UZBEKISTAN: 2009 INVESTMENT CLIMATE STATEMENT

UNCLAS SECTION 01 OF 20 TASHKENT 000074 SIPDIS DEPT PASS TO CIM NTDB WASHINGTON DC DEPT FOR EB/IFD/OIA DEPT PASS TO USTR E.O. 12958: N/A TAGS: EINV EFIN ETRD ELAB KTDB PGOV OPIC SUBJECT: UZBEKISTAN: 2009 INVESTMENT CLIMATE STATEMENT REF: a) 08 STATE 123907 REF: 08 STATE 123907 ¶1. (U) SUMMARY. Uzbekistan remains a country where conditions for foreign investors are difficult. Legislation guarantees attractive incentives, but in practice it is difficult for an investor to obtain these benefits. The Government of Uzbekistan retains control of large sectors of the economy, privatization is moving slowly, and the country is among the ten worst performers in Transparency International's Corruption Perceptions Index. Currency restrictions hamper business, and many foreign companies operating in Uzbekistan are experiencing increasing delays in converting Uzbek soum to dollars. On the positive size, 2008 was marked by strong macroeconomic performance, no new seizures of foreign assets, significant expansion in General Motors' operations in Uzbekistan, and the announcement of a new free industrial trade zone in Navoi. END SUMMARY -------------- Openness to Foreign Investment -------------- ¶2. (U) The declared policy of the government of Uzbekistan ("the government") is to attract foreign direct investment. Uzbekistan has the potential to be a regional economic powerhouse, but the government has yet to create the necessary conditions to attract needed foreign investment. Existing legislation on its face grants foreign direct investors a host of incentives on a case-by- case basis, including tax holidays, duty-free import of capital goods, and protection against expropriation. However, the requirements for obtaining these benefits are ambiguous, the processes and procedures are cumbersome, and the regulatory environment is capricious. The lack of predictability deters many potential investors. Currency convertibility is cited by foreign firms as one of the greatest obstacles to normal investment operations. ¶3. (U) According to Uzbek law, the state must guarantee and protect the rights of foreign investors within the country. Primary legislation that guarantees foreign investment includes the following decrees: "On Foreign Investments," "On Guarantees and Measures of Protection of Foreign Investor's Rights," "On Guarantees of the Freedoms of Entrepreneurial Activity," and "On Production Sharing Agreements." 
¶4. (U) In principle, the judicial system upholds the sanctity of contracts. However, the judiciary is not independent and has favored state-owned or government-affiliated entities in commercial disputes. ¶5. (U) The government's role in key industries can have discriminatory effects on foreign investors. The government plans to retain controlling shares of some key industries, including oil and gas, telecommunications, airlines and mining. The government limits access to the raw cotton market, thereby exercising effective control of investments and capital flows. The government controls all silk sold in the country, and this dampens foreign investment in the textile and rug-weaving industries. This is not an exhaustive list. The government has announced plans to privatize some mid-sized and large state-owned companies and banks but has not yet done so. Moreover, a variety of challenges exists, including unrealistic valuations and the choice of which assets to retain. *********************** * Missing Section 002 * *********************** *********************** * Missing Section 003 * *********************** *********************** * Missing Section 004 * *********************** *********************** * Missing Section 005 * *********************** *********************** * Missing Section 006 * *********************** *********************** * Missing Section 007 * *********************** *********************** * Missing Section 008 * *********************** *********************** * Missing Section 009 * *********************** *********************** * Missing Section 010 * *********************** *********************** * Missing Section 011 * *********************** *********************** * Missing Section 012 * *********************** *********************** * Missing Section 013 * *********************** *********************** * Missing Section 014 * *********************** *********************** * Missing Section 015 * *********************** *********************** * Missing Section 016 * *********************** *********************** * Missing Section 017 * *********************** *********************** * Missing Section 018 * *********************** *********************** * Missing Section 019 * *********************** *********************** * Missing Section 020 * ***********************