With over 34 million citizens – the largest population in Central Asia, rich reserves of natural resources, and relatively well-developed infrastructure, Uzbekistan has the potential to become one of the strongest economies in the post-Soviet area. Uzbekistan has demonstrated stable economic development in recent years, reporting 5.6% GDP growth in 2019. The country’s leadership continues to implement large-scale economic reform policies targeted at boosting growth through modernization of state-owned monopolies and creating a supportive climate for private and foreign direct investment. During the reporting period, policy priorities were focused on improving Uzbekistan’s investment attractiveness including through adoption of a new currency regulation law to guarantee freedom of current cross-border and capital movement transactions; a new law on investment activities to guarantee foreign investors’ rights; and, a new tax code featuring lower and more equitable tax rates and simplified reporting requirements.
The policy of liberalization reforms, initiated by the government in 2016, is paying off: the total volume of foreign direct investment (FDI) attracted to Uzbekistan has grown from about $1.6 billion in 2018 to $4.2 billion in 2019. Uzbekistan was named as one of the top 20 “global improvers” in the World Bank’s 2020 Doing Business report, and the 2019 Country of the Year award winner by The Economist magazine. Over 10,600 companies with foreign capital were operating in Uzbekistan as of February 1, 2020; approximately 3,000 of them were created in 2019. FDIs and private investments are critical for sustaining Uzbekistan’s economic development; however, the government continues to channel investments into export-oriented and import substituting industries. According to Uzbekistan’s official statistics, the total volume of capital investments exceeded $21.5 billion in 2019. Financing sources included $4.2 billion FDIs and $5.6 billion as foreign loans. Major industries include mining, oil, and gas extractives, electricity generation, construction, agriculture, textiles, transportation, metallurgy, non-metal/non-mineral production, and chemical production.
In November 2019, President Mirziyoyev created the Council of Foreign Investors, a body where executives and representatives of foreign companies, banks, investment companies, international financial institutions and foreign government financial organizations will be given the opportunity to advise the GOU on measures it could take to improve the investment climate. In February 2019, Uzbekistan for the first time placed five- and ten-year Eurobonds worth $1 billion in the London Stock Exchange. This success opened the country to foreign fixed income investors and set a benchmark for future foreign bond issuances by Uzbekistan-based companies.
At the same time, the government’s poor progress in reducing the domination of state-owned monopolies in the economy, continued non-transparent public procurement practices, and cases of government agencies’ and state-owned enterprises’ inconsistent compliance with contract commitments have negatively impacted Uzbekistan’s investment climate. Furthermore, private businesses have expressed concerns about local government development policies failing to adhere to recently adopted legislation on the protection of private property. Small businesses have reported expropriation of their property in favor of well-connected companies or development projects supported by regional or municipal authorities. Enforcement of legislation on protection of intellectual property rights also remains insufficient.
|TI Corruption Perceptions Index||2019||153 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2020||69 of 190||http://www.doingbusiness.org/
|Global Innovation Index||2019||N/A||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||$71 million||http://apps.bea.gov/international/
|World Bank GNI per capita||2018||$2,020||http://data.worldbank.org/indicator/
1. Openness To, and Restrictions Upon, Foreign Investment
The Ministry of Investments and Foreign Trade (https://mft.uz/en/, http://www.invest.gov.uz/en/) provide foreign investors with consulting services, information and analysis, business registration, and other legal assistance, as does the Chamber of Commerce and Industry of Uzbekistan (http://www.chamber.uz/en/index), on a contractual basis.
The GOU organizes and attends media events and joint government-business forums on a regular basis. In June 2019, Uzbekistan hosted the first U.S. Department of Commerce Certified Trade Mission to Tashkent. Supported by the American Chamber of Commerce in Uzbekistan, this event provided a valuable opportunity to meet and discuss business opportunities with senior GOU officials and Uzbekistan business counterparts for 35 representatives of 13 U.S. companies. The Presidential Council of Foreign Investors was established in November 2019 as an enhanced platform of communication with foreign business and the expert community. In May 2017, the Parliament established the “Institute of the Business Ombudsperson” to protect the rights and legitimate interests of businesses and provide them legal support. In public forums, GOU officials continue to stress their interest in seeing new companies establish operations in Uzbekistan.
