Uzbekistan is a populous double land-locked country in the middle of Central Asia with an emerging lower-middle income economy. State-owned enterprises still dominate its industrial and financial sectors, and foreign trade centers on commodities. The declared goal of its current economic policy is to achieve sustainable growth and overcome underemployment and poverty as soon as possible. Fast growing external public debt limits the availability of public funds and loans to support economic growth, so attraction of private and foreign investment (FDI) has become a vital priority. Five years ago, the Government of Uzbekistan (GOU) launched a program of radical market reforms, with a focus on improving the business environment. Notable progress has been made so far in addressing a rage of systemic business regulation problems and overcoming the dominance of state monopolies, but more is yet to be done to completely unlock all benefits of FDI for the economy.
Uzbekistan has the potential to become a strong regional economy: a dynamic and entrepreneurial population, the largest in Central Asia; relatively good infrastructure; and a large potential consumer market. In the past, most FDI was directed into the oil, gas, and mining sectors. In recent years, however, there has been a trend towards increasing FDI in manufacturing, production and distribution of electricity, tourism, and banking. Such diversification was facilitated by positive changes in state regulation and the beginning of a privatization program. Further advancing privatization, as well as implementation of a long-expected capital market development policy, may create unique investment opportunities.
Over the past five years, the GOU has made efforts to improve the investment attractiveness of the country. The GOU has modernized its legislation through the adoption of the Law on Investments and Investment Activities and other acts that streamlined interactions of investors with the state, reduced the tax load, liberalized access to certain commodities, and started the privatization of major state-owned enterprises. As a result, the inflow of FDI has grown from about $2 billion in 2017 to over $8 billion in 2021.
The government’s efforts to attract funding for various development and social support programs contributed to sustained economic growth despite severe quarantine restrictions in 2020. With the removal of major pandemic restrictions in 2021, GDP grew 7.4 percent. Notable progress has been made in development of renewable energy capacity. Uzbekistan already attracted FDI to develop nearly 4,000 MW of solar and wind capacity and plans to build another 4,000 MW in generation capacity by 2026, which will increase the share of renewables to 25 percent and displace 3 billion cubic meters of natural gas usage annually. The GOU’s current environmental policy goal is to achieve a 35 percent reduction of greenhouse gas emissions per unit of GDP from 2010 levels by 2030.
At the same time, the GOU still attempts to channel foreign investments into predetermined import-substituting or export-oriented projects. In some cases, transparency is sacrificed for the urgency of investment. Pandemic-related challenges and the subsequent disruption of global of supply chains have slowed the progress of liberalization reforms because the GOU expanded the use of direct administrative control methods. Another restraining factor is the lack of experience among middle and lower-level government officials in working transparently and properly enforcing legislation that protects the rights of entrepreneurs.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The GOU has maintained economic growth by directing more investments into accelerated industrialization programs – a policy chosen to address social issues caused by disturbingly high unemployment and poverty rates. The goal is to create more jobs by building new competitive production capacity, modernizing infrastructure, and expanding the service sector. The GOU declared that increasing the share of private investment is a top policy priority, acknowledging that strong inflow of private capital could ensure economic stability in the medium and long-term.
The Law on Investments and Investment Activities, which entered into force on January 27, 2020, guaranteed unrestricted transfer of funds out of Uzbekistan and the protection of investments from nationalization. For the effective implementation of this law, in 2021 the GOU created a multi-level mechanism of interaction between public authorities and investors. These include the Ministry of Investments and Foreign Trade (MIFT), designated deputy heads of regional governments, diplomatic missions abroad, and commercial banks.
In 2021, the GOU demonstrated its continued willingness to improve the business environment by focusing on implementing previously adopted programs and strengthening law enforcement practices. Several measures were taken to facilitate the legalization of business practices and incentivize entrepreneurs to transition out of the non-transparent cash-based grey economy. The fight against corruption has intensified. To prevent pandemic-related business losses, despite repeated outbreaks, the government refrained from imposing new lockdowns. Several large state-owned enterprises were privatized, including the Coca-Cola Bottlers of Uzbekistan and Asia Alliance Bank. Special incentives were offered to attract investments into the provinces and critical industries. Over $1.5 billion in FDI was attracted to renewable energy projects. In general, according to official reports, a total of $8.1 billion of FDI was raised in 2021 for 318 large and about 15 thousand smaller regional projects, which created over 273 thousand new jobs.
Realizing that there are still major problems hindering investor confidence, the MIFT has asked international financial institutions and experts help in creating a stronger reform roadmap, the National Strategy and Roadmap for Attracting FDI. Meanwhile, the GOU has yet to address several fundamental problems reported by U.S. businesses and investors, such as the lack of transparency in public procurements, its poor record of enforcing public-private contracts, poor protection of private property rights, and insufficient enforcement of intellectual property rights. Local entrepreneurs also complain about losses due to non-compliance with the law on the inviolability of private property, the lack of real business protection tools, and excessive pressure from government agencies that still have disproportionately and inappropriately high regulatory authority. Uzbekistan is ranked 140th (of 180) in Transparency International’s Corruption Perceptions Index.
By law, foreign investors are welcome in all sectors of Uzbekistan’s economy and the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin. However, the government has demonstrated a continued desire to control capital flows in major industries, encouraging investments in a preapproved list of import-substituting and export-oriented projects, while investments in import-consuming projects can generally expect very little support.
The GOU organizes and attends media events and joint government-business forums on a regular basis and at these events officials stress their interest in seeing new companies establish operations in Uzbekistan. The Law on Investments and Investment Activities, which entered into force on January 27, 2020, obliges Uzbekistan’s state bodies, diplomatic missions, and consular institutions abroad to provide advisory and informational assistance to investors.
On August 20, 2021, President of Uzbekistan Shavkat Mirziyoyev chaired the first direct dialogue session with investors and local businesses, an event attended by about 10 thousand entrepreneurs. During the meeting, the president discussed issues raised by businesses, such as expensive loans and cumbersome tax administration, and announced that such dialogues would become regular. Earlier, in 2019, the President’s office established the Council of Foreign Investors, which operates as an institutional advisory body (https://fics.uz/en/).
The GOU established the Institute of the Business Ombudsperson (IBO) in 2017 to protect the rights and legitimate interests of businesses and provide legal support. The Law on Investments and Investment Activities obliged the IBO to assist foreign businesses in resolving emerging disputes through extrajudicial and pre-trial procedures. In 2021, the number of cases reviewed by the IBO has doubled and exceeded six thousand. At the beginning of 2022, the IBO received the right to apply fines to violators of investor rights.
During the reporting period, various GOU officials attended several of in-person and virtual meetings with representatives of U.S. companies. U.S. business facilitation agencies and the U.S. International Development Finance Corporation (DFC) met with Uzbekistan’s government officials under the framework of the Strategic Partnership Dialogue in December 2021.
Limits on Foreign Control and Right to Private Ownership and Establishment
By law, Uzbekistan guarantees the right of foreign and domestic private entities to establish and own business enterprises, and to engage in most forms of remunerative activity. However, due to the prevalence in state-owned or state-supported monopolies in several sectors, in reality, the right to establish business enterprises is still limited in some sectors. In 2020, the GOU started the process of reducing the role of large state-owned enterprises (SOE), especially in the transportation, banking, energy, and cotton sectors. It introduced measures to reduce government involvement in the economy, enforcement of an antimonopoly compliance system in SOE operations, reorganization of some large SOEs for optimized corporate governance, and privatization of certain formerly off-the-table state-owned assets. This privatization program includes state-owned monopolies in the mining, energy, ITC, chemical, transportation, construction, banking, and insurance sectors. In November 2021, the GOU set a target to privatize two thirds of SOE assets. The state still reserves the exclusive right to export some commodities, such as nonferrous metals and minerals. In theory, private enterprises may freely establish, acquire, and dispose of equity interests in private businesses, but, in practice, this is difficult to do because Uzbekistan’s securities markets are still underdeveloped.
Private capital is not allowed in some industries and enterprises. The Law on Denationalization and Privatization (adopted in 1991, last amended in 2020) lists state assets that cannot be sold off or otherwise privatized, including land with mineral and water resources, the air basin (atmospheric resources in the airspace over Uzbekistan), flora and fauna, cultural heritage sites and assets, state budget funds, foreign capital and gold reserves, state trust funds, the Central Bank, enterprises that facilitate monetary circulation, military and security-related assets and enterprises, firearm and ammunition producers, nuclear research and development enterprises, some specialized producers of drugs and toxic chemicals, emergency response entities, civil protection and mobilization facilities, public roads, and cemeteries.
Foreign ownership and control for airlines, railways, long-distance telecommunication networks, and other sectors deemed related to national security requires special GOU permission, but so far foreigners have not been welcomed in these sectors. By law, foreign nationals cannot obtain a license or tax permit for individual entrepreneurship in Uzbekistan. In practice, therefore, they cannot be self-employed, and must be employed by a legally recognized entity.
According to Uzbekistan’s law, local companies with at least 15% foreign ownership can qualify as having foreign investment. The minimum fixed charter-funding requirement for a company with foreign investment is 400 million s’om (USD 1 equals about 10,850 s’om as of March 2022). The same requirement for companies registered in the Republic of Karakalpakstan and the Khorezm region is 200 million s’om. Minimum charter funding requirements can be different for business activities subject to licensing. For example, the requirement for banking activities is 100 billion s’om; for activities of microcredit organizations – 2 billion s’om; for pawnshops – 500 million s’om; for production of ethyl alcohol and alcoholic beverages – 10,000 Base Calculation Rates (BCR) (one BCR equals 270,000 s’om or about $25, as of March 2022); lotteries – 200 million s’om; and for tourism operators – 400 BCRs. Foreign investment in media enterprises is limited to 30%.
The government may scrutinize foreign investment, with special emphasis on sectors of the economy that it considers strategic, such as mining, energy, transportation, banking, and telecommunications. There is no standard, transparent screening mechanism, and some elements of Uzbekistan’s legal framework are expressly designed to protect domestic industries and limit competition from abroad, such as a list created in January 2021 of 529 imported items banned from the public procurement process. The basis for inclusion of items to the list was the presence of two or more domestic suppliers of similar goods and services. There are no legislative restrictions that specifically disadvantage U.S. investors.
Other Investment Policy Reviews
On December 2021, the United Nations Conference on Trade and Development (UNCTAD) published its Uzbekistan Investment Policy Review (https://unctad.org/webflyer/investment-policy-review-uzbekistan). The report contains findings on Uzbekistan´s investment environment and policies and 10 recommendations for improving the climate for FDI, which address policy and administration with regard to entry of foreign investment; regulatory and tax policy; measures to improve the competitive provision of business services; and investment promotion issues. The Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), and have not conducted investment policy reviews of Uzbekistan in the past four years.
The GOU has declared that business facilitation and improvement of the business environment are among its top policy priorities. Uzbekistan’s working-age population has been growing by over 200,000 people per year over the past decade. Therefore, the GOU prioritizes private businesses and joint ventures with the potential to create additional jobs and help the government address unemployment concerns. The introduction of one-window and on-line registration practices and electronic reporting systems simplified and streamlined business registration procedures. The GOU has created 23 Special Economic Zones (SEZ), as well nearly 350 special small industrial zones (SIZ) in all regions of the country to attract more FDI. New legislation has created additional tax incentives for private businesses and promised firms protection against unlawful actions by government authorities.
