Uzbekistan: Market Profile
Major Economic Indicators
- Highly focused on the cultivation and processing of cotton, fruits, vegetables and grain (wheat, rice and corn), Uzbekistan, is also a world leader in terms of its gas, coal and uranium resources, while also said to have more than 1,800 different mineral reserves. The nation’s 30 million-plus population makes it the most populous country in Central Asia (accounting for 45% of the total population in Central Asia). This, however, has not led to the formation of a lucrative consumer market, despite the country enjoying average GDP growth of more than 8% per annum over the past decade.
- In order to enhance the country’s economic competitiveness, in May 2015, the Uzbek government launched a five-year plan intended to modernise its industry and develop new infrastructure. In total, this involves investment of US$55 billion in 900-plus new projects in the gas and petrochemical sectors, as well as the construction of new roads and airports. This – together with the signing of various bilateral and multilateral co-operation agreements, most notably a June 2015 undertaking regarding enhanced economic co-operation with China as part of the Belt and Road Initiative (BRI) – is intended to reboot the country’s economy and bring its infrastructure up to speed.
- 2017 (following the death of President Islam Karimov on 2 September 2016 after 27 years in power) marked fundamental changes in the pace of the country’s economic development. In particular, the liberalisation of its foreign exchange market has allowed the free conversion of its national currency – the Som – since 5 September 2017. Legal entities are now entitled to freely purchase foreign currency in order to ensure the importation of products, while foreign investors are free to repatriate their profits.
- Meanwhile, customs duties (8,000 tariff lines have seen significant reduction, while another 3,550 have been brought down to zero) have recently been reduced twice with a view to further liberalising foreign trade and developing an effective market economy. As a result, the simple average rate of customs duty applicable in Uzbekistan has edged down to 6.45%, compared to 16% before the reforms.
- Aside from import duties, all export restrictions have been removed. The most notable improvements here include the introduction of procedures for exporting goods without the need for prepayments and guarantee obligations, and the expansion of tax benefits for exports. Meanwhile, the compulsory sale of foreign currency earnings, which was considered a tax on exports, has been eliminated, as have a number of unnecessary and outdated permitting procedures.
- Thanks to these liberalisation efforts and in line with the Concept for the Development of Export Activities of the Republic of Uzbekistan for 2018-2022 (which envisages a surge in exports to US$30 billion, 2.6 times of the current level), nearly 1,000 new export enterprises and some 120 new types of exports are said to have been green-lit to date.
- In other moves, the State Program 2017-2021 envisages (i) the timely implementation of 649 investment projects (US$40 billion), (ii) the purchase of two high-speed passenger trains (TALGO 250), (iii) the construction of a 2,300 km fiber optic line, the installation of 1,843 base stations for mobile operators, the installation and launch of 66 powerful and 328 low-power digital TV transmitters, (iv) the establishment of the Commissioner for the Protection of Rights and Legitimate Interests of Business Entities (Business Ombudsman), (v) the establishment of innovative industrial parks in the Yashnabad and Almazar districts of Tashkent and (vi) the simplification of the sale procedures relating to unused public property.
- Following years of close trade and business ties, the Sino-Uzbek relationship has continued to improve dramatically. For example, in late 2013, the Uzbek government signed some US$15-billion of investment deals with regard to the exploitation of oil, gas and uranium fields. More recently, a new agreement was signed with China in June 2015, which focussed on the extension of economic co-operation as part of the BRI and which will see increased bilateral co-operation in a number of sectors, including business, transportation and telecommunications. Bulk stock trading, infrastructure construction and the development of industrial park projects are also covered under the terms of the agreement.
- The rapid development and extension of Uzbekistan’s railway and road networks, including a 19 kilometre railway tunnel connecting the capital city, Tashkent, with the populous Ferghana Valley, is an early sign of the success of this initiative. As one of the developing countries along the Belt and Road and a founding member of the Asia Infrastructure Investment Bank (AIIB), Uzbekistan has been keen to rapidly improve its railway network and has been ordering locomotives from manufacturers on the Chinese mainland.
- As one of the only two double-landlocked countries in the world (with its closest access point to open sea being located nearly 3,000 km away), Uzbekistan relies almost exclusively on its land connections with Kazakhstan (in the north and northwest), Kyrgyzstan and Tajikistan (to the east and southeast), Turkmenistan (southwest) and Afghanistan (south). The Latvian seaport of Riga, however, is the most important transit point for Uzbek commodity exports (oil and oil products, fertilizers and automobiles), with some Uzbek companies even owning warehouses at the port. The Iranian ports, by contrast, are mainly used for raw cotton exports.
- Straddling many of the shortest transit routes connecting Europe and Asia, Uzbekistan is located at the heart of Transport Corridor Europe–Caucasus–Asia (TRACECA) and three of the six Central Asia Regional Economic Cooperation (CAREC) corridors, namely (i) Corridor 2-a, 2-b (Mediterranean–East Asia), (ii) Corridor 3-a, 3-b (Russian Federation–Middle East and South Asia), and (iii) Corridor 6-a, 6-b, 6-c (Europe–Middle East and South Asia). Dating back to Soviet times, rail and road transport have been the country’s key and cheapest means of transport. According to current estimates, some 95% of cargo travelling through or to Uzbekistan still travels by road or rail.
- In order to reduce the transport expenditure and enhance export competitiveness, Uzbekistan has received discounts of up to 40% on the transportation of mineral fertilisers, cotton fiber, fruit and vegetables and non-ferrous metals across the territories of Kazakhstan, Russia, Turkmenistan, Azerbaijan, Georgia and Iran. As part of the formation of efficient and reliable alternative transport and transit corridors, a pilot automobile rally on the Uzbekistan-Kyrgyzstan-China road corridor was organised, while the first meeting of the working committee of the Ashgabat agreement was held with regard to the practical implementation of the Uzbekistan-Turkmenistan-Iran-Oman corridor.
- The Uzbek government has also carried out several reforms in taxation and foreign investment in a bid to attract investment. For instance, constraints on private business development and FDI flows were removed in September 2017, while exporters are no longer required to sell one-fourth of their hard currency revenue to the government and there is no more control of the exchange rate between the Uzbekistani som and the US dollar and no more quotas governing the the individual or corporate purchase of foreign currency.
- More information on starting a business and investing in Uzbekistan, covering tax and accounting systems, investment policy, FDI notification and registration can be found at the Authority for Foreign Investment of the Republic of Uzbekistan.
- The inflows of foreign direct investment (FDI) to Uzbekistan exceeded US$67 million in 2016, with China contributing US$179 million. As of the end of 2016, China’s total stock of FDI to Uzbekistan topped US$1.1 billion, up from less than US$31 million in 2007. Investment from Hong Kong, though, is far from significant.
Hong Kong’s Trade with Uzbekistan
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.