Work Plans

WORK PLAN OF THE FOREIGN INVESTORS’ COUNCIL OF UZBEKISTAN FOR 2023

STRATEGIC ACTIVITIES (TOPICS):

1. The new draft “Law on Investments”

The new draft aims to enhance the investment climate of a country through various measures. The first is to introduce a more detailed structure with a focus on private-to-private investments. The second measure is to ensure enhanced protection of investors’ rights, including expropriation. The draft adopts the best practices of organizations such as the World Bank and the Organization for Economic Co-operation and Development (OECD).

Another crucial aspect of the draft is the promotion of foreign direct investment (FDI) through a single window platform and an Investment Promotion Agency (IPA). The third measure focuses on improving compliance with multilateral and bilateral agreements such as those of the World Trade Organization (WTO).

Furthermore, the draft aims to increase transparency, clarity, and procedural efficiency while reducing duplication. Lastly, the proposal also suggests the need for better provisions on investment guarantees, state support, incentives, and dispute resolution. By adopting these provisions, the country can attract more FDI, promote private-to-private investments, and improve its investment climate to the level of international standards.

Developed new structure for the hybrid law. Currently working with IFC, MIIT and FIC members. ETA 12-18 months.

2. The new draft “Law on Special Economic Zones”

The draft aims to improve the operations and regulatory environment of Special Economic Zones (SEZs) in the country. The measures include a more detailed description of the functions of the autonomous SEZ Authority, enhanced protection of private investors’ rights, granting private investors the right to develop and operate SEZs located on public lands, norms and regulations that conform to international best practices, the introduction of a single-window platform principle, an integrated and mixed-use approach for master plans of SEZs, and greater transparency, clarity, and procedural efficiency.

These measures are expected to increase private investment and economic activity in SEZs, which will lead to higher job creation, economic growth, and tax revenue for the country. The adoption of international best practices and the introduction of a single-window platform will improve the ease of doing business and increase transparency in SEZ administration and regulation.

Currently working with IFC, MIIT and FIC members. ETA 12-18 months.

3. The creation of a legal framework for the Islamic banking and finance

The introduction of the Islamic banking system in Uzbekistan is projected to have significant benefits for the country’s economy. Experts predict that it can bring in an additional 125 trillion soums, equivalent to 10 billion US dollars, in investments, leading to increased domestic investments. By establishing bank deposits in accordance with the principles of Islamic finance, over 50 trillion soums, equivalent to 4 billion US dollars, can be attracted from the population as deposits, thus expanding the deposit base.

Uzbekistan can also expect to attract foreign investments, as countries like Indonesia and Bahrain have already attracted billions of US dollars in investments through Islamic finance systems. The introduction of Islamic banks and equity financing is expected to boost economic activity, leading to higher GDP growth, job creation, and tax revenue, thereby increasing economic activity.

Analytical paper with recommendations/proposals/solutions has been prepared. Draft amendments to the civil, tax code and banking law are prepared. ETA 3-6 months.

4. Tashkent International Financial Center

The Development Strategy of New Uzbekistan 2022-2026 emphasizes the need for an accelerated development of the national financial market as a crucial basis of socio-economic growth. According to international experts of the TIFC Advisory Group, the creation of the TIFC will provide an additional 1% GDP growth annually, which amounts to about 600 million USD.

Improving the quality of corporate governance, developing the stock market, and placing new companies and additional share issues of already existing ones will allow for significant share placements, attracting twice as much investment, and intensifying Uzbekistan’s investment policy. Creating a capacious capital market will allow the attraction of additional investment.

The TIFC will facilitate privatization, increase recognition and awareness of ongoing transformations among foreign investors, and create new highly qualified jobs. It is predicted that 15-20 thousand new jobs will be created within 10 years of the creation of the TIFC.

The pre-feasibility study has been prepared. Currently working on finding financing to complete the full feasibility study (a potential donor has agreed to finance $100,000). ETA 12 months.

5. The new draft “Law on Privatization”

The new draft aims to enhance the investment climate of a country through various measures. The first is to introduce a more detailed structure with a focus on private-to-private investments. The second measure is to ensure enhanced

protection of investors’ rights, including expropriation. The draft adopts the best practices of organizations such as the World Bank and the Organization for Economic Co-operation and Development (OECD).

Another crucial aspect of the draft is the promotion of foreign direct investment (FDI) through a single window platform and an Investment Promotion Agency (IPA). The third measure focuses on improving compliance with multilateral and bilateral agreements such as those of the World Trade Organization (WTO).

Furthermore, the draft aims to increase transparency, clarity, and procedural efficiency while reducing duplication. Lastly, the proposal also suggests the need for better provisions on investment guarantees, state support, incentives, and dispute resolution. By adopting these provisions, the country can attract more FDI, promote private-to-private investments, and improve its investment climate to the level of international standards.