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 monopolies in several sectors, in reality the right to establish business enterprises has been limited in some sectors. The GOU has started the process of reconsidering the role of large state-owned monopolies, especially in the transportation, banking, energy, and cotton sectors. In 2017, President Mirziyoyev ended the monopoly of state-owned enterprise Uzpaxtasanoat to buy and sell raw cotton. In January 2018, the GOU launched pilot projects for a new integrated value chain system in the industry to allow private investors to independently manage cotton cultivation, harvesting, processing, and exports. In 2020, the GOU committed to eliminate the monopoly of state-owned carrier Uzbekistan Air in the air cargo, airport service, and domestic air transportation market. 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 2019) 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, power generation, 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 the law, local companies with at least 15 percent foreign ownership can qualify as having foreign capital. The minimum fixed charter funding requirement for such companies is 400 million soum ($42,000 as of March 2020). Some restrictions apply: foreign investment in media enterprises is limited to 30 percent; in finance, foreign investors may operate only as joint venture partners with Uzbekistani firms, and banks with foreign participation face minimum fixed charter funding requirements (100 billion soum for commercial and private banks, and ranging from 7.5 to 30 billion soum for insurance companies – equivalent to $10.5 million and $0.8-$3.1 million respectively), while the required size of charter funds for Uzbekistani firms is set on a case-by-case basis.
The government closely scrutinizes all foreign investment, with special emphasis on sectors of the economy that it considers strategic, such as mining, cotton processing, oil and gas refining, and transportation. 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. The government also uses licensing as a tool to control enterprises in several important sectors such as energy, telecommunications, wholesale trading, and tourism. There are no legislative restrictions that specifically disadvantage U.S. investors.
Other Investment Policy Reviews
The Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), and the United Nations Conference on Trade and Development (UNCTAD) have not conducted investment policy reviews of Uzbekistan in the past three 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 grew by about 200,000 people in 2019. 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 three special economic zones (Navoi, Jizzakh, and Angren) 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 one base calculation value (BCV) (223,000 soum ($24) as of March 2020) for local investors and 10 BCV (2,230,000 soum ($234) as of March 2020) for foreign investors. Applicants receive a 50 percent 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 percent foreign-owned, or as an “enterprise with foreign investment” (EFI) if more than 15 percent foreign-owned and holding a minimum charter capital of 400 million soum ($42,000 as of March 2020). 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.
The World Bank ranked Uzbekistan as eighth in the world for the “Starting a Business” indicator in its 2020 Doing Business report.
In general, the GOU does not promote or incentivize outward investments. There is no official institution or agency that promotes outward investment from Uzbekistan. 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, 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, 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 Agreements and Taxation Treaties
3. Legal Regime
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.
In late 2016, President Mirziyoyev ordered publication of some draft legislation for public comment, including draft decrees on the government’s development strategies, tax and customs regulation, and legislation to create new economic zones. Public review of the legislation is achieved through the website https://regulation.gov.uz. Prior to 2016, publishing drafts of laws and regulations for public review was uncommon.
The GOU publishes presidential decrees and government decisions online. Drafts of some legislation are published on a government website (https://regulation.gov.uz) for public consideration and comments. 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 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. 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 scope of business-related regulations in Uzbekistan includes many laws, decrees, resolutions, rules, specific guidelines, and instructions. Usually, regulations and rules are developed by relevant government agencies and are approved by the president or relevant ministers, as appropriate. Public laws are subject to parliamentary approval.
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.
Multiple research centers and think tanks are involved in the development and review of regulations. The process includes experts from government agencies and state-owned enterprises, as well as research centers funded by the government and international organizations like UNDP. However, except under rare circumstances, the results of the experts’ scientific studies or analysis on the impact of regulations are not made publicly available. In 2017, the GOU created a specialized Development Strategy Center as an NGO. Its projects involve a number of local organizations, including the Independent Civil Society Monitoring Institute, the Legislation Monitoring Institute, the Chamber of Commerce and Industry, the Chamber of Advocates, the Academy of Public Administration, the National Association of Electronic Media, and the National Association of NGOs. The Center is intended to consolidate efforts of these institutes to facilitate expert and public discussions on reforms outlined in the GOU’s development strategies. In February 2019, the president ordered the creation of a new “National System of Monitoring and Evaluation of the Position of the Republic of Uzbekistan in International Ratings.” This initiative will consolidate efforts of specific scientific institutions and think tanks in the area of regulatory reforms. Public review of the legislation is available through the website https://regulation.gov.uz.
