Epicenters of industrial production. 2
Meeting with Foreign Minister of Saudi Arabia. 7
Uzbekistan to create first complex reserve. 7
POLItiCs
A meeting of the Security Council under the President of the Republic of Uzbekistan took place on 27 July 2016
The meeting was chaired by President of the Republic of Uzbekistan, Chairman of the Security Council Islam Karimov.
The issues of ensuring security and neutralizing threats and challenges on the southern borders of the country, strengthening cooperation with neighboring states in the region to combat terrorism and extremism were discussed.
The meeting was attended by heads of the government and relevant agencies.
(Source: Press-service of the President of the Republic of Uzbekistan)
economy
Hardware for Big Projects
Introduction of cutting-edge equipment ranks among key factors in building modern and competitive agriculture. Uzbekistan has established a full-fledged production base with the involvement of the leading international manufacturers. There are several major projects for machine builders that can bring the industry to a new level.
A new technological project will be carried out on the platform of the Tashkent Agricultural Machinery Plant, which is now the industry’s largest company. Launched in 2014, it produced 761 units of agricultural machinery totaling over 63 billion soums (currency rates of CB RU from 28.07.2016, 1$= 2964.03 soums) just a year later.
The plant established the production of new types of tractors in cooperation with the Korean LS Mtron, that are designed for the cultivation and processing of cotton crops, as well as for other missions. For instance, when changing mounted equipment, tractors can be used in road, construction and utilities sectors.
“The several-stage refinery modernization project is aimed at the establishment of up-to-date manufacture of tractors, the further enhancement and expansion of component production, including machining processing of case transmission components and gears, as well as grain, forage and cotton harvesters, trailers and other products. The German CLAAS, which is successfully cooperating with the Uz CLAAS Agro joint venture, is the major technical partner of the project,” said the Head of HC Uzagroprommashholding Corporate and Property Relations Department Rodion Ahmedgariev.
It is planned to invest in the construction of production facilities at the Tashkent Agricultural Machinery Plant more than $50 million, as they should ensure the production of major components for certain types of CLAAS agricultural machinery, which is currently manufactured by Uz CLAAS Agro. It is planned to further localize parts and accessories for Axos and Arion tractors, the Dominator combine harvester, the baler Markant and trailed forage harvester Jaguar.
The involvement of the leading European manufacturers of equipment for the project would provide a tangible economic effect through the rational use of resources and owing to the high performance, efficiency and accuracy of the hardware to be purchased. The project envisages the implementation of ERP information systems, allowing real-time control of all business processes. In turn, these measures should make the management, control and accounting processes more effective and transparent, reduce the terms of regulatory and management reporting, enhance data reliability and minimize the influence of the human factor.
“The implementation of the abovementioned measures marks the first stage of modernization of the plant. The retooling of the procurement production for forged transmission parts and gearboxes, hot forging and foundry, as well as the establishment of engine assembly is scheduled for 2018-2019,” said the Uzagroprommashholding representative.
The commissioning of the cutting-edge manufacture at the Tashkent Agricultural Machinery Plant ranks among the priorities of the further development of industrial capacity of the industry in order to fully meet the needs of agriculture in quality domestic agricultural machinery in line with modern requirements.
(Source: «Uzbekistan Today» newspaper)
free economic zone
Epicenters of industrial production
The Law, “On free economic zones” was passed in Uzbekistan two decades ago. In spite of the novelty and the large scale of a given document, it had no special repercussions in society at that time. It was partly connected with the fact that neither pertinent measures nor additional legislative and regulatory documents were approved by the government. What’s more, only a modicum of people understood what sort of advantages those free economic zones would have for the national economy. But in the process of time, the foresight and the striking reasoning of this step on the part of the Uzbek government have become distinct and clear.
In the first few years after the demise of the Soviet Union, some independent states began creating free economic zones on their territories. They attracted investors, set up new enterprises, placed their able-bodied citizens in jobs, in a word, they seemed to find an efficient mechanism of intensive development. The Republic of Uzbekistan was not among them in that period. Not long after, however, most of those free economic zones were closed down. The reason was quite simple: neither a legislative framework nor transport infrastructure required for the long-term activity of investors emerged there. The absence of vital financial and legal guarantees shook their faith in this form of business. The exposure of numerous defects in the organization of investment cooperation was the only positive outcome in that situation.
