Investment Impulse: Anti Crisis Program in action
According to the Ministry of Economy and State Statistics Committee, one of the key factors of steady and balanced growth of the national economy in the past nine months was high investment growth rates (128.3%). 371 new production facilities were launched.
The new facilities that after their commissioning will operate in manufacturing sector will produce new jobs, and hence lead to growth in income, expansion in the range of goods and services offered by local businesses. These investments contribute to the further increase in the country’s potential.
This is the very link which, through construction of large production facilities, initiates a “chain reaction” in launching new small and entrepreneurial businesses. One of the brightest examples can be seen at the unitary subsidiary enterprise Shurtan Gas and Chemical Complex who carry on deep processing of natural gas. Over the past eight years polyethylene pellets from Shurtan have given a strong impetus to the development of entrepreneurial initiatives in manufacturing high-quality films, packaging, pipe and pipeline components, insulation and cable jackets. Dozens of new companies organized in the country run their business based on locally produced raw materials. Since last year, residential apartments in the country have been provided with polyethylene pipes of 315-630 mm produced at JSC Jizzakh Plastic, a major consumer of Shurtan polyethylene.
Being a “circulatory system” of the economy, the banking and financial sector plays an important role in maintaining high growth in investment influx. Stable operation of the banking and financial system aimed at long-term balanced development of the economy is one of the key factors promoting steady advancement and strengthening the economic power of our country.
In this area, the republic has oved to create an adequate margin of safety which helped not only minimize the negative effects of the global recession but develop and expand the activities of financial institutions.
As a result of purposeful efforts, the aggregate capital of the banking system in the first nine months of 2009 compared to the same period of the last year grew by 41.2% and exceeded 2.4 trillion soums.
Through active attracting of funds and introduction of new and incentive driven deposits, total deposits in commercial banks for the first nine months of the year, vis-a-vis the same period in the last year, increased by 50.9% and exceeded 7.5 trillion soums. Personal deposits showed the most rapid growth. Their volume in credit institutions grew by 68.8% as compared with the corresponding period in 2008, and exceeded 2.5 trillion soums. This clearly demonstrates the strengthening public confidence in the banking system of the country.
Year of investment activity
The year 2009 for banks in Uzbekistan has become the one of investment activity. As is known, one of the measures in the Anti Crisis Program in Uzbekistan constitutes capitalization of the banking sector. As part of a number of presidential regulations aimed to support active investment process in 2008-2009, over 490 billion soums were channeled to raise the capitalization of national banks. Moreover, this increase in the authorized capital of banks has one distinctive feature: the funds allocated by the state should encourage bank lending of basic industries at concessional interest rates.
Financial support has been already provided to major investment projects on modernization of enterprises of Uzbekenergo, Navoi Mining and Metallurgical Combine, JSC O’zkimyofarm, Farg’onaazot.
In 2009, announced as it is the Year of Rural Development and Improvement, the recently established Qishloq Qurilish Bank is actively funding the construction of houses in rural areas built in accordance with approved standard design using modern building materials.
The investment locomotive of the banking system is deservingly considered the National Bank for Foreign Economic Affairs of Uzbekistan (NBU). According to NBU, as of November 1, 2009, the bank provided financial facilities amounting to $314.6 million and €286.2 million in foreign currency and more than 1.6 billion soums in national currency. Its credits are involved in virtually all sectors of the economy of the republic, including railways, road and air communications.
The financial institution funded a project on modernization of Navoi Thermal Power Plant with the construction of a combined-cycle plant. Credit funds of the National Bank provided a good impetus for launching of the 500kVt power line between G’uzor and Surkhon substations and an autotransformer for Surkhon substation with total credit needs of $427 million.
Considerable part of credit facilities is aimed at developing oil and gas industry.
The bank finances modernization of Uzbekneftegaz’s fleet of drilling rigs. Companies of the holding are equipped with drilling rigs and 3D seismic survey systems that will increase the average daily volumes of gas and oil production not only by vertical drilling but horizontally as well.
Currently, the project of a gas dehydration plant at Kungrad compression station and Ohongaron- Pungan gas pipeline through Kamchik Pass is being financed with total credit needs of $99.9 million. A project of an installation of propane-butane mixture for increasing the production of liquefied gas at Muborak Gas Processing
Factory is about to get credit resources.
Long-term loans for manufacturing sector
In July 2009, President Islam Karimov adopted the decree “On additional measures to stimulate the increase in the share of long-term loans of commercial banks directed to investment projects”. This is another effective incentive for national banks in attracting industrial investment. Since construction of new enterprises, reconstruction, technical upgrading and expansion of existing industries, production of new goods is associated with long-term credit facilities and need “long money”.
Rise in long-term credit facilities were ensured by benefits provided to both banks and their customers. Depending on the share of long-term investment in the bank’s loan portfolio, commercial banks get reduced profit tax rate. The higher the proportion of long-term loans is, the lower the profit tax is. The Central Bank suggested another good incentive through introduction of differential rates of mandatory reserves on attracted deposits of legal entities, depending on the duration of deposits. This mechanism employs the same principle: the longer the duration term is the lower rate of compulsory backup is applied.
Concerning the client base, legal entities are exempt till January 1, 2015, from tax on their deposits and debt securities, placed with commercial banks.
Introduction of long-term lending mechanism is a good sign for further expansion of investment activities. In accordance with the government decision, the largest banks have created departments for coordination and monitoring of investment activities. Functions of structural units of banks that provide expertise, funding and monitoring of investment projects has been substantially altered and expanded. Banks introduce the post of deputy chairman responsible for investment activities. These positions are assigned to managers with deep command in legal framework, possessing necessary skills in investment activity, selection and expertise of investment projects.
According to the Central Bank, the amount of loans allocated for more than a year in the structure of the total loan portfolio of banks exceeds 70%.
Incentives for modernization
Government measures broaden the participation of domestic commercial banks in the processes of modernization, technical and technological re-equipment of enterprises. Under the State investment program this year, according to the Ministry of Finance, the country carried out 665 industrial investment projects funded by enterprises, commercial banks and foreign direct investment. This provides ample opportunities for the country’s banking sector that has got a worthy assessment of international financial institutions.
In the first 9 months of 2009 the capital adequacy of Uzbekistan’s banks constituted 23.4%, almost 3 times higher than the standards adopted by the Basel Committee (8 percent).
One of the main factors of stability is the liquidity of the banking system which also enjoys sufficient level and puts the banks of Uzbekistan on the international scene in line with the most reliable and stable partners. This figure exceeds $1.7 billion, which is 10 times higher than the current liabilities of banks for external payments. It also confirms high stability of the system. In addition, the airbag of the banking system is $1.485 trillion soums (about $1 billion at the rate of the Central Bank).
The mission of executive directors of the International Monetary Fund at the conclusion of their visit to Uzbekistan on October 14, 2009, gave positive evaluation of the economic policy of the country as they said “Uzbekistan has shown considerable resistance to the global economic crisis as a result of prudent policy that allowed the government to accumulate substantial resources necessary for ensuring growth in this period and confront the downturn, as well as through sound policy of participation in global financial markets.”
Growth of investment in fixed capital is the main component of business activity in the society. The fact that more than 70% of total investment is drawn in manufacturing sector is highly noteworthy. Since 2000, national industry is the main area of capital investment and application of forces in building complex. This sphere in recent years attracted more than a third of all investments.
For comparison, according to the Central Bank, the investment growth in fixed assets in 2008 compared with 2005 increased fivefold. If in 2005 the increase was 5.7%, in 2008 it was 28.3%. In other words, the country maintains a steady growth in investment in fixed assets, mainly in the manufacturing sector.
What are the areas preferred for major capital investment? Those who, based on huge resource potential, address the key challenges of employment.
Analysis of investment in capital construction for the first nine months of 2009 by economic sectors based on the data of State Statistics Committee suggests that the capital investment totaling $9 trillion soums were mostly concentrated in transport and communications (53.8%), fuel and energy complex (14.6%), geology and exploration of mineral resources (12.2%). Moreover, these areas have been particularly attractive for foreign investment and loans.
Transport infrastructure – aviation, railways and motor roads – suffered intensive update during this period. Navoi airport is being modernized as was got the status of a free of industrial and economic zone. Aircraft fleet of the national air company is being filled with new liners of foreign and domestic production. New passenger locomotives and comfortable buses are acquired.
Communications retain leading positions in the renewal of fixed capital. The government takes significant efforts to mass introduction and use of information and communication technologies. In June 2002, the Cabinet of Ministers approved a program of development of information and communication technologies for 2002-2010. The main directions in this area cover development of communications infrastructure, expansion of national segment of the internet, computerization and software industry. The fastest growing segment of the market is mobile communications. The total amount of funds allocated for the reconstruction and modernization of three leading cellular companies, according to forecast parameters of 2009 Investment Program should make up $285 million. National telecommunications operator Uzbektelecom accelerates investment in the development of DWDM networks and expansion of wireless data access.
Fuel and energy complex experiences sound capital construction. Major investors in the Uzbek oil and gas sector come from Korea, China, Russia, Malaysia and Switzerland. Particular attention is paid to construction along the gas supply network of Uzbekneftegaz national holding company. Modernization of industrial infrastructure the oil and gas holding company includes reengineering of domestic gas pipelines, construction of a booster-pump station on Gazli gas deposit in Bukhoro region, as well as modernization of infrastructure of Kungrad compressor station in Karakalpakstan.
Geology and exploration of mineral resources also carries on active update of fixed assets with attraction of foreign capital.
According to the forecast of the Ministry of Economy, the expected growth rate of gross domestic product by the end of the year will amount to 108%, industrial output – 109.3%. commissioning of more than 420 production facilities in 2008 and more than 370 objects in the first nine months of 2009 have created the safety margin that ensured such a growth.