Uzbekistan’s fiscal transparency still does not meet generally accepted international standards, although the government demonstrated notable progress in this area in 2019. A Presidential Resolution, dated August 22, 2018, called for transparency of public finances and wider involvement of citizens in the budgetary process. One positive step was the publication of the detailed state budget proposals for fiscal years (FY) 2018, FY2019, and FY 2020 within the framework of Budget for Citizens project. In August and September 2019, the GOU introduced amendments to the Budget Code mandating the publication of the conclusions of the Accounts Chamber of the Republic of Uzbekistan, which are based on the results of an external audit and evaluation of annual reports on the implementation of the state budget and the budgets of state trust funds. In accordance with the law, the Ministry of Finance now posts state budget related reports on its Open Budget website: https://openbudget.uz. Recent legislation also contains measures to harmonize budget accounting with international standards, provides for international assessment of budget documents through the Public Expenditure and Financial Accountability (PEFA) process, and submitting the budget for an Open Budget Survey ranking. In 2019, the GOU officially requested the U.S. Government’s technical assistance to improve fiscal accountability and transparency, initiating an assistance program that will begin in 2020.
Under the December 2019 Law on the State Budget, starting in 2020, all government agencies, state trust funds, and the Reconstruction and Development Fund of Uzbekistan (FRDU) shall publish quarterly reports on: distribution of budget funds by subordinate budget organizations; financial statements; implementation of budget funded projects; and all major public procurements. Such reports must be published within 25 days after the end of the reporting quarter. In addition, the government will use https://openbudget.uz/ to ensure transparency of state budget funds directed to the Investment Program of Uzbekistan, tax and customs benefits provided to the taxpayers, measures to control and combat financial violations, and spending of above-forecasted budget incomes.
Despite this progress, the government is still not releasing complete information on its off-budget accounts or on its oversight of those accounts, publishing only some generalized parameters at https://www.mf.uz/en/deyatelnost/deyatelnost-ii/mestnyj-byudzhet.html. In FY2019, the GOU’s budget implementation reports were less itemized than in previous years.
International Regulatory Considerations
Uzbekistan is not currently a member of the WTO or any existing economic blocs although it is pursuing WTO accession and its parliament has approved 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 2013, 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 2018), and several other decrees and resolutions.
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.
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)
The GOU adopted several new laws, presidential decrees, and government resolutions related to foreign investments in 2019. These include:
- Law on Currency Regulation (ZRU-573, October 22, 2019). The law liberalized currency operations, current cross-border transactions, and capital movement transactions.
- Law on Investments and Investment Activities (ZRU-598, December 25, 2019). The law replaces several laws on investments adopted in the 1990s and provides more rights to foreign investors. Among other things, it guarantees free transfer of funds in foreign currency to and from Uzbekistan without any restrictions, including currency conversion for repatriation. Foreign investors are granted the right to terminate investment activities and to freely repatriate assets. The law guarantees protection of foreign investors’ assets from nationalization.
- Law on Amendments to the Tax Code of the Republic of Uzbekistan (ZRU-599, December 30, 2019). This law introduces the new Tax Code, which provides a significant decrease of the tax rate and simplifies tax reporting for all businesses.
- Law on Special Economic Zones (ZRU-604, February 17, 2020). The law will enter into force in May 2020. It will streamline and simplify rules and regulations that apply to businesses registered in previously created specialized economic and industrial zones.
- Decree on the State Program for the Implementation of the Action Strategy on Five Priority Development Areas in the Year of Science, Education and Digital Economy (March 2, 2020).
- Decree on Improvement of Investments and Foreign Trade Governance through Establishment of the Ministry of Investments and Foreign Trade of the Republic of Uzbekistan (UP-5643, January 28, 2019). This law consolidated the functions of the State Investments Committee of the Republic of Uzbekistan and the Ministry of Foreign Trade into a newly formed ministry.
- Decree on Measures to Improve Uzbekistan’s position in International Ratings and Indexes (UP-5687, March 7, 2019).
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 Anti-Trust 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 2019.
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.
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).
