOs. The Center is intended to consolidate efforts of these institutes to facilitate expert and public discussions on reforms outlined in the aforementioned five-year development strategy. Public review of the legislation can be implemented through a website. (https://regulation.gov.uz ).

Practices that appear as informal regulatory processes are not associated NGOs or private sector associations, but rather with influential local politicians or well-connected local elites.

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.

In late 2016, newly elected president Mirziyoyev ordered publication of some draft legislation for public comments, including draft decrees on the government’s development strategies, tax and customs regulation, and legislation to create new economic zones. Public review of the legislation is performed through the website, https://regulation.gov.uz . Prior to 2016, publishing drafts of laws and regulations for public review was uncommon.

Drafts of some legislation are published on a government website (https://regulation.gov.uz ) for public consideration and comments. Uzbekistan’s legislation digest (http://www.lex.uz/ ) serves as a centralized online location for current legislation in effect. There are other online legislative resources with executive summaries and comments that could be useful for businesses and investors, (such as http://www.norma.uz/  and http://www.minjust.uz/ru/law/newlaw/ ). As of now, there is no centralized online location for Uzbekistan, similar to the Federal Register in the United States, where key regulatory actions or their summaries are published.

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 them legal support. The new five-year development strategy adopted by the president in February 2017 calls for raising the role of civil society, non-governmental organizations, and local communities in regulatory oversight and enforcement. Recently the government also offered several drafts of business-related legislation for public comments; the comments, in turn, were publicly available. However, the development of a new regulatory system, including regulatory enforcement mechanisms outlined in the five-year development strategy has yet to be completed.

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 may inconsistently interpret 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. The government’s new five-year development strategy adopted in 2017, includes a range of targets for upcoming reforms, such as ensuring reliable protection of private property rights, removal of all 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.

A number of previously announced regulatory reforms were implemented in 2017. These include regulations for improvement of the business environment (cancellation of unjustified tax inspections, elimination of the mandatory sale of export earnings, and simplification of business registration and foreign trade procedures), the new law on combatting corruption, and establishment of the business Ombudsperson. Some of earlier announced reforms, such as introduction of a new tax and customs rules and currency exchange regulation, have yet to be implemented.

Previously implemented regulatory system reforms often left room for interpretation and were accordingly enforced subjectively. New or updated legislation continues to leave room for interpretation and contains definitions that are rather unclear. 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 ).

International Regulatory Considerations

Uzbekistan is not a member of the WTO or any existing economic blocs. No regional or other international regulatory systems, norms, or standards have been directly incorporated or thoroughly referenced in Uzbekistan’s regulatory system – although Uzbek officials often claim the regulatory system incorporates international best practices.

Legal System and Judicial Independence

The hierarchy of Uzbek law includes 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. Existing legislation, which implies legal enforcement of contracts through economic courts or arbitral authorities, includes 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 2018), and a number of other decrees and resolutions.

The contractual law of Uzbekistan is established by the Law About the Contractual Legal Base of Activities of Business Entities. It determines the legal basis of 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. These courts’ 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.

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.

Laws and Regulations on Foreign Direct Investment

Legislation protecting foreign investors includes the Law on Foreign Investments (No.609-I, issued April 30, 1998, and last revised in 2017), the Law on Guarantees and Measures on Protection of Foreign Investments (No. 611-I, issued April 30, 1998, and last revised in 2017), the Law on Guarantees of the Freedoms of Entrepreneurial Activity (No. 69-II, issued May 25, 2000, and last revised in 2012), the Production Sharing Agreements Law, the Law on Investment Activity (No. 719-I, issued December 24, 1998, and last revised in 2013), the Presidential Decree on Additional Measures to Ensure the Accelerated Development of Entrepreneurial Activity, Comprehensive Protection of Private Property and Substantial Improvement of Business Climate (issued October 5, 2016), and a number of other decrees and resolutions.

In 2017, the President of Uzbekistan signed a number of decrees and resolutions related to foreign investments, including on Creation of the State Committee on Investments (March 31, 2017) and, most importantly, on Liberalization of the Currency Exchange Policy (September 2, 2017).

Competition and Anti-Trust 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 2018). The main entity that reviews transactions for competition-related concerns is the State Committee for Supporting Privatized Enterprises and Development of Competition. This government agency is responsible for developing a competitive environment, limiting monopolistic activities and regulating natural monopolies, reorganizing economically insufficient ventures, supporting the development of entrepreneurship, protecting consumer rights, and controlling advertising activities. There were no significant competition-related cases with the involvement of foreign investors over the past year.

Expropriation and Compensation

Formally, private businesses are protected by legislation against baseless expropriation, including the Law on Investment Activities and the Law on Guarantees of the Freedoms of Entrepreneurial Activity. The government 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 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.

Uzbekistan has a history of expropriations. Profitable, high-profile foreign businesses are at greater risk for expropriation, but smaller companies are also vulnerable. According to Uzbekistan’s State Statistics Committee, authorities closed about 22,900 businesses in 2017, or about 86 percent of all businesses liquidated last year. In previous years, a number of large companies with foreign capital in the food processing, mining, retail, and telecommunications sectors faced 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. But in most of the 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.