With the approval of the Law, “On free economic zones” designed to comprehensively regulate the relationships between the state, investors and executive bodies within the framework of free economic zones, Uzbekistan gave to understand that it is interested in this form of economic cooperation. Moreover, given the Republic’s geographical location, free economic zones are rather attractive. There was no necessity whatsoever to speed up the events on this front, since at that moment the country lacked both a sufficient experience of how to run them efficiently and a corresponding regulatory-legal framework to regulate all legal matters there. And above all, the state budget couldn’t appropriate enough funds towards the creation and sustainable development of competitive infrastructural facilities within free industrial and economic zones. Suppose a decision to set up the Navoi Free Industrial Economic Zone in its present form was taken as far back as 1996. Then a garage for specialized means of transport, a cargo terminal, a platform, a customs warehouse and a storehouse for fuel and lubricants would represent a small part of infrastructural facilities to be built there without fail. The Uzbekiston Khavo Yullary National Joint-Stock Company couldn’t afford such an investment extravagance in that period. Of course, it could address the Foundation for Reconstruction and Development of the Republic of Uzbekistan for financial assistance, if it were not for one small detail. This organization, which, indeed, earmarked the biggest portion of wherewithal for the project, was set up only in 2006.
Enormous investments were required to fund the construction of main lines with access to the existing international transport corridors. As one international study pointed out, the average-weighted amount of expenses associated with the road haulage of exports from Uzbekistan was twice as high as those borne by manufacturers from the European Union. It was explained by the latter’s access to sea ports or international sea communications through the territory of no more than one foreign state. In other words, the Republic of Uzbekistan badly needed a direct overland transport corridor. The road with access to the E-40 international arterial road, connecting France, Belgium, Poland, Germany, Ukraine, Russia, Kazakhstan, Uzbekistan, Turkmenistan and Kyrgyzstan has later on become one of such transport facilities. A lot of requisite elements were lacking in the Republic in that period. That’s why the creation of industrial zones was launched only in 2008, after the signing of the Presidential Decree, “On the creation of the Navoi Free Industrial Economic Zone”. The Angren and Djizak Free Industrial Zones were set up in 2012 and 2013, respectively. These three large installations of the nation’s independence are now among the main centers of investment cooperation and creation of advanced high-tech production facilities.
Presented below is an interview with Mutalibjon Khojimurotov, who heads the group on coordination of FIZ activity of the Agency for Information Provision and Promotion of Foreign Investment at the Ministry of Foreign Economic Relations, Investment and Trade of the Republic of Uzbekistan. In his answers to a BP correspondent’s questions, he highlights such issues as the current state of the country’s free industrial zones, the tasks they have to tackle and their medium-term prospects of further development.
Speaking about the free industrial zones, special emphasis is always laid of the state’s support. Could you give a concrete example of how certain tax and customs privileges and preferences granted to FIZ participants affect their financial and production indicators?
Let’s take OOO Angren Shakar, a foreign enterprise and the country’s biggest sugar refinery. Worth US $108 million, it is located on the territory of the Angren Free Industrial Zone. Some 90 per cent of the raw material needed for sugar production is imported. It goes without saying that this state of affairs entails vast financial expenses.
In keeping with the Presidential Decree, “On the creation of the Angren Special Industrial Zone” dated April 13th 2012, all enterprises operating on its territory are exempt from customs duties on equipment, spare parts and materials, which are not produced domestically and that’s why imported under corresponding projects.
If it were not for the incentives enjoyed by FIZ enterprises, the prime cost of sugar turned out by Angren Shakar would be 20-30 per cent higher. As well as that, the enterprise would have to fix a much higher retail price to cover its expenditure on payment of value-added tax and customs duties. In the first place, this difference would be felt by wholesale customers – producers of confectionery and breadstuffs: they would have to pay 700-900 Soum (currency rates of CB RU from 28.07.2016, 1$= 2964.03 soums) more per kilogram of sugar.
Could you estimate the level, which the special industrial zones of Uzbekistan occupy these days? And is the atmosphere of these manufacturing epicenters formed already or is it still in the making?
Of course, the formation of their atmosphere is brought to completion. A series of modern high-tech production facilities have been created there. This is particularly visible in the Navoi Free Industrial Economic Zone and the Djizak Free Industrial Zone, because these enterprises are situated very close to each other. Production of industrial and consumer goods is in full swing there. Loading and re-loading of raw materials and finished goods are under way on their storage grounds, with their registration with customs authorities being carried out directly in the customs areas of these zones. Their transportation sections, including Navoi International Airport, the Karmana railway station and access to international arterial roads, are involved in sending and receiving goods. It is an unstoppable process. As far as the Angren Free Industrial Zone is concerned, it disposes of a vast territory, that’s why its enterprises are dispersed and, as a consequence, there is no industrial ring as such. The performance of each of them is a separate epicenter of production activity. The FE OOO Angren Shakar daily receives and sends 10-15 freight cars with raw stuff and finished produce. Each day the Unitary Enterprise Angren Pipe Plant sends 2-3 trailer trains with a new batch of output intended for export. In a word, the level of development in the special industrial zones in 2014 and the current situation in the sector are worlds apart, indeed.
