Sectors of the economy

Investment potential of the sectors of economy
Uzbekistan possesses enormous investment potential. Over the years of independence such industries as automotive, agricultural machinery manufacturing, biotechnology, pharmaceutical industries and information technologies have stepped into a new development stage.   Uzbekistan is rich in various types of mineral fossils. The subsoil was identified to contain over 100 types of mineral resources. Our country takes one of the advanced positions in the world for the reserves of gold, uranium, copper, silver, lead, zinc, tungsten, natural gas and other mineral fossils. The explored reserves of mineral resources solely are estimated at around US $3.3 trillion. It is required to attract the investments as much as US $3.7 billion just within the next three years for modernization and technological re-equipment of the enterprises specialized in processing industries. On the whole, the investment attractiveness of the industries is pre-conditioned by relatively low costs for production factors (power, natural gas, labor force), significant domestic market (over 26.3 million people of permanent population), free access to the CIS markets (280 million people of population). So, the price for a thousand cubic meters of natural gas is 45,500 Soums (US$36), and price for one megawatt of power is 43,700 Soums (US$34.8). Average real salary in the country is 185,000 Soums (US$150).  
Oil-and-gas industry
The oil and gas industry enterprises are united under the National Holding Company Uzbekneftegaz. NHC Uzbekneftegaz has 6 joint-stock companies: JSC Uzgeoburneftegaz (oil and gas production/recovery), JSC Uztransgaz (gas transportation), Uznefteproduct (refining and processing), Uzneftegazmash (production of the technologic equipment for the industry), Shurtan Gas and Chemical Complex (production of polyethylene, liquefied gas, sulfur and tank gas). Uzbekistan’s oil and gas industry provides as much as 93% of the power system of the country with the primary fuel resources. The annual production of gas is around 65 billion m3 (eighth position in the world) and of liquid hydrocarbons is 5.9 million tons. Nearly 5% of the produced raw resources undergo refinery, with production of 197 thousand tons of liquefied gas and 125 thousand tons of polyethylene. The exporting potential of the gas totally produced as of these days is estimated at US $1.4 billion. The processing and production of the ready products (polyethylene, polypropylene and other petrochemical outputs) will allow to increase the ready-made production value by 10 times.   Such famous overseas companies as LUKOIL, Gazprom (Russia), CNPC (China), Korean National Oil and Gas Company (KNOC, Korea), Petronas Charigali (Malaysia) and others are operating in this field.   Foreign companies attracted at oil and gas prospecting and exploration operations are exempted from:   • all type of taxes, liabilities and payments applicable in Uzbekistan over the exploration period; • customs payments during importation of the equipment, inventories, and services required for prospecting, exploration and other associated operations.   Joint ventures of oil and gas production, established with share of overseas companies who carry out the oil and gas prospecting and exploration operations are exempted from: •    Payment of the income tax for seven years commencing from the oil or gas production period. Upon expiry of the said period the income tax rate for mentioned joint ventures is established at 50 percent against the regular rate; •    Property tax and foreign shareholders’ profit tax in the share of the joint venture; •    Mandatory surrender of part of the proceeds from the sale of the product, obtained as a result of the oil and gas production activity over a period of reimbursement of the capitals invested in prospecting and exploration operations.
Chemical industry
First enterprises of the chemical industry in Uzbekistan were established in the early 30’s of the XX century which consequently served as firm basement for creation of one of the mostly powerful chemical industries throughout the Central Asia. State Joint Stock Company Uzkimyosanoat unites the chemical enterprises. As of 2006 the production growth in this branch made 14.8% with its export to have increased by 29%. The enterprises of this branch produce fertilizers, organic and inorganic substances, artificial fibers, polymers, chemical agents for energy power, gold mining, chemical industries as well as chemical plant protection means. Gas, oil, coal, sulfur, nature paraffin, table salt, various ferrous metals wastes, processed raw cotton and kenaf are used as raw materials in this branch.   There are number of enterprises established in this sector with the share of foreign investors from such countries as Austria, Russian Federation, Turkey, India, China and others. It is scheduled to arrange in this branch, the production of potassium fertilizers [potash manure], PVC, vinyl chloride, to increase the production volumes of nitric and phosphorus fertilizers, methanol, carbamide, ammonium nitrate, sodium chloride, melamine, and other products which require around US $ 800 million investments.