Decisions of Uzbekistan’s Economic Court on expropriation of private property can be appealed in 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.

Dispute Settlement

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).

In November 2006, the Constitutional Court of Uzbekistan issued its ruling that ICSID arbitration does not stipulate the consent of the involved parties to have their dispute settled at the international level. In practice, this means that Uzbek courts do not recognize foreign businesses’ attempts to defend their interests in international courts unless all parties first give their consent in writing.

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 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 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.

Post is aware of numerous cases of commercial or investment disputes involving foreign investors. These have included asset seizures, expropriations, or liquidations; lengthy forced production stoppages; and pressure to sell off foreign shares in joint ventures. These cases have involved a variety of sectors, including food production, mining, telecommunications, and agriculture. 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 2013, local authorities initiated criminal investigations against the owners and senior executives of the Muzimpex Company, the local partner of the Coca-Cola Bottlers Uzbekistan joint venture, in which Coca-Cola owns 43 percent of the shares. In February 2014, the government liquidated Muzimpex and presently controls the shares of the company.

U.S.-owned Newmont Mining and the telecommunications company MCT both faced pressure from the Uzbek government to sell their shares in joint ventures in 2006; both agreed to sell them after lengthy legal disputes and neither has returned to Uzbekistan.

Local and non-U.S. foreign companies have also faced expropriation in the agriculture, mining and retail sectors. In September 2012, the Tashkent City Criminal Court seized the assets of cellular telecom provider Uzdunrobita, a 100 percent subsidiary of the Russian company MTS, for financial crimes. An appeals court reversed this decision in November 2012, but upheld the USD 600 million of fines imposed. MTS wrote off its total assets in Uzbekistan of USD 1.1 billion and left the market. In 2013, the government transferred all MTS assets to a state-owned telecom operator after trying unsuccessfully twice to liquidate them. In 2014, MTS 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 for dubious reasons. The interruption of business lasted 18 months before the company re-opened.

Earlier in 2011, the government initiated liquidation of the Amantaytau Goldfields, a 50-50 joint-venture of the British company Oxus Gold and an Uzbek state mining company.

In March 2011, government authorities also seized a large chain grocery store and approximately 50 smaller companies owned by Turkish investors.

Foreign investors should have no reasonable expectation that the government will honor an international arbitration verdict. The Constitutional Court of Uzbekistan ruled in 2006 that the written consent of all parties involved is required to recognize an international decision. There have been several cases, however, in which international arbitration awards were successfully collected.

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 a number of 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 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 Uzbek arbitration courts cannot make reference to non-Uzbek 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.

Foreign arbitral awards or other acts issued by a foreign country can be recognized and enforced only if Uzbekistan has a relevant bilateral or multilateral agreement with that country. If international arbitration is permitted, awards can be challenged in domestic courts. However, currently local economic courts do not have a solid mechanism for enforcement of foreign courts’ decisions. Foreign businesses may wish to consult with a local law firm in order to avoid delays or other unexpected outcomes of their cases in local economic and arbitration courts.

Most investment disputes with involvement of Uzbek state-owned enterprises (SOEs) reviewed by domestic courts have been suspended prior to a final decision due to plea bargains –or have been decided in favor of SOEs. When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling. In some cases its authority is limited and co-opted by other elements within the government. Judgments against SOEs are particularly difficult to enforce.

Bankruptcy Regulations

The Law on Bankruptcy regulates bankruptcy procedures. Creditors can participate in liquidation or reorganization of the 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 2018 Doing Business report, the World Bank ranked Uzbekistan 87th out of 190 for the Resolving Insolvency indicator.

The main credit bureau operating in the market of Uzbekistan is Credit Bureau “Credit Information Analytical Center” (http://infokredit.uz/ ). The bureau was created in 2012 by the Uzbekistan Banks Association. The International Financial Corporation of the World Bank has been supporting improved creditor information maintenance through its Financial Infrastructure Development Project. One of the main goals of this project is to develop a credit information sharing system and thereby improve access to finance for entrepreneurs and small enterprises in Uzbekistan.

Investment Incentives

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. Uzbek legislation provides a number of incentives for businesses qualified as enterprises with foreign investment. These include mainly various tax holidays and exemptions from customs and other mandatory duties and payments. However, new tax and customs legislation is currently under consideration and is expected to appear in July-August 2018.

Foreign Trade Zones/Free Ports/Trade Facilitation

The law on free economic zones, passed in 1996, envisaged the establishment of free trade zones, including consigned warehouses, customs-free zones, and zones for the processing, packing, sorting, and storage of goods. A Free Industrial and Economic Zone (FIEZ) was created in 2008 in the Navoi region, the Special Industrial Zone (SIZ) was established in 2012 in Angren City of Tashkent province, and the SIZ Jizzakh appeared in March 2013 in Jizzakh region, with a branch in Syrdarya region. Each economic zone was created for a period of 30 years from the date of its establishment, with the possibility of extension.

Businesses that invest in these zones were promised various incentives, including tax holidays; a special customs, currency, and tax regime; a simplified procedure for entering, staying, and leaving; and provisions by which non-residents can receive labor licenses. However, due to the slow improvement of the business climate in the country and other factors, these special zones failed to boost FDI. By the end of 2016, only USD 223 million in total FDI had been attracted to these industrial zones.

A new Presidential Decree signed in October 2016 unified the legal and economic status of the FIEZ and SIZs and renamed them to Free Economic Zones (FEZ). In 2017, the government established a number of new FEZs raising their overall number to fourteen. Activities of FEZs are governed and coordinated by the FEZ Administrative Council.

The legislation identifies the following goals for FEZs:

  • establishing unified and most favorable conditions for foreign investors;
  • attraction of FDI to create modern production with high levels of local sourcing, ensuring substantial processing of local mineral resources and production of competitive products with high added value, promotion of industrial specialization of free economic zones and development of industrial cooperation;
  • gradual transition to a one window principle in all free economic zones that provides for rendering all types of public services, including licensing procedures;
  • development of production, engineering-communication, transport and social infrastructure, as well as development of modern infrastructure to provide high-quality logistics services;
  • organization of training opportunities in higher and secondary special professional educational institutions with regard to current and future needs of FEZs for a skilled labor force.

All businesses operating in the territory of FEZs can now make foreign currency transactions with local vendors and expect the following privileges:

  • Exemption from paying land tax, income tax, tax on property of legal entities, tax for accomplishment and development of social infrastructure, single tax payment for micro-firms and small enterprises, as well as obligatory contributions to the Republican Road Fund and off-budget Fund for Reconstruction of Schools, Colleges, Lyceums, and Medical Institutions; and
  • Exemption from customs payments (except customs clearance fees) for equipment, materials, and components imported to cover their own production needs, as well as for building materials that cannot be sourced in Uzbekistan for the projects approved by the government.

The validity of the above privileges depends on the amount of investment, accordingly:

  • 3 years for investments from USD 300,000 to USD 3 million;
  • 5 years for investments from USD 3 million to USD 5 million;
  • 7 years for investments from USD 5 million to USD 10 million; and
  • 10 years for investments of USD 10 million and above, with a 50 percent reduction of income taxes for the subsequent 5 years.

Performance and Data Localization Requirements

There are several restrictions and quantitative limitations on employment of foreign nationals in Uzbekistan. The chief accountants in banking and auditing companies must be Uzbek 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 Uzbek nationals can be professional tour guides. 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 visa, American citizens must submit documents regarding their company to an Uzbek embassy or consulate. American investors have complained in the past about the short validity of visas and the limited number of entries. We understand that practice is changing, but investors should specifically request multiple entry/longer term visas.

Foreign workers must also register with the Ministry of Employment and Labor Relations. The Agency on Foreign Labor Migration under the Ministry of Employment and Labor Relations is responsible for quantitative control over 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 percent of the total number of employees, and additional foreign personnel can be hired only if there is no qualified local labor.

Permission from the government is not required to invest in Uzbekistan, but the GOU’s economic policy still maintains an intense focus on import substitution and export-oriented industrialization. Investors in non-priority sectors should expect less support in importing capital and consumer products than those in priority industries.

Uzbek 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. The government welcomes foreign investors mainly in the areas of localization, building local production capacities, and developing export potential.

Legislation does not require data storage within the country, transfer of technology, or proprietary information; such transfers are negotiated between the foreign investor and its local partner.

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 30 percent 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 certain incentives are:

  • 1.6 billion Soum (USD 196,000 as of March 2018) for joint-stock companies (except financial institutions);
  • 600 million Soum (USD 73,400 as of March 2018) for ventures in other sectors of the economy.

Uzbekistan does not have a uniform law on enforcement of performance requirements. Local authorities may use various enforcement procedures, including licensing, and inspections. Investors can be required to present long-term investment commitments with set target investments and job-creation goals before the government will approve their registration and licensing.

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.

Real Property

Property ownership is governed by the Law on Protection of Private Property and Guarantees of the Owner’s Rights. Uzbek 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 and liens securities in Uzbekistan.

The World Bank ranked Uzbekistan 73th in the world in the Registering Property category of its 2018 Doing Business Report, up from 75 the previous year, indicating that the GOU has simplified some property-transfer procedures. More details can be reviewed here: http://www.doingbusiness.org/data/exploreeconomies/uzbekistan#registering-property .

All land in Uzbekistan is owned by the state. 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, past due debts for 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.

Moveable and immoveable property, as well as rights to them, can be pledged to secure bank loan financing. However, there are some limitations for companies to issue debt securities. For example, there is a ban for securitization of immoveable property for private limited liability companies. The government regulates circulation of debt securities, and mainly local financial institutions have used this instrument for attracting funds.

