Initial attempts at reform were quite successful; by 1995, more than 3,600 private Uzbek enterprises were operating with leading companies from over 70 countries. Leading the pack in joint venture trade with Uzbekistan was Switzerland, which comprised 15.7 percent of Uzbek Foreign trade, followed closely by Turkey (14.2 percent), China (9.1 percent), Germany (4.1 percent), and the United States (4 percent). Similar increases in Foreign trade turnover jumped to $US5,053 million in 1994, and $US2,919 million with NIS countries. By 1995, total output from these companies doubled, and exports increased 1.5 times (see Table).

Numerous leading industries have entered the market in Uzbekistan, including the South Korean Daewoo Corporation's auto assembly plant in the Ferghana Valley, the German Mercedes truck assembly plant in Khorezm, and the British-American Tobacco Plant (BAT). Their combined total Investment in Uzbekistan was $US2 billion in 1994, while the US-owned Newmont Mining Gold Processing venture committed over $US220 million in Foreign Investment. Smaller US Investments range from $US 1 to $U55 million, and include the development of a Coca-Cola bottling plant. Total US Investment in Uzbekistan, which was valued at approximately $US50 million in 1993, increased to $US90 million in 1994.

LEGISLATION PROMOTES INCREASED INVESTMENT IN UZBEKISTAN

The 1991 "Enterprise Tax Law" in Uzbekistan, which was amended in 1992-1994, opened the doors to Foreign Investment in Uzbekistan. According to the law, which is offered to Foreign and joint ventures operating in Uzbekistan:

• all new companies, excluding trading companies, are only required to pay 25 percent of the standard income tax rate during their first year of operation, and 50 percent during their second years; 
• joint ventures with more than 30 percent Foreign ownership and specializing in consumer goods, agricultural machinery, agricultural production, food processing, medical equipment, light industries, recycling wastes or building materials may obtain up to a five-year income tax holiday from the time of their registration. 

Output Levels of Leading Joint Ventures in Uzbekistan (per $US1 million)
 1994 60 17.7 145.8 3.9
 1995* 120 26.5 NA NA

* First eight months

Uzbek President Islam Karimov issued an edict in 1994 "On the Measures for Increased Economic Reform, Protection of Private Ownership and Development of Entrepreneur ship," which extends benefits to those companies operating with more than 50 percent Foreign ownership and specializing in the production of consumer goods. Benefits offered under this edict include a five-year exemption from requirements governing the mandatory conversion of hard currency earnings.

The "Law on Foreign Investment" reiterates and even extends guarantees on the protection of Foreign Investment s made in 1991 and 1992. These guarantees include the protection against expropriation, except in extraordinary circumstances, and the provision for compensation in that event; the right to repatriate profits; a ten-year exemption from legislation subsequent to the formation of joint ventures having a negative effect on their operation; licensing and tariff exemptions for exports of a joint venture's own production; licensing and tariff exemptions for import of equipment necessary to meet a venture's production needs; and access to Foreign arbitration.

Similarly, the law "On Measures for Stimulating Enterprise Activity and Expanding Export Potential" states that all enterprises exporting 30 percent or more of total production will have their income taxes reduced by 50 percent. Hard currency export revenue reinvested to increase export productivity will be exempt from mandatory conversion, and export tariffs will be lowered by 50 percent for all goods exported by producers for hard currency.

In April 1995, President Karimov issued an edict "On Tax Reform in the Republic of Uzbekistan," which provides for taxation of enterprises based on net profit rather than income, limits the tax rate to 38 percent, and allows for standard deductions for wages, interest and other costs of doing business. The edict also upholds existing tax holidays, and grants extensions to those enterprises which use their tax savings to develop production facilities. Under this edict, companies will have the ability to choose whether to apply the new profit tax or the pre-existing income taxes, and exporters of raw materials are exempted from the profit tax.

Yet, the "Law on Foreign Investment" is most innovative in its departure from previous conventions governing Investment insurance. This law aims to protect Foreign Investments. Together with the "Law on Insurance" and a recent resolution by the Cabinet of Ministers "On Measures for Securing Insurance Protection of Investments in Uzbekistan," the Law on Investment allowed the creation of "UzbekInvest " International Company, a venture with American International Group (AIG). This company was created to protect the economic interests of local and Foreign investors and to develop a modern insurance system in Uzbekistan.

UzbekInvest was established to insure Foreign Investment companies against political risks, and had a combined charter capital of $US100 million, from $U580 million Uzbek shares, and $US20 million AIG shares. The main tasks of this company included insurance protection of private Investment s in the Republic of Uzbekistan. At the time of the creation of the UzbekInvest company, the partners also established the "AIG-UzbekInvest Insurance Agency," which had a charter capital of $U5500 thousand, and a company for insurance against commercial risks, the "Uzbek American Insurance Company," or Uz-AIG, with a charter capital of $U52 million.

AIG-UzbekInvest  Insurance Agency operates on behalf of UzbekInvest  International Company, and provides expert examination and signing of insurance contracts. Uz-AIG Company provides insurance services, including those rendered for hard currency, against commercial risks and life insurance by foreign and local investors in Uzbekistan.

Based on my experience in UzbekInvest, I believe Foreign Investment in Uzbekistan is increasing. By the end of 1992, applications had been approved for 570 j9int ventures and subsidiaries of Foreign companies which mainly specialize in the production of consumer goods, construction, production and processing of agricultural products, computer and automotive services. A majority of these ventures involve US companies; other frequent partners were from Turkey, Austria, Italy, China and Afghanistan.

Some examples of successful joint ventures operating as a result of UzbekInvest  include the Uzbek-Italian-Swiss joint venture company, "Uzbekraifl," which manufactured and sold over 1 million pairs of denim jeans per year. Similarly, a subsidiary of "Elf-Aquitaine" company built a 5 million ton/year capacity oil refinery in Bukhara. Finally, a leading Turkish construction company has been carrying out four projects in Tashkent to construct hotels and a cement factory.

Turkish textile companies also have been very active in Uzbekistan; a textile joint venture was established in the Ferghana Valley to produce goods using local materials and Turkish machinery. A joint venture has been established between the Uzbek government and Italy's "Tectrade International," together with Germany's "IPS Polysacks" to upgrade Uzbek fertilizer plants. "Uzsephr" has been formed between Iran's "Sephr" and Uzbekistan's "Sharq" group to produce porcelain and other ceramic goods. The best Investment  areas are construction, tourism and transportation projects.

Foreign investment  inflow projections for 1996 are estimated to exceed $US7.5 billion. Target areas of investment  include the cotton industry; fruit and vegetable processing and storage; nonferrous metals such as copper, zinc and gold; oil and gas; alternative energy sources such as wind and solar power; and transportation. Yet, thus far, foreign investment s are far below the real potential.

 Priority is now being given in Uzbekistan to create a "Free Trade Zone" and construct alternative transport systems with Turkey, Turkmenistan and Iran in the South, and simultaneously with China, Kyrgyzstan and Kazakstan in the East. Once major legislative hurdles are passed, the Zone will be able to provide Investment incentives to leading foreign enterprises. The Zone, together with the laws on foreