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60 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
ENHANCING UZBEKISTAN'S FDI REGULATORY RESTRICTIVENESS INDEX: A ROADMAP FOR ATTRACTING FOREIGN INVESTMENTS 1Abdullaev Farkhod Ozodovich 2Ismailov Adhambek Bakhramovich
1Doctor of Philosophy (Ph.D.), director of the Urgench branch of the Academy of Public Administration under the Prezident of the Republic of Uzbekistan. independent PhD researcher
at Urgench state university, Khorezm, Uzbekistan 1 farhodeconomy@mail.ru 2ad.bakhramovich@gmail.com https://doi.org/10.5281/zenodo.10139179
Annotatsiya. Mazkur maqola O'zbekistonning to'g'ridan-to'g'ri investitsiyalarni tartibga solishni cheklash indeksini yaxshilash borasidagi sa'y-harakatlarini istiqbollari keltirilgan. Tadqiqot boshqa davlatlar tajribasidan kelib chiqib, qo'shma korxonalar tashkil etish, xorijiy investorlarni rag'batlantirish, soliq tuzilmalarini tartibga solish va erkin iqtisodiy zonalarni rivojlantirish kabi takliflarni tavsiya qilish bilan boyitilgan bo'lib, bu o'z o 'rnida mamlakatimizning sarmoyaviy muhitni yaxshilash va iqtisodiy o'sishni rag'batlantirishga qaratilgan keng ko'lamli maqsadlariga mos keladi.
Kalit so'zlar: Investitsiya, Iqtisodiy muhit, Soliqlar, erkin iqtidoiy zona, indeks, investitsion jozibadorlik.
Abstract. This article explores Uzbekistan's efforts to improve its FDI Regulatory Restrictiveness Index by proposing measures to attract foreign investments. The study draws from the experiences of other nations and recommends strategies such as establishing joint ventures, providing incentives for foreign investors, streamlining tax structures, and promoting free economic zones. These steps align with Uzbekistan's broader goals of enhancing the investment climate and fostering economic growth.
Keywords: Investment, Economic environment, Taxes, Free economic zone, index, investment attractiveness.Annomau,^. Эта статья исследует усилия Узбекистана по улучшению индекса ограничения регулирования иностранных инвестиций и предлагает меры для привлечения иностранных инвестиций. Исследование черпает опыт других стран и рекомендует стратегии, такие как создание совместных предприятий, предоставление стимулов для иностранных инвесторов, упрощение налоговых структур и продвижение свободных экономических зон. Эти шаги соответствуют общим целям Узбекистана по улучшению инвестиционного климата и стимулированию экономического роста.
Ключевые слова: Инвестиции, Экономическая среда, Налоги, Свободная экономическая зона, индекс, инвестиционная привлекательность.
Introduction
The current phase of global economic development underscores the critical role of foreign direct investment (FDI) in fostering sustainable and well-balanced economic progress, while simultaneously enhancing the international competitiveness of most nations. This imperative is particularly pronounced in the context of developing nations and economies in transition, as FDI plays a pivotal role in facilitating structural transformations, sustaining economic growth, and facilitating effective integration into the global economic framework. However, in the present era characterized by intense global competition for FDI, the presence of conventional economic determinants such as favorable geographic positioning, significant market size, cost-effective and highly skilled labor, and developed infrastructure is no longer adequate for ensuring successful competition in the FDI arena against other nations. Foreign Direct Investment (FDI) plays a pivotal
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
role in the growth and development of economies worldwide. It represents the influx of capital, technology, and expertise from foreign investors, which can stimulate economic growth, job creation, and infrastructure development. Governments across the globe are constantly working to attract FDI by creating favorable investment climates, and one key tool for evaluating the attractiveness of a nation for foreign investment is the FDI Regulatory Restrictiveness Index. In this article, we will explore Uzbekistan's performance on the FDI Regulatory Restrictiveness Index and compare it to other economies.
In the contemporary global landscape, the significance of innovative investments cannot be overstated. These investments play a pivotal role in fostering advancements within a nation's real economy, thereby establishing a robust and enduring groundwork for sustained economic growth and development [1].
Understanding the FDI Regulatory Restrictiveness Index
The FDI Regulatory Restrictiveness Index, developed by the Organization for Economic Cooperation and Development (OECD), measures the restrictiveness of a country's foreign direct investment policies. It assesses various factors that affect the ease of doing business for foreign investors, such as entry barriers, investment protection, screening mechanisms, and sector-specific regulations. A higher score on the index indicates greater restrictions, while a lower score suggests a more open and welcoming environment for foreign investors [2].