In November 2006, the Constitutional Court of Uzbekistan issued its ruling that a provision of Uzbekistan law providing for international arbitration does not constitute Uzbekistan’s consent to have any particular dispute settled through international arbitration. ICSID arbitration does not stipulate the consent of the involved parties to have their dispute settled at the international level. In practice, this means that Uzbekistan’s courts do not recognize foreign businesses’ attempts to submit their disputes to international arbitration absent a separate consent to such arbitration, such as a bilateral investment treaty.
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.
Post is aware of a number of previous cases of commercial or investment disputes involving foreign investors. These have included asset seizures, expropriations, or liquidations; lengthy forced production stoppages; and pressure to sell off foreign shares in joint ventures. These cases have involved a variety of sectors, including food production, mining, telecommunications, and agriculture. 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.
However, since President Mirziyoyev came to power, investment disputes have been more limited in scope, but still exist. Foreign investors should have no reasonable expectation that the government will honor an international arbitration verdict. The Constitutional Court of Uzbekistan ruled in 2006 that the written consent of all parties involved is required to recognize an international decision.
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, has yet to be approved by Uzbekistan’s Parliament.
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.
Foreign arbitral awards or other acts issued by a foreign country can be recognized and enforced only if Uzbekistan has a relevant bilateral or multilateral agreement with that country. If international arbitration is permitted, awards can be challenged in domestic courts. However, local economic courts do not currently have a solid mechanism for enforcement of foreign courts’ decisions.
Most investment disputes involving Uzbekistan’s state-owned enterprises (SOEs) reviewed by domestic courts have been settled out of court and have not reached a verdict, or have been decided in favor of the SOEs. 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 its 2020 Doing Business report, the World Bank ranked Uzbekistan 100 out of 190 for the “Resolving Insolvency” indicator ( https://www.doingbusiness.org/en/data/exploreeconomies/uzbekistan).
4. Industrial Policies
- 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 first Free Industrial and Economic Zone (FIEZ) was created in 2008 in the Navoi region. By the end of 2019, there were eight free industrial zones and 49 small industrial zones operating in different regions of the country. According to official statistics, 108 investment projects have been implemented in these zones, creating 83,000 new jobs.
Performance and Data Localization Requirements
There are several restrictions and quantitative limitations on employment of foreign nationals in Uzbekistan. The chief accountants in banking and auditing companies must be Uzbekistani nationals. The law also requires that either the CEO or one member of a board of directors be a citizen of Uzbekistan. In the tourism sector, only Uzbekistani nationals can be professional tour guides. All foreign citizens, except those from certain countries of the former Soviet Union, need visas to work in Uzbekistan and all individuals must register their residences with authorities. Legislation permits foreign investors and specialists to obtain multiple entry visas for the period of their contract. To apply for a work visa, American citizens must submit documents regarding their company to an Uzbekistani embassy or consulate. American investors have complained in the past about the short validity of visas and the limited number of entries, though we understand that practice is changing, and investors can specifically request multiple entry/longer term visas.
Foreign workers must also register with the Ministry of Employment and Labor Relations. The Agency on Foreign Labor Migration under the Ministry of Employment and Labor Relations is responsible for enforcing limits on employment of foreign nationals in various industries. For example, the number of foreign nationals in energy companies that operate in the country under Production Sharing Agreement terms cannot exceed 20 percent of the total number of employees, and additional foreign personnel can be hired only if there is no qualified local labor.
Formally, permission from the government is not required to invest in Uzbekistan except for investments in the special economic zones and businesses that are subject to licensing. At the same time, the GOU’s economic policy still maintains an intense focus on import substitution and export-oriented industrialization. Investors in non-priority sectors can expect less support in importing capital and consumer products than those in priority industries.
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. The government welcomes foreign investors mainly in the areas of localization, building local production capacities, and developing export potential.
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 percent 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 soum ($43,000 as of March 2020).
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.
On February 20, 2020, the GOU announced its plan to require 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.
Legislation does not require transfer of technology or proprietary information; such transfers are negotiated between the foreign investor and its local partner.
5. Protection of Property Rights
- 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.