Priority to rehabilitation of production
director, crediting department, Xalq Banki of Uzbekistan:
Participation in implementation of promising programs on modernization, technical and technological upgrade of production is one of priority direction in the crediting policy of Xalq Banki. We opened a new department for coordination and monitoring the investment activity within the bank with the purpose of full-fledged and effective fulfillment of set tasks.
Xalq Banki takes part in co-financing of investment projects in promising economy sectors within the Investment Program for 2009-2010 together with the leading commercial banks of the country such as National Bank for Foreign Economic Affairs, Sanoatqurilishbank and Asaka Bank.
The Navoi Mining and Metallurgy Combine received a considerable financial support for technical extension by means of target funds allotted by shareholders for the increase of the bank’s capitalization. Starting from this year Xalq Banki offers real assistance for modernization in Olmaliq Mining and Metallurgy Combine. This year we allotted about 40 billion soums.
Small and entrepreneurial business in rural areas remains the priority direction of crediting in the Year of Rural Development and Improvement. For that the bank allocated over 170.7 billion soums including 90.6 billion soums to support small business. This made it possible to create over 84,800 new jobs and increase rural employment.
Recently we signed an agreement with the Savings Bank Fund of Germany within the international cooperation on establishment of resumed crediting fund to support the beginning small and entrepreneurial business entities in the Republic of Karakalpakstan.
Modernization extends business horizons
director for commerce, ELUS scientific production enterprise.
Our enterprise reckons among 156 projects that concluded technical extension within the first 9 months of 2009. New winding tools enable us to accelerate the manufacture of winding for transformers of all kinds: power, oil and measuring current transformers.
Modern equipment releases people from monotonous and labor-intensive work, enables them to fulfill it more workmanlike and raises productivity by three times at minimum.
Use of automated tools raises the accuracy of manufactured equipment, decreases drawbacks, and therefore enhances operating life and reliability.
This is very important for private enterprise which imposed itself with responsibility of providing the domestic big energy sector with high-voltage equipment for transformer sub-stations.
The products by ELUS are demanded by enterprises of machine building, oil and gas sectors, chemical industry and Ministry of agriculture and water economy. Farms, small and entrepreneurial companies are among our customers.
Funds invested into regeneration enable the only producer of 500 kilovolt voltage equipment in Central Asia to improve its quality under reduced cost. This intensifies competitiveness in the rapidly growing domestic market of electrotechnical equipment.
Modernization opened new horizons for entering markets in neighboring states to the Uzbek enterprise the production of which meets all international standard requirements.
Stock markets increase their turnover
production manager, Vaqt Central Depositary:
We can observe a stable growth of key qualitative and quantitative indicators in the securities market in 2009. They comprise significant growth of volumes of primary share distribution, raise of the capitalization level in joint-stock companies and increase of sectoral diversification of actively sold liquid financial instruments. This is connected with the augmentation of the capital of joint-stock societies up to the level specified by law and this is an important positive trend since the primary distribution of securities favors attraction of resources to issuers through the stock market mechanisms and leads to the expansion of aggregate investment volumes in the economy.
The issue and distribution of safety stock in the primary market is one of the ways used by the issuer for attraction of the long-term financing in terms of growing scale of business. Investors use this way not only for acquisition of income but also for participation in business management. The issue and distribution of loan securities is an effective way for the issuer to attract borrowed current assets and to get a stable income for investor.
Thus, we have all components (objects to invest in, stable and debugged system of stocktaking and transition of rights for securities) for formation of integral, liquid, transparent and effective securities market as a component of financial market in the Republic of Uzbekistan promoting attraction of investment first of all into the real economy sector.
Crediting system is profitable and convenient
deputy chairman, MEXMASH:
We use the services of the National Bank of Uzbekistan’s crediting system more than a year. The experience showed its profitability and convenience. We received essential credits for modernization of our production from National Bank this year. One of them was directed to the purchase of modern equipment consisting of three productions lines oriented for manufacture of metal electrically welded pipes from 10 millimeters to 130 millimeters in diameter. Dismantlement of the obsolete equipment and assembly of the new one has been carried out by the present time. Currently we are finishing commissioning and we hope to start producing new equipment from this December.
Foreign direct investment in the Uzbek economy reached about $545 million in 2005, up 67% year-on-year. It is planned to implement 134 investment projects for a total of $ 917.97 million in 2006 under its Investment Programme. In particular it is expected to attract foreign loans guaranteed by the government for $ 365.41 million and foreign direct investment of around $552.56 million. The fuel and energy sector is expected to attract the largest volume of foreign investment at $176.4 million.
The industrial enterprises established with foreign investment which are investing heavily in projects included in the Investment Program of the Republic of Uzbekistan – are exempt from income (profit) tax within the first seven years from the date of their official registration.
Land plots allotted for construction of objects included into the Investment Program of the Republic of Uzbekistan for the normative period of construction as well as those occupied by objects laid up according to appropriate decisions issued by the Cabinet of Ministers of the Republic of Uzbekistan are exempt from the land tax.