Developed new structure for the hybrid law. Currently working with IFC, EBRD, MIIT and FIC members. ETA 6-12 months.

1. MEDIUM-TERM ACTIVITIES (TOPICS):
2. Fixed tax rates (stabilization)

The proposal aims to address the issue of tax legislation instability experienced by investors due to frequent changes in tax administration procedures and rates. The use of fixed tax rates as a potential solution is discussed, citing examples from countries like the United Arab Emirates, Bangladesh, and Vietnam.

The proposal suggests that the implementation of fixed tax rates through investment agreements with investors is a feasible solution that can be achieved using the existing regulatory framework.

The annexes of the proposal provide further information on the risks associated with implementing long-term fixed tax rates, project selection criteria, and recommended amendments to the current legislation. The proposal acknowledges that significant changes to investment legislation may be necessary to develop industrial policy and large-scale sectoral programs.

Analytical paper with recommendations/proposals/solutions has been prepared.

7. The revamping of tax administration and VAT returns

The revamping of tax administration and VAT returns is an important step towards ensuring fair taxation and efficient tax collection in a country. The implementation of improved and efficient enforcement of the tax code can help to minimize interference by tax officers to business activities of investors. This can be complemented by the introduction of a new monitoring system for tax reimbursements, which can reduce the cost of administering tax refunds.

The streamlining of value-added tax (VAT) return processes is another key aspect of tax administration reform. By simplifying the VAT return process, taxpayers can

submit their returns more easily and in a timely manner, while tax authorities can process the returns more efficiently and accurately. This can help to reduce errors and inconsistencies in VAT reporting, and ensure that the correct amount of tax is collected. Additionally, the revising of the new E-aktiv (assets tracking system) which is being imposed by the government can help to improve transparency in tax administration and enhance the government’s ability to track assets and prevent tax fraud.

Gathered data from the FIC members and in the process of getting more data from the leading exporters (200-300 firms) in the country. ETA – 1-2 months.

8. The development of the factoring services in Uzbekistan

Brief analytical report has been prepared which highlights the challenges faced by the private sector in Uzbekistan in obtaining affordable and fast conventional bank financing due to lack of collateral or credit history. Factoring services are proposed as an alternative source of funding for private sector participants, allowing them to sell their receivables to a third party at a discount in exchange for immediate cash.

The report recommends the development of a legal framework for factoring services, tax incentives to reduce the cost of factoring services, financing for factoring companies, and an information campaign to increase awareness about factoring services among small and medium-sized enterprises (SMEs). However, local banks and borrowers lack sufficient awareness about factoring services and their benefits, and local banking standards need to be revised to support factoring as a viable alternative to traditional lending.

Draft analytical paper has been prepared. ETA – 6-12 months.

9. Trace and track mandatory system – (issue raised by FIC member / Association of soft-drink producers)

The mandatory digital track and trace labeling system for certain types of goods has been introduced in Uzbekistan. The system has been introduced for tobacco products, alcoholic products, household appliances, and medicines, leading to a decrease in the share of counterfeit products and “shadow turnover”.

However, the producers of water and soft drinks are concerned that the mandatory digital labeling system will lead to a significant increase in production costs, a reduction in production and jobs, an increase in prices, as well as a decrease in tax payments to the budget.

The unit cost in the water and soft drinks sector is low compared to alcoholic and tobacco products, and the level of counterfeit is within the statistical error, which makes the introduction of the system economically unjustified.

The introduction of the labeling system will have a negative impact on the development of a dynamically developing market, especially for medium and small businesses, and will also contribute to an even greater increase in prices for non­alcoholic products. The lack of a technical solution for digital marking for

manufacturers of high-speed production lines will lead to a decrease in production volumes of enterprises in the industry and job cuts.

Analytical paper with recommendations/proposals/solutions has been prepared. ETA – 1-2 months.

10. Cotton price regulation – (issue raised by FIC member, but related to all cotton/textile clusters)

FIC member has proposed a revision of the pricing procedure in the agricultural sector, specifically fixing prices for the sale of raw cotton by farmers to clusters. The fixed price for the purchase of 1 ton of raw cotton by clusters is currently higher than the world quotations of cotton fiber and the domestic market price, resulting in a net loss for agricultural clusters.

This has also led to high prices of cotton yarn in Uzbekistan, making textile producers less competitive compared to other countries. Additionally, the current system of agriculture in Uzbekistan involves preferential loans for clusters, who must then finance farmers interest-free, which burdens the clusters and does not encourage farmers to increase efficiency. The current situation may lead to massive bankruptcies in agriculture in the short and medium term.

