Get your act straight Uzbekistan. You need more Foreign Direct Investment.

 Full of rich natural resources such as gold, cotton, oil and natural gas with the largest population in Central Asia and fairly developed human capital with low wages, Uzbekistan is potentially the best country in the region for foreign investments. The inability to stabilize macroeconomic and structural refinement has aggravated bureaucratic incompetency and promoted vast corruption. After the collapse of the Soviet Union, which led to huge losses in technological development and economic growth, Foreign Direct Investment (FDI) is the best way to diversify and improve the economy of Uzbekistan. For Uzbekistan to attract more FDI it has to standardize and increase currency-converting process, as well as unify and organize licensing and investment entry procedures, restrain corruption for more efficient investing environment as well as increase tax-cutting incentives.

     Uzbekistan has to revise the foreign currency exchange processes and allow FDIs to convert greater amounts of currency in more efficient ways as the first step to bring in foreign businesses into the economy. Currency conversion is one of the greatest difficulties for foreign businesses wishing to invest in Uzbek markets (Lautier and Francois). National Bank of Uzbekistan (NBU), which is the Central Bank, is the only bank authorized for any transactions by FDIs. Thus, the government has full control over how much profit money the FDI can withdraw or transfer for its operations and at which speed this process is initiated. As the centralized economy, Uzbekistan is trying to prevent easy outflow of money from the country; thus, slows down the exchange processes. However, these policies hurt FDIs ability to smoothly make transactions, pay wages and do basic business like buying equipment, so fewer investments are made.

       The initial process of licensing and investment for foreign businesses has to become more systematic and centralized. Licensing and initial registration of investment are ambiguously separated between different agencies and ministries, which are poorly coordinated and often contradict with each other’s policies (Loungani). Moreover, some of these agencies are in charge of State Owned Enterprises (SOEs), so they present competing interests to investments that make the licensing process counteractive (Abdurakhmonov, p.200). Instead of having multiple malfunctioning agencies that slow down the preliminary registration and legalization of FDI, there should be one concentrated ministry. It can consist of one or two representatives from each ministry in the same locale, who are in control to oversee the entire procedure and expedite it accordingly. Also, these ministries can’t acquire shares in FDI competing SOE industries.

        Uzbekistan Ministry for International Trade and Investment (MITI) has to create universal laws, instead of case-by-case based regulations, which are passed in top down manner in order to eliminate lower levels of corruption and provide safe and stable environment for the FDI. Uzbekistan is ranked “177th out of 183 in Transparency International’s 2011 Corruption Perceptions Index”(US Department of State). Executive branch of Uzbekistan highly advocates in favor of FDI, but poorly organized local and regional ministries “Hokimiyat” are able to tweak regulations on individual case that promotes corruption (Allan, Jorg p.43). Expropriation rules and regulations change so often that it’s almost impossible to abide with them that result in arbitrary and illegal fines. MITI has to provide standardized and universal regulations, which will protect FDIs and represent interest of the executive government instead of corrupt small bureaucrats.

      While Uzbekistan is very attractive state for FDI in Central Asian region, it has to compete with other states that don’t have as much potential, but provide enough tax incentives and safety regulations to become more desirable place for investment. After July 2006 cancelation of tax holidays and protection from expropriations to 10 years, many FDIs closed their businesses (Abdurakhmonov, p.183). Uzbekistan won’t sustain and loose FDI if it will not introduce more vigorous pro-investment tax reforms immediately. First, the MITI should reconsider property tax, the environment tax and the road user tax and eliminate it. These taxes are not rational for the government and represent strain for the investors. Secondly, it should remove all the inconsequential and extraneous limitations on removal of advertising, entertaining and labor costs.

      The productivity potential, low labor costs and substantial market are very inviting conditions for the FDI. Unfortunate inability to follow through with its promises and punishing regulations serve as very discouraging attributes for FDI in Uzbekistan. If Uzbek government wishes to enjoy more FDI, great technological advancement and human capital growth, besides rapidly growing economy it has to revise its policies and stabilize its operations. Otherwise, it will remain stagnant and lose its last remaining FDIs.

                                                            Works Cited:

Abdurakhmonov, Mukhsinkhuja. "FDI Scenario in Uzbekistan-Glancing at the First Decade after Independence." Economic journal of Hokkaido University 32 (2003): 183-200. Web. 23 Oct. 2014. <http://www.worldcat.org.libproxy.usc.edu/title/fdi-scenario-in-uzbekistan-glancing-at-the-first-decade-after-independence/oclc/678242350&referer=brief_results>.

Allan, Rorry, and Jorg Weber. "Investment Policy Review in Uzbekistan." UNCTAD. New York and Geneva. 1999. Web. 23 Oct. 2014. <http://unctad.org/en/docs/poiteiipm13.en.pdf>.

Lautier, Marc, and François Moreaub. "DOMESTIC INVESTMENT AND FDI IN DEVELOPING COUNTRIES: THE MISSING LINK."Journal of Economic Development 37.3 (2012): 1-23. ProQuest. Web. 16 Oct. 2014.

Loungani, Prakash, and Assaf Razin. "How Beneficial Is Foreign Direct Investment for Developing Countries?" Finance and Development. A quarterly magazine of the IMF. June 2001. Web. 16 Oct. 2014.

United States. Department of State. Burreau of Economic and Business Affairs. “2012 Investment Climate Statement – Uzbekistan.” N.p., n.d. Web. 22 Oct. 2014. <http://www.state.gov/e/eb/rls/othr/ics/2012/191261.htm>.