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>.
