Uzbekistan Business Opportunities

Uzbekistan Business Opportunities Topic: Discuss the business environment of International business opportunities in the given country and its economic indicators. Explore and elaborate if there is any bilateral trade agreement with India. INTRODUCTION Country Name : THE REPUBLIC OF UZBEKISTAN Republic of Uzbekistan is the largest country in the region and occupies a specific geographical and geopolitical position in Central Asia abundant with natural and human resources. Uzbekistan consists of 12 provinces and Autonomous Republic of Karakalpakstan. Independence and sovereignty of the Republic of Uzbekistan was proclaimed on August 31, 1991 in Tashkent. Geography Location: Central Asia, north of Afghanistan. Access to sea: Country is encircled by land. Note: border passes through Aral Sea (420 km. of seaside of Aral sea). Neighbours: Afghanistan, Kazakhstan, Kirgizstan, Tajikistan, and Turkmenistan. Coordinates: 41 00 N, 64 00 E Area: total 447,400 sq. km.; land 425,400 sq. km.; water 22,000 sq. km. Currency Since July 1st, 1994 Soum the national currency has been introduced as a unique lawful payment mean on territory of the Republic of Uzbekistan. 1 Soum = 100 tiyn. Notes are in denominations of Soum 1000, 500, 200, 100, 50, 25, 10, 5, 3 and 1. Coins are in denominations of 50, 20, 10, 5, 3 and 1 tiyn. BUSINESS ENVIRONMENT Basic Business Environment 1. Small and Private Business It is the most dynamically developing sector of the economy, and stimulated due to several state reforms effective from the end of 1998 with a view of supporting of small and private business. In particular: reduction of inspections by state bodies, unified tax for carrying out of small business, liberalization of a cash turnover and conditions of crediting of domestic and foreign financial institutions. In the earlier years of the independence the share of turnover of small and private businesses in the countrys GNP made approximately 1% in comparison to the year of 2002 the parameter was 35%. Small and private businesses contribute to the reduction of unemployment by job creation in the country. Foreign credits and attracted investments directed by the GOU for stimulation of small and private business are repaid in due time under the favorable tax conditions and the optimized mechanism of sales of output on export by the enterprises of small and private business. 2. Import Substitution The main purpose of import substitution, per se an instrument of currency exchange regulation, is to reduce unreasonable import of the goods similarly produced in the republic and direct the flow of released monetary resources for the development of a domestic production and an increase of the application of hi-tech. effective from 1996. The changes that were introduced in 1996 to the legislation that regulated the currency flow can be one of the examples of the simplification and flexibility of the currency exchange regulation. Besides, the currency fund derived form sales of automobiles, agricultural equipments, flour and sales of other several liquid goods on foreign markets has allowed to provide currency self-recoupment of enterprises using in manufacture of imported raw materials, materials and component. It is necessary to note that currency earnings of enterprises derived due to sales on export sufficiently directs to a profit markup and an enterprise development, workflow au tomation, labor stimulation and an improvement of a current infrastructure. 3. Economic Growth and Inflation One of the factors constraining the economic growth and the stability of any country is inflation. However, the GOU as a consequence of number economic reforms has achieved real decrease in inflation rate. According to the official statistical data, the inflation rate was more than 26.0% in 2001, but because of the favorable economic conditions, the datum has decreased by 6.8% in 2006. According to bases of economy, the growth of GDP also depends on the exchange rate used for converting national currency into a foreign currency. In this respect the GOU has created the steady mechanism of the free currency convertibility by means of several Currency funds and stock exchanges. The exchange rate is periodically fixed by the Central Bank of Uzbekistan, allowing free and independent convertibility of any currency of the world. The analysis of the trend of GDP shows stable growth and significant budget surplus of Uzbekistan. At the 4.0% GDP growth the budget deficit of the country was 0.8% of GDP in 2002. The liberal approach of the GOU to the development of sectors of economy resulted in achievement of GDP growth over 7.0% with the budget surplus by 0.5 % in 2006. The major factors of the economic growth have become the increase of the volume of industrial production and the agriculture by 10.8% and 6.2% respectively. According to statistical data, by the end of 2006 the average real wages in Uzbekistan accounted for UZS 185,000 or nearly USD 150, that 5 times exceeds the datum of 2001 and 2002. 