A necessary condition for the development of the economy is a high investment activity. It is achieved by increasing the volume of investment resources sold and their most effective use in the priority areas of material production and the social sphere. Investments form the production potential on a new scientific and technical basis and predetermine the competitive position of countries in world markets. At the same time, attracting foreign capital in the form of direct investment, portfolio investment and other assets plays a significant role for many states, especially those emerging from economic and social ill-being.
As can be understood, a favorable investment climate is a prerequisite for ensuring a stable high development of the economy, attracting investments in regions and industries, and enhancing entrepreneurial activities. It contributes to the influx of foreign direct investment in important production and social projects, expands the possibilities for innovation, and improves the quality of socio-economic development.
Over the years of independence, Uzbekistan has gone through a difficult stage of restructuring the entire economy, accompanied by certain difficulties in terms of developing a suitable concept and mechanisms for its implementation.
Foreign investment is welcome in all countries whose economies are open. Foreign investment is an impetus to the economic development of countries, especially developing countries. Foreign investment continues to grow rapidly, reinforcing the role of international production in the global economy. It can be argued that the impact of foreign investment on the host economy is contradictory: it can be both positive and negative. [1.]
Investing in foreign capital increases the competitiveness of the host country. The flow of investment improves productivity. Investments also improve the quality of products, and this affects the competitiveness of products, brings it to the international level, that is, expands relations with foreign markets. These positive consequences of investing foreign capital are the most significant for the economy of the host country. Despite the obvious advantages of introducing foreign investment, there are certain disadvantages.
Foreign investments increase the demand for highly skilled labor, and therefore the level of well-being of the population is growing, as foreign investors pay higher wages compared to local companies. But accordingly, the profits of local business establishments are reduced due to unfair competition. Foreign investment stimulates the production of intermediate products, as it creates demand for it. Local firms are forced to create additional production capacities, since they would not produce these goods if there were no demand from foreign companies, countries. [2.]
Another aspect of the negative impact of foreign investment on the host economy is the effect of crowding out domestic investment with foreign investment, crowding out local firms with more competitive foreign ones, that is, local firms simply do not have the opportunity to develop, grow, break through to the world market. It can be said that this effect is far from ambiguous, since foreign investment can contribute to the development of national firms through increased labor productivity and the external effect of technology transfer, which is one of the positive effects of foreign investment on the host economy.
In today's time, with the globalization of the world economy, the flow of foreign capital between countries has reached a high level. The amount of foreign capital operating abroad is enormous. Every year, international capital flows are estimated at about 0.7–1.2 trillion dollars, including direct investment — about 0.13–0.24 trillion, portfolio — 0.12–0.67 trillion dollars. Only the volume of direct investments accumulated in the world is about $ 3 trillion. The picture of modern international economic life is created, first of all, by those companies that not only actively trade with foreign countries, but also actively invest there. [3]
In the total volume of capital export, the role and share of the export of state capital is increasing (about 25 %). Among the total volume of exported capital to developing countries, 90 % is state capital, and to the countries of Eastern Europe and the CIS — 35 % (while in the form of soft loans — 35 %, interest-free loans — 65 %).
More than 50 % of the migratory capital in the world economy is owned by private entities (corporations, TNCs, banks, investment, pension, insurance funds, etc.). In recent decades, there has been a tendency to reduce the share of banks from 50 to 25 % and a simultaneous increase in the share of capital of TNCs. The volumes of private capital migrating between industrialized countries are growing (about 75 %). The share of direct investment in the total volume of private and state capital is increasing. The number of international mergers and acquisitions of firms is growing (about 79 % of the total foreign direct investment). There is a shift in the sectorial structure of foreign investment from manufacturing and trade to investments in high-tech industries and services (more than 55 %).
Modern Uzbekistan is a leading industrial state in the heart of Central Asia, ensuring stability and economic development of the region as a whole. Among the advantages that the modern economy of Uzbekistan offers for foreign companies are political and macroeconomic stability, favorable climatic conditions, hospitable and hardworking people, and many others.
Of the advantages, the key factors for the success of doing business in Uzbekistan are; first a rich raw material base, next a favorable geographical location in the center of the largest regional markets, plus an integrated transport and logistics system, moreover, a diversified industrial base, and the scientific, intellectual and human resources of the republic integrated into the network of land and air communications of international importance. Access to a wide range of raw materials optimizes production costs as much as possible by significantly reducing the cost of transporting raw materials and materials, and provides the possibility of in-depth processing with the production of products with high added value and a localization level of over 30 %.
More than 2,800 deposits and promising manifestations of minerals have been identified in the republic; the country's total mineral resource potential is about 3.5 trillion dollars. For many items, including non-metallic and metallic minerals, agricultural raw materials, Uzbekistan occupies one of the leading places in the world. In particular, in terms of copper reserves — 11th place, in terms of gold production — 9th, uranium — 8th, cotton fiber — 5th place.
In 2019, due to all sources of financing, the volume of investment development amounted to 220.7 trillion soums, exceeding the approved annual forecast figures by 2 times, the press service of the Ministry of Investment and Foreign Trade reports.
In particular, the volume of investment in fixed assets amounted to 189.9 trillion soums, with a growth rate of 1.3 times compared to the same indicator in 2018.
