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Uzbekistan
International Financial Relations
Foreign trade traditionally has provided Uzbekistan with supplies
of needed foodstuffs, including grain, and industrial raw materials,
whereas Uzbekistan exported primarily nonferrous metals and cotton.
On the eve of independence, Uzbekistan was a net importer, with
roughly 22 percent of total domestic consumption composed of imports,
and with exports accounting for 18 percent of production.
Trade Reform in the 1990s
Before the breakup of the Soviet Union, foreign trade was heavily
dependent on the Russian Republic. In the 1980s, more than 80
percent of Uzbekistan's foreign trade was within the Soviet Union,
with Russia accounting for half of imports and almost 60 percent
of exports. The other Central Asian republics accounted for another
quarter of Uzbekistan's total foreign trade. Even interrepublican
trade was directed through Moscow and organized in the interests
of centralized planning goals.
In the early 1990s, the Soviet-era pattern of exported and imported
products remained approximately the same: nearly all ferrous metals
and machinery, except that relating to the cotton industry, plus
about 40 percent of consumer goods and processed foods, were imported.
A significant aspect of the trade balance was that a single item,
grain, accounted for 45 percent of imports in the early 1990s,
as the republic imported about 75 percent of the grain it consumed.
Traditionally strong exports are basic metals, cotton-related
machinery, textiles, agricultural and aviation equipment, fertilizers,
and cotton.
In 1993 about 80 percent of foreign trade, with both former Soviet
and other partners, was on the basis of bilateral agreements (see
table 23, Appendix). In the early 1990s, such agreements were
heavily regulated by quotas, licenses, and distribution controls.
In 1993 and 1994, however, the list of commodities requiring export
licenses was cut in half, import licensing virtually ended, and
the use of fixed quotas was cut by two-thirds. Plans called for
adoption of a unified system of licenses and quotas in 1995. Private
barter agreements with partners in the former Soviet Union became
illegal in 1993; they were replaced by agreements based on international
prices. In 1994 the government eliminated its tax on foreign-currency
earnings.
In 1993 Uzbekistan's current accounts foreign trade deficit rose
to 9.4 percent of gross domestic product (GDP--see Glossary),
increasing from 3.1 percent in 1992; at that point, the deficit
was financed mainly through transactions backed by the country's
gold supply and by bilateral trade credits--measures not sustainable
over the long term. Since independence, Uzbekistan has made aggressive
efforts to expand foreign trade and to diversify its trading partners
(see Foreign Relations, this ch.). Expansion of trade relations
beyond the contiguous states of the former Soviet Union has been
hindered, however, by Uzbekistan's landlocked position and the
complexity of moving goods overland through several countries
to reach customers (see Transportation, this ch.).
Foreign Investment
Although limited, the foreign investment law adopted in mid-1991
was a first step in promoting foreign contacts. Foreign investment,
which moved quite cautiously in the early 1990s, expanded significantly
in 1994 and 1995. By 1995 a variety of United States and foreign
companies were investing in Uzbekistan. The United States Stan
Cornelius Enterprises, for example, helped cap an oil well blowout
at the Mingbulak oil field in March 1992, and the company has
subsequently established a joint venture with the Uzbekistan State
Oil Company (Uzbekneft) to develop the oil field and explore and
develop other oil reserves in the country. The directors of the
joint venture expect the Mingbulak Field to remain productive
for twelve to twenty years. Likewise, the Colorado-based Newmont
Mining Company has established a joint venture valued at roughly
US$75 million with the Nawoiy Mining and Metallurgical Combine
and the State Committee for Geology and Mineral Resources of Uzbekistan
to produce gold at the Muruntau mine. A production rate of eleven
tons per year was envisioned at the time the project was financed
by a consortium of fifteen British banks.
The United States firm Bateman Engineering also is working in
the gold sector, and various South Korean, Japanese, Turkish,
German, British, and other companies are investing in a wide range
of industrial and extraction operations including oil, sugar,
cotton and woolen cloth production, tourism, production of automobiles,
trucks, and aircraft, and production of medical equipment and
ballpoint pens.
There are some significant barriers to investment. Uzbekistan's
landlocked location makes commerce more difficult for potential
investors. And, despite new legislation concerning such areas
as tax holidays, repatriation of profits, and tax incentives,
the investment climate for foreign companies remains problematic.
The Karimov regime is relatively stable, but highly bureaucratic
and centralized control, lack of infrastructure, and corruption
remain major structural impediments that have prevented many joint
ventures from getting off the ground. Small and medium-sized foreign
firms are discouraged by persistent corruption among the lower-level
officials with whom they must deal; larger companies such as Newmont
Mining are able to deal directly with top-level politicians. Enterprise
taxation rates vary widely, but the rate for joint ventures with
more than 30 percent foreign backing is 10 percent. Five-year
tax exemptions are granted to such firms in specific areas. All
firms must pay a 40 percent social insurance tax to fund the state's
welfare and unemployment programs.
Data as of March 1996
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