Uzbekistan's Evolving Landscape for Foreign Investment
Historically, Uzbekistan has been characterized by stringent regulations and restrictions on foreign investment. However, in recent years, the government of Uzbekistan has embarked on a transformative journey to liberalize the economy and create a more welcoming climate for foreign investors. A series of reforms, including changes in legislation and regulatory practices, have played a significant role in this evolution.
The burgeoning Uzbekistani economy, which has exhibited dynamic growth over the past few years, possesses substantial potential to entice foreign investment, notably in the domain of Foreign Direct Investment (FDI). This holds paramount significance, particularly given the inherent deficit in domestic investments, necessitating access to new technologies and the enhancement of product competitiveness. As the inflow of foreign investments steadily escalates, the pressing issue of the "quality" of these investments assumes prominence. This encompasses the attraction of investments directed toward the establishment and nurturing of novel and efficient production facilities, the reconfiguration of investment streams away from the extractive sector towards high-value-added sectors and cutting-edge technology industries, ultimately culminating in an augmented competitive edge for the national economy.
In Uzbekistan, foreign direct investments have witnessed a remarkable upsurge, nearly surging by a factor of 1.7. During the first quarter of 2022, a total of 23.1 trillion Uzbekistani som were channeled into the country's core capital through foreign investments and credits. Within this composition, direct foreign investments accounted for a substantial portion, amounting to 8.0 trillion som. This surge in foreign direct investments underscores the growing appeal and receptivity of Uzbekistan's economy to international capital and highlights its commitment to fostering economic growth and development [3].
In light of the aforementioned factors, a plethora of methodologies has been devised for evaluating the investment climate. Among these, the most frequently employed is the rating assessment. Various types of ratings can be discerned, each serving to gauge the parameters considered when evaluating the investment climate and a nation's appeal to investors. These are
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
encapsulated in Table 1, enabling a comprehensive assessment of the factors influencing the investment climate and attractiveness of countries to potential investors [4].
Table 1: Types of Ratings for Evaluating Investment Climate Parameters
Rating Organization compiler of the rating Estimated parameter Information sources
Doing business The World Bank Legal environment for doing business Statistical and legal information, expert surveys
Global Competitiveness Index World Economic Forum Social and economic parameters of countries Statistical information and surveys of company executives
State failure index Foundation for Peace Level of risk for people and companies present in the country Internal system for collecting and analyzing information
Corruption Perception Index Transparency International Level of perception of corruption Independent surveys involving international financial and human rights experts
Note: Compiled from the websites of re levant organizations:
http://www.doingbusiness.org; http://www.weforum.org; http://ffp.statesindex.org,
http://www.transparency.org/
Over the past five years, Uzbekistan has made significant advancements in its ranking on the Index of Economic Freedom, a measure of trade freedom. The Index of Economic Freedom comprises 12 criteria grouped into four categories: the rule of law, the size of government influence, regulatory efficiency, and market openness. Depending on the scores achieved, economies of different countries are classified into five groups: free (scoring between 80 and 100 points), mostly free (70-79.9 points), moderately free (60-69.9 points), mostly unfree (50-59.9 points), and repressed.
In the realm of global economic competitiveness, Uzbekistan has witnessed a noteworthy trajectory over the past few years. Between 2017 and 2021, the nation consistently ascended the rankings, displaying a commendable upward shift of 35 positions. However, the latest report for the year 2022 paints a different picture, placing Uzbekistan at the 117th position with a score of 55.7. This represents a notable setback, as the country has slipped nine positions in just one year, as illustrated in Figure 1. Consequently, Uzbekistan's economy is currently classified as predominantly unfree.
It is essential to note that Uzbekistan has been actively addressing this situation with determination, particularly in recent months. The "Uzbekistan 2030 Strategy" program, a comprehensive national initiative, has been adopted to tackle these challenges head-on. This program encompasses a multifaceted approach to enhancing economic freedom and promoting growth in the country. It strives to create a conducive environment for both domestic and foreign investments, foster innovation, and ensure the adoption of modern technologies and best corporate practices [5].
As Uzbekistan aligns its efforts with the goals outlined in the "Uzbekistan 2030 Strategy" program, it is poised to make substantial strides in improving its economic freedom scores and positioning itself as an attractive destination for investments and business opportunities. This
NOVEMBER 17 INTERNATIONAL SCIENTIFIC AND PRACTICAL CONFERENCE
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comprehensive plan reflects the nation's commitment to not only address the recent decline but also to cultivate an environment that fosters economic growth and sustainable development in the years to come.
160 140 120 100 80 60 40 20 0
Figure №1. Uzbekistan's economic freedom place. The Heritage Foundation. (2023). Uzbekistan. Index of Economic Freedom.