The World Bank ranked Uzbekistan 72nd in the world in the Registering Property category of its 2020 Doing Business Report. More details can be reviewed here: https://www.doingbusiness.org/en/data/exploreeconomies/uzbekistan#DB_rp
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) (IPA, 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 makes 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 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 December 26, 2018, President Mirziyoyev signed a bill into law for Uzbekistan 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”). 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. The GOU is also establishing a system of licensing for companies that sell software legally, in order to stem the flow of pirated software to the marketplace, as described in GOU Resolution #72 of 2012 (https://www.lex.uz/acts/1982899).
There are no publicly available reports on seizures of counterfeit goods in 2019. According to AIP officials, Uzbekistan law enforcement agencies recorded over 130 cases of illegal selling of audiovisual records and software copies. In Tashkent, authorities seized 287 DVDs and CDs and documented 31 violation cases. 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 United States 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. Although Uzbekistan has taken some important first steps to address concerns raised in previous USTR’s reports, the country will have to demonstrate measurable and sustained progress before removal from the Special 301 Watch List. Uzbekistan is not included in the USTR Notorious Markets List.
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
6. Financial Sector
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), which fully liberalized currency operations, current cross-border and capital movement transactions, received final approved on October 22, 2019.
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 March 2020, 30 commercial banks operate in Uzbekistan. Five commercial banks are state-owned, thirteen banks are registered as joint-stock financial organizations (eight of which are partly state-owned), six banks have foreign capital, and six banks are private. Commercial banks have 854 branches and about 1,100 retail offices throughout the country. State-owned banks hold 87% 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 56 microcredit organizations and 61 pawn shops.
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 23.4%, and the current liquidity rate is 98.1%. 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. Privately owned commercial banks are relatively small niche players. The government and the Central Bank of Uzbekistan (CBU) still closely monitor commercial banks.
Official information on non-performing assets is not publicly available. According to the IMF’s 2019 Article IV Consultation report, the share of nonperforming loans out of total gross loans is about 1.3-1.4%. A majority of Uzbekistan’s commercial banks have earned “stable” ratings from international rating agencies.
In February 2020, the banking sector’s capitalization was about $5.5 billion, and the value of total bank assets in the whole country was equivalent to $28.9 billion. The three largest state-owned banks – the National Bank of Uzbekistan, Asaka Bank, and Uzpromstroybank – hold 50% of the banking sector’s capital ($2.7 billion) and 49.1% of the assets ($14.4 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 six small banks with foreign capital operating in the market, and six 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 (9,514 soum per U.S dollar as of March 3, 2020). After the almost 50% devaluation of the national currency in September 2017, the exchange rate has been relatively stable, supported by strong FX reserves ($29.4 billion by February 1, 2020). The CBU reported it had made $3.6 billion interventions in 2019 in the forex market to support the local currency.
President Mirziyoyev launched foreign exchange liberalization reform on 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 2019 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
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. A May 2019 IMF Staff Report mentioned 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 government leverages licensing and access to some commodities and utilities to protect quasi-governmental institutions and companies from commercial competition. Private businesses face more than the usual number of bureaucratic hurdles if they compete with the government or a government-controlled firm. 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.
On December 28, 2018, President Mirziyoyev ordered the GOU to develop a plan to restructure its SOEs. He noted that strong involvement of the state in the fuel and energy, petrochemical, chemical, transport, and banking sectors was hampering their development. The Agency for
Management of State Assets was ordered to implement a program on strengthening SOE corporate governance. In February 2020, the GOU proposed an SOE reform roadmap, which is expected to be approved on May 1, 2020. The reform will cover 13 large SOEs in the telecommunications, transportation, construction, food processing, automotive, machinery, wheat, cotton and chemical industries, as well as movie-making enterprises. The government plans to optimize the structure of these enterprises to increase their efficiency. Per the roadmap, 781 low-performing assets of these SOEs will be offered for privatization. It is expected that a broader scale optimization reform will also cover the largest SOEs, which control the mining/base metal sectors of the economy. The relevant draft of the decree has been published for public review. 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.
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. 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. According to official reports, 842 state owned enterprises and facilities were privatized in 2019. Privatization earnings of the state budget were equivalent to $54.3 million.
In May 2018, the Mirziyoyev administration first announced upcoming restructuring and privatization in various industries but noted that SOEs in extractive industries (energy, hydrocarbons and gold) would stay under state ownership. On February 26, 2020, a draft of SOE privatization plan was posted by the State Assets Management Agency for public review. The plan includes privatization of 1,115 enterprises, and public-private-partnerships in 42 enterprises. Companies that operate critical infrastructure and enterprises that qualify as companies of strategic importance will remain in full state ownership. The GOU timeline calls for this privatization program to be approved in May 2020 and implemented by 2025.