4. Balance of Payments (BOP) As a result of implementing of number significant reforms by the GOU directed to liberalization of a national economy as a whole, the volume of currency reserves by the end of 2002 was increased by 167.9% and has made about USD 4.7 bn in comparison to those of past period. Due to the implemented protection policy of interests of domestic manufacturers, the import of the goods similarly produced in Uzbekistan was reduced by 38.0%. The export of goods correspondingly increased on average by 23.0%. Moreover, the share of cotton fiber decreased by 17% in the export volume of the country, the rest of the export accounts for machines and equipments, fruit-and-vegetable manufacturing and processing, construction materials, agricultural equipment, electro-technical products and others. The control system of the external debt of the country in 1999-2006 has been stable and less moderate. Furthermore, the external debt rate has been at the rate of 20.6% of GDP in 1999 towards 22.8% in 2006. The critical ratio was marked in 2003 when the parameter made about 40.0% of GDP. Hence, investments into any sector or region of the country today can be considered guaranteed to the development and repayment in time, due to constant growth of priority macroeconomic parameters. The main investors of the country have been such companies as Gazprom, Lukoil, Mitsui, Mitsubishi, Itochu, Nestle, Coca-Cola Bottles, Vimm-Bill-Dann, SIEMENS, ZEROMAX, MTS, Vimpelkom, BAT, Marubeni, Samsung, ABN Amro Bank, Kanebo Silk, KOC, IRANSADERAT and etc. 5. Currency Convertibility With a view of strengthening of currency balance of the country in Uzbekistan there were sometimes restrictions on converting of UZS into a foreign currency. Additionally, the Republic of Uzbekistan has joined to the Article VIII of the Agreement of the IMF in 2003 and these restrictions have been removed. Today, converting is regulated by specific decisions of the GOU and instructions of the CBU. The incomes of the foreign investor derived in Uzbekistan can be re-invested on the territory of the Republic of Uzbekistan or used by any different way at discretion of a foreign investor. Foreign investors are guaranteed for free transfer of cash resources in a foreign currency into Uzbekistan and from there without any restrictions under condition of tax payments and other mandatory payments in accordance with Uzbek legislation. 6. Priority Sectors of Economy Agriculture The main and leading sector of economy is the agriculture (about 40.0% of GDP). Basic manufacturing of the sector is cotton-fiber, wheat, and fruit-and-vegetable products. Favorable weather conditions have determined the corresponding regional distribution of the basic export-oriented products of the agricultural industry of the country. For example, vegetables, fruit, melons and gourds are raised basically in Namangan, Fargona, Andijon and Samarqand provinces, rice and other cereals in the Republic of Karakalpakstan and Khorazm province, meet and dairy products and tanning materials mainly are produced in Bukhoro, Surkhondaryo and Qashqadaryo provinces, wine and other alcoholic products are produced in Tashkent, Andijon provinces and the Republic of Karakalpakstan, tobacco products are produced in Tashkent and Samarqand provinces.  · Light industry One of the priority directions in the development of an export policy of Uzbekistan is the development of light industry, basic exports are cotton yarn, silk and silk products, cotton severe fabrics, knitted cloth, garments, and etc. The sector is characterized not only by the opportunity of a quick return of investments, but also by cheap labor force, the availability of raw materials, and the developed infrastructure. It is also necessary to note that Uzbekistan is one of the largest manufacturer of cotton, silk, and astrakhan fur in the world. The country is on the fourth place in the world in volumes and quality of manufacture of cotton and the second place in volumes of cotton fiber export. There are more than 200 large enterprises and associations, a network of branches, the modeling centers of clothes and jersey, a design bureau, a network of firm trade, and etc in the Uzbek light industry. Due to re-equipment of manufacturing by modern equipments the Program of Quality Improvement and Increase in volumes of production, expansion of assortments, the organization engaged in processing of cotton fiber on the basis of attracting both local and foreign investments by creation of JVs is realized. The followings are the mainstreams of the development of the sector: Spinning manufacture updating of plants of not-spindle spinning on the basis of modern equipment; Weaving manufacture implementing of automatic winding machines, warp drawing-in machines, replacement of weaving looms by modern shuttleless weaving machine; Dyeing manufacture implementing of new equipments with the electronic control and regulation of processes.  · Heavy Industry Uzbekistan has rich spectrum of the natural resources, the developed mountain and oil-and-gas industries. The country is rich in inexhaustible natural resources, including oil, gas, uranium, gold, copper, aluminium, iron ores and others. Uzbekistan heavy industry is represented by the developed and complex spheres of aircraft construction, motor industry, a network of the enterprises producing agricultural machines and equipment, cable conductor products, tools and parts for a railway transportation and etc. Uzbekistan is known also for reserves and extraction of precious and rare-earth metals gold, silver, uranium, and etc. In volumes of manufacture of gold the country is on the second place in the CIS, the eighth in the world and the fifth in per capita production. Quality of the Uzbek gold meets high world standards. The significant stocks of copper, lead, zinc, molybdenum, tungsten, lithium, not-metallurgical raw materials (kaolin, fluoric and feldspar, quartz sand, phosphorites, etc.) exist in the country. They serve for manufacture of mineral fertilizers, porcelain-faience products and other production, competitive in domestic and foreign markets. The country has strategic mineral resources of raw materials: oil and gas, ores of ferrous, nonferrous and precious metals. In addition, the total potential of mineral resources of the country is estimated to be USD 3.3 trln. From entrails of the country minerals for the sum of 95.5 bln are derived annually, thus, the annual growth of reserves makes about USD 6-7 bln. TRANSPORTATION NETWORK Development of transport communications between the states from ancient times was one of the basic ways for unification of nations, development of economy, mutual enrichment of cultures and, finally, made a significant impact on peaceful and harmonious development of mankind in its strides forward. The territory of present Uzbekistan lies at the heart of The Great Silk Road and precisely the shortest transport corridors from Europe to Asia passed through this route. Situated in the centre of the region, Uzbekistan is objectively said to play a vital role of geopolitical bridge in relations between the countries of the West and East. Utilization of Uzbekistans geographical location on crossroads between the West and East, and also the North and South of the Euro-Asian continent, opens an opportunity for many countries of the Euro-Asian continent to access the overland continuous and safe transport communication. Having the developed networks of railways and highways, a complex of the international airports, the airways which pass the territory of the country in latitudinal and longitudinal directions for international and, first of all, transit transportations, Uzbekistan possesses huge transport potential and is capable to utilize national transit resources for ensuring the Euro-Asian communications and meet the demands of the country in transportations of passengers and cargoes in all kinds of transport. In questions of attraction of transit cargoes, the international transport terminals and the centers of logistics should be given special emphasis. These centers should coordinate activity of various types of transports which are rather important in the conditions of the countries of the Central Asia with no access to the sea. Accordingly, the logistical centers should be established alongside the main transit corridors, and also on borders between the states of the region and, in effect, fulfill the functions of so-called dry ports. The International logistics center being projected now in Tashkent is unique in Central Asia and should serve as transshipment and transit-transfer base for all kinds of cargoes on regional transport corridors. Transport infrastructure Modernization and development of transport infrastructure, construction of new transport corridors are the important section of attraction of investments. All types of transport have been developed in the republic. Today the length of railways comprises 6,5 thousands km. Density of railway network in the republic is the highest in the Central Asia. Automobile transport plays significant role in shipment of cargoes and passengers. During years of reforms over 43,5 thd. km. of highways were constructed and put into operation, 97% of them have a hard covering. The Uzbekistan Railways existing network of railways and roads connects the most remote regions and uninhabited areas of the country to major centers, providing access to international transport systems and basic natural mineral and raw materials resources in the country. The country has prioritized its international system of transportation creating reliable short distance transport lines, providing access to the neighboring countries and the rest of the world. The railway line passing through Tedgen Serahs Meshhed, an integrated part of the Trans Asian line connecting Beijing and Istanbul is in operation. Since 2000 this line is to transport goods in both directions totaling 6-8 million tons and possibly doubling this capacity. Transportation along this corridor provides Uzbekistan with additional foreign trade relations with Eastern countries of the Asia-Pacific Ocean regions, West Turkey and some European countries. An import contribution towards the development to transportation in the country is the TRASECA Project implemented by the TACIS Program (European Community