Intellectual Property Rights

While the concept of registering intellectual property (IP) is still new to Uzbekistan, the GOU recognizes intellectual property rights (IPR) protections as critical to its economic goals. As Uzbekistan prepares for accession to the World Trade Organization (WTO), its leaders have demonstrated increased political will to strengthen IPR legislation and enforcement mechanisms. This represents a significant political shift towards improved IPR protections. In 2011, the GOU created the Uzbek Agency for Intellectual Property (IPA, http://www.ima.uz/ ), which unifies responsibility for IPR issues. Uzbekistan also introduced several amendments to IPR law, as well as amendments to civil and criminal codes to enforce stricter punishment for IPR violations. Uzbekistan is a consumer, but not a significant producer, of pirated material. The IPA is actively working with the World Intellectual Property Organization (WIPO) to develop a new national strategy for IPR. While Uzbekistan’s patent and trademark protections are generally sufficient, there remain serious deficiencies in copyright protections.

There were no IP related laws or regulations enacted in 2017. Uzbekistan’s new Customs Code (which came into force on April 22, 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. In 2017, the IPA initiated measures to improve copyright protections and introduced new fines for copyright violations, legislative amendments, and stronger author protections. It has drafted the Law on Amendment to the Code of Administrative Procedure, which is currently under review. It is expected that the new law will introduce additional administrative sanctions for IPR violations. On February 20, 2018, the GOU announced that a new Inspectorate under the Ministry of Information Technologies and Communications will have greater authority to monitor compliance and enforce copyright protections on the internet starting April 1, 2018. 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.

Because the IPA focuses on the policy and regulatory framework, it relies on other GOU entities to investigate and prosecute infringement cases. Through inspections in 2017, the General Prosecutor’s Office discovered 654 businesses illegally selling audiovisual material, 19,000 cases of counterfeit audiovisual materials being sold via the internet, and 65 violators illegally distributing AV materials. Under current Uzbek 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. Although historically Uzbekistan’s judicial sector has had limited understanding of IPR issues, several positive court decisions on IPR cases on behalf of foreign companies occurred in 2017.

Uzbekistan has been on the Watch List of the U.S. Trade Representative’s (USTR) Special 301 Report since 2000 due to deficiencies in its copyright regime, notably its failure to provide protection for foreign sound recordings (https://ustr.gov/issue-areas/intellectual-property/special-301/2018-special-301-review ). Although Uzbekistan has taken important first steps to improve the protection of IPR, pledged to amend its copyright legislation and accede to the WIPO Performances and Phonograms and Copyright Treaties, and address concerns raised in previous USTR’s reports, the country must demonstrate measurable and sustained progress before removal from the Special 301 Watch List.

The country does not host a Notorious Market for pirated and counterfeited American products (as defined by the Office of the United States Trade Representative).

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

In general, the GOU has not made a priority of attracting portfolio investments, as it prefers what it calls strategic investors, capable of providing new technologies for local industries. A number of international fund management companies have worked in the country in the past, investing in various industries through the stock market or in the real estate and construction sectors. Most of these funds had left the market by 2010 due to capital losses brought about by the global financial crisis. The few portfolio managers remaining invest primarily in the insurance and leasing sectors.

Uzbekistan has its own stock market, which has been traded through Tashkent Stock Exchange, the main securities trading platform and the only corporate securities exchange. 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.

Current economic policies have not facilitated the free flow of financial resources into the product and factor markets. In January 2017, the GOU announced its plans of using more stock market instruments in meeting its privatization targets.

Uzbekistan accepted IMF Article VIII in October 2003, and the government declared its full commitment to honoring its obligations under this article. However, in practice, businesses had limited access to foreign currency and faced persistent difficulties with currency conversion. This policy, which stimulated corruption in the banking sector and creation of a forex black market, was a major deterrent to investors. By the beginning of 2017, the Central Bank of Uzbekistan (CBU) had created a roadmap for transition to a system of free currency exchange. Starting in mid-July, some local banks were allowed to sell foreign non-cash currency to their corporate clients at so-called commercial rates (which were almost twice the official rate), although this was not widely advertised. Effective September 5, the GOU eliminated the difference between the artificially low official rate and the black market exchange rate, and formally allowed unlimited non-cash forex transactions for businesses. Now businesses face no difficulties with implementing payments and transfers for current international transactions.

Formally, foreign investors are able to get credit on the local market. The private sector has access to a restricted variety of credit instruments and the isolated and 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 can, to a limited degree, use credit lines from international financial institutions to finance small and medium businesses.

Money and Banking System

There are 28 commercial banks, including 3 state-owned banks; 12 partly state-owned joint-stock banks; 5 banks with foreign capital; and 8 private banks. Commercial banks have over 4,600 branches and retail offices throughout the country.

The low exposure of Uzbekistan’s banking system to global financial markets shields the sector from global financial market volatility. Large state-owned banks control about 60 percent of the sector’s total assets and capital and are virtually agents of the government in implementing its development strategy. Privately-owned commercial banks are relatively small niche players. The average capital adequacy ratio of local banks is 18.8 percent, and the current liquidity rate is 64.4 percent. Moody’s international rating agency stated that continuing economic recovery and maintaining high state support will help the banking sector of Uzbekistan to overcome difficulties related to the accelerated devaluation of the national currency. Banks are closely monitored by the government, which imposes requirements to perform non-core functions, such as tax withholding and client financial oversight, which keeps confidence in the banking sector very low.