By legislation (effective from January 2018), foreign and domestic private investors can register their business in Uzbekistan using any Center of Government Services (CGS) facility, which operate as “Single Window” (SW) registration offices, or the Electronic Government (EG) website – https://my.gov.uz/en. The registration procedure requires electronic submission of an application, company name or trademark, and foundation documents. The SW/EG service will register the company with the Ministry of Justice, Tax Committee, local administration, and other relevant government agencies. The registration fee is equivalent to 20% of a BCR for local investors and 10 BCRs for foreign investors (one BCR equals 270,000 s’om, or about $25, as of March 2022). Applicants receive a 50% discount for using the EG website. The new system has reduced the length of the registration process from several weeks to 30 minutes.
Depending on the extent of foreign participation, a business can be defined as an “enterprise with foreign capital” (EFC) if less than 15% foreign-owned, or as an “enterprise with foreign investment” (EFI) if more than 15% foreign-owned and holding a minimum charter capital of 400 million s’om (about $37,000 as of March 2022). Foreign companies may also maintain a physical presence in Uzbekistan as “permanent establishments” without registering as separate legal entities, other than with the tax authorities. A permanent establishment may have its own bank account.
In general, the GOU does not promote or incentivize outward investments. The Ministry of Investments and Foreign Trade coordinates outward investments mainly in the form of bilateral economic cooperation engagements. Some state-owned enterprises invest in development of their marketing networks abroad as part of efforts to boost export sales. Private companies that operate primarily in the retail, manufacturing, transportation, construction, and textile sectors use outward investments for market outreach, to access foreign financial resources, for trade facilitation, and, in some cases, for expatriation of capital. The most popular destinations for outward investments are Russia, China, Kazakhstan, Singapore, UAE, Scotland, Turkey, and Germany.
There are no formal restrictions on outward investments. However, financial transactions with some foreign jurisdictions (such as Afghanistan, Iran, Syria, Libya, and Yemen) and offshore tax havens can be subject to additional screening by the authorities.
2. Bilateral Investment and Taxation Treaties
Uzbekistan has signed bilateral investment agreements with 49 countries, though the 1994 agreement signed with the United States has not been ratified, and those with several other countries, including Turkey, Bahrain, Belarus, and South Korea, have not yet entered into force. In 2004, Uzbekistan and Russia signed a Strategic Framework Agreement with free trade and investment concessions, and an alliance agreement in 2005. Uzbekistan has signed bilateral free trade agreements with 11 CIS countries (Russia, Belarus, Ukraine, Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, and Tajikistan). In 2004, Uzbekistan and Ukraine agreed to remove all bilateral trade barriers. Uzbekistan joined the CIS Free Trade Zone Agreement in 2014. In 2020, Uzbekistan assumed observer status in the Eurasian Economic Union (EAEU). In December 2015, the GOU officially announced that Uzbekistan would not join the Free Trade Zone within the Shanghai Cooperation Organization (SCO). See UNCTAD’s database for more details: https://investmentpolicy.unctad.org/international-investment-agreements/countries/226/uzbekistan.
Uzbekistan has ratified double taxation agreements with 53 countries. The U.S. Internal Revenue Service (https://www.irs.gov/businesses/international-businesses/uzbekistan-tax-treaty-documents) considers Uzbekistan to be one of the former Soviet republics now covered by a taxation treaty with the Commonwealth of Independent States (CIS), as the successor to the dual taxation treaty signed between the United States and the Union of Soviet Socialist Republics (USSR) (signed in 1973 and entered into force in 1976). However, the Government of Uzbekistan argues that this agreement cannot be considered in effect and has proposed signing a new double taxation treaty. Uzbekistan officially presented a draft of a new dual taxation treaty to the U.S. government in December 2017. In 2015, Uzbekistan and the United States signed the Intergovernmental Agreement to Improve International Tax Compliance with respect to the United States Information Reporting Provisions, commonly known as the Foreign Account Tax Compliance Act (FATCA). The FATCA agreement entered into force in July 2017. Uzbekistan has not become a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS).
Reform of the taxation system, which for many years had been considered discouragingly burdensome and inadequate, was among the most desired reforms by the new administration. President Mirziyoyev first announced tax reform initiatives in 2016, and active discussions on their parameters started in 2017. The new Tax Code went into effect on January 1, 2020. The tax reform has led to a notable decrease of the tax burden to businesses and simplification of tax reporting. Key changes included: the 8% social security contributions and all mandatory payments to various state funds were abolished; corporate and individual income taxes were reduced from a progressive rate of up to 24% to a single flat rate of 12%; the income tax rate on dividends was reduced from 10% to 5%; the VAT tax rate also decreased from 20 to 15%; and 13 forms of tax inspections were consolidated into two.
3. Legal Regime
Transparency of the Regulatory System
Uzbekistan has a substantial body of laws and regulations aimed at protecting the business and investment community. Primary legislation regulating competition includes the 2012 Law on Competition (last updated in 2019), the Law on Guarantees of the Freedoms of Entrepreneurial Activity, the 2003 Law on Private Enterprise (last updated in 2020), the 2019 Law on Investments and Investment Activities and a body of decrees, resolutions, and instructions. In late 2016, the GOU publicly recognized the need to improve and streamline business and investment legislation, which is still perceived as complicated, often contradictory, and not fully consistent with international norms. In some cases, the government may require businesses to comply with decrees or instructions that are not publicly available. To simplify and streamline legislation, Parliament and the Cabinet of Ministers have initiated a “regulatory guillotine” policy, under which nearly eight thousand laws and regulations were abolished in 2020-2021. For example, the GOU Resolution N87 of February 22, 2021, invalidated 1,887 government decisions, and the Ministry of Justice invalidated 4,343 resolutions of regional governments. To avoid problems with tax and regulatory measures, foreign investors often secure government benefits through Presidential Decrees and GOU resolutions. These, however, have proven to be easily revocable.
Practices that appear as informal regulatory processes are not associated with nongovernmental organizations or private sector associations, but rather with influential local politicians or well-connected local elites.
Most rule-making and regulatory authority exists on the national level. Businesses in some regions and special economic zones can be regulated differently, but relevant legislation must be adopted by the central government and then regulated by national-level authorities.
Only a few local legal, regulatory, and accounting systems are transparent and fully consistent with international norms. Although the GOU has started to unify local accounting rules with international standards, local practices are still document- and tax-driven, with an underdeveloped concept of accruals.
Uzbekistan is just beginning to develop its Environmental, Social, and Governance (ESG) regulations. In 2021, the country presented its first ever ESG report, which described the progress of ongoing reforms in various areas, such as Infrastructure for Growth, Active Governance & Strong Civil Society, and Sustainable Livelihoods. Key findings of the report include that GOU efforts to work with international NGOs on the issue of forced labor in the agricultural sector are re-positioning the country as an attractive partner for reliable textiles sourcing, and that the GOU is making efforts to reduce greenhouse gas emissions and achieve the goals of the Paris Agreement. (Uzbekistan’s ESG report can be reviewed here: https://changeinuzbekistan.com/report/).
Parliament and GOU agencies publish some draft legislation for public comment, including draft laws, decrees and resolutions on the government’s development strategies, tax and customs regulation, resolutions of regional governments, and other legislation. Public review of the legislation is available through the website https://regulation.gov.uz.
Uzbekistan’s laws, presidential decrees, and government decisions are available online. Uzbekistan’s legislation digest (http://www.lex.uz/) serves as a centralized online location for current legislation in effect. As of now, there is no centralized nor comprehensive online location for Uzbekistan’s legislation, similar to the Federal Register in the United States, where all key regulatory actions or their summaries are published. There are other online legislative resources with executive summaries, interpretations, and comments that could be useful for businesses and investors, including http://www.norma.uz/ and http://www.minjust.uz/ru/law/newlaw/.
Formally, the Ministry of Justice and the Prosecutor’s Office of Uzbekistan are responsible for oversight to ensure that government agencies follow administrative processes. In some cases, however, local officials have inconsistently interpreted laws, often in a manner detrimental to private investors and the business community at large.
GOU officials have publicly suggested that improvement of the regulatory system is critical for the overall business climate. In 2021, Uzbekistan adopted laws and regulations to streamline business related legislation. In particular, the Ministry of Justice abolished 878 presidential decrees, 1,887 government resolutions, and 336 ministerial level acts, which shrank the national legal framework by almost 10%. In addition, 4,343 decrees of regional governments were invalidated, downsizing their total number by 70%. Several new laws adopted in the reviewing period introduced amendments related with the enforcement of business-related legislation.
Regulatory reform efforts implemented in previous years, which include Presidential Decree UP-5690 “On Measures for the Comprehensive Improvement of the System of Support and Protection of Entrepreneurial Activity,” adopted in March 2019, set enforcement mechanisms for effective protection of private businesses, including foreign investors. The Law on Investments and Investment Activities, adopted in December 2019, guarantees free transfer of funds to and from the country without any restrictions. This law also guarantees protection of investments from nationalization. The GOU has implemented several additional reforms in recent years, including the currency exchange liberalization, tax reform, simplification of business registration and foreign trade procedures, and establishment of the business Ombudsperson.
The government’s development strategies include a range of targets for upcoming reforms, such as ensuring reliable protection of private property rights; further removal of barriers and limitations for private entrepreneurship and small business; creation of a favorable business environment; suppression of unlawful interference of government bodies in the activities of businesses; improvement of the investment climate; decentralization and democratization of the public administration system; and expansion of public-private partnerships.
Previously implemented regulatory system reforms often left room for interpretation and were, accordingly, enforced subjectively. New and updated legislation continues to leave room for interpretation and contains unclear definitions. In many cases, private businesses still face difficulties associated with enforcement and interpretation of the legislation. More information on Uzbekistan’s regulatory system can be reviewed at the World Bank’s Global Indicators of Regulatory Governance (http://rulemaking.worldbank.org/data/explorecountries/uzbekistan).
The Ministry of Justice and the system of Economic Courts are formally responsible for regulatory enforcement, while the Institute of Business Ombudsperson was established in May 2017 to protect the rights and legitimate interests of businesses and render legal support. The state body responsible for enforcement proceedings is the Bureau of Mandatory Enforcement under the General Prosecutor’s Office. Several GOU policy papers call for expanding the role of civil society, non-governmental organizations, and local communities in regulatory oversight and enforcement. The government also publishes drafts of business-related legislation for public comments, which are publicly available. However, the development of a new regulatory system, including enforcement mechanisms outlined in various GOU reform and development roadmaps, has yet to be completed.
Uzbekistan’s fiscal transparency still does not meet generally accepted international standards. In 2021, the GOU demonstrated some progress in its efforts to ensure compliance with the requirements of fiscal transparency, continuing the reform of the budgeting system launched in 2019. The process of awarding natural resource extraction contracts became more statutory and transparent. The web portal of the Finance Ministry https://openbudget.uz, created to be the main source of budget-related information, provides comprehensive information on the enacted budget, its implementation (with a breakdown by categories and territories), as well as the report of the Accounts Chamber (the supreme audit). However, the portal is still not fully operational. It does not provide detailed information on budget amendments to the budget adopted during the fiscal year, regional budgets, or specialized funds. The GOU did not publish its FY2022 budget proposal for public review. Most of GOU agencies do not publish reports on their off-budget funds and other socially significant information, although the law of 2020 introduced amendments to the Administrative Code establishing fines for senior GOU officials for non-disclosure of reports on the execution of budgets, off-budget funds and state trust funds, or other violations that undermine the transparency of the budget process.
