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U.S. Department of State Bureau of Economic and Business Affairs
Executive Summary
Uzbekistan, with a population of approximately 31 million - the largest population in the region, also has the potential to become the largest economy in Central Asia, but its economy currently is only 1/4th the size of Kazakhstan. The country has an abundance of natural resources, a well- developed transport infrastructure, and a highly literate workforce.
Despite government efforts to attract foreign capital, foreign direct investment (FDI) has fallen precipitously over the past four years. The government has created several special investment zones and other incentives, including tax holidays and customs waivers, to draw investment, but its focus on specific strategic industry sectors, where government and state-owned enterprises (SOEs) exert substantial influence, limits investor interest.
In many areas, including intellectual property rights, investor protections, and worker rights, the government has a substantial body of laws and regulations to protect the business and investment community. However, foreign investors still experience substantial difficulties due to variances in enforcement and interpretation of these laws.
The greatest operational concerns facing foreign and private investors are access to currency conversion, frustrating bureaucratic processes, an onerous tax system, overregulated banking, and punitive customs laws and procedures. In addition, a pattern of expropriations and politically motivated business inspections has damaged Uzbekistan's reputation as an investment destination and sharpened a critical element of risk in its business climate.
1.Openness to, and Restrictions upon, Foreign Investment
Attitude toward Foreign Direct Investment
The government of Uzbekistan ("the government" or "the GOU") has declared attracting foreign direct investment a core policy priority, but has one of the lowest cumulative inflows of FDI in the former Soviet Bloc due to a range of factors. These include limited access to foreign currency, an underdeveloped and overregulated banking sector, trade restrictions, government involvement in trade and commerce, and widespread corruption.
Without support of the government or state-affiliated entities, foreign investors have limited business opportunities in Uzbekistan. The government generally welcomes investors and investment projects that are in line with its import-substitution and export-oriented industrialization policy, and discourages investments in import-consuming sectors by controlling access to currency exchange.
FDI levels fell well below government targets in 2011 and 2012, prompting President Karimov to create the Working Committee...