Senior government officials see privatization as a solution to improve the economic performance of inefficient large SOEs and as an instrument to attract private investments, primarily through public-private-partnership agreements. 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, including modernization of equipment and organizational and financial restructuring of each underperforming industry. Therefore, large scale privatization may be a long way off.
Privatization programs officially have a public bidding process, but it is often confusing, discriminatory, and non-transparent. Large privatization deals with the involvement of foreign investment require GOU approval. Formally, such approval can be issued after examination by the Contracts Detailed Due Diligence Center under the Ministry of Economy. 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.
8. Responsible Business Conduct
There are no independent NGOs, investment funds, worker organizations/unions, or business associations promoting or monitoring RBC in Uzbekistan.
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).
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. Uzbekistan is ranked 153 out of 180 rated countries in Transparency International’s 2019 Corruption Perceptions Index.
There are very few officially registered local NGOs available to investigate corruption cases and Embassy Tashkent is not aware of any genuine NGOs that are presently involved in investigating corruption. The law “On Combating Corruption” encourages more active involvement of NGOs and civil society in investigation and prevention of crimes related with corruption.
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 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 Uzbekistan’s Prosecutor General:
Address: 66, Akademik Gulyamov St., 100047, Tashkent, Uzbekistan
Hotline telephone numbers: +998(71) 1007, 232-4391, 232-4550,
Contact information for the office of Uzbekistan’s Ministry of Justice:
Address: 5, Sayilgoh Street, 100047, Tashkent, Uzbekistan
Website: http://www.minjust.uz/en/, http://www.minjust.uz/ru/anticorruption/feedback/
Hotline telephone numbers: +998(71) 1008, 233-2610, 233-1305, 236-0509
10. Political and Security Environment
11. Labor Policies and Practices
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 free and special economic 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 37,632 primary organizations and 14 regional trade unions, with official reports of 60 percent of 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 percent 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;
- professional training;
- formation and joining of labor unions;
- pensions; and
- 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 sector and workers involved in various large state-facilitated civil construction projects conducted strikes, protesting against salary payment delays and demanding improvement of their working conditions. Reportedly, law enforcement authorities inspected the employing company, which eventually addressed most of the 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.
14 conventions 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;
- Employment Policy Convention;
- Forty-Hour Week Convention;
- Holidays with Pay Convention;
- Maternity Protection Convention [Revised];
- Workers’ Representatives Convention; and
- Collective Bargaining Convention.
The most recent observations of the ILO’s Committee of Experts on the Application of Conventions and Recommendations (CEACR) can be reviewed here: https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:11200:0::NO::P11200_COUNTRY_ID:103538
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 2019, Uzbekistan adopted a number of labor related laws and regulations, including:
- Law on Trade Unions (ZRU-588, entered into force December 6, 2019)
- Law Ratification of Protocol of 2014 to the ILO Forced Labor Convention 29, 1930. (ZRU-545, June 25, 2019)
- Presidential Decree on Additional Measures to Improve the System of Countering Trafficking in Persons and Forced Labor (UP-5775, July 30, 2019)
- Presidential Decree and Government Resolution on introduction of Unified National Labor System interagency operational software and my.mehnat.uz portal (PP-4502, October 31, 2019, and N971, December 5, 2019)
- Presidential Decree on Measures to Improve the Personnel Policy and the System of Public Civil Service in the Republic of Uzbekistan”(UP-5843, October 3, 2019)
- Amendments to safety on job regulations in various industries and social service sectors.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data:
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||58,000||2019||N/A||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source||USG or international statistical source||USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||N/A||N/A||2019||N/A||
BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||N/A||2019||N/A||
BEA data available at
|Total inbound stock of FDI as % host GDP||2019||9,800||2019||N/A||
UNCTAD data available at
* Source for Host Country Data: The State Statistics Committee of Uzbekistan
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.
14. Contact for More Information
Economic and Commercial Officer
3, Maykurgan St., Yunusabad District, 100093, Tashkent, Uzbekistan
Telephone Number: +998-71-140-2130
Email address: BusinessInUzbekistan@state.gov.