International Regulatory Considerations
Uzbekistan is not currently a member of the WTO or any existing economic blocs although it is pursuing WTO accession. In 2020, Uzbekistan assumed observer status in the Eurasian Economic Union. No regional or other international regulatory systems, norms, or standards have been directly incorporated or cited in Uzbekistan’s regulatory system – although GOU officials often claim the government’s regulatory system incorporates international best practices. Uzbekistan joined the CIS Free Trade Zone Agreement in 2014, but that does not constitute an economic bloc with supranational trade tariff regulation requirements.
Legal System and Judicial Independence
Uzbekistan’s contemporary legal system belongs to the civil law family. The hierarchy of Uzbekistan’s laws descends from the Constitution of the Republic of Uzbekistan, constitutional laws, codes, ordinary laws, decrees of the president, resolutions of the Cabinet of Ministers, and normative acts, in that order. Contracts are enforced under the Civil Code, the Law “About the Contractual Legal Base of Activities of Business Entities” (No. 670-I issued August 29, 1998, and last revised in 2020), and several other regulations.
Uzbekistan’s contractual law is established by the Law “About the Contractual Legal Base of Activities of Business Entities.” It establishes the legal basis for the conclusion, execution, change, and termination of economic agreements, the rights, and obligations of business entities, and also the competence of relevant public authorities and state bodies in the field of contractual relations. Economic disputes, including intellectual property claims, can be heard in the lower-level Economic Court and appealed to the Supreme Court of the Republic of Uzbekistan. Economic court judges are appointed for five-year terms. This judicial branch also includes regional, district, town, city, Tashkent city (a special administrative territory) courts, and arbitration courts.
On paper, the judicial system in Uzbekistan is independent, but government interference and corruption are common. Government officials, attorneys, and judges often interpret legislation inconsistently and in conflict with each other’s interpretations. In recent years, for example, many lower-level court rulings have been in favor of local governments and companies which failed to compensate plaintiffs for the full market value of expropriated and demolished private property, as required under the law.
In July 2021, President Mirziyoyev approved a new Law on Courts (ZRU-703), which tightens the requirements for judicial candidates, describes the disciplinary liability of judges, and expands their socially protected status. Uzbekistan also adopted a law (ZRU-717) on reforming the Supreme Judicial Council of Uzbekistan by strengthening its independence and authority, as well as several new laws to simplify court proceedings and to improve the institutions for judicial reviews. The Law on International Commercial Arbitration (ZRU-647 adopted February 16, 2021) established the procedures for setting arbitration agreements, appointing arbitrators, and conducting arbitration proceedings. In 2020, the President ordered for additional measures to eliminate corruption in the courts and ensure the independence of judges (Decree UP-6127).
Court decisions or enforcement actions are appealable though a process that can be initiated in accordance with the Economic Procedural Code and other applicable laws of Uzbekistan, and can be adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
Several laws, presidential decrees, and government resolutions relate to foreign investors. The main laws are:
Law on Investments and Investment Activities (ZRU-598, December 25, 2019)
Law on Guarantees of the Freedoms of Entrepreneurial Activity (ZRU-328, 2012)
Law on Special Economic Zones (ZRU-604, February 17, 2020)
Law on Production Sharing Agreements (№ 312-II, 2001)
Law on Concessions (№ 110-I, 1995)
Law on Investment and Share Funds (ZRU-392, 2015)
Law on Public-Private Partnership (ZRU 537, 2019)
In 2021, the GOU adopted 85 laws, over a hundred decrees, nearly six hundred resolutions, and thousands of judicial decisions. New legislation that could affect foreign investors includes:
The Law on the State Budget for 2022, (ZRU-742, adopted December 30, 2021). Subsequent laws made amendments in the Tax Code and other regulations.
Law on Insurance Activities (ZRU-730, adopted November 23,2021).
Law on Privatization of Non-Agricultural Lands (ZRU-728, adopted November 15, 2021).
Transport Law (ZRU-706, adopted August 9, 2021).
Law on Licensing, Permitting and Notification Procedures (ZRU-701, adopted July 14, 2021).
Law on the Ratification of International Labor Organization Convention No.187 on Promotional Framework for Occupational Safety and Health (Geneva, 15 June 2006) (ZRU-693, adopted June 4, 2021).
Law on the Legal Status of Foreign Citizens and Stateless Persons in the Republic of Uzbekistan (No. ZRU-692, adopted June 4, 2021).
Public Procurement Law (ZRU-684, adopted April 22, 2021).
Environmental Audit Law (ZRU-678, adopted March 15, 2021).
Audit Law (ZRU-677, adopted February 25, 2021).
International Commercial Arbitration Law (ZRU-674, adopted February 16, 2021).
Presidential Decree on Measures to Regulate the Cotton and Textile Clusters (UP-14, adopted November 16, 2021).
Presidential Decree on Measures to Stimulate Geological Exploration and on the Taxation of Subsoil Users (UP-6319, adopted October 6, 2021).
Presidential Decree on Measures to Reduce the Administrative and Tax Burden for Businesses and Improve the Protecting of their Legitimate Interests (UP-6314, adopted September 15, 2021).
Presidential Decree on Measures to Improve Contractual Relations (UP-6313, adopted September 14, 2021).
Presidential Decree on the Simplification of Customs Procedures (UP-6310, adopted September 10, 2021).
Presidential Decree on Improving the Tax Administration for Businesses (UP-6307, adopted September 07, 2021).
Presidential Decree on Measures to Stimulate Exporting Enterprises (UP-6306, adopted September 7, 2021).
Presidential Decree on Measures to Ensure Transparency in Land Relations, Reliable Protection of Land Rights and Their Transformation Into a Market Asset (UP-6243, adopted June 8, 2021).
Presidential Decree on Measures for Capital Market Development (UP-6207, adopted April 13. 2021).
Presidential Decree on Measures to Improve Public Services for Businesses (UP-6191, adopted March 23, 2021).
Presidential Decree on Measures to Accelerate the Privatization of State Assets (UP-6167, adopted February 11, 2021).
As of now, there is no real “one-stop-shop” website for investors that provides relevant laws, rules, procedures, and reporting requirements in Uzbekistan. In December 2018, the GOU created a specialized web portal for investors called Invest Uz (http://invest.gov.uz/en/), which provides some useful information. The website of the Ministry of Investments and Foreign Trade (http://mift.uz/) offers some general information on laws and procedures, but mainly in the Uzbek and Russian languages.
Competition and Antitrust Laws
Competition and anti-trust legislation in Uzbekistan is governed by the Law on Competition (ZRU-319, issued January 6, 2012, and last revised in 2019). The main entity that reviews transactions for competition-related concerns is the State Antimonopoly Committee (established in January 2019). This government agency is responsible for advancing competition, controlling the activities of natural monopolies, protecting consumer rights, and regulating the advertisement market. There were no significant competition-related cases involving foreign investors in 2021.
Expropriation and Compensation
Private property is protected against baseless expropriation by legislation, including the Law on Investments and Investment Activities and the Law on Guarantees of the Freedoms of Entrepreneurial Activity. Despite these protections, however, the government potentially may seize foreign investors’ assets due to violations of the law or for arbitrary reasons, such as a unilateral revision of an investment agreement, a reapportionment of the equity shares in an existing joint venture with an SOE, or in support of a public works or social improvement project (similar to an eminent domain taking). By law, the government is obligated to provide fair market compensation for seized property, but many who have lost property allege the compensation has been significantly below fair market value.
Uzbekistan has a history of expropriations. Profitable, high-profile foreign businesses have been at greater risk for expropriation, but smaller companies are also vulnerable. Under the previous administration, large companies with foreign capital in the food processing, mining, retail, and telecommunications sectors 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. However, in most cases the private property was expropriated based upon court decisions after the owners were convicted for breach of contract, failure to complete investment commitments, or other violations, making them ineligible to claim compensation.
Decisions of Uzbekistan’s Economic Court on expropriation of private property can be appealed to the Supreme Court of the Republic of Uzbekistan in accordance with the Economic Procedural Code or other applicable local law. Reviews usually are quite slow. Some foreign investors have characterized the process as unpredictable, non-transparent, and lacking due process.
There were several cases in recent years when the government imposed excessive import controls for the supplies of enterprises with foreign investment, which were alleged to be measures applied for indirect expropriation.
ICSID Convention and New York Convention
Uzbekistan is a member of the International Center for the Settlement of Investment Disputes (ICSID) and a signatory to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
By law, foreign arbitral awards or other acts issued by a foreign country can be recognized and enforced if Uzbekistan has a relevant bilateral or multilateral agreement with that country. According to the new Law on International Commercial Arbitration, the arbitral award, regardless of the country in which it was made, is recognized as binding, and must be enforced upon submission of a written application. Implementation of the law shall be in full compliance with existing bilateral agreements of Uzbekistan with foreign states and multilateral agreements.
Investor-State Dispute Settlement
Dispute settlement methods are regulated by the Economic Procedural Code, the Law on Arbitration Courts, and the Law on Contractual Basics of Activities of Commercial Enterprises. The Law on Guarantees to Foreign Investors and Protection of their Rights requires that involved parties settle foreign investment disputes using the methods they define themselves, generally in terms predefined in an investment agreement. Investors are entitled to use any international dispute settlement mechanism specified in their contracts and agreements with local partners, and these agreements should define the methods of settlement.
The Law on Guarantees to Foreign Investors and Protection of their Rights permits resolution of investment disputes in line with the rules and procedures of the international treaties to which Uzbekistan is a signatory, including the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the 1992 CIS Agreement on Procedure for Settling Disputes Arising Out of Business Activity, and other bilateral legal assistance agreements with individual countries. Currently there is no such bilateral treaty that covers U.S. citizens.
If the parties fail to specify an international mechanism, Uzbekistan’s economic courts can settle commercial disputes arising between local and foreign businesses. The economic courts have subordinate regional and city courts. Complainants may seek recognition and enforcement of foreign arbitral awards pursuant to the New York Convention through the economic courts. When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling.
Currently Uzbekistan does not have a ratified Bilateral Investment Treaty (BIT) or a Free Trade Agreement (FTA) with an investment chapter with the United States. The governments of the United States and Uzbekistan signed a BIT in 1994, but ratification documents have not been exchanged and the agreement never entered into force.
Since President Mirziyoyev came to power, investment disputes have been more limited in scope, but still exist:
1) A chemical company in partnership with a SOE alleged that the SOE breached its contract obligations and violated Uzbekistani law by withholding dividends, intending to create leverage to buy out the U.S. investor at a reduced price. The U.S. firm has stated it is willing to leave, as long as it earns a reasonable return on its investment.
2) A U.S.-owned agricultural firm reported its farmland, on which it held a 99-year lease, had been illegally reassigned to other agricultural producers by the local government. Post assisted the company in raising its complaints to the attention of the Presidential Administration and the Supreme Court. After being unable to resolve its problems, the management is now considering selling the company.
3) An invoice on a refinery remains unpaid, following the suspension of work on the project, despite the U.S. firm’s claim that itpassed the contractual threshold for work provided that would require payment.
Post is aware of a number of cases of commercial or investment disputes involving foreign investors which occurred nearly a decade ago. These have included alleged asset seizures, expropriations, or liquidations; lengthy forced production stoppages; pressure to sell off foreign shares in joint ventures; and failure to honor contractual obligations. These cases have involved a variety of sectors, including food production, mining, telecommunications, agriculture, and chemicals. Although government actions in such cases have been taken under the guise of law enforcement, some observers have claimed more arbitrary or extralegal motives were at play.