In the context of Uzbekistan's FDI Regulatory Restrictiveness Index performance, it's imperative to consider additional aspects of the country's economic landscape. According to data sourced from The Heritage Foundation, Uzbekistan's economic freedom score in 2023 is 56.5, positioning it as the 109th freest economy in the Index. This score represents an encouraging increase of 0.8 points compared to the previous year. Uzbekistan's standing is particularly noteworthy when examined within the broader framework of the Asia-Pacific region, where it holds the 23rd position out of 39 countries. Nevertheless, it's important to emphasize that Uzbekistan's overall score remains below the global average [6].
This information highlights a multifaceted approach undertaken by Uzbekistan. While improvements in the FDI Regulatory Restrictiveness Index are indicative of a more welcoming environment for foreign investment, they also align with broader efforts to enhance economic freedom and competitiveness. By addressing issues related to economic freedom, Uzbekistan is not only opening its doors to foreign investors but also working towards a more liberalized and attractive investment climate overall.
Uzbekistan's FDI Regulatory Restrictiveness Index Performance
Foreign direct investment (FDI) plays a pivotal role in shaping the trajectory of economic growth, both in terms of its magnitude and velocity, as well as the extent of transformative changes within the local economic system. FDI exerts a favorable influence on the private sector, with enterprises that have integrated foreign direct investment showcasing a notable proficiency in adopting advanced technologies, including cutting-edge management practices. Specifically, in the context of Uzbekistan, FDI serves as a conduit for importing state-of-the-art technologies and principles of corporate governance, expediting the progression of market reforms and the establishment of a robust institutional infrastructure [7].
0 n 0 Q IMPROVING UZBEKISTAN'S POSITION IN INTERNATIONAL RATINGS L U L O AND INDEXES: THEORY, PRACTICE, AND STRATEGY
In the context of our discussion on "Enhancing Uzbekistan's FDI Regulatory Restrictiveness Index: A Roadmap for Attracting Foreign Investments," it is crucial to understand the various methodologies employed to assess the economic viability of investment projects. These assessments serve as indispensable tools in evaluating the potential returns and profitability of investment initiatives. The following methods are commonly utilized for this purpose:
1. Assessment of Absolute Efficiency: This approach gauges the absolute efficiency of investments by comparing the financial benefits and costs associated with an investment project. Several techniques, such as the Current Value Method, Net Discounted Income Method, and Annuity Method (specifically Net Present Value - NPV), fall under this category.
2. Assessment of Relative Efficiency: Evaluating the relative efficiency of investments involves establishing a connection between the financial outcomes and the costs intertwined with an investment project. The Internal Rate of Return (IRR) method is a prime example of this, focusing on the project's internal profitability.
3. Assessment of Net Present Value Ratio: This method determines the ratio of the net operating value of a project to the total initial investment, known as the Net Present Value Ratio (NPVQ).
4. Estimating Investment Return Time: The Payback Method (PB) helps calculate the time required for an investment to recoup its initial costs through project-generated revenue.
5. Optimal Option Selection: In cases where multiple alternatives yield similar production effects or can be artificially equated to the same conditions, the method of Estimated Costs aids in assessing and selecting the most favorable option.
These diverse assessment techniques provide investors and policymakers with a comprehensive toolkit to evaluate the financial viability, return on investment, and overall economic soundness of various projects. As Uzbekistan endeavors to enhance its FDI regulatory restrictiveness index, a deep understanding of these methods will be instrumental in attracting and facilitating foreign investments that align with the country's economic growth objectives [8].
Uzbekistan's performance on the FDI Regulatory Restrictiveness Index has improved noticeably in recent years, reflecting the country's commitment to economic reforms and attracting foreign investment. While it once ranked high in restrictiveness, it has moved down the ladder, indicating a more open and welcoming approach. Factors contributing to this improvement include:
Investment Protection: Uzbekistan has taken steps to enhance investment protection by adopting international arbitration mechanisms, which provide foreign investors with greater security and confidence.
Sectoral Reforms: The government has reduced restrictions on foreign investment in various sectors, including agriculture, mining, and infrastructure. This has opened up new opportunities for foreign investors to participate in the country's growth.
Simplified Procedures: Uzbekistan has streamlined registration and approval processes, making it easier for foreign companies to establish a presence in the country.
Uzbekistan's journey towards a more investor-friendly environment places it in a favorable position on the FDI Regulatory Restrictiveness Index, but it is essential to compare its performance to other economies to gain a comprehensive perspective. When compared to neighboring countries in Central Asia, Uzbekistan is becoming a more attractive destination for foreign investment. However, it still faces competition from countries with more established track records in attracting FDI, such as Kazakhstan and the United Arab Emirates.