Technical Assistance for the CIS), which provides for the construction of the Trans-Caucases main line passing through the Central Asian countries of Azerbaijan, Georgia and the Black Sea ports. In addition to building a new railway, Uzbekistan takes part in the project to construct a road connecting Andijan, Osh, Irkeshtam and Kashgar. This road will provide access to China and Pakistan. The road will continue through Bukhara, Seraks, Meshhed, Teheran, Termez, Heart, Kandagar and Karachi, providing access to the Indian Ocean. This corridor makes the distance to EEC countries 3 times shorter. The establishment and strengthening of these trans-continental main-lines provide favorable conditions for foreign economic relations for Uzbekistan and other Central Asian countries. The expansion of transit passenger and cargo transportation connects Uzbekistan to Asian-Pasific Ocean region countries such as India and China and Near East countries such Turkey as well as Europe. These so-called â€Å"new routes† practically coincide with the routes of the Great Silk Road. These routes provide opportunities to develop regular tourist and cultural relations with numerous countries of the world as it did so long ago. At the countrys expense, 2 large strategically important main lines between Navoi, Uchkuduk, Sultanoizdag and Nukus were built totaling a length of 342 km. Another line was built connecting Guzar, Baysun, Kumkurgan with a total length of 233 km. These new projects will provide access to some of the richest natural mineral resources in the country, decrease transportation expenses inside the country and provide access to sea ports and international destinations. UZBEKISTAN AIRWAYS† NAC Uzbekistan Airways is the state airline of Uzbekistan, which provides aviation needs for the national economy. Uzbekistan Airways National Air Company (NAC) was founded on January 28, 1992 in accordance with a Resolution of the President of the Republic of Uzbekistan, Islam Karimov. Today, the Uzbekistan Airways is the leading carrier in the Central Asian region. Uzbekistan Airways keeps a sound position on the international market and provides high quality competitive services. During the years of operation our company has been awarded the International fund for Aviation Safety Diploma and a Certificate from Airports International Association and Euromarket-2000. The scheduled flights fly to more than forty cities of the world including America, Europe, Middle East, Southeast, Central Asia and the CIS. Uzbekistan Airways continues to establish long-term and reliable business contacts, to increase the number of countries where its aircraft flies to and to improve its services. It makes the company one of the worlds dynamic airlines. Domestic Routes. In domestic TASHKENT is the hub of airlines. International Routes. Uzbekistan by Air. Flights to Uzbekistan. Airlines in Uzbekistan. Foreign Uzbek Airlines Uzbekiston Havo Yullary (Uzbekistan Airways) Aeroflot, Asiana Airlines, Domodedovo Airlines, Indian Airlines, Airlines of Kuban, Malaysia Airlines, Pulkovo Airlines, Samara Airlines, S7 Airlines, Transaero Airlines, Turkish Airlines LAW STATISTICS Dynamic of the main macroeconomics indicators of the Republic of Uzbekistan (in % to the previous year) 1. GDP Analysis During the years 2002-2004 the GDP has been increasing but in 2005-2006 the growth has decline. 2. INFLATION Analysis The inflation rate has been declining since 2001 to 2004 but there is a little increase in 2005, 7,8 which has not affected much the economy then in 2001. 3. STATE BUDGET (incomes, expenses, deficit, in % to GDP) Analysis Income and expense have a direct relationship. From 1998 state income and expense has been declining due to less proficiency, certain attention is required for improvement. Export structure of the Republic of Uzbekistan Analysis Cotton fibre is the main item of export as its export has been increasing over the years from 2002-2006. whereas items of foodstuff has also show an increment ,almost all the items have shown an increment which is good for the countrys economy, as it will bring more foreign exchange. Import structure of the Republic of Uzbekistan Analysis Import of machines equipments has been increased over the years whereas other items of import needs to be controlled. Trade turnover with a number of countries being the leading partners of the Republic of Uzbekistan Foreign countries Analysis Trade with Turkey, China and Iran has shown an increment from approximately 520-720 ,420-700, and 450-650 million US dollars , which is tremendous but trade with other countries such as Singapore and France needs to be improved. CIS countries Analysis Trade with Kazakhstan has shown a little improvement as compared to other countries as such Belarus, Kyrgyzstan, Ukraine and Tajikistan. Trade with these countries needs to be improves for better flow of trade as well as maintaining good relation with neighbouring countries FOREIGN INVESTMENTS More than 20 billions US dollars of foreign investments have been attracted in the economy of the Republic of Uzbekistan, including 5 billions during the last 3 