In September 2012, the Tashkent City Criminal Court seized the assets of a cellular telecom provider for financial crimes. An appeals court reversed this decision in November 2012 but upheld the $600 million in fines imposed. The company wrote off its total assets in Uzbekistan of $1.1 billion and left the market. In 2013, the government transferred all of the company’s assets to a state-owned telecom operator after twice trying unsuccessfully to liquidate them. In 2014, the company dropped legal proceedings against Uzbekistan and signed a settlement.
In October 2011, the government halted the production and distribution operations of a brewery during a dispute over alleged tax violations. The interruption of business lasted 18 months before the company re-opened.
Earlier in 2011, the government liquidated the Amantaytau Goldfields, a 50-50 joint venture of a British company and an Uzbekistani state mining company.
In March 2011, government authorities also seized a large chain grocery store and approximately 50 smaller companies owned by Turkish investors.
By the Law on International Commercial Arbitration, which entered into force in August 2021, foreign arbitral awards, including those issued against the government, regardless of the country in which it was made, are recognized as binding, and must be enforced upon written application to the court. Foreign arbitral awards or other acts issued by a foreign country also can be recognized and enforced if Uzbekistan has a relevant bilateral or multilateral agreement with that country. If international arbitration is permitted, awards can be challenged in domestic courts.
Although in many cases investor-state disputes in Uzbekistan were associated with immediate asset freezes, almost all of them were followed by formal legal proceedings.
International Commercial Arbitration and Foreign Courts
Alternative dispute resolution institutions of Uzbekistan include arbitration courts (also known as Third-Party Courts), and specialized arbitration commissions. Businesses and individuals can apply to arbitration courts only if they have a relevant dispute-settlement clause in their contract or a separate arbitration agreement. The Civil Procedural Code and the Commercial Procedural Code also have provisions that regulate arbitration. The Law on International Commercial Arbitration, drafted in late 2018 entered into force in August 2021. It states that contractual and non-contractual commercial disputes can be referred to international commercial arbitration by agreement of the parties. The parties can determine the number of arbitrators and the language or languages that can be used in the arbitration. The interim measure prescribed by the arbitration court shall be recognized as binding. The award must be made in writing.
The main domestic arbitration body is the Arbitration Court. General provisions of the Law on Arbitration Courts are based on principles of the UNCITRAL model law, but with some national specifics – namely that Uzbekistani arbitration courts cannot make reference to non-Uzbekistani laws. According to the Law, parties of a dispute can choose their own arbiter and the arbiter in turn choses a chair. The decisions of these courts are binding. The Law says that executive or legislative bodies, as well as other state agencies, are barred from creating arbitration courts and cannot be a party to arbitration proceedings. Either party to the dispute can appeal the verdict of the Arbitration Court to the general court system within thirty days of the verdict. Separate arbitration courts are also available for civil cases, and their decisions can be appealed in the general court system. Arbitration courts do not review cases involving administrative and labor/employment disputes.
The Tashkent International Arbitration Center (TIAC) under the Chamber of Commerce and Industry of Uzbekistan was created in late 2019 as a non-governmental non-profit organization. The main function of this organization is to facilitate dispute resolution for businesses, including foreign investors. The Center may employ qualified arbitration lawyers, both local and foreign. The Center has the right to resolve disputes through mediation or other alternative methods permitted by the law.
The Law on International Commercial Arbitration was approved by Parliament in 2020, signed by the president in February 2021, and entered into force in August 2021 (ZRU-674). According to the law, the arbitral award, regardless of the country in which it was made, is recognized as binding, and must be enforced upon submission of a written application. Implementation of the law shall be in full compliance with existing bilateral and multilateral agreements of Uzbekistan with foreign states.
Most investment disputes involving Uzbekistan’s state-owned enterprises (SOEs) that were brought into Uzbekistan’s have either been decided in favor of the SOEs or have been settled out of court. When the court decides in favor of a foreign investor, the Ministry of Justice is responsible for enforcing the ruling. In some cases, the Ministry’s authority is limited and co-opted by other elements within the government. Judgments against SOEs have proven particularly difficult to enforce.
The Law on Bankruptcy regulates bankruptcy procedures. Creditors can participate in liquidation or reorganization of a debtor only in the form of a creditor’s committee. According to the Law on Bankruptcy and the Labor Code, an enterprise may claim exemption from paying property and land taxes, as well as fines and penalties for back taxes and other mandatory payments, for the entire period of the liquidation proceedings. Monetary judgments are usually made in local currency. Bankruptcy itself is not criminalized, but in August 2013, the GOU introduced new legislation on false bankruptcy, non-disclosure of bankruptcy, and premeditated bankruptcy cases.
In 2021, the GOU and Parliament conducted a legislative review of the procedures for bringing economically bankrupt enterprises out of the financial crisis and decided that they were not effective. Therefore, a new draft Law on Insolvency was prepared to replace the Law on Bankruptcy. The new act should address all controversial issues of current bankruptcy legislation. The draft law is in the process of public review.
All investment incentives to foreign investors are regulated by national level legislation, which can be adopted only by the president. Regional and local governments have limited authorities to offer any additional preferences. Exceptions can be made for tax incentives granted by special government resolutions or presidential decrees. By the new Tax Code, the GOU may provide holidays for land taxes, property taxes and water use taxes to some companies with foreign direct investments on a case-by-case basis. In 2021, the GOU initiated various programs to support businesses owned by underrepresented investors as part of efforts to reduce and unemployment. The programs included government sponsored business and financial literacy trainings and co-financing of startups. About $95 million of budget funds were allocated to only women’s startups in 2021. This program, however, cannot be used to support foreign underrepresented investors.
The Law on Investments and Investment Activities (ZRU-598, December 25, 2019) provides a range of general guarantees to foreign investors, including protection against illegal interference of local authorities in their activities, protects from any discrimination or unjustified nationalization, and ensures the right to use, transfer and repatriate funds and capital. The law also provides guarantees the protection of investors from any business environment deterioration due to legislation changes. (https://investmentpolicy.unctad.org/investment-laws/laws/328/uzbekistan-the-law-on-investments-and-investment-activity).
In some cases, the GOU may issue investment guarantees to certain foreign or local investors if, it finds the project worthy of such support. The current legislation also allows the GOU to provide joint financing of FDI funded projects. Such joint financing can be provided under public-private-partnership (PPP) agreement framework, or through involvement of the Uzbekistan Direct Investments Fund and the Fund for Reconstruction and Development of Uzbekistan. In all cases, however, a special GOU resolution is required.
The GOU set an ambitious goal to raise the share of renewable energy generation to 25 percent by 2030. To stimulate private investors, the Parliament approved the Law on Renewable Energy (ZRU-539, May 21, 2019). It provides a range of tax and other incentives for renewable energy sector businesses. By the law, specialized equipment producers get five-year relief from paying all taxes beginning from the date of registering the entity. Renewable energy producers get ten-year relief from paying property and land tax (allied only for energy generation facilities with a nominal power of 0.1 MW and above). Individuals that invest in renewable energy also may enjoy three-year property and land tax relief for the facility equipped with energy generators. Private investors also have the preferential right to sell the energy to state-owned companies at a negotiated price.
Foreign Trade Zones/Free Ports/Trade Facilitation
The first law on free economic zones in Uzbekistan appeared in 1996. After dozens of modifications, in February 2020 it was finally replaced by the Law on Special Economic Zones (SEZ) (ZRU-604), which entered into force May 19, 2020 (the text is available in English: https://lex.uz/docs/4821319). The law provides the following classification of special economic zones:
Free Economic Zone (FEZ) – territory allocated for the construction of new high-tech, competitive, import-substituting, and export-oriented industrial production capacities, and for development of industrial, engineering, telecommunications, road, and social infrastructure, as well as appropriate logistics services.
Special Scientific and Technological Zone – territory allocated for the development of innovation infrastructure by scientific and science-related organizations, including technology parks, technology distribution/transfer centers, innovation clusters, venture funds, and business incubators.
Tourist-Recreational Zone – territory allocated for tourism infrastructure development investment projects, including construction of hotels, cultural and recreational facilities, and functional and seasonal recreation areas.
Free Trade Zones – territories for consignment warehouses, areas of special customs and tax regimes, facilities at border crossing points for processing, packing, sorting, storing goods, airports, railway stations or other custom control sites.
Special Industrial Zone – territory with special economic and financial regulations of production and logistical business activities.
According to the new Law of SEZ (Article 39) and the Tax Code (Article 473), investors to special economic zones of Uzbekistan may expect:
Holidays for paying property taxes, land taxes and taxes for the use of water resources. The term of the holiday shall be determined by a separate presidential resolution depending on the size of investments. Such tax holidays can be applied only to business activities stipulated in the relevant investment agreement with administration of a special economic zone. Participants of special economic zones also may get some VAT exemptions and other tax benefits.
Exemption from paying customs payments (except for value added tax and customs clearance fees) for construction materials that cannot be sourced locally; technological equipment that cannot be sourced locally, raw materials, materials and components used to produce export-oriented output.
The following activities are prohibited within the SEZs:
Businesses that violate environmental and labor protection standards.
Businesses related to weapons and ammunition.
Businesses related to nuclear materials and radioactive substances.
Production of alcohol and tobacco products.
Rawhide processing, livestock corrals, or slaughter of animals.
Production of cement, concrete, cement clinker, bricks, reinforced concrete slabs, coal, lime and gypsum products.
Processing, decomposition, incineration, gasification, chemical treatment, final or temporary storage or burial underground of all types of waste.
Placement of oil refineries, nuclear power plants, nuclear installations, or radiation sources, or points and installations designed for storage, disposal, and processing of nuclear fuel, radioactive substances, and waste, as well as other radioactive waste.
The first Free Industrial and Economic Zone (FIEZ) was created in 2008 in the Navoi region. By the end of 2021, the GOU had created 23 large and about 350 small industrial zones, which created nearly 40,000 jobs and attracted over $470 million of investments.
Performance and Data Localization Requirements
The government welcomes foreign investors mainly in the areas of localization, building local production capacities, and developing export potential. To support local producers, the GOU introduced a rule (GOU Resolution PKM-41, adopted January 29, 2021), which says import contracts of enterprises and joint ventures with at least a 50% state share exceeding 50,000 BCRs ($1,244,240 as of March 2022) are subject to mandatory review by the supervisory boards of these entities on a quarterly basis. The government also bans import of 529 categories of goods and certain services through public procurement processes. The basis for inclusion of items to the list was the presence of two or more domestic suppliers of similar goods and services. It currently includes food products, construction materials, fertilizers, industrial products, textile and clothing products, footwear and leather goods, furniture, household goods, household electrical appliances, vehicles, paper and cellulose products, and medical products. The GOU also has established a procedure for public procurement of these imported goods through the website of the Center for Electronic Cooperation Portal under the Ministry of Economic Development and Poverty Reduction.
Uzbekistan’s legislation stipulates that the government must apply requirements to use domestic inputs in manufacturing uniformly to enterprises with domestic and foreign investments, but in practice, this is not always the case. There are no requirements for using only local sources of financing.