When listening to the news about the opening of a new enterprise or plans to set up a new production facility, a certain sectoral specificity of a concrete industrial zone seems to become evident, but the entire picture still remains unclear. Let’s clarify this aspect.
You are quite right. Each industrial zone is characterized by its own sectoral direction, which is formed according to the principle of expediency. In the Navoi Free Industrial Economic Zone, for instance, there are five main directions of production activity: mechanical engineering and manufacture of automobile components, production of electro-technical goods, pharmaceuticals, plastics and polymeric goods, as well as the storage and processing of fruit and vegetables. As for the Djizak and Angren Free Industrial Zones, they lay stress on the production of modern building materials, metal goods, textile and electro-technical commodities, as well as finished leather goods. In particular, in the Djizak FIZ preference is given to labour-intensive projects, as the population density is higher there.
And why doesn’t the Navoi FIEZ develop such profitable line of activity as the production of building materials, given its vast raw-stuff base?
This economic zone is mainly intended for high-tech industries. If an enterprise turning out electronics is located in the vicinity of a cement factory, this will lead to a higher level of dust content and, as a consequence, negatively affect the former’s performance. The same can be said about the processing of fruit and vegetables. Such an approach is hardly logical. As I have already mentioned, the territory of the Navoi FIEZ, unlike the Angren Free Industrial Zone, is more compact, with enterprises situated close to each other. This doesn’t mean, however, that all directions of building materials production are tabooed. Right now the possibility of organizing modern facilities to turn out building materials in the Navoi FIEZ is being considered in detail, including the glassware, composite materials, ceramics etc. , whose production specificity will hardly affect the ecological situation in that region.
The use of air corridors with landing in Navoi ensures the tangible economy of time and transportation-related expenditure. The distance from Europe to South-East Asia via Navoi is 1,000 kilometers shorter than via Dubai. At the same time, each flight economizes 15 tons of fuel.
The Djizak Free Industrial Zone is the only industrial zone in Uzbekistan that yet lacks a logistics center of its own. In what way does this circumstance influence its pace of development?
As a matter of fact, investors are interested, first and foremost, in two things: the market itself and developed production and social infrastructure. And this means the vicinity to central cities. That is why the most large-scale development of transport-logistics infrastructural facilities is observed in the Navoi Free Industrial Economic Zone. Situated in a distant region 20 kilometers off the city of Navoi, it is home to a modern industrial complex. Taking into consideration its location, it was necessary to create such a perfect infrastructural environment that would attract investors without fail. As for the Angren and Djizak Free Industrial Zones, which enjoy a more advantageous geographical location, their transport infrastructure and tax and customs incentives play an important, though not decisive, role when making an investment decision. In the Djizak FIZ, a technical railway station is still used for the transportation of goods. Taking into account the ever growing logistics demands, it is planned to build a separate railway branch line there.
Could you explain why this very zone is given preference?
The decision to create a third special industrial zone was directly linked with measures to use inactive industrial installations. Before 2013, when the Uzbek President signed a decree on the creation of a new FIZ, a big industrial area consisting of two territorial blocks stood idle not far from the province’s administrative center. Some facilities located on its territory didn’t function at all, while others were unfinished. Since several elements of required infrastructure were in place, it was quite logical to construct a new modern industrial installation on the basis of the first 340-ha block. The same is true of the Angren Free Industrial Zone, where numerous inactive and unfinished installations in the cities of Angren and Akhangaran were put into service in the first place.
The statistics as of 1st May 2016 looks as follows:
24 projects were realized in the Navoi Free Industrial Economic Zone. Their total value was estimated at US $124 million, of which US $34.4 million was represented by foreign direct investments;
10 projects were implemented in the Angren Free Industrial Zone. Their total value reached US $181 million, of which US $131.4 million was accounted for by foreign direct investments;
20 projects were realized in the Djizal Free Industrial Zone. Their total value was put at US $106.2 million, of which US $57.3 million was represented by foreign direct investments.
As a result, over 4,200 new jobs were created there.
They say that enterprises set up in the industrial zones may, in the medium-term perspective, provide the economic basis for scientific research and design projects. Do you share this opinion?