Electric power
At present, nearly 50% of the power generating supply under the Central Asian United Energy System is concentrated in Uzbekistan. This system also includes the energy power supply systems of Turkmenistan, Tadjikistan, Kyrgizstan and South of Kazakhstan. Electric power of Uzbekistan operates under the State Joint Stock Company Uzbekenergo established in the form of open joint stock company and including the coal producing enterprises as well. Currently, the Company has 53 enterprises and organizations, including 39 open joint stock companies, 11 unitary enterprises, 2 limited liability companies, as well as its affiliate company – Energosotish. The thermal power stations (TPS) with the total capacity at 10.6 million KW form the basis for Uzbekistan energy system. 150 through 800 MW capacity power units are installed in five major TPS. Length of the transmission line of the Company exceeds 235 thousand km. Configuration of the transmission line with 220-500 KW voltage and 7.5 thousand km length provides for stable operation of the electric power supply system. Construction of new power generating supply sources, replacement of generating equipment which have already consumed designed energy resources, meeting the demand of the energy consumption estimate growth, introduction of up-to-date technologies of power generation, decrease of the negative impact of the energy generating facilities to the environment are considered as basic directions for development of the branch.   Implementation of a number of huge investment projects is scheduled in this industry, like on generation and distribution of electric power: modernization of the Tashkent TPS with attraction of the loans of the Japan Bank for International Cooperation, construction of the external energy power supply facilities of Tashkent city (developed with China Eximbank), construction of high voltage transmission lines (developed with IDB). In general, the investments worth at around US $300 million are planned to be attracted within next 3 years for the development of the industry.
Clean Development Mechanism
In 1993, Uzbekistan signed the UN Framework Convention on climate change and in 1999 ratified Kyoto protocol where the Clean Development Mechanism (CDM) functions as the implementation tool. The CDM facilitates the attraction of foreign investments and up-to-date environmentally friendly clean technologies of developed countries for implementation of technological projects, aimed at decreasing of the greenhouse gases emission. Many developed countries, including Japan, UK, Denmark and others show interest in implementation of CDM projects in Uzbekistan. The most priority sectors of the economy for the measures to be taken on decrease of emissions are the production of electric and thermal power, oil and gas sector, housing sector, transport, agriculture, chemical industries. The investment potential of the CDM based projects implementation in the oil and gas and chemical enterprises comprises nearly US $300 million. Foreign partners investing direct capitals to implementation of the CDM investment projects are provided with an additional privilege of exemption from the payment of the tax for income generated under the implementation of projects in the territory of Uzbekistan.
