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Spotlight on Uzbekistan: Kinstellar’s regular look at the Uzbek market

May 2020 – Spotlight on Uzbekistan: Kinstellar’s regular look at the Uzbek market

Decree of the cabinet of ministers “on amendments to the decree of the cabinet of ministers no. 180 dated 2 august 2020 “on additional measures to improve attraction of direct foreign investment”

The Decree amended one of the key legislative acts that regulated the procedure for conclusion of investment agreements between the Government and foreign investors.

Under the amended version, investment agreements concluded with regional authorities in projects with a share of foreign investment not exceeding 10 million USD no longer qualify for the conclusion of a separate investment agreement with the Government of Uzbekistan.

According to the amended version, investment agreements between the investor and the Government are concluded for the purpose of providing the investor with benefits and preferences, such as guarantees and support measures in addition to those established by existing legislation. Such benefits may include a governmental guarantee, a special customs, tax and payment regime, assistance in the implementation of projects, inclusion in an investment program, etc.

Additional benefits are provided in each case to foreign entities investing in priority sectors, ensuring:

  • sustainable economic growth, progressive technological changes in the economy of Uzbekistan;
  • strengthening and expanding the export potential of Uzbekistan and its integration into the global economy.

Benefits and preferences are granted only for a clearly defined period.

Moreover, the amendments also affect the procedure for applying the guarantee against an adverse change in legislation for the investor. The investor may notify the relevant government authority regarding the worsening conditions for the investment caused by changes in legislation, and such notification serves as the basis for the authority to apply the legislation that was in force at the date of investment. Regardless of when the notification was sent, the notice is effective from the moment the act of legislation came into force that worsened the conditions for investment.

Decree of the Cabinet of Ministers “On amendments to the Decree of the Cabinet of Ministers No. 180 dated 2 August 2020 ‘On Additional Measures to Improve Attraction of Direct Foreign Investment’” No. 264 dated 30 April 2020.

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Presidential Decree “On measures for wide-scale implementation of the digital economy and e-government”

On 28 April the President signed a decree aimed at implementation of the digital economy and e-government in Uzbekistan.

The Decree outlines measures to be adopted for accelerated formation of the digital economy and an increase of its share in the GDP by two times by 2023. Such measures include the introduction of information systems in production management, the widespread use of reporting software in financial and economic activities, as well as automatization of technological processes.

The development of "digital entrepreneurship" was another issue covered in the Decree. The document provides that the Government will stimulate the production of software and technological products. The volume of such services is expected to increase three times by 2023, and bring exports of digital products to $100 million USD.

The Decree also envisages the development of the e-government system, and bringing the share of electronic public services to 60 per cent by 2022.

The Ministry for the Development of Information Technologies and Communications was assigned as the authority responsible for further development and adoption of additional measures in accordance with this Decree.

Decree of the President “On Measures for the wide-scale Implementation of the Digital Economy and E-Government”. No. PP-4699 dated 28 April 2020.

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Presidential Decree on “Strategy for reforming the banking system of the Republic of Uzbekistan in 2020–2025”

On 12 May the President signed a Decree on strategy for reformation of the banking system of the Republic of Uzbekistan. The Decree aims to transform the banking system within the following five years and focuses on the following four key issues:

  • increasing the efficiency of the banking system by creating an equal competitive environment, reducing the dependence of banks on public resources, modernisation of banking services, and phasing out non-core functions of banks;
  • ensuring financial stability of the banking system by improving the quality of the loan portfolio and risk management, pursuing a balanced macroeconomic policy, improving corporate governance and attracting managers with international practical experience;
  • decreasing the state share in the banking sector through the comprehensive transformation of commercial banks with a state share;
  • improving the accessibility and quality of financial services by focusing on the state presence and taking targeted measures on underdeveloped and vulnerable services segments

Upon successful implementation, the strategy envisages the achievement of following indicators:

  • increase of bank assets without state participation in the total assets of the banking system from 15 per cent in 2020 to 60 per cent by 2025;
  • increase of the share of deposits and borrowings from the private sector from 28 per cent to 70 per cent by the end of 2025;
  • attraction by 2025 of at least three strategic foreign investors with the appropriate experience, knowledge and reputation to invest in at least three banks with state ownership;
  • increase of the share of non-bank credit organizations in the total volume of lending from the current 0.35 per cent to 4 per cent by 2025.

Moreover, according to the document a number of state-owned banks will be offered for privatization. These banks include: Ipoteka Bank, UzPromStroyBank, Asaka Bank, Aloqa Bank, Kishloq Kurilish Bank, and Turon Bank.

At the same time, the State intends to retain its ownership in the National Bank of Foreign Economic Activities, Agrobank, and MicroCreditBank.

Among others, the strategy addresses the importance of independence of the banking system, and prohibits the heads of ministries, departments and other state authorities to interfere in the activities of banks. The General Prosecutor's Office is instructed to strengthen supervision over the implementation of legislation on banks and banking activities in terms of preventing administrative interference in the activities of banks by state bodies.

Decree of the President on “Strategy for reforming the banking system of the Republic of Uzbekistan in 2020–2025”. No. UP-5992 dated 12 May 2020.

For further information, please contact Joel Benjamin, the Managing Partner of the Central Asia practice of Kinstellar at

e-mail

or Muborak Kambarova, a Counsel in our Tashkent office at .