Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
Protection of Intellectual Property Rights (IPR)
Insufficient IPR protection remains to be a challenge for foreign businesses in Uzbekistan. Uzbekistan took important steps in 2018 to address longstanding issues pertaining to IP protection and enforcement. In particular, Uzbekistan’s accession to the Geneva Phonograms Convention and two WIPO Internet Treaties represents progress towards adequate copyright protection for foreign sound recordings. The country’s leadership has acknowledged that the practice of copying well-known international brands by local entrepreneurs discourages foreign investment. The government has also indicated its awareness of the importance of paying author royalties when copyrighted video materials are broadcast or streamed online in paid subscription services. On January 13, 2022, Uzbekistan joined the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired, or Otherwise Print Disabled. Currently, Uzbekistan is in the process of accession to other international treaties and agreements, including: the International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (Rome, October 26, 1961); Singapore Treaty on the Law of Trademarks (Singapore, March 27, 2006); and Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs (Geneva, July 2, 1999). On April 26, 2022, President Mirziyoyev signed the decree “On additional measures for the further development of the field of intellectual property”, which approved the Strategy for the Development of the Field of Intellectual Property in the Republic of Uzbekistan for 2022 – 2026. Despite this progress, IPR enforcement in Uzbekistan remains weak. Uzbekistan remained on the Watch List in the most recent (2022) U.S. Trade Representative’s (USTR) Special 301 Report on Intellectual Property.
Inefficient Banking Sector
Three large state-owned and seven partially state-owned banks control over 80% of the sector’s total assets and capital. Privately-owned commercial banks are relatively small niche players. State-owned banks are virtually the agents of the government in implementing government development strategy. The IMF concluded that although Uzbek banks have limited exposure to sanctioned Russian banks, lower trade and remittances may cause an increase in non-performing loans, and loan portfolios continue to show high concentration and foreign currency risks, with the largest exposures mainly to state-owned enterprises. All banks are closely monitored by the government, which imposes non-core functions on them, including tax withholding and financial oversight of their clients. Uzbekistan’s economy remains largely cash-based due to relatively low trust in the banking sector and the huge role of the informal sector in the economy. In recent years, however, the government’s policies have demonstrated a notable transition from financial isolationism to greater transparency and integration into international financial markets. In 2020-2022, the government announced privatization efforts to attract more investments from the non-public sector.
Lack of Transparency
Since its 1991 independence, Uzbekistan largely remained a closed country that preferred to rely on its own resources and on loans and investments from political allies. State owned enterprises (SOEs) have traditionally been the largest actors in the economy. Both of these factors contributed to the creation of a poorly functioning market economy without inherent transparency and clear-cut rules. After coming to power in 2016, President Mirziyoyev initiated large scale reforms to open up the country for foreign investments. These reforms are ongoing, but there have still been instances when government representatives or SOEs fail to adhere to the terms of agreements or signed contracts. The government introduced initiatives to bring transparency to the functioning of state bodies and SOEs:
Creation of an anti-corruption agency in 2020
The introduction, from January 1, 2022, of a system of compulsory declaration of income and property of civil servants, organization heads and deputy heads (and of their spouses and minor children), enterprises and institutions with a state share of more than 50%
The prohibition, from January 1, 2022, against civil servants opening and owning foreign bank accounts, and keeping cash or owning real estate and other property outside the territory of the country
The establishment of protocols to prevent conflicts of interest in the field of public procurement starting from January 1, 2022
The establishment of an obligation for the 24 largest state-owned enterprises (SOEs) and seven Ministries to conduct procurement only through public tenders
Obtaining international credit ratings for the 23 largest state-owned enterprises (SOEs) to be able to attract financing in domestic and foreign financial markets for their investment projects
The abolishment of the powers of local governments in land allocation and issuing a decree on introduction of an e-auction system for sale or rent of non-agricultural land to the private sector
Drafting the law “On prevention of conflicts of interest”
Passing the law “On the state civil service” through the Senate on May 28, 2022, to provide a comprehensive legal regulation of the state civil service, including the creation of an independent and competitive hiring process, and to create a legal basis for the prevention of corruption in the civil service. The law will need to be signed by President.
State-owned enterprises dominate Uzbekistan’s economy and limit fair competition in some key industries, including but not limited to energy, telecommunications, automotive, aviation, chemical, mining, etc. Government-owned banks, ministries, and agencies interfere in business operations and decrease their efficiency. Documents required for licensing, registration and other permits may be amended without notice, which creates an opportunity for rent-seeking. In March 2021, the government announced that, under its 2021-2025 strategy for managing and reforming state-owned enterprises, it intends to reduce the number of state-owned enterprises in Uzbekistan by 75% through an intensive privatization effort.
Judicial System and Trade Legislation
In general, the judicial system upholds the sanctity of contracts, but if a government-affiliated entity is involved, judgments tend to favor the local partner. U.S. firms should consult with a local attorney and develop relationships with Uzbekistani partners before entering the market.