To qualify as an enterprise or business with foreign investment and be eligible for tax and other incentives, the share of foreign investment must be at least 15% of the charter capital of a company. The investment must consist of hard currency or new equipment, delivered within one year of registering the enterprise. The minimum requirements for charter capital for incentives (except financial institutions) is 400 million s’om (about $37,000 as of March 2022).
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.
The GOU requires localization of personal data storage in line with the Law on Personal Data (ZRU-547), adopted July 2, 2019. Per the law, large internet companies like Facebook, Google, and Russian search engine Yandex are encouraged to move their server equipment with local users’ personal data to the territory of Uzbekistan. According to the law, the GOU may block services in the country in the event of non-compliance.
As of now, the legislation of Uzbekistan prevents or restrict companies from freely transmitting customer or other business-related data outside the country.
Transfers of technology or proprietary information are not required by the law and can be the subject of an agreement between the foreign investor and its local partner.
5. Protection of Property Rights
Property ownership is governed by the Law on Protection of Private Property and Guarantees of the Owner’s Rights. Uzbekistani and foreign entities may own or lease buildings, but not the underlying land. Mortgages are available for local individuals only, but not for legal entities. There are no mortgage lien securities in Uzbekistan.
The new Law on Privatization of Non-agricultural Land Plots (ZRU-522, August 13, 2019) allows private land ownership for plots that do not fall under the definition of agricultural land by the Land Code of Uzbekistan. Land ownership is granted only to entities and individuals who are residents of Uzbekistan. Foreign citizens and entities do not have land property rights in Uzbekistan. Effective March 1, 2020, Uzbekistan residents can privatize:
Land plots of entities, on which their buildings, structures and industrial infrastructure facilities are located, as well as the land extensions necessary for their business activities;
Land plots provided to citizens for individual housing construction and maintenance;
Unoccupied land plots;
Land plots allocated to the Urban Development Fund under the Ministry of Economy and Industry.
The following types of land cannot be privatized:
Land plots located in territories that are not covered by officially documented layout plans.
Land plots that contain mineral deposits or state property of strategic importance. The list of such land plots shall be specified by appropriate legislation.
Land plots reserved for environmental, recreational, and historical-cultural purposes, state owned land and water resources, and public areas of cities and towns (e.g. squares, streets, roads, boulevards).
Land plots affected by hazardous substances or susceptible to biogenic contamination.
Land plots provided to residents of special economic zones.
However, according to Article 55 of Uzbekistan’s Constitution, the land, its subsoil, waters, flora and fauna and other natural resources are national wealth, subject to rational use and are protected by the state. The Land Code also states that the land is state property (Article 16). Contradictions in the legislation are still to be resolved.
Land privatization is a new concept for Uzbekistan. All agricultural land in Uzbekistan is still owned by the state. As of March 1, 2020, a new law on privatization allows for the privatization of non-agricultural land plots.
Legislation governing the acquisition and disposition of immoveable property (buildings and facilities) poses relatively few problems for foreign investors and is similar to laws in other CIS countries. Immoveable property ownership is generally respected by local and central authorities. District governments have departments responsible for managing commercial real estate issues, ranging from valuations to sale and purchase of immoveable property. Legally purchased but unoccupied immoveable property can be nationalized for several reasons, including by an enforcement process of a court decision, seizure for past due debts on utility or communal services, debts for property taxes, and, in some cases, for security considerations. Unauthorized takeover of unoccupied immoveable property by other private owners (squatters) is not a common practice in Uzbekistan. Usually, authorities inspect the legitimacy of immoveable property ownership at least once every year.
Intellectual Property Rights
While the concept of registering intellectual property (IP) is still new to Uzbekistan, the GOU recognizes intellectual property rights (IPR) protections as critical to its economic goals. As Uzbekistan prepares for accession to the World Trade Organization (WTO), its leaders have demonstrated a significant political shift towards improved IPR protections. In 2018 and 2019, Uzbekistan completed accession to the Geneva Phonograms Convention and two WIPO Internet Treaties. Responsibility for IPR issues lies with the formerly independent Uzbekistan Agency for Intellectual Property (AIP), which was subsumed under the Ministry of Justice (MOJ) (AIP, http://www.ima.uz/) in February 2019.
Uzbekistan’s 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. Uzbekistan also introduced several amendments to IPR law, as well as amendments to civil and criminal codes meant to enforce stricter punishment for IPR violations.
Uzbekistan’s patent protections are generally sufficient, but enforcement remains one of the biggest IP challenges. Foreign companies face obstacles proving IP violations and receiving compensation for losses sustained due to violations. IP violators are rarely obligated to cease infringing activities or pay meaningful penalties. AIP lacks any kind of enforcement power, as does the MOJ. Enforcement is weak across different kinds of IP. Copyright cases are almost never brought before the Antimonopoly Committee (the body responsible for responding to IP complaints) because companies make the decision that the cost of fighting copyright violations outweighs the benefits. Trademark cases often take years to settle in the courts, driving up costs and consuming time and resources. For companies who cannot meet the demands of a multiyear court battle it becomes cost prohibitive to pursue action to protect their IP.
While Uzbekistan took important steps in 2018-2021 to address longstanding issues pertaining to IPR, there remain serious deficiencies in trademark and copyright protections, judicial processes related to IPR, and enforcement of actions against IPR violations and violators.
On January 28, 2021, President Mirziyoyev signed a Resolution on Measures to Improve the Objects of Intellectual Property (PR-4965). It ordered to set a network of Intellectual Property Protection Centers throughout the country to ensure enforcement of IPR legislation in all regions. Currently the Centers operate in cooperation with local tax, customs, and law enforcement agencies. In 2021, they identified over 3,000 counterfeit products in domestic markets. On January 13, 2022, Uzbekistan joined the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired, or Otherwise Print Disabled. On December 26, 2018, Uzbekistan adopted a law to accede to the Geneva Phonograms Convention. The GOU forwarded signed copies of the law to WIPO and the UN, thus completing the formal ratification of these conventions. Later, on February 16, 2019, the President approved adoption of two bills into the law for Uzbekistan to accede to the WIPO Copyright Treaty and the WIPO Performance and Phonograms Treaty (“Internet Treaties”). Currently Uzbekistan is in the process of accession to other international treaties and agreements, including the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (Rome, October 26, 1961); Singapore Treaty on the Law of Trademarks (Singapore, March 27, 2006); and Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs (Geneva, July 2, 1999).
The GOU is working on amendments to national legislation to bring it in line with the requirements of the IPR Treaties. These measures represent the necessary short-term actions for Uzbekistan to maintain its benefits under the U.S. Generalized System of Preferences (GSP). The full list of IPR-related international agreements/treaties that Uzbekistan has acceded to is available here: https://wipolex.wipo.int/en/legislation/profile/UZ.
In April 2018, the GOU provided greater authority to a new Inspectorate under the Ministry of Information Technologies and Communications to monitor compliance and enforce copyright protections on the internet.
There are no publicly available reports on seizures of counterfeit goods. According to the report provided by the AIP, in 2021, local authorities initiated four criminal and 140 administrative cases on IPR violations; issued about 900 warnings to retailers and identified over 3,000 types of new counterfeit goods. Fifteen cases involved the violation of U.S. companies’ trademark rights. These included Subway, Amazon, Burger King, Apple, KFC, Snickers, Colgate, and Starbucks. All these cases are subject to litigation. The Board of Appeal (as a pre-trial body for IPR disputes) under the Ministry of Justice reviewed 108 cases, including several filed by U.S. companies Colgate-Palmolive Company, British American Tobacco Inc., Energy Beverages LLC., Under Armor Inc., D Delta Hotels Marriott, Apple Inc., and Emerson. The agency also recorded production and sale of counterfeit products branded as Nike, iPhone, Puma, Head & Shoulders, and Tommy Hilfiger.
Under current Uzbekistani law, the court considers copyright infringement cases only after the copyright holder submits a claim of damages. Similarly, for imported products, customs officials do not have an ex-officio function, and the onus is on the rights holder to initiate an action against a suspected infringer. The Prosecutor General’s Office (PGO) has the authority to both penalize violators and order them to desist from producing, marketing, or selling infringing goods, but few cases ever make it to the PGO. The burden of proving an IP violation is so high that most cases never leave the Antimonopoly Committee or the administrative court system. While these cases are stalled in the court system, infringing companies may continue to operate without restrictions.
Uzbekistan has been on the Watch List of the U.S. Trade Representative’s (USTR) Special 301 Report since 2000. The political will to improve IPR protection seems to exist at the highest levels of the government, but effective enforcement policies are still not in place.
The country is not listed in USTR’s 2021 Review of Notorious Markets for Counterfeiting and Piracy.
Prior to 2017, the government focused on investors capable of providing technology transfers and employment in local industries and had not prioritized attraction of portfolio investments. The first plans to improve the capital market and use stock market instruments to meet its economic development goals were announced in 2017. In April 2021, the government created a Department for Capital Market Development under the Ministry of Finance. Currently the Department is drafting the Law on Capital Market. The U.S. Government is supporting the Ministry of Finance through a technical assistance program led by the U.S. Department of the Treasury.
Uzbekistan has its own stock market, which supports trades through the Republican Stock Exchange “Tashkent,” Uzbekistan’s main securities trading platform and only corporate securities exchange (https://www.uzse.uz). The stock exchange mainly hosts equity and secondary market transactions with shares of state-owned enterprises. In most cases, government agencies determine who can buy and sell shares and at what prices, and it is often impossible to locate accurate financial reports for traded companies.
Uzbekistan formally accepted IMF Article VIII in October 2003, but due to excessive protectionist measures of the government, businesses had limited access to foreign currency, which stimulated the grey economy and the creation of multiple exchange rate systems. Effective September 5, 2017, the GOU eliminated the difference between the artificially low official rate and the black-market exchange rate and allowed unlimited non-cash foreign exchange transactions for businesses. The Law on Currency Regulation (ZRU-573 of October 22, 2019) fully liberalized currency operations, current cross-border, and capital movement transactions.
In 2019, the GOU considerably simplified repatriation of capital invested in Uzbekistan’s industrial assets, securities, and stock market profits. According to the law (ZRU-531), foreign investors that have resident entities in Uzbekistan can convert their dividends and other incomes to foreign currencies and transfer them to their accounts in foreign banks. Non-resident entities that buy and sell shares of local companies can open bank accounts in Uzbekistan to accumulate their revenues.
Under the law, foreign investors and private sector businesses can have access to various credit instruments on the local market, but the still-overregulated financial system yields unreliable credit terms. Access to foreign banks is limited and is usually only granted through their joint ventures with local banks. Commercial banks, to a limited degree, can use credit lines from international financial institutions to finance small and medium sized businesses.
Money and Banking System
As of January 2022, 33 commercial banks operate in Uzbekistan. 10 commercial banks are state-owned, 22 banks are registered as joint-stock financial organizations (eight of which are partly state-owned), seven banks have foreign capital, and five banks are private. Commercial banks have 887 branches and a network of exchange offices and ATMs throughout the country. State-owned banks hold 81.5% of banking sector capital and 84% of banking sector assets, leaving privately owned banks as relatively small niche players. The nonbanking sector is represented by 72 microcredit organizations and 73 pawn shops.
In May 2020, President Mirziyoyev approved a five-year strategy for reformation of the banking sector to address existing weaknesses of the banking sector, such as excessive share of state assets, insufficient competition, poor quality of corporate governance and banking services in comparison with best international standards, as well as a relatively low penetration of modern global technologies. The goal of the strategy is to reduce the state share in the sector from the current 84% to 40% and to increase the market share of the non-banking sector from current 0.35% to 4%. By 2025 the government plans to privatize its shares in six banks and facilitate modernization of banking services in remaining state-owned banks.
