Investment Potential of Uzbekistan's Textile Industry

September 10, 2007

Given the fact that the textile industry of Uzbekistan has a huge growth potential, its development and diversification is one of the priority directions in the national economy. Indigenous textile enterprises manufacture and export a broad range of products, such as cotton yarn, cotton brown Holland, knitted linen, knitted wear and garments.
Factors that make the Uzbek textile industry so attractive to foreign investors include: a stable raw material base, the high quality of cotton fiber, reasonable prices for power resources, inexpensive qualified manpower and, above all, the support provided by the government and a favorable investment environment created in the country.

Annually, the Republic produces more than 1 million tons of cotton fiber. Of this amount, only some 25 per cent is processed at its 5,200 textile factories. The greatest percentage of the industry's production capacity is concentrated in spinning, since the latter enjoys a far higher profitability compared with all the subsequent stages of the cotton fiber processing process. Approximately 40 per cent of cotton yarn made in Uzbekistan is processed into fabrics. About 3,000 garment factories operating nationwide produce 250 types of output.

In terms of the cotton fiber processing volume, production facilities of enterprises incorporated into the State Joint-Stock Company Uzbekengilsanoat grew from 152,000 tons in 1995 to 300,000 tons by 2007. This period saw almost a 10-fold increase in the volume of goods exported by the national light industry, from US $33.9 million to US $307 million. Over the years of independence, more than US $900 million worth of foreign investments was enticed to the industry, particularly to its spinning production sector.

To sustain the current pace of growth and development, it is necessary to upgrade local textile factories in an effort to ensure their technological modernization and technical re-equipment. Raising the competitiveness of domestic textile output will require the resolution of the following tasks: 1. in the spinning production sector - to ensure an increase in the yield of produce from 80 per cent to 90-95 per cent; manufacture of high-count yarn; and processing of no less than 50 per cent of cotton yarn turned out domestically; 2. in the weaving sector - to organize the production of blend fabrics, notably those used to make shirts; 3. in the knitted goods and clothing sector - to create a range of modern clothing models, with all necessary accessories being manufactured within the Republic. The main targets specified for the textile industry's further development are to process 50 per cent of cotton fiber within the Republic and to organize the production of fabrics and finished goods. However, their achievement is hardly possible without the attraction of an estimated US $700 million in investments. According to experts' tallies, investing US $1 million in the textile industry creates 45-50 new jobs, which is 3-4 times and 5-6 times as many as in the mechanical engineering sector and the fuel and power complex, respectively. A rise in employment rates, by stimulating the development of the textile industry will, therefore, becomes the most pivotal factor of growth and social stability. For the purposes of guaranteeing the industry's dynamic and sustainable development, facilitating the commissioning of new facilities used to manufacture competitive produce, expanding their exports volumes and creating new jobs through modernization and technical re-equipment of local textile enterprises, the Uzbek government has approved the Program for Modernization and Technical Re-equipment of Textile Enterprises for the period 2006-2008.

As many as 66 investment projects planned for implementation within its framework stipulate the attraction of foreign investments to the tune of US $467 million. 36 of these projects will be realized in the city of Tashkent and the Tashkent Province.

The enterprises covered by the Program for Modernization and Technical Re-equipment of Textile Enterprises for the period 2006-2008 are granted exemption from customs payments (save for duties charged for customs registration procedures) imposed on technological and auxiliary equipment, technological hardware and spare parts imported by domestic enterprises to meet their own production needs.

When implemented in full, the new investment projects will allow to scale up the production of cotton yarn by 170,800 tons; cotton fiber - by 35.7 million liner meters; finished knitted wear and garments - by 67.15 million units; and hosiery - by 58.6 million pairs a year. By the beginning of 2009, the textile industry of Uzbekistan will increase the exportation of its output by US $382.9 million, with 21,950 new jobs being created within the sector.

In an attempt to stimulate investment activity in the light industry, a number of privileges and preferences are envisaged under Uzbek law. These are as follows: - Enterprises specializing in the production of finished garments (clothing, knitted wear and leather goods), hosiery and footwear are exempt from all taxes and duties, with the exception of value-added tax; - Enterprises are exempt from customs payments (with the exception of duties charged for customs registration procedures) imposed on technological and auxiliary equipment, technological hardware and spare parts imported onto the territory of the Republic of Uzbekistan by indigenous enterprises to meet their own production needs.

At the same time, it must be observed that the money funds thus exempt from taxation should be used by enterprises to upgrade and modernize their production facilities, to introduce new types of finished goods; to replenish their own circulating assets and to stimulate the efficient work of their employees.

Operating in the Republic's textile industry are several enterprises set up with the participation of investors from different countries, such as Germany, Italy, South Korea, Turkey, the US, India, Great Britain, Austria etc.

In accordance with the Program for the Development of Silk Industry in Uzbekistan, the following incentives are envisaged: - exemption from paying value-added tax till 1 January 2010, which is granted: to silkworm breeding facilities, when they sell silkworm eggs of their own production to cocoon-production farms under direct contracts or via cocoon-purveying centers; and to enterprises involved in the procurement and initial processing of cocoons - when they sell dry cocoons to processing enterprises of the Republic's silk industry; - exemption from customs payments till 1 January 2008 (with the exception of customs duties charged for customs registration procedures) imposed on raw materials, dye-stuff, chemicals and auxiliary materials not turned out domestically and therefore imported by silk-industry enterprises of the State Joint-Stock Company Uzbekengilsanoat to meet their own production needs.

With a view to developing the industry's investment potential, a list of proposals for the attraction of investments has been complied and placed in the website www.investuzbekistan.org. Translated into Russian and English, a given list includes proposals to lure direct foreign investments, to sell a stake in one or another enterprise, or to sell an enterprise as a property complex.

In order to attract direct investments, 26 enterprises offer their investment proposals for a total of US $302 million. Among them are such enterprises as AO Elteks (Republic of Karakalpakstan), branches of AO Bukhoroteks located in the Ramitan and Zhondor districts of the Bukhara Province, Plasteks, a privately-owned firm based in the Tashkent Province, AO Kukonteks (Ferghana Province) and others. Each proposal contains a preliminary technical-economic calculation, substantiating such basic indicators of project implementation as the project value, the volume of attracted investments, profitability and the term of repayment, plus a brief survey of the market for finished goods.

In keeping with the 10 July 2006 Presidential Resolution No PP-407, information has been made available on 14 domestic enterprises offered for the re-establishment of state ownership rights and privatization.

On the basis of data from the State Committee on Demonopolization, Support of Competition and Entrepreneurship, information has been compiled on 9 enterprisers put up for sale as property complexes. These include AO Bobur (Andijan), OAO Balykchitekstil (Andijan Province), SAP Kosonsoy Tekstil (Namangan Province), OAO Bogotteks, OAO Ulugbek (Ferghana Province) etc.