Official information on non-performing assets is not publicly available. According to latest available official statistics, the share of nonperforming loans to total gross loans was about 0.4 percent in 2017, while Moody’s estimations were about 2.5 percent. A majority of Uzbek commercial banks have earned stable ratings from international rating agencies.

In January 2018, the banking sector’s capitalization was about USD 4.6 billion and the value of total bank assets in the whole country was equivalent to USD 32.5 billion. Included in this amount are the assets of the three largest state-owned banks, which together hold about USD 21 billion.

Uzbekistan maintains a central bank system. The 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 (organization chart of the bank is available here: http://www.cbu.uz/en/ ).

In general, any banking activity in Uzbekistan is subject to licensing and regulation by the CBU. Foreign banks prefer establishing joint-ventures with local financial institutions. Currently there are five banks with foreign capital operating in the market, and six foreign banks have accredited representative offices in Uzbekistan, but do not provide direct services to local businesses and individuals. Information about the status of Uzbekistan’s correspondent banking relationships is not publicly available.

Foreigners and foreign investors can establish bank accounts in local banks without restrictions. They also have access to local credit, although the terms and interest rates do not represent a competitive or realistic source of financing.

In February 2018, the GOU announced its plans to allow bitcoin use and develop blockchain technologies. The CBU, the Ministry of Information Technologies and Communications, the Ministry of Finance and the Ministry of Economy will prepare new legislation on cryptocurrencies by September 2018. The GOU is working on creation of a new Center for Distributed Ledger Technologies in the Mirzo Ulugbek Innovation Center of Tashkent. The Center will be opened by June 1, 2018 and work on development of blockchain technologies.

At present, 29 microcredit institutions and 47 pawn shops provide alternative financial services in Uzbekistan. Non-banking microcredit organizations (MCO) were permitted in Uzbekistan in 2002. MCOs cannot provide loans in cash, nor can they make consumer loans or attract private funding by offering deposit account services. The segment is relatively small and does not meet the demand for micro financing. Clients of these MCOs are typically building materials importers and farmers growing export-oriented crops. Legislation on pawnshops or Lombard banking was passed in 2003. Pawnshops offer small loans in cash, and the majority of their clients are individuals and labor migrants seeking to finance their relocation.

Foreign Exchange and Remittances

Foreign Exchange Policies

Uzbekistan adopted Article VIII of the IMF’s Articles of Agreement in October 2003 and, thus, committed to currency convertibility for current account transactions. However, implementation of the country’s obligations under this article only began in September 2017. Formally, foreign investors are guaranteed the ability to transfer funds in foreign currency into and out of Uzbekistan without limitation, provided they have paid all taxes and other financial obligations in accordance with legislation. Local authorities may stop the repatriation of a foreign investor’s funds in cases of insolvency and bankruptcy, criminal acts by the foreign investor, or when directed by arbitration or a court decision. New legislation on liberalization of currency exchange is expected by the end of 2018.

The exchange rate is determined by the CBU, which insists that it is based on free market forces (8,077 soum per U.S dollar as of April 20, 2018). The CBU officials said that they have not used and are not going to use reserves (USD 26.6 billion by the end of 2017) to support the local currency through interventions in the forex market. After the almost 100 percent devaluation of the national currency in September 2017, the exchange rate has been remarkably stable.

Remittance Policies

On 2 September 2017, President Mirziyoyev signed a decree On Priority Measures for Liberalization of Monetary Policy. The decree removed most currency exchange restrictions, as of September 5, 2017. All business entities can now 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. Individuals are able to sell foreign currency cash to banks, but purchases of foreign currency are deposited onto debit cards that can only be used abroad. All payments in foreign currency within the country are prohibited. The president also abolished the requirement for businesses to exchange 25 percent of their foreign currency earnings for local currency through authorized banks. A new law on currency regulations is under development.

Banking regulations mandate that the currency conversion process should take no longer than two weeks. A few months after adoption of the above-mentioned Presidential Decree on Monetary liberalization, 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 (FRD) of Uzbekistan 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 FRD, and all of those institutions have membership on its Board of Directors. The equity of the FRD had grown to about USD 15 billion by 2015, up from USD 1 billion in 2006. The GOU plans to raise the FRD’s equity up to USD 25 billion by 2020.

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 FRD in 2006, using it to sterilize and accumulate foreign exchange revenues, but officially the goal of the FRD is to provide government-guaranteed loans and equity investments to strategic sectors of the domestic economy.

The FRD does not invest, but instead provides debt financing to SOEs for modernization and technical upgrade projects in sectors that are strategically important for the Uzbek economy. All FRD loans require government approval.

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, 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).

Some large state-owned companies engaging in commercial activities act as government institutions. The Law on Privatization and Denationalization, with a number of subordinate acts, contains a list of sectors/industries where the GOU has banned participation of private businesses.

The GOU created some of its largest SOEs by simply renaming existing government entities and, in some cases, those enterprises still exercise governmental powers. For example, Uzbekneftegaz National Holding Company dominates the oil and gas industry and foreign investors need its approval to do business in the sector, although there is no legislative mandate for this power. Most SOEs register as joint-stock companies, and a minority share in these companies usually belongs to employees or private enterprises.