Whether or not they are well-positioned to become a central platform for such activity is a complex question. But there can be no doubt that the enterprises functioning within the framework of the Republic’s free industrial zones will emerge as the leaders in their sectors. For example, let’s take OOO HPC System, an Uzbek-Chinese joint venture based in the Navoi FIEZ. Specializing in the production of high-voltage cables and wires, the company has recently set up a scientific-research laboratory, or a scientific center, the only institution of its kind in the Central Asian region that studies cables. Its personnel include not only the enterprise’s own engineers, but also specialists from different provinces of Uzbekistan. A total of US $500,000 was invested in the construction of a given sub-division, which is outfitted with the latest technological equipment. Of course, the project is expensive, because it is necessary to regularly upgrade the laboratory equipment in an effort to keep abreast with the changes and technological trends in the international cable market. Proceeding from world practices, however, the massive expenses associated with the project will be more than compensated. The point is, the big research centers operating at the world’s industrial giants work hard on each part, which, in the long run, will maximally tell on many factors, such as an increase in sales volumes, reduction of production costs, improvement of the commodity’s qualitative characteristics and so on.
The country’s industrial zones have sufficient potentialities for making progress on this front and there is every reason to think that other science-intensive enterprises nationwide will start setting up their own special research sub-divisions.
The multifaceted economic and scientific effect produced by the establishment of industrial zones is obvious. And what about their social effect?
I dare say, their social effect is also rather spectacular. The Angren Free Industrial Zone is the most graphic illustration of this statement. There was a vast territory, where lots of industrial enterprises stood idle, meaning that a majority of manpower residing nearby was unemployed. Today, more than 1,000 people work at the enterprises located in the Angren FIZ. Among them you can meet not only citizens from the towns of Angren, Akhangaran and Almalyk, but from other regions of Uzbekistan as well. They are driven home by bus, which means additional jobs for drivers. Branches of commercial banks, catering outlets, shops, services centers etc. are constructed all over the place. Needless to say, this ensures guaranteed employment for their builders and future personnel. Other infrastructural conveniences are also significant. The trend is stable, and one can say that the Angren Free Industrial Zone is a town-forming enterprise. What’s more, imagine the number of people engaged in the provision of public services and utilities, including the planting of greenery, watering, cleaning of territory, landscape design and the like. As you can see, the social effect is really tremendous.
And do the enterprises based in the industrial zones enjoy an opportunity for the creation of farms attached to them?
The national legislation doesn’t forbid industrial enterprises to carry out this line of activity. It should be pointed out here that neither tax nor customs privileges are stipulated for FIZ participants in this field, but the economic and social expediency of a given line of activity has been certified by the rich experience of ensuring the food self-provision accumulated by indigenous manufacturers. Some domestic enterprises have already set up farms, which function rather well. Among them are the Unitary Enterprise Angren Pipe Plant and OOO Peng Sheng Joint Venture located in the Angren FIZ and the Djizak FIZ, correspondingly.
Could you dwell on the plans to expand the geography of industrial zones in Uzbekistan? How will they look like?
At the present time, only 20 per cent of the Navoi FIEZ’s territory is occupied by enterprises. The relevant figures for the Djizak FIZ and the Angren FIZ are 30 per cent and some 15 per cent, respectively. What does this mean? This means that there is now no necessity at all to create new free industrial zones in the Republic in the near future. Today, one may only suppose that when such necessity does emerge, the most probable destinations for their location will be the Republic of Karakalpakstan, Khorezm, Surkhandarya and Kashkadarya provinces. Although their growth rates in manufacturing and business activity are promising, they need long-term investment incentives. But this is only a hypothesis, you know. When FIZ projects were elaborated, the future need to expand their territories was always implied. Take the Navoi Free Industrial Economic Zone as an example. It occupies 564 hectares, with another block of 300-400 hectares being reserved in case of expansion. The Djizak Free Industrial Zone can be expanded, in case of need, at the expense of a second industrial area that is now standing idle. As for the Angren Free Industrial Zone, the situation there is somewhat different. Initially, a vast territory was allotted for it, which covers the town of Angren, the industrial zone of the town of Akhangaran, plus the adjacent uninhabited areas set aside for industrial purposes. 20 per cent of the Navoi FIEZ’s production capacities are ensured with activity in the space of 8 years. However, the annual investment dynamics is subject to fluctuations, which makes the formation of exact prognosis next to impossible. It may take three or ten years. When speaking about the creation of new industrial zones, one should take into consideration the fact that selecting a suitable land plot and developing tax and customs privileges for future participants are not enough. It is a multifaceted and very expensive project.