According to assessments of international rating agencies, including Fitch and Moody’s, the banking sector of Uzbekistan is stable and poses limited near-term risks, primarily due to high concentration and domination of the public sector, which controls over 80% of assets in the banking system. The average rate of capital adequacy within the system is 17%, and the current liquidity rate is 98%. The growing volume of state-led investments in the economy supports the stability of larger commercial banks, which often operate as agents of the government in implementing its development strategy. Fitch Ratings notes, however, that the banking sector faces increasing asset-quality risks due to rapid lending growth, high balance-sheet dollarization, and an increased reliance on external funding. Privately owned commercial banks are relatively small niche players. The government and the Central Bank of Uzbekistan (CBU) still closely monitor commercial banks.
According to the Central Bank of Uzbekistan, the share of nonperforming loans out of total gross loans is 5.2% (as of January 1, 2022). The average share of nonperforming loans in state-owned banks is 5.4% and 4.1% in private banks. A majority of Uzbekistan’s commercial banks have earned “stable” ratings from international rating agencies. In July 2021, Moody’s Investors Service took rating actions on 14 banks following the change of outlook on the GOU’s B1 long-term issuer rating to positive from stable and upward revision of the banking system’s Macro Profile to “Weak-” from “Very Weak+” given the improving operating conditions in the country.
As of January 1, 2022, the banking sector’s capitalization was about $6.6 billion, and the value of total bank assets in the whole country was equivalent to about $41 billion. The three largest state-owned banks – the National Bank of Uzbekistan, Asaka Bank, and Uzpromstroybank – hold 41% of the banking sector’s capital ($2.7 billion) and 44.3% of the assets ($18.3 billion).
Uzbekistan maintains a central bank system. The Central Bank of Uzbekistan (CBU) is the state issuing and reserve bank and central monetary authority. The bank is accountable to the Supreme Council of Uzbekistan and is independent of the executive bodies (the bank’s organization chart is available here: http://www.cbu.uz/en/).
In general, any banking activity in Uzbekistan is subject to licensing and regulation by the Central Bank of Uzbekistan. Foreign banks often feel pressured to establish joint ventures with local financial institutions. Currently there are seven banks with foreign capital operating in the market, and seven foreign banks have accredited representative offices in Uzbekistan, but do not provide direct services to local businesses and individuals. Information about the status of Uzbekistan’s correspondent banking relationships is not publicly available.
Foreigners and foreign investors can establish bank accounts in local banks without restrictions. They also have access to local credit, although the terms and interest rates do not represent a competitive or realistic source of financing.
Foreign Exchange and Remittances
Uzbekistan adopted Article VIII of the IMF’s Articles of Agreement in October 2003, but full implementation of its obligations under this article began only in September 2017. In accordance with new legislation (ZRU 531 of March 2019 and ZRU-573 of October 2019), all businesses, including foreign investors, are guaranteed the ability to convert their dividends and other incomes in local currencies to foreign currencies and transfer to foreign bank accounts for current cross-border, dividend payments, or capital repatriation transactions without limitations, provided they have paid all taxes and other financial obligations in compliance with local legislation. Uzbekistan authorities may stop the repatriation of a foreign investor’s funds in cases of insolvency and bankruptcy, criminal acts by the foreign investor, or when so directed by arbitration or a court decision.
The exchange rate is determined by the CBU, which insists that it is based on free market forces (10,850 s’om per one U.S dollar as of March 2022). On February 15, 2021, trade sessions at the local FX Exchange transferred from the previous “fixing” methods to the combination of “call auction” and bilateral continuous auctions (“matching”). The CBU publishes the official exchange rate of foreign currencies at 16:00 every business day for accounting, statistical and other reporting purposes, as well as for the calculation of customs and other mandatory payments in the territory of Uzbekistan.
After the almost 50% devaluation of the national currency in September 2017, the exchange rate had been relatively stable in 2018 with an average of 2.4% annual devaluation. In 2019, the devaluation of s’om accelerated to 14%, although the CBU reported it had made $3.6 billion in interventions in the forex market to support the local currency. In 2020, annual devaluation was held below 10%, and was only 3.4% in 2021. The local currency’s relative stability in 2021 was supported by increased external revenues (exports and remittances) and strong FX reserves ($35.1 billion by January 1, 2022).
President Mirziyoyev launched foreign exchange liberalization reform in September 2017 by issuing a decree “On Priority Measures for Liberalization of Monetary Policy.” The Law on Currency Regulation (ZRU-573), adopted on October 22, 2019, has liberalized currency exchange operations, current cross-border, and capital movement transactions. Business entities can purchase foreign currency in commercial banks without restrictions for current international transactions, including import of goods, works and services, repatriation of profits, repayment of loans, payment of travel expenses and other transfers of a non-trade nature.
Banking regulations mandate that the currency conversion process should take no longer than one week. In 2021, businesses reported that they observed no delays with conversion and remittance of their investment returns, including dividends; return on investment, interest and principal on private foreign debt; lease payments; royalties; and management fees.
Sovereign Wealth Funds
The Fund for Reconstruction and Development of Uzbekistan (UFRD) serves as a sovereign wealth fund. Uzbekistan’s Cabinet of Ministers, Ministry of Finance, and the five largest state-owned banks were instrumental in establishing the UFRD, and all those institutions have membership on its Board of Directors.
The fund does not follow the voluntary code of good practices known as the Santiago Principles, and Uzbekistan does not participate in the IMF-hosted International Working Group on sovereign wealth funds. The GOU established the UFRD in 2006, using it to sterilize and accumulate foreign exchange revenues, but officially the goal of the UFRD is to provide government-guaranteed loans and equity investments to strategic sectors of the domestic economy.
The UFRD does not invest, but instead provides debt financing to SOEs for modernization and technical upgrade projects in sectors that are strategically important for Uzbekistan’s economy. All UFRD loans require government approval.
7. State-Owned Enterprises
State-owned enterprises (SOEs) dominate those sectors of the economy recognized by the government as being of national strategic interest. These include energy (power generation and transmission, and oil and gas refining, transportation, and distribution), metallurgy, mining (ferrous and non-ferrous metals and uranium), telecommunications (fixed telephony and data transmission), machinery (the automotive industry, locomotive and aircraft production and repair), and transportation (airlines and railways). Most SOEs register as joint-stock companies, and a minority share in these companies usually belongs to employees or private enterprises. Although SOEs have independent boards of directors, they must consult with the government before making significant business decisions.
The government owns majority or blocking minority shares in numerous non-state entities, ensuring substantial control over their operations, as it retains the authority to regulate and control the activities and transactions of any company in which it owns shares. The Agency for Management of State-owned Assets is responsible for management of Uzbekistan’s state-owned assets, both those located in the country and abroad. There are no publicly available statistics with the exact number of wholly and majority state-owned enterprises, the number of people employed, or their contribution to the GDP. According to some official reports and fragmented statistics, there are over 3,500 SOEs in Uzbekistan, including 27 large enterprises and holding companies, about 2,900 unitary enterprises, and 486 joint stock companies, which employ about 1.5-1.7 million people, or about 13% of all domestically employed population. In 2021, the share of SOEs in the GDP was about 55%, and taxes paid by the ten largest SOEs contributed about 40% of total state budget revenues.
By law, SOEs are obligated to operate under the same tax and regulatory environment as private businesses. In practice, however, private enterprises do not enjoy the same terms and conditions.
In certain sectors, private businesses have limited access to commodities, infrastructure, and utilities due to legislation or licensing restrictions. They also face more than the usual number of bureaucratic hurdles if they compete with the government or government-controlled firms. Most SOEs have a range of advantages, including various tax holidays, as well as better access to commodities, energy and utility supplies, local and external markets, and financing. There are cases when gaps in the legislation are used to ignore the rights of private shareholders (including minority shareholders and holders of privileged shares) in joint stock companies with a state share.
An April 2021 IMF Staff Report concluded that SOEs absorbed disproportionate shares of skilled labor, energy, and financial resources, while facing weak competition enforcement and enjoying a wealth of investment preferences. The GOU has officially recognized the problem. President Mirziyoyev said strong involvement of the state in the fuel and energy, petrochemical, chemical, transport, and banking sectors was hampering their development. In 2020, he issued several decrees and resolutions to improve the competition environment and reduce the dominance of SOEs in the economy. New legislation has strengthened the role of the Anti-Monopoly Committee, overturned over 600 obstructing laws and regulations, abolished 70 (out of 266) types of licenses and 35 (out of 140) permits for various types of businesses. The Presidential decree on SOE reformation and privatization (adopted October 27, 2020) orders 32 large SOEs to optimize and transform their corporate structure, 39 SOEs to introduce advanced corporate governance and financial audit systems, the privatization of state-owned shares in 541 enterprises through public auctions, and the sale of 15 public facilities to the private sector. The reform covers large SOEs in the energy, mining, telecommunications, transportation, construction, chemical, manufacturing, and other key industries. Another decree orders large-scale privatization in the banking sector. In 2020, the government started projects to privatize six state-owned banks in cooperation with international financial institutions. In addition to privatization efforts, the GOU intends to attract private investments to the public sector through promotion of public-private partnerships (PPP). The new law on PPP, adopted in 2019, and a number of follow-up regulations introduced in 2020, create a more favorable environment for such partnerships.
Implementation of this SOE optimization and reform program will likely take some time, as the GOU seeks to avoid high social costs, such as mass unemployment. The COVID-19 pandemic and global economic slowdown have almost stopped SOE reform. In September 2020, the IMF staff noted, “The crisis should not delay the reform of the state-owned banks and state-owned enterprises—including by improving their governance—and the agricultural sector. As the crisis abates, the authorities should also continue with reducing the role of the state in the economy, opening markets, and enhancing competition, and improving the business environment.” The IMF’s 2021 statement said: “After years of little progress, it is important to make a start [to reform the SOE sector]”.
GOU policy papers indicate it is prioritizing further privatization of state-owned assets. The GOU’s goal is to reduce the public share of capital in the banking sector and business entities through greater attraction of foreign direct investments, local private investments, and promotion of public-private partnerships.
The new public sector optimization policy was first announced in 2018. A special working group headed by the Prime Minister performed careful due diligence on about 3,000 enterprises with state shares and developed proposals for their reorganization and privatization. Based on the results, the GOU approved a program that covers over 620 SOEs in the energy, mining, telecommunications, transportation, construction, chemical, manufacturing, and other key industries. The program foresees privatization of 541 state-owned enterprises, six state-owned banks, and the sale of 15 public facilities to the private sector. In a longer-term perspective, the government plans to privatize over 1,115 SOEs and offer about 50 SOEs for public-private partnership projects. Companies that operate critical infrastructure and enterprises that qualify as companies of strategic importance will remain in full state ownership.
Senior government officials see privatization and public-private partnerships as a solution to improve the economic performance of inefficient large SOEs and as an instrument to attract private investments. They view such investments as critical for the creation of new jobs and mitigation of state budget deficits. The GOU believes it needs to prepare SOEs for privatization by introducing advanced corporate governance methods and restructuring the organization and finances of underperforming SOEs.