Although SOEs have boards of directors, typically one or more members will be a government official, and senior executives report directly to relevant ministries or the Cabinet of Ministers. Generally, SOEs must consult with the government before making significant business decisions.

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 published list of major Uzbek SOEs is available on the official GOU website (for large companies and banks): http://www.gov.uz/en/pages/government_sites . The Center for Management of State-owned Assets under the State Committee for Supporting Privatized Enterprises and Development of Competition is responsible for management of state-owned assets (http://gkk.uz/en ).

In theory, private sector or foreign companies can be more competitive than local SOEs in sectors that are not under the control of state-owned monopolies, but regulations make them dependent on government SOEs. For example, in 2004 the government granted exclusive control of the country’s international telecommunication networks to the state-owned Uztelecom Company. This forces all providers of voice and data transmission services, including internet and IP-telephony, to use only Uztelecom switches to access long-distance and international channels. In addition to technical restrictions, the providers must also conduct their financial transactions with international partners through Uztelecom.

There is no third-party market analysis on SOEs’ ties to the government. 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. The government leverages registrations, licensing, and access to some commodities and utilities to protect quasi-governmental institutions and companies from commercial competition. Private businesses face more than the usual amount of bureaucratic hurdles if they compete with the government or a government-controlled firm. Furthermore, a heavy tax burden also limits competitiveness of private firms (according to the World Bank’s latest Doing Business report, Uzbekistan holds 78th place among 190 ranked economies of the world in the Paying Taxes indicator). Most SOEs have a range of advantages, including various tax holidays, as well as better access to commodities, utility supplies, local and external markets, and smoother access to financing. Additionally, SOEs are usually not subject to legislative budget constraints unless they are in low-priority industries.

At present, Uzbekistan does not adhere to the OECD Guidelines on SOE Corporate Governance. Although the Law on Openness of State Bodies was adopted in May 2014, local SOEs and the Fund for Reconstruction and Development of Uzbekistan do not often publish annual reports. State-owned businesses and financial institutions are required to submit annual reports to the government, but they are not required to publish them. Local state-owned enterprises in the financial sector are required to submit their financial records for independent audit, as well. SOEs, as well as other Uzbek entities, are subject to domestic accounting standards and rules, which are still not fully comparable with International Financial Reporting Standards (IFRS). Nevertheless, Uzbekistan gradually has brought about 90 percent of its domestic accounting standards into IFRS compliance.

Privatization Program

Uzbekistan claims that it subscribes to an ongoing process of institutional and economic reform, such as restructuring and privatization. Uzbekistan’s Development Strategy for 2017-2021, the main policy paper of the government, says that further expansion and simplification of procedures for privatization of state-owned assets, reduction of public shares capital of business entities, creation of favorable conditions for the development of private enterprises, and privatization must be considered as one of policy goals. According to official reports, 542 state owned enterprises and facilities were privatized in 2017. Privatization earnings of the state budget were equivalent to USD 44.6 million. Availability of state-owned assets for privatization can be reviewed here: https://gkk.uz/ru/deyatelnost/direction/privatization . A government decree issued on January 17, 2017, created additional incentives for privatization of unused state assets. Privatization of non-strategic assets does not require government approval and can be cleared by local officials. The payment terms have been extended from two to three years. Within five years, investors must have fully fulfilled their investment commitments.

At the end of December 2015, the GOU set a requirement for joint stock companies registered in Uzbekistan to have at least a 15 percent share owned by foreign investors. Foreign shareholders of local joint stock companies were exempted from paying taxes on dividends before January 1, 2020. Exceptions were made for companies that produce and process primary strategic raw materials, natural monopolies, and suppliers of socially important goods and services at state-regulated prices. Follow up decrees issued in August 2016 and January 2017 (http://lex.uz/pages/getpage.aspx?lact_id=3016179 ) established a list of 102 state owned companies for which minority shares would be offered to foreign investors in a partial privatization. Despite widespread publicity in the beginning of 2017, the GOU has not reported the progress and actual results of this program.

Large privatization deals with the involvement of foreign investment require approval of the State Tender Commission (STC) in line with GOU Resolution 279, issued in October 2014 and last modified in October 2017. The main mechanisms for selling state assets are usually open tender or auction, but often the process is transparent only at the initial stage.

In general, Uzbekistan has made limited progress in privatization since 1998, when the government declared a policy of institutional and economic reforms in order to attract more investment into the country. The GOU has banned privatization of large state-owned enterprises, such as international telecommunications providers, power generation and distribution companies, and railways and airlines, explaining that these have national strategic interest. Usually state assets offered for privatization consist of auxiliary or ineffective enterprises and unprofitable public facilities. 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 Uzbek families.

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 charity activities, either through their own initiative or as mandated by local government officials.

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.

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.

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 that the government encourages foreign and local businesses to follow generally accepted CSR principles such as the OECD Guidelines for Multinational Enterprises. The country also does not participate in the Extractive Industries Transparency Initiative (EITI).