But the Angren Free Industrial Zone tells a different story, as far as I know.
It is not quite so. In contrast to the Navoi FIEZ and the Djizak FIZ, the borders of the Angren FIZ are conditional. Building an engineering infrastructure and laying the necessary communications for some enterprises located not far from the existing electricity transmission lines, plus gas and water mains didn’t require big investments. But this is only one side of work. Take, for instance, the motor roads running across the territory of this FIZ. To begin with, they didn’t meet the established requirements. And to upgrade a kilometer of a motor road requires US $1 million at an average. As a whole, between 2013 and 2015, a special government program was under way in the Angren Free Industrial Zone to develop infrastructural facilities, including electricity, gas and water supply, drainage networks and suchlike. The almost US $60 million worth program also stipulated the improvement of railway infrastructure and motor roads.
The industrial zones demonstrate an enormous level of efficiency. What role do they play in the national economic of Uzbekistan?
Over the years of their functioning, they have made a considerable contribution to a rise in industrial production volumes. Today, the enterprises operating there account for about 1.2 per cent of the Republic’s manufacturing. Allowing for the fact that the Navoi Free Industrial Economic Zone and the Angren and Djizak Free Industrial Zones utilize only a pittance of their potentialities, this is a rather high indicator. In the structure of national exports, this figure is even lower – 0.4 per cent of the total volume of exports deliveries. But one should proceed not from the current figure, but from future indicators. Last year, the exports share of their enterprises came to some US $42 million, 6.8 times the similar indicator reported in 2014. The aggregate production volume reached 1.1 trillion Soum, a 3-fold rise compared with 2014.
In his 2015 election campaign, the Uzbek leader observed in particular that these days the life itself convincingly contends the correctness of the evolutionary road of independent development chosen by the Republic, which is recognized worldwide as the Uzbek model of renovation and modernization of both the national economy and society. In a very short historical period Uzbekistan has turned from a backward and poor region with a one-sided economy, a raw-material adjunct of the former Soviet Union occupying the lowest position in the living-standard table, into a dynamically evolving nation, which sustains a high pace of economic and social growth.
Innovative projects, creative ideas, prestigious jobs, highly-skilled personnel, successful economic development and other promising factors embodied in the special industrial zones set up in Uzbekistan are a living picture of the reliability and bright development prospects of the national economy.
(Source: «Business partner.uz» newspaper)
International cooperation
Meeting with Foreign Minister of Saudi Arabia
On July 27, 2016, the Minister of Foreign Affairs of the Republic of Uzbekistan Abdulaziz Kamilov in the framework of his visit to Saudi Arabia held talks with the Minister of Foreign Affairs of the Kingdom of Saudi Arabia Adel Al-Jubeir.
During the meeting, the sides discussed actual issues of the Uzbek-Saudi relations, exchanged views on the agenda of upcoming session of the Council of Foreign Ministers of the Organization of Islamic Cooperation (OIC CFM) in Tashkent.
Minister Adel Al-Jubeir highly rated the approach of Uzbekistan in relation to priorities of the presidency of the country in the OIC Council of Foreign Ministers, which are united under the slogan – «The education and enlightenment – path towards peace and creativity».
The foreign ministers of Uzbekistan and Saudi Arabia noted their interest in the progressive development of bilateral cooperation in various fields and successful organization of the 43rd Session of the Council of Foreign Ministers of the OIC in Tashkent.
(Source: Press Service of the MFA of the Republic of Uzbekistan)
Ecology
Uzbekistan to create first complex reserve
Uzbekistan is planning to create the first comprehensive landscape reserve “Saigachiy”.
The new reserve will be established in the territory of Muinak and Kungrad districts of Karakalpakstan.
The project was initiated by the State Committee of the Republic of Uzbekistan for Nature Protection. The Government of Uzbekistan has approved the project with its resolution “On measures to regulate issues related to the establishment and operation of complex (landscape) reserves” from 22 July 2016.
State environmental agency will be created on the basis of the reserve “Saigachiy”. The total area of the reserve will be 300 hectares and will include five sections. Protected zone of the reserve will make up 219,800 hectares.
The committee said that these areas were selected due to their environmental conditions for the saiga and other rare species. These areas are traditional breeding grounds of saiga as there are good pastures and watering places.
The reserve will be financed due to extra-budgetary fund of the Republican State Inspectorate for protection and rational use of flora and fauna of the State Committee of the Republic of Uzbekistan for Nature Protection.
“Creating of comprehensive reserve will increase the number of saiga population and other rare and endangered species of plants and animals”, – the State Committee said.
(Source: UzDaily.com)
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