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Conclusion
In conclusion, as we reflect on Uzbekistan's journey to enhance its FDI Regulatory Restrictiveness Index and attract foreign investments, we draw inspiration from the experiences of foreign nations that have successfully increased their economic vibrancy through international capital influx. To this end, we propose a comprehensive set of measures that align with the broader objective of improving the investment climate:
- The establishment of joint ventures to facilitate the infusion of foreign capital in entrepreneurial ventures.
- Implementation of a pragmatic and effective system of incentives tailored to foreign investors, particularly in specific industries and regions.
- Streamlining the tax structure and reducing the overall tax burden to enhance the country's appeal to foreign investors.
- Encouraging foreign capital inflow through concession agreements and production-sharing arrangements.
- Creation of mechanisms to insure foreign investments, thereby mitigating risk and promoting investor confidence.
- Proactive efforts to attract foreign investors in specific regions through the establishment of free economic zones (FEZs).
In summary, attracting foreign investments into Uzbekistan's economy is an essential step in the nation's journey towards economic growth and stability. This endeavor necessitates concerted efforts from both governmental authorities and individual enterprises and financial institutions. The collective endeavors should be directed towards:
- Stabilizing the economic and legislative landscape and creating effective economic legislation.
- Enhancing the overall investment climate in Uzbekistan, making it more attractive to foreign investors.
- Establishing an efficient domestic capital market that fosters a seamless connection between the securities market and the real sector of the economy.
This comprehensive approach underscores Uzbekistan's commitment to fostering an environment that not only reduces regulatory restrictions but also actively encourages foreign capital inflow, promoting economic growth and enhancing its position in the global economic landscape.
In order to enhance the investment policy of states, particularly in the context of Uzbekistan, several critical measures must be undertaken. These actions are pivotal for fostering economic growth and ensuring the nation's long-term economic security. The key measures encompass:
Enhancing Regulatory Framework for Investment: A paramount step involves the establishment and refinement of the regulatory framework governing investment activities. This includes the implementation of tax mechanisms designed to incentivize investment and integrating relevant instruments into the economic fabric.
Infrastructure Development for Innovation: It is imperative to bolster the infrastructure supporting the innovation process. This entails facilitating access to information, expertise, financial and economic resources, production and technology support, certification procedures, and the promotion of research and development initiatives. Additionally, investing in training and retraining programs for the workforce is essential.
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Accelerating Industrial Development: To keep pace with global technological advancements, fostering the rapid industrial development of national and foreign scientific and technological breakthroughs at the standards of global excellence is of utmost importance. Furthermore, prudent management of natural resources, ensuring their sustainability, is a vital component of this endeavor.
These comprehensive measures collectively contribute to advancing investment and innovation activities and, in turn, fuel the development of Uzbekistan's national economy. This, in effect, catalyzes the growth of the country's scientific and technological potential, enhances sustainable economic expansion, elevates national economic competitiveness, and ultimately fortifies Uzbekistan's economic security for the future.
REFERENCES
1. The resolution of the President of the Republic of Uzbekistan "On the forecast of the main macroeconomic indicators and parameters of the state budget of the Republic of Uzbekistan for 2019-2021 and budget guidelines for 2019-2021" (2018)
2. Zongo, Amara. "The effects of restrictive measures on cross-border investment: Evidence from OECD and emerging countries." The World Economy 45.8 (2022): 2428-2477.
3. Compiled from the websites of relevant organizations: https://stat.uz/ru/press-tsentr/novosti-goskomstata/23297-o-zbekistonda-to-g-ridan-to-g-ri-xorijiy-investitsiyalar-deyarli-1-7-marta-o-sdi-
4. Compiled from the websites of relevant organizations: http://www.doingbusiness.org; http://www.weforum.org; http://ffp.statesindex.org, http://www.transparency.org/
5. Decree of the President of the Republic of Uzbekistan dated 11.09.2023 No. PF-158 "On the strategy "Uzbekistan - 2030".
6. The Heritage Foundation. (2023). Uzbekistan. Index of Economic Freedom. Retrieved from https://www.heritage.org/index/country/uzbekistan
7. On measures to radically improve the investment climate in the Republic of Uzbekistan. Decree of the President of Uzbekistan No. UP-5495 (2018)
8. Seikkasimov, G.S. (Year of Publication), Problems of the Modern Economy. 3/4 (19/20) (2006)
9. Decree of the President of the Republic of Uzbekistan "On measures to radically improve the investment climate in the Republic of Uzbekistan" dated 08/01/2018 No. UP-5495.
10. Decree of the President of the Republic of Uzbekistan "On additional measures to stimulate the attraction of private foreign direct investment" dated April 11, 2005 No. UP-3594.