Light industry
Developmentofthetextilesectorisoneoftheprioritydirections. This sector’s enterprises produce and export such products as cotton yarn, cotton fabrics, stockinet, knitted wear and ready-made garments. The sector has a sustainable raw materials basis: over 1 million tons of cotton fiber is produced in Uzbekistan annually where only 25% is processed at the moment. In Uzbekistan, the basic volume of production capacities is concentrated in the cotton spinning so there is an excellent opportunity for investing into creation of spinning and clothing productions. There is a Program of modernization and technical reequipping of the enterprises for 2006-2008 applied in this industry. The specific objective of further development of the industry is to raise the volumes of cotton fiber internal processing up to 50%, as well as establish the production of cotton cloths and ready-made garments which need the investments worth over US$700 million. There are enterprises functioning in the sector established with the share of investors from such countries as Germany, Italy, South Korea, Turkey, USA, India, UK, Austria and others.   Aiming at encouraging of the investment activity in the light industry the Uzbek legislation provides for a number of privileges and preferences, including: • enterprises specialized in production of ready-made cloths (ready-made garments, knitted wear and leather products), legwear and shoes are exempted from all types of taxes and liabilities except for value added tax; • enterprises are exempted from customs duties (except for customs formalities fees) when importing the technological and auxiliary equipment, production tools and spare parts for own use. It should be noted, that released funds are subject to further assignation to technical reequipping and modernization of the production, assimilation of new types of ready-made products, renewal of own cash flow, encouragement of employees’ work. In addition, the Program of Development of Silk Industry envisages the following exemptions: • from payment of value added tax until January 1, 2010: grain mills – applicably to the sale of own production of grain to cocoon production households based on direct contracts and through cocoon preparing organizations; enterprises on preparation and initial processing of cocoons – applicably to the sale of dry cocoons to silk processing enterprises in the country; • from customs duties until January 1, 2008 (except for customs formalities fees) such products as raw materials, dye stuff, chemicals and auxiliary materials not produced in the country but imported by the enterprises of silk production under  Uzbekengilsanoat for own needs.
Production and processing of fruit and vegetable products
Agriculture, including the fruits and vegetables industry is developing thanks to tackled structural reforms, employment growth and enhancement of the activity of farming entities, implementation of soft loan provision mechanisms, up-to-date financial support as well as improvement of the efficiency of using the inventories. Uzbekistan possesses significant agricultural resource potential and has an opportunity to produce over 10 million tons of fruits and vegetables a year. At present, more than 1.7 million tons of gardening and wine growing products, around 5 million tons of vegetables and potatoes are produced in the country annually. Fruits and vegetables produced in the country have unsurpassed taste qualities. Uzbekistan has been famous since old times on external markets for its grapes and apples, peaches and pears, sweet cherry and plums, quince, water melon and melon. Such subtropical fruits like, fig, pomegranate, khurma and others are grown in the country. There are some enterprises functioning in this sector established with the share of investors from such countries like Germany, Netherlands, Austria, USA, Turkey, Russia, Switzerland, Italy, Spain, and others. The country’s fruits and vegetables potential exceeds the current indicators for several times. In this regard, it is required to establish a deep processing of fruits and vegetables produced in the country with further production of, for instance, juices, jams, freshly frozen, sublimed and others competitive on external markets.
Food industry
The food industry of Uzbekistan is primarily based on processing of local agricultural raw products, and represented by the enterprises of fat-and-oil, confectionary and reprocessing industries. The enterprises of this sector are united under the Association of fat-and-oil and food industry, which unites 87 enterprises, including 20 joint- stock companies, 36 joint ventures, 28 private business and 3 unitary enterprises. As per the forecasts by Association of fat-and-oil and food industry in 2007 the growth rate of production made 117.6% against the previous year, and consumer output made 118%. There are some successful JVs functioning in this sector established with such famous companies as NESTLE (Switzerland), Vimm-Bil-Dan-Producty pitaniya (Russia), British American Tobacco (UK) as well as enterprises founded by the companies from UK, China, Turkey and others.   The development of production of spicery, flavors, infants’ food, dry breakfast confectionary and sausage products represent big perspectives. The investment potential of the sector is estimated as much as US $200 million.
Electrical Engineering Industry
Wire and cable products, electric lamps, electronic engineering products, power transformers, various electric devices and engines are considered as the basic electric engineering outputs produced in Uzbekistan. The enterprises in this sector are united under the Association Uzeltekhsanoat reformed in 1994 from Uzbek state Concern of radio-electronic, electric engineering industry and instruments making namely Radioelektrontekhpribor. At present the Association unites 31 enterprises with various property forms, including 14 open joint-stock companies and 11 enterprises with foreign investments founded by the companies from Germany, Russia, UK, Turkey, Switzerland and Italy. Uzbekistan developed the production of copper, silver, gold, zinc, secondary aluminum, which serves the raw materials for electric engineering industry. Production of semiconductors, dry mould transformers, illumination halogen lamps and integral chips are considered as perspective direction. The cellular phones market is characterized with stably growing demand. In general, the investment capacity of the sector is estimated at US$120 million.