The share of the volume of investments in fixed assets in the structure of GDP increased to 36.2 % in 2019 (the share of the total volume of investments in the structure of GDP at the end of 2019 amounted to 42.1 %). In the reporting period, about 2.8 thousand social, infrastructural and industrial facilities were commissioned: 145 large industrial facilities, 167 large regional projects, 2.5 thousand social and infrastructural facilities.
A significant increase in investment performance is due to an increase in the inflow and development of foreign investment and loans in the amount of $ 13.3 billion, of which:
− foreign direct investment — $ 9.3 billion (including in fixed assets — $ 6.6 billion).
− funds of international financial institutions — $ 4 billion (including in fixed assets — $ 3.2 billion).
At the same time, the share of utilized foreign direct investment in the total investment volume increased to 37 %. The main foreign partners in attracting foreign investment to the Republic of China were China, Russia and Germany, while the total number of investing countries in the economy of Uzbekistan exceeded 50, due to which the share of the largest investing countries fell to 34 % of the total volume of direct foreign investments and loans.
Active growth in attracting foreign direct investment compared with the forecast indicators of 2018 was observed in the electrical industry (an increase of 7.5 times), the metallurgical industry (an increase of 4.6 times), the textile industry (an increase of 2.5 times), and leather and footwear (2.1 times growth), oil and gas (2 times growth) industries. At the same time, the growth trend of foreign direct investment flows into regional projects has strengthened, the total value of which in 2019 amounted to $ 4.8 billion (of which $ 4.2 billion into fixed assets). In the regions, with the participation of foreign capital alone, 167 projects with a total value of $ 858.5 million were put into commercial operation.
As a result, Uzbekistan ranked 69th place in “Doing Business 2020” among 190 countries and entered the top 20 countries — reformers in terms of creating the most favorable conditions for doing business. For comparison, we note that in 2012, the country in this rating took only 166 place. Also, during the second half of 2018 and the past period of 2019, Uzbekistan managed to get the first estimates of agencies such as Fitch and Standard & Poors. At the same time, the rating of Uzbekistan was positively affected by such factors as a strong sovereign balance, low level of state debt, as well as a decrease in state participation in the country's economy. Visa-free entry granted to citizens of 86 countries. The second country in terms of openness for tourists among the CIS countries.
Uzbekistan has also resumed active negotiations on accession to the World Trade Organization (WTO). Joining the WTO will provide an opportunity for Uzbek entrepreneurs to increase prospects for increasing scientific and technological progress in the sectors through the acquisition and purchase of efficient and reliable imported equipment. In addition, upon entry into the WTO, domestic exporters will gain easier access to foreign markets.
The potential of Uzbekistan is based on strong macroeconomic fundamentals — it is a country with a strong domestic market, relatively young and cheap labor, rich natural resources, a relatively diversified economy and a rapidly developing infrastructure. In general, Uzbekistan has the advantage of macroeconomic stability, which, combined with ongoing reforms, opens up opportunities in various sectors of the economy, be it financial services, construction or tourism [4].
Intensified work have been done on further integration into the international stock market. So, in February 2019, Uzbekistan placed the first 5-year and 10-year Eurobonds totaling $ 1 billion with a four-time subscription, and ultimately orders were distributed among more than 150 investors from England, Europe, America and Asia. It is also noteworthy that in November 2019, for the first time in the history of Uzbekistan, corporate Eurobonds were issued. In particular, “Uzpromstroybank” issued five-year international bonds worth $ 300 million on the London Stock Exchange. Orders reached $ 1.2 billion with 4x coverage. Successful placement of bonds also testifies to a positive assessment of international investors of reforms carried out in Uzbekistan.
The achievement of positive results is facilitated by the implementation of structural reforms aimed at improving the business environment, including:
− reduction of terms, number of documents and costs associated with business registration (registration takes 30 minutes);
− liberalization of the foreign exchange market, which allowed to remove restrictions on the repatriation of profits;
− simplification of tax and customs administration — introduction of a risk analysis system, reduction of documents and time required for customs clearance;
− strengthening measures for the execution of contracts (introduction of the mediation institution), protection of minority shareholders, as well as others.
In Uzbekistan, intensive development of basic industries is ensured, tremendous work is being done to redesign existing and create new capacities through the use of advanced, in particular information technologies, competitive, export-oriented and import-substituting products are being produced. Production volumes are growing, new enterprises are opening, including with the participation of foreign capital, the scope of small business and private entrepreneurship is expanding.
The investment climate has been created in the country, the privileges provided to foreign investors, allow attracting investments on a long-term basis, enable foreign partners to actively participate in the programs of privatization and modernization of production enterprises. The growing interest of other countries' business circles in cooperation with Uzbekistan is also facilitated by the annual holding of more than 50 specialized international trade fairs in Tashkent. Uzbekistan is one of those countries in the world that has achieved high macroeconomic indicators in recent years. These high rates are carried out due to the influx of foreign investment.
References:
- E. R. Makhiudov. World economy: modern economic systems. Tashkent. 2004.
- E. F. Avdokushin. International economic relations. Tutorial. Moscow. 2000.
- President of the Republic of Uzbekistan Shavkat Mirziyoyev at an expanded meeting of the Cabinet of Ministers on the results of the country's socio-economic development in 2019 and the most important priority areas of the economic program for 2020.
- BCG report “Uzbekistan: a window of opportunity”, http://media-publications.bcg.com/RUS-UZ-Tier_MAY-2019-FIN.pdf