By law, privatization of non-strategic assets does not require government approval and can be cleared by local officials. Foreign investors are allowed to participate in privatization programs. For investors that privatize assets at preferential terms, the payment period is three years, and the investment commitment fulfillment term is five years. Large privatization deals with the involvement of foreign investment require GOU approval.
Privatization programs officially have a public bidding process. The legislation and regulations adopted in 2020 for acceleration of the privatization program are intended to ensure the transparency and fairness of the process, as well as facilitating greater involvement of international financial institutions and foreign experts as consultants. In the past, however, privatization procedures have been confusing, discriminatory, and non-transparent. Many investors note a lack of transparency at the final stage of the bidding process when the government negotiates directly with bidders before announcing the results. In some cases, the bidders have been foreign-registered front companies associated with influential Uzbekistani families. The State Assets Management Agency of Uzbekistan coordinates the privatization program (https://davaktiv.uz/en/privatization).
8. Responsible Business Conduct
There is no legislation on responsible business conduct (RBC) in Uzbekistan, and the concept has not been widely adopted, though many companies are active in charitable and corporate social responsibility activities, either through their own initiative or because they were mandated by local government officials.
Historically, the level of forced labor involved in the annual cotton harvest (September – November) was high, as citizens were pressed into service in the fields to meet government targets for cotton production. However, much has changed since President Mirziyoyev took office and the GOU has reversed course and worked hard to eradicate forced labor from the harvest and move away from Soviet-era cotton production targets. The International Labor Organization (ILO) coordinated Third-Party Monitoring and observed a sharp decrease in forced labor during the 2021 cotton harvest.
Efforts to eliminate trafficking in persons and forced labor leaped forward with the government’s February 2020 decision to end the state quota system for cotton. Dismantling the complex quota system required further development of the cluster system, first introduced in 2018 as a means to reduce forced labor. By the end of 2021, more than 96 clusters (privately operated, vertically integrated, cotton textile producing enterprises, including those with foreign capital) were registered in Uzbekistan and the percentage of land cultivated by or on behalf of private businesses grew considerably. With increased privatization of cotton production, the government ceded decisions about labor to private businesses.
Relevant government agencies and departments inspect both newly registering and operating local businesses and enterprises for enforcement of the Labor Code in respect to labor and employment rights; the Law on Protection of Consumer’s Rights for consumer protections; and the Law on Protection of Nature for environmental protections. Labor or environmental laws and regulations are not waived for enterprises with private and foreign investments.
Legislation, including the Law on Joint-Stock Companies and Protection of Shareholder’s Rights, issued in 1996 and last updated in 2018, sets a range of standards to protect the interests of minority shareholders. In 2018, the GOU approved corporate governance rules for SOEs. Their introduction is in progress.
The Law on the Securities Market requires businesses that issue securities (except government securities) to publish annual reports, which should include a summary of business activities for the previous year, financial statements with a copy of an independent audit, and material facts on the activities of the issuer during the corresponding period.
There are no independent NGOs, investment funds, worker organizations/unions, or business associations promoting or monitoring RBC in Uzbekistan. Some international organizations, like the Asian Development Bank, provide technical and advisory assistance to the government and local enterprises.
Uzbekistan adopted its Corporate Governance Code in 2015 as a voluntary requirement. The same year, the GOU set corporate governance requirements for joint-stock companies (Decree UP-4720).
At present, Uzbekistan does not adhere to the OECD guidelines regarding responsible supply chains of minerals from conflict-afflicted and high-risk areas, and there has been no substantial evidence to suggest the government encourages foreign and local businesses to follow generally accepted CSR principles such as the OECD Guidelines for Multinational Enterprises. Uzbekistan does not participate in the Extractive Industries Transparency Initiative (EITI).
Uzbekistan’s legislation prohibits the private security industry or use of private security companies within the country.
In recent years, the climate and natural capital monitoring strategies have taken a visible place in the GOU agenda although they are still at the stage of goal setting. In October 2019, President Mirziyoyev approved the Green Economy Transition Strategy for 2019-2030 (PP-4477). The Strategy is focused on improving energy efficiency of the basic sectors; diversifying energy consumption through introduction of renewable energy sources; mitigating and adapting to climate change, improving efficiency in the use of natural resources and conserving of natural ecosystems.
The natural capital agenda of the GOU has been developed in close cooperation with, and with financial support from, international financial institutions, such as UNDP, World Bank, Asia Development Bank, and others. The Center for Hydrometeorological Services of Uzbekistan implements the UN Framework Convention on Climate Change; the State Committee for Ecology and Environmental Protection implements the UN Convention on Biodiversity; and the State Forestry Committee implements the UN Convention to Combat Desertification. To some extent, environmental considerations are reflected in many policy papers, including the National Sustainable Development Goals, Environmental Protection Concept, Agriculture Development Strategy, Renewable Energy Plan, and Municipal Solid Waste Policy. The GOU is finalizing its Climate Change Strategy for the next decade.
In 2021, Uzbekistan increased its Nationally Determined Contributions (NDC) commitments under the Paris Climate Agreement – it plans to reduce greenhouse gas emissions per unit of GDP by 35 percent of 2010 levels by 2030, compared to the 10 percent reduction stated in the original NDC. The GOU is working on a new 2022-2050 NDC and Decarbonization Strategy in cooperation with EBRD and international expert consortium of Corporate Solutions, Tractebel, and Guidehouse, assisted by the Government of Japan. The approach is based on assumption that Uzbekistan can achieve zero carbon energy as early as 2050, both technically and economically.
The GOU expects greater private sector contributions to achieving its environmental and natural capital goals. New policies that are currently under development expected to provide more financial and non-financial tools to support the green economy transition. Existing legislation, primarily the Law on Public-Private Partnership (ZRU-537 adopted May 10, 2019) contains incentives for the development of renewable energy generation. The GOU intends to attract private investment for building 8,000 MW wind and solar generators by 2026.
Uzbekistan has introduced a set of national pollution standards for air, water, and soil. The GOU also maintain several projects on nature preservation, introduction of nature-based solutions in various industries, and sustainable forest management. However, the regulatory incentives to facilitate achievements of environmental and ecological goals are still underdeveloped. Uzbekistan is drafting its National Adaptation Plan (NAP) with the support of UNDP and the Green Climate Fund. The NAP may provide a framework for new regulatory incentives in six priority sectors: agriculture, water resources, healthcare, biodiversity, energy efficient housing and emergency management.
As of now, resource efficiency, pollution abatement, and climate resilience considerations have very little influence on public procurement policies in Uzbekistan. The GOU is working on a new National Climate Change Strategy, which may facilitate introduction of public procurement and other incentives.
Uzbekistan’s legislation and Criminal Code both prohibit corruption. President Mirziyoyev has declared combatting widespread corruption one of his top priorities. On January 3, 2017, he approved the Law on Combating Corruption. The law is intended to raise the efficiency of anti-corruption measures through the consolidation of efforts of government bodies and civil society in preventing and combating cases of corruption, attempted corruption, and conflict of interest, ensuring punishment for such crimes. On June 29, 2020, Presidential Decree UP-4761 created an Anti-Corruption Agency. Subordinate to the president and reporting to Parliament, the agency is responsible for developing and implementing state policy to prevent and combat corruption. On July 6, 2021, Presidential Decree UP-6257 approved 2021-2022 State Anti-Corruption program, which includes a range of measures to ensure the transparency of the government and tighten criminal liability for violators. This program complements the strategy adopted in 2019. Its goals are to strengthen the independence of the judiciary system, develop a fair and transparent public service system requiring civil servants to declare their incomes, establish mechanisms to prevent conflicts of interest, and facilitate civil society and media participation in combating corruption.
Along with the Anti-Corruption Committee, the Prosecutor General’s Office of Uzbekistan (PGO) is the government arm tasked with fighting corruption. Since Mirziyoyev took office in September 2016, the number of officials prosecuted under anti-corruption laws has increased. According to official statistics, over 9,000 corruption-related crimes were registered in 2017-2020. In 2021, Uzbekistani law enforcement agencies initiated 2,345 corruption related criminal cases and prosecuted 2,804 government officials, including 16 central, 241 regional and 2,547 local government officials. By preliminary assessments, the damage caused by budget embezzlement and corruption crimes in 2021 exceeded $90 million. Punishment has varied from fines to imprisonment with confiscation of property. Despite more active criminal prosecution of corrupt officials, however, fundamental reforms to eliminate the prerequisites for such offenses again showed no progress – the adoption of the Law on State Civil Service, which was first drafted 25 years ago, is still on hold.
Formally, the anti-corruption legislation extends to all government officials, their family members, and members of all political parties of the country. From January 1, 2022, Uzbekistan introduces a system of mandatory declaration of income and property for all civil servants, heads and deputies of state-owned enterprises and institutions (entities with state ownership share over 50%), as well as for their spouses and minor children.
In recent years, the GOU has demonstrated efforts to improve the legal framework of awarding contracts and procedures for public procurement. To reduce corruption, the new legal framework provides for the introduction of more transparent electronic bidding systems. The new Law on Natural Resources (ZRU-403 of June 23, 2020), in combination with the Law on Production Sharing Agreements, the Law on Concessions, and various Government Resolutions specify procedures for awarding natural resource extraction contracts and licenses. The most recent Public Procurement Law (ZRU-684, adopted April 22, 2021, effective January 1, 2022) streamlines relevant procedures and requirements. According to the legislation, public procurement or a natural resource extraction contract/license can be awarded through an open auction through E-IJRO AUKSION electronic auction platform, or by decision of the government. In the latter case, the legislation lacks details on actual application procedures and the government’s decision-making process. While enforcement of the new legislation is still at early stage, the process of awarding GOU contracts continues to lack transparency.
The Law on Combating Corruption (ZRU-419, adopted January 3, 2017, last updated November 19, 2021) prescribes a range of measures for preventing corruption, including raising public awareness and introducing transparent rules for public-private interactions. According to the law, all public officials are obliged to notify their supervisors or law enforcement agencies of all cases of proposed corruption from businesses or individuals, as well as any similar offenses committed by other public service employees. The law, however, does not specifically encourage companies to establish relevant internal codes of conduct.
Currently only a few local companies created by or with foreign investors have effective internal ethics programs.
Uzbekistan is a member of the OECD Anti-Corruption Network (ACN) for Eastern Europe and Central Asia. One of the latest OECD reports on anti-corruption reforms in Uzbekistan (March 21, 2019) says that, although Uzbekistan has already undertaken a number of key anti-corruption reforms, the GOU now needs to systematize its anti-corruption policy by making it strategic in nature.
The Law on Combating Corruption encourages more active involvement of NGOs and civil society in investigation and prevention of crimes related with corruption. However, there are still very few officially registered local anti-corruption NGOs. One of them – Transparency Uzbekistan – was registered in September 2021. Embassy Tashkent is not aware of any active corruption investigations conducted by local NGOs. There is evidence of unjust persecution of local civil society activists who are fighting corruption.
Corruption is still a notable factor in the economy and social sphere of Uzbekistan due to the insufficiency of law enforcement practices and relatively low wages in the public sector. Recognizing the issue, the country’s leadership has initiated legislative and institutional reforms, which has already raised Uzbekistan’s rating in Transparency International’s Corruption Perceptions Index from 157 (out of 180 rated countries) in 2017 to 140 in 2021. U.S. businesses have cited corruption and lack of transparency in bureaucratic processes, including public procurements and licensing, as among the main obstacles to foreign direct investment in Uzbekistan.