Uzbekistan’s legislation and Criminal Code both prohibit corruption. On January 3, 2017, President Mirziyoyev approved the law On Combating Corruption. The law is intended to raise the efficiency of anti-corruption measures through consolidation of efforts of government bodies and the civil society in preventing and combating cases of corruption, attempted corruption, and conflict of interest, ensuring punishment for such crimes.

The government prosecutes a number of officials under anti-corruption laws every year, and punishment can vary from a fine to imprisonment with confiscation of property.

The new law On Combating Corruption has clear definitions for conflict of interest and purported corruption. On January 8, 2018, the President has approved the law On Administrative Procedures, which will enter into force in January 2019. The law establishes organizational and legal requirements for activities of the GOU’s executive bodies, should improve transparency in relations between the government and private businesses. The GOU also considers further improvement of the legislation to reduce administrative barriers in public-private interactions, and ensure transparency in accessing public resources. Drafts of laws on Public Procurement and on State-Private Partnership are currently under public review. Their adoption is expected in 2018.

Currently all government procurements have to go through open tender process. Procurement contracts with involvement of public funds or performed by state enterprises with values of over USD 100,000 needs a clearance by relevant government agencies. However, the process of awarding contracts has not always been transparent.

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 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 not a participant in any local or regional anti-corruption initiatives. The country ranked 157 out of 180 rated countries in Transparency International’s 2017 Corruption Perceptions Index.

The very few officially registered local NGOs usually do not investigate corruption cases. The law On Combating Corruption encourages more active involvement of NGOs and civil society in investigation and prevention of crimes related with corruption.

U.S. businesses have cited corruption and lack of transparency in bureaucratic processes, including public procurements and licensing, among the main obstacles to foreign direct investment in Uzbekistan.

Some international and local auditing and consulting companies may provide services that include due diligence surveys of local companies. The U.S. Embassy in Tashkent (https://uz.usembassy.gov/) can do customized company profiles under its Post Partnership Agreement with the Department of Commerce. There are no local non-profit groups that offer services for vetting potential local investment partners.

Resources to Report Corruption

The main arms of the government tasked with fighting corruption are the Prosecutor General’s Office and the Department for Legal Protection of Entrepreneurs and Foreign Investors under the Ministry of Justice (established in February 2016). Currently, no international or local nongovernmental watchdog organizations have permission to monitor corruption in Uzbekistan.

Contact information for the office of Uzbekistan’s Prosecutor General:

66, Akademik Gulyamov St.
100047, Tashkent
Hotline telephone numbers:
+998(71) 1007, 232-4391, 232-4550

Contact information for the office of Uzbekistan’s Ministry of Justice:

5, Sayilgoh Street
100047, Tashkent
Hotline telephone numbers:
+998(71) 1008, 233-4768, 236-0509

Although there are supporters in Uzbekistan of extremist groups such as the Islamic Movement of Uzbekistan (IMU), al-Qaeda, and the Eastern Turkistan Islamic Movement in Central Asia, the GOU has made it a priority to limit the activities of these groups, which have all expressed anti-U.S. sentiments.

In light of domestic and international threats, the government has implemented heightened security measures, such as police sorties and patrolling of public places. The border between Uzbekistan and Afghanistan is officially open to traffic, but some travel restrictions for the region remain in place.

Uzbekistan has the largest labor force in the region – potentially about 19 million, or 60 percent of the country’s total population. About 65 percent of the population is under age 30. With the closure or downsizing of many businesses, it is easy to find qualified employees, and salaries are low by Western standards. According to government and alternative statistics, 14 percent of the population live below the poverty level, 5.8 percent are unemployed, and approximately 48 percent of the employed population have low-productivity and low-income jobs. Accordingly, Uzbekistan is the largest supplier of labor migrants among former Soviet Union republics. Russia and Kazakhstan have served as social relief valves, together providing jobs for nearly three million Uzbek labor migrants.

About 40 percent of the locally employed population works in the non-agricultural private sector, where the share of the informal economy is quite considerable. Heavy tax burdens, debilitating trade restrictions, and widespread corruption drive many legitimate companies to conceal their business records. The GOU officials and local experts estimate that the informal economy makes up as much as 50 percent of GDP.

At 97 percent, literacy is nearly universal, but most local technical and managerial training does not meet international business standards. Foreign firms report that younger Uzbeks are more flexible in adapting to changing international business practices, but are also less educated than their Soviet-trained elders. Widespread corruption in the education sector has lowered educational standards as students purchase grades and even admittance to prestigious universities and lyceums.

Legislation requires companies to hire Uzbek nationals for specified positions in banking and auditing companies. The chief accountant must be an Uzbek national, as should either the CEO or any one member of the board of directors. Only Uzbek nationals can be tour guides.

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 5 years (http://www.doingbusiness.org/data/exploreeconomies/uzbekistan/labor-market-regulation ). The Labor Code and subordinate labor legislation differentiate layoffs and firing. Employees can terminate their employment by filing two-week prior written notice, or apply for leave without pay. Layoff or temporary leaves without pay can be initiated by an employer due to worsening of the economic situation. 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 his 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 works, which leads to widespread labor rights violations.

Officially, labor legislation cannot be waived or applied differently for private or foreign-owned enterprises, including those that operate in free and special economic zones.