Construction materials production
Uzbekistan possesses significant reserves of construction materials: 49 deposits of construction stone, 76 – sand and gravel materials, 198 – brick and tile raw materials, as well as milestone, construction sand, gypsum, haydite, chocks, talcum and others.   The construction materials enterprises united under the JSC Uzstroymaterialy provide the facilities with all types of the construction materials: cement, lime, gypsum, wall, roofing and trimming materials (glass, marble and granite plates), sanitary ceramics, hydro isolation materials – totally more than 100 types of basic construction products.     The enterprises and companies specialized in construction materials production are exempted from customs duties except for customs formalities fees while importing of equipment and its accessories required for manufacturing purposes. Additional factor fostering the improvement of the construction materials consumption, especially the construction brick, cement, trimming materials is the boom in capital construction in Uzbekistan and neighboring countries. Thistrendtendstocontinueinthenearestperspectives. A well known company Knauff (Germany) and companies from Spain, USA, Austria and other countries carry out their business in Uzbekistan. Attraction of as much as US $430 million investments is required to the development of construction materials manufacturing for enlarging of the production of the cement, sanitary ceramics, ceramic plates, heat isolation materials, glues, lacquers and paints.
Automobile industry
Enterprises of automotive industry in the country are united under the JSC Uzavtosanoat which unites 20 enterprises. The Company established cooperation with number of nonmember enterprises Over the whole period of the Company’s activity nearly 682 thousand vehicles have been produced, including 140 thousand in 2006. In UzDaewooAuto JSC and localization enterprises it is planned to create production of 253 new details and parts for the manufactured products. These measures will allow to ensure the localization through all models of vehicles manufactured by UzDaewooAuto JSC at the level not less than 60%, including such models as Nexia – 61.4%, Matiz – 57.0%, Damas – 58.9%. There are joint ventures and foreign companies, functioning in this sector established with the share of investors from South Korea, Turkey, Iran, CzechRepublic and Belorussia. Foreign investors are proposed to implement the projects on manufacturing of the parts of mechanisms and internal trimming of the Matiz, Damas, Nexia vehicles such as ventilation, heating and air conditioning systems, key panel, head lamps and lights, rubber products and others.    
Metallurgy and mechanical engineering
Professional organization specialized in mechanical engineering is the Association Uzselkhozmashholding. Tens of industrial enterprises, manufacturing the excavators, tractors, trailer and add-on agricultural machinery operate in this sector. Foreign investors are invited for implementation of the projects on manufacturing of power trains for tractors with the capacity of up to 120 hp and higher, cotton seeding machine of precise sowing as well as the sale of the shares of the OJSC Compressor, OJSC Suvmash and others. Uzbekistan is one of the few countries in the world with the own aircraft manufacturing industry. At present 10 models of Ilyushin-76 cargo liner are manufactured, and based on the order placed by Boeing corporation the parts of the key panel of the aircrafts are produced. The manufacturing of the new perspective model of the passenger aircraft of medium distance with turboprop engine Ilyushin-114-100 is started. One of the advanced industries of Uzbekistan is the ferrous and nonferrous metals, including the production of copper, refractory and heat resistant metals, gold. The largest enterprises of this sector are Navoi and Olmalyq Mining Metallurgy Combines. Uzbek Factory of refractory and heat resistant metals (Chirchik city) works with the tungsten ores and molybdenum discovered in the country. Metallurgy factory in Bekobod town, Tashkent province, manufacture the steel and rolled metal through processing of the scrap metal.