Resources to Report Corruption
The government agencies that are responsible for combating corruption are the Anti-Corruption Agency, the Prosecutor General’s Office and the Ministry of Justice. Currently, no international or local nongovernmental watchdog organizations have permission to monitor corruption in Uzbekistan.
Contact information for the office of the Anti-Corruption Agency of Uzbekistan:
Uzbekistan does not have a history of politically motivated violence or civil disturbance. There have not been any examples of damage to projects or installations over the past ten years. Uzbekistani authorities maintain a high level of alert and aggressive security measures to thwart terrorist attacks. The environment in Uzbekistan is not growing increasingly politicized or insecure.
11. Labor Policies and Practices
During 2020, the population of Uzbekistan increased by 712,363 people (2.3%) to 35,271,276. The gender distribution is roughly equal: 17.5 million men and 17.4 million women. According to publicly available statistics, about 30% of the population is under 16 years old; 60% is working age (16-60); and 10% is 60 years old and older. Uzbekistan’s State Statistics Agency reports indicate the total number of laborers, as of January 1, 2022, was 19.3 million people (a 1% increase year-on-year). Nearly 12 million of them were considered employed. The share of the non-agricultural workforce is about 73%. There are about three million Uzbekistani citizens who work abroad as labor migrants. The official number of unemployed is over 1.4 million people, or 9.5%. Note: The accuracy of given statistics is based on records of the residents’ registration offices and studies conducted by the Ministry of Labor but does not always reflect the actual situation in the country. The next national census in Uzbekistan is expected in 2023, while the last one was in 1989. End note.
It is relatively easy to find qualified employees in Uzbekistan, and salaries are low by Western standards. According to both government and independent analysts’ statistics, about 9-12% of the population live below the poverty level (on poverty ratio applicable for lower middle-income countries, or $3.20 a day based on purchasing-power-parity in constant prices of 2011), and approximately 48% of the employed population have low-productivity and low-income jobs. Accordingly, Uzbekistan is one of the largest suppliers of labor migrants among former Soviet Union republics.
Independent consultants estimated Uzbekistan’s informal economy at 48-62% of GDP, or up to $40 billion. The number of unofficially employed people is close to 6 million. There is no clear line between formal and informal economies, as many companies practice double bookkeeping to avoid some tax liabilities. In addition to clearly criminal activities, the share of which is relatively insignificant, “grey economy” businesses may be observed in various sectors, including trade, financial services, construction, home-based manufacturing, and transportation. The GOU recognizes the scale of the problem. A strategy to combat the informal economy was adopted in 2020 and expanded in 2021. The main rules for ensuring business legality came into force in January 1, 2022. Their ill-conceived and brutal introduction, especially in the field of tax administration, caused shock and confusion, especially among small businesses. As a result of intense public debate, the government had to postpone their enforcement. In general, businesses in the informal economy have been the main violators of intellectual property rights, and the main suppliers of counterfeit products that created marketing difficulties for U.S. and other foreign business.
At 99%, literacy is nearly universal, but most local technical and managerial training does not meet international business standards. Foreign firms report that younger Uzbekistanis are more flexible in adapting to changing international business practices but are also less educated than their Soviet-trained elders. Widespread corruption in the education sector has lowered educational standards as unqualified students purchase grades and even admittance to prestigious universities and lyceums.
Legislation requires companies to hire Uzbekistani nationals for specified positions in banking and auditing companies. The chief accountant must be an Uzbekistani national, as should either the CEO or any one member of the board of directors. Only Uzbekistani nationals can be tour guides. Businesses registered within special economic and industrial zones must have at least 90% locally sourced labor force.
According to Uzbekistan’s Labor Code, labor-management relations should be formalized in a fixed-term or temporary employment contract. The maximum length of a single fixed-term contract is 60 months (https://www.doingbusiness.org/en/data/labormarketeconomy/uzbekistan). The Labor Code and subordinate labor legislation differentiate between layoffs and firing. Employees can terminate their employment by filing written notice two-weeks prior or applying for leave without pay. Layoffs or temporary leave without pay can be initiated by an employer if the economic situation declines. For firing (severance), the employer should personally give two months’ advance notice in the case of corporate liquidation or optimization, two weeks’ advance notice in the case of an employee’s incompetence, and three days’ advance notice in the case of an employee’s malpractice or unacceptable violations. In case of severance caused by corporate liquidation or optimization, an employee should receive compensation, which should not be less than two average monthly salaries paid during their employment plus payment for unused leave (if another form of compensation was not agreed to in the employment contract). In reality, however, many businesses choose to avoid signing formal contracts with employees, especially those involved in seasonal agricultural or construction work.
Officially, labor legislation cannot be waived or applied differently for private or foreign-owned enterprises, including those that operate in special economic and industrial zones. On March 4, 2020, Uzbekistan joined the Hague Conference on Private International Law.
The new Law on Trade Unions (ZRU-588) was adopted in December 2019. According to this law, all trade union activities should be based on the principles of the compliance, voluntariness, non-discrimination, independence and self-governance, equality, transparency and openness. The law guarantees rights of trade unions and their associations and protects them from illegal interventions of government agencies, officials and employers. Currently, the Board of the Federation of Trade Unions of Uzbekistan incorporates 37,659 primary organizations and 14 regional trade unions, with official reports of 6.1 million employees in the country participating. These trade unions are all government owned and operated, including the Federation of Trade Unions.
By law, all employees of either local or foreign-owned enterprises operating in Uzbekistan have the right to:
fair and timely payment of wages that should not be less than the minimum monthly salary amounts set by the government;
a standard workweek of forty hours, with a mandatory rest period of twenty-four hours and annual leave;
overtime compensation as specified in employment contracts or agreed to with an employee’s trade union, which can be implemented in the form of additional pay or leave. The law states that overtime compensation should not be less than 200% of the employee’s average monthly salary rate (broken down by hours worked). Additional leave time should not be less than the length of actual overtime work;
working conditions that meet occupational health and safety standards prescribed by legislation;
compensation of any health or property damages incurred as a result of professional duties through an employer’s fault;
formation and joining of labor unions;
legal support in protection of workers’ rights.
There is no single state institution responsible for labor arbitration. The general court system, where civil and criminal cases are tried, is responsible for resolving labor-related disputes. This can be done on a regional or city level. Formally, workers can file their complaints through the Prosecutor General’s Office. The Ministry of Employment and Labor Relations should provide legal support to employees in their labor disputes.
The law neither provides for nor prohibits the right to strike. In recent years, SOE employees in the mining and petrochemical industries and workers involved in various public projects conducted strikes, protesting against salary payment delays and demanding improvement of their working conditions. Reportedly, ministerial and local government officials met with strike initiators and promised to resolve issues raised by the workers. There is no public information about the role of official unions in these negotiations.
Although employees in Uzbekistan enjoy many rights by law, in practice these laws are subject to arbitrary and inconsistent interpretation. For example, the law prohibits compulsory overtime – and only 120 hours of overtime per year is permitted. In practice, overtime limitations are not widely observed, and compensation is rarely paid. Wage violations have become more common in recent years.
18 conventions and one Protocol of the UN’s International Labor Organization (ILO) are officially in force in Uzbekistan:
Forced Labor Convention;
Freedom of Association and Protection of the Right to Organize Convention
Right to Organize and Collective Bargaining Convention;
Equal Remuneration Convention;
Abolition of Forced Labor Convention;
Discrimination [Employment and Occupation] Convention;
Minimum Age Convention;
Worst Forms of Child Labor Convention;
Labor Inspection Convention;
Employment Policy Convention;
Labor Inspection (agriculture) Convention;
Tripartite Consultation (International Labor Standards) Convention;
Forty-Hour Week Convention;
Holidays with Pay Convention;
Maternity Protection Convention [Revised];
Workers’ Representatives Convention;
Collective Bargaining Convention;
Promotional Framework for Occupational Safety and Health Convention, 2006 (No. 187); and
The law prohibits all forms of forced or compulsory labor, including by children, except as legal punishment for offenses such as robbery, fraud, or tax evasion, or as specified by law. Uzbekistan has eliminated the systematic use of child labor in the annual cotton harvest and has implemented reforms to significantly improve its record on adult forced labor. Despite strong political will in the central government to eradicate adult forced labor, at the local level its use in the cotton harvest is still reported, albeit in steadily decreasing numbers. The Ministry of Employment and Labor Relations establishes and enforces occupational health and safety standards. Labor inspectors conduct routine inspections of small and medium-sized businesses once every four years and inspect larger enterprises once every three years. The labor inspectorate – significantly expanded in size — was previously unable to conduct unscheduled inspections, but these are now legal and in regular use.
In 2021, Uzbekistan adopted and enacted several labor related laws and regulations, including:
The Law on Ratification of the Convention on the Rights of Persons with Disabilities (New York, December 13, 2006) (ZRU-695, adopted June 7, 2021). By this law, Uzbekistan recognizes the right of persons with disabilities to work on an equal basis with others, including the right to the opportunity to gain a living by work freely chosen or accepted in a labor market and work environment that is open, inclusive, and accessible to persons with disabilities.
The Law on Ratification of the ILO Promotional Framework for Occupational Safety and Health Convention, 2006 No. 187 (ZRU-693, adopted June 4, 2021). By this law, Uzbekistan became committed to the continuous improvement of occupational safety and health through the development of a national programs for the prevention of occupational diseases, occupational injuries, and fatalities.
The Law on Amendments to the Law on the Protection of the Health of Citizens and the Labor Code (ZRU-705, adopted August 2, 2021). The law introduces amendments related with mandatory vaccination requirements in cases of pandemic threats, as well as the possibility of suspension of employment in case of employee’s refusal from mandatory vaccination.
The Law on the Legal Status of Foreign and Stateless Persons (ZRU-692, adopted June 4, 2021). The law guarantees the rights of foreign citizens and stateless persons to have employment, social security, health care, education, etc.
The Law on Employment of the Population (ZRU-642, adopted October 20, 2020, entered into force January 21, 2021). This law applies to citizens of Uzbekistan, foreign citizens, and individuals without citizenship, as well as foreign citizens permanently residing or employed in the country. The law obliges government bodies to pursue a policy of developing the labor market and ensuring employment, developing family entrepreneurship, handicrafts, agricultural production on personal subsidiary plots, and home-based employment. The law establishes the status of a self-employed person, the procedure for their taxation, and their rights to have benefits. The law also specifies the rights of unemployed people.
The Law on Persons with Disabilities (ZRU-641, adopted October 15, 2020, entered into force January 16, 2021). The law defines the rights of persons with disabilities, and stipulates issues of their education, vocational training, advanced training, and employment.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
The U.S. International Development Finance Corporation (DFC) began working in Uzbekistan in 1992 (as the Overseas Private Investment Corporation, or OPIC) and has loaned approximately $229 million over the course of its operations in Uzbekistan. The last DFC (OPIC) project in Uzbekistan was approved in 2011.
On January 9, 2021, Uzbekistan committed to support the Abraham (Ibrahim) Fund. On January 7, 2021, Uzbekistan joined the Central Asia Investment Partnership – a regional private sector development program overseen by the DFC and Astana International Finance Center (Kazakhstan). On May 17, 2018, the Corporation and the GOU officials signed a Memorandum of Cooperation (MOC) on bolstering investment in natural resources, energy, infrastructure, and other critical sectors. Uzbekistan is a developing country member of the Multilateral Investment Guarantee Agency.
13. Foreign Direct Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)