The state-run Board of the Federation of Trade Unions of Uzbekistan incorporates more than 37,600 primary organizations and 14 regional trade unions, with official reports of 60 percent of employees in the country participating. The Office of the President appoints the leaders of the federation; union boards are not involved in electing these leaders to their positions. All regional and industrial trade unions at the local level are state-managed.

By law, all employees of either local or foreign-owned enterprises operating in Uzbekistan have the following rights to:

  • fair and timely payment of wages that should not be less than 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 percent 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, workers in state-owned energy and mining enterprises conducted strikes, demanding timely distribution of salaries. Reportedly, authorities agreed to negotiate, and eventually addressed most of the workers’ concerns. 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 are permitted. In practice, overtime limitations are not widely observed and compensation is rarely paid. Wage violations have become quite common in recent years.

Fourteen conventions 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;
  • Employment Policy Convention;
  • Forty-Hour Week Convention;
  • Holidays with Pay Convention;
  • Maternity Protection Convention [Revised];
  • Workers’ Representatives Convention; and
  • Collective Bargaining Convention.

In 2016, Uzbekistan also ratified ILO Social Security [Minimum Standards] Convention. It is scheduled to enter into force by the end of 2018. The most recent observations of the ILO’s Committee of Experts on the Application of Conventions and Recommendations (CEACR) can be reviewed here: http://www.ilo.org/dyn/normlex/en/f?p=1000:13201:::NO:13201:P13201_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. Uneven implementation and lack of capacity and resources in remote regions, however, leads to isolated cases of child labor and forced mobilizations of about 336,000 cotton pickers. The Ministry of Employment and Labor Relations establishes and enforces occupational health and safety standards in consultation with unions, but anecdotal reports suggest that enforcement is not effective. Although regulations provide for safeguards, workers in hazardous jobs often lack protective clothing and equipment. Labor inspectors conduct routine inspections of small and medium-sized businesses once every four years, and inspect larger enterprises once every three years. The ministry or a local governor’s office have traditionally been able to initiate a selective inspection of a business, typically in response to an accident or complaint; however, a decree issued in October 2016 seeks to eliminate unlawful, surprise business inspections.

In 2017, the Labor Code and a number of regulations thereunder went through minor modifications mainly related with new rules for employment of local citizens abroad and renaming of the Ministry of Labor to the Ministry of Employment and Labor Relations.

Uzbekistan participates in the U.S. Generalized System of Preferences (GSP) trade program, which provides beneficiary countries with unilateral preferential U.S. market access for eligible products. However, Uzbekistan is the subject of a country practice petition on labor issues (as well as one on intellectual property rights). The Office of the U.S. Trade Representative (USTR) manages the GSP program and is currently conducting an assessment of Uzbekistan’s compliance with the statutory eligibility criteria. USTR continues to engage with the Government of Uzbekistan on its compliance with GSP criteria to build on the progress that Uzbekistan has made in these areas and implement the necessary standards and protections required for continued access to GSP benefits.

The Overseas Private Investment Corporation (OPIC) began working in Uzbekistan in 1992 and has loaned approximately USD 229 million over the course of its operations in Uzbekistan, but had no projects in FY2017. Uzbekistan is a developing country member of the Multilateral Investment Guarantee Agency.

Some foreign governments, primarily China, South Korea and Japan, provide significant business facilitation and export financing support to their firms in the Uzbek market. The Chinese government provides investment and trade financing through Chinese Export-Import Bank, China Development Bank, China-founded Asian International Infrastructure Bank, and other institutions. The South Korean Development Bank and Export-Import Banks also provide export financing to Korean companies. The Korean International Cooperation Agency has an active representation in Uzbekistan. The Japan External Trade Organization (JETRO), Japan Bank for International Cooperation, and other financial institutions are supporting Japanese businesses in the country. In 2017, Chinese exports to Uzbekistan exceeded USD 2.7 billion and South Korean – USD 1.2 billion, while imports from the U.S were only USD 182 million.

Note: In many instances below (indicated by N/A), no data has been published by the Government of Uzbekistan, and independent assessments and estimations are also not available. The GOU includes foreign debt inflow in FDI figures. In some reports the GOU may also indicate contractual pledges of FDI, rather than actual investment inflow.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD ) 2017 USD 57.1 billion* 2017 N/A www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD , stock positions) 2017 N/A 2017 N/A BEA data available at http://bea.gov/international/direct_
Host country’s FDI in the United States ($M USD , stock positions) 2017 N/A 2017 N/A BEA data available at http://bea.gov/international/direct_
Total inbound stock of FDI as % host GDP 2017 N/A 2017 N/A N/A

*Source: The State Statistics Committee of Uzbekistan
Table 3: Sources and Destination of FDI

Data not available.
Table 4: Sources of Portfolio Investment

Data not available.

Contact at the U.S. Embassy in Tashkent:
J. Laurence Wright II
Economic and Commercial Officer
3, Maykurgan St., Yunusabad District, 100093, Tashkent, Uzbekistan

2018 Investment Climate Statements: Uzbekistan
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