Analytical paper has been prepared and submitted to the MIIT.

11. Regional investment report – on Namangan and Kashkadarya regions

FICS is preparing analytical paper which focuses on the socio-economic development of Kashkadarya region and intended to provide a snapshot of the region, including analyses of key macroeconomic indicators. The investment climate index and business activity index will be also examined to assess the overall economic environment. The paper further will examine the sectoral development perspectives, industry mix, and specific industrial policies in place, along with an overview of free economic and industrial zones, transportation and logistics, services, foreign trade, and investments in the region.

Using the “shift-share model,” the paper offers recommendations on priority sectors for the region that have the potential for growth and development. The goal is to identify opportunities for socio-economic development and highlight potential investment opportunities. Overall, the paper aims to provide a comprehensive analysis of the Kashkadarya region and offer recommendations for local authorities to promote economic growth and development, and investors to identify potential areas of cooperation.

Namangan report was prepared and published. Kashkadarya report preparation has started. Final report ETA – July, 2023.

12. Brief Investors Note Uzbekistan (Part 1 – Opening and Registration Business)

FICS has started the series of the “Brief Investment Note Uzbekistan”. This is an informative and concise document that will provide a comprehensive overview of the corporate landscape in Uzbekistan. The note will cover various forms of corporate presence that exist in the country and will provide a detailed insight into the regulatory framework governing corporate activities. Investors looking to explore business opportunities in Uzbekistan can leverage this note as a valuable resource, as it provides useful links and registration procedures that can guide their investment decisions.

Furthermore, the note will provide investors with an understanding of the investment climate in Uzbekistan, which can help them make informed investment decisions. With its vast natural resources, strategic geographic location, and a growing economy, Uzbekistan offers immense potential for foreign investors. The note will highlight the potential advantages of investing in Uzbekistan, including its abundant resources, growing middle class, and government’s focus on developing a favorable investment climate. Overall, the “Brief Investment Note Uzbekistan” is hoped to serve as an essential resource for investors looking to explore business opportunities in Uzbekistan.

The draft has been prepared. Finalization and publication- ETA May 2023.

13. Quarterly Sentiment Survey

The Foreign Investors Council of Uzbekistan (FIC) provides a platform for effective communication and collaboration between the government and investors, which includes foreign companies, banks, investment structures, and international financial institutions operating in Uzbekistan. Among its principal roles, the Council aims to facilitate a constructive dialogue between public agencies and the private sector to address critical issues related to economic development and the private sector, enhance the business environment, and promote investments.

As part of its activities, FIC started conducting a quarterly survey among the largest international commercial companies operating in Uzbekistan to compile an Investment and Business Sentiment Index (IBSI). The survey, which is completed by top management officials (CEO, CFO, etc.) of FIC member companies, solicits brief responses regarding their expectations for the upcoming quarter (Q2, April- June 2023) for their own companies and the overall investment and business climate in Uzbekistan. FIC considers the IBSI an invaluable tool for both the investment and business community and the government. The sentiment of the leading foreign investors in Uzbekistan can help the authorities understand how the market may respond to policy initiatives or the general macroeconomic environment in the country.

Q1 report has been prepared and disseminated. Q 2 report will be published in July.

• SHORT-TERM ACTIVITIES (TOPICS):
• Finalized first round of working group meetings (On April 7th – WG Priority Sectors – press releases and media coverage, minutes submitted to EBRD and MIIT;
• Conducted one-to-one meetings with FIC members and other related bodies (Visa, Shindong, Coca-cola, Silverleaf, TBC bank, AUCC, EuroUZ);
• Published FIC’s bi-weekly bulletins;
• Finalizing the new website. ETA 1- 2 months;
• Developed and provided technical specification document for BizRadar (mobile communication) with input / output tables.

1. PREVIOUS WORK UPDATE:

• First plenary session of FIC held on November 16, 2022 – President of Uzbekistan held direct dialogue with foreign investors
• Number of applicants for membership reached 90
• President of Uzbekistan set priority areas (Finance, Privatization, Digitization, Green Economy, Priority Sectors (natural res., agri.) and General (Rule of law, investors across borders)
• Action plan for 2023 of Secretariat approved
• 6 Working groups and 3 subgroups were launched
• 85 issues and recommendations received
• One-to-one: 10 sectors and 25 large foreign companies were covered/ interviewed
• 6 topical areas were initiated (Laws on Investments and Free Economic

Zones; Islamic finance; Single window platform; Tashkent International Financial Center and Tax administration)

• Bi-weekly bulletin is published in new format
• Quarterly investor sentiment survey is launched (report will be shared)
• New Council website is being developed.