years. Uzbekistan is one of the developing economies with so many business prospects. As due to its stable govt policies which has made it possible. The volume of direct foreign investments into the economy of Uzbekistan has increased in 24% and made up more than 1.2 billions dollars in 2006. BUSINESS OPPORTUNITIES IN UZBEKISTAN Uzbekistans independence has been recognized by 160 states. On March 2, 1992 Uzbekistan became a full-fledged member of the United Nations. Also, the Republic is a member of the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development, and several other prestigious international organizations. The Republic of Uzbekistan was one of the first Soviet Republics to declare independence, adopt its own Constitution, and introduce a presidency and democratic parliament. Five years ago no one could have predicted that Uzbekistan would become one of the most dynamic and progressive among all the former Soviet Republics. It has the best investment opportunities today. Uzbekistan is the only state, among, the post-Soviet countries that has increased its oil and gas production in recent years (indeed it has doubled oil production) to ensure its own energy self-sufficiency. In 1995, growth in the extraction of oil and gas condensate increased to 37.5%, and natural gas production grew by 2.9%. Another impressive result is that Uzbekistan has increased its self-sufficiency in grains; its output rose to over 3 million tons, and according to some estimates in 1996, the Republic may achieve 4.5 million tons of harvested grain. Real privatization in Uzbekistan has been dramatic, but has not been accompanied by economic disorder and social discontent as elsewhere. The private sector in the economy now produces 44 % of the industrial production and 97% of agricultural production. The non-state sector consumes 44% of total capital investments and employs 64% of the labor force. More than 250 representative offices of foreign companies and banks are in Uzbekistan. The United Nations, the World Bank, IMF, and many other international organizations have opened their headquarters in Tashkent. Over 2000 joint ventures are registered in the Republic. Foreign investments of over $3 billion have been made in Uzbekistan. Moreover, the Republic fulfills all of its obligations on foreign credit repayments without default and is generally regarded as an excellent credit risk-taker. Main reasons for Uzbekistans success The central reason is that, unlike leaders of the many other Commonwealth of Independent States (CIS) countries, the President of Uzbekistan, Islam Karimov, has shown exceptional intuition and has created an extraordinary degree of domestic and foreign confidence in Uzbekistan. Consequently the realization of his strategy for transition to a free market economy, in which he has taken into account the peculiarities of the Republic and the experiences of other countries, showed that it was the right choice. He and his advisors have found a unique middle ground between painful shock therapy and backsliding into an economic decline. The five basic principles which have minimized the pain of transition and have already initiated dynamic growth, are: supremacy of economics over politics   the state as the major reformer and guarantor of economic transformation supremacy of law in all spheres of activities for both state and society powerful social policy consistent and stage-by-stage accomplishments economic reforms Thus, Uzbekistan has transformed from a society driven by ideology to a pragmatic country aimed at attracting businesses and incurring high levels of domestic and foreign investment. During the transition, the Uzbek Government has actually accelerated infrastructure development, in contrast to many other CIS countries. A second factor is that since the first steps of independence, an array of necessary laws and regulations have been adopted. In a remarkably short period of time, standard and legal frameworks have been created. During the past five years, laws and regulations in virtually all main areas of the formation of the market economy have been passed. These include laws On Foreign Economic Activity and On Foreign Investments and Guarantees of Foreign Investors Activity. These and other laws and standard regulations provide many privileges, benefits, and guarantees for foreign investors. For example: There are particular taxation privileges for profits reinvested in the broadening and modernization of production. The enterprises with 50% participation of foreign capital, and which produce consumer goods, are free from the obligatory sale of foreign currency to the Central Bank for up to 5 years from the date of their registration. The enterprises with 30% participation of foreign capital, and which specialize in the production of various agricultural, consumer, and industrial products (except the mining industry) are granted a two year grace period for profit taxation. The given grace period can be prolonged for up to 5 years for projects, which included into investment program of the Republic of Uzbekistan. For enterprises with 30% participation of foreign capital, the rate of the tax on income is reduced from 18% to 10%. A third reason for Uzbekistans achievements is the realization of an open door policy, which has been a top priority of general economic policy. Structural reorganization, overcoming the economys one-sided orientation toward raw-material production, and producing export-oriented and import-substituting products are the priorities in the external economic and investment policy. Priority areas for investment include the following: mining and metallurgical production and expansion of extraction and processing of non-ferrous and ferrous metals drilling, processing, and transportation of oil and gas advanced processing of cotton, agricultural raw materials and products, including fruit, vegetables and grain production development of transportation and telecommunications engine production, including automobile, aircraft and agricultural machinery manufacturing production of building materials development of the tourism industry environmental protection industries A fourth factor is that the priority in the economic reform has been given to the creation of the market infrastructure and the development of small businesses. In recent years, Uzbekistan has witnessed the creation of the Republican Stock-Exchange Center, regional stock market, and private stock and securities trading offer. Private business growth has also accelerated. In 1995, more than 4,000 joint stock companies were registered in Uzbekistan. Also, in 1995 and in the first quarter of 1996 more than 75,000 small enterprises were registered. BILATERAL TRADE AGRREMENT Uzbekistan has engaged in bilateral, economic cooperation and double taxation with many countries, including the United States, China, Korea, Great Britain, Russia, India and others. In order to reduce the cost of attracting foreign investments to Uzbekistan and diminish the risks of foreign investors, Uzbekistan joined the Washington Convention of 1964 and the Seoul Convention of 1964. In addition, the national insurance company, Uzbekinvest, was established to cover political and commercial risks. Uzbekinvest and the National Bank of External Economic Activity joined with the American Financial Group, AIG, Inc. to establish joint insurance companies to: * cover political risks (its headquarters is in London) and * cover commercial risks (its head office is in Tashkent). As a result, the UzDaewoo-Auto Project (with the South Korean conglomerate Daewoo), which amounts to $700 million, is one of the largest projects with direct foreign investment participation on a 50:50 basis. The assembly plant in the Andijan region came on-line in April 1996 and has a production capacity of 200,000 cars annually. Another large single investment of the CIS is the Zarafshan Newmont Gold Mining Project (over $229 million) with Denver-based Newmont Mining Corporation. Also Lonro company recently created a joint venture in Uzbekistan and has invested in a gold-mining branch worth $250 million. In addition, British American Tobacco has a tobacco joint venture with the State and plans to invest a total of $232 million. All of these companies came to Uzbekistan because they were convinced of the desirable business climate in Uzbekistan. During his recent visit to the United States and meeting in Denver with American businessmen, the President of Uzbekistan, Islam Karimov, said that Uzbekistan has an excellent system of privileges and guarantees for foreign investors. With his decree on additional measures to encourage the creation of enterprises with foreign investments and their activity from June 1, 1996, foreign investment enterprises that produce export-oriented and import-substituted products received additional benefits, such as: *  · They shall be granted the right to receive a tax credit for the development of production; that is, they shall be granted a deferment for a period of up to two years for their profit tax, value added tax and land tax payments into the budget. *  · Enterprises with a share of foreign capital in the authorized capital of not less than 500,000 US dollars, shall be exempt from the payment of property tax. As additional proof the European Bank for Reconstruction and Development (EBRD) has eighteen projects operating in Uzbekistan with a total value of $520 million. This is the second largest amount in the investment portfolio of the CIS, after Russia. Also, the World Bank chose Uzbekistan as its first investment in an agro-industry project in the CIS. In short, Uzbekistan stands clearly, as one of the most exciting emerging markets. It enjoys a popular, stable government, a highly skilled labor force, and virtually no violent crime. President Karimovs government is efficient, pragmatic, and pro-business. Thus, the foreign investors become interested in Uzbekistan, because: (a)  · Historically its territory was a cultural and economic center of a vast empire that stretched across Central Asia into India and Iran, and had a key post in the overland trade route between China and the West. As such, Uzbeks have an historical trading culture; (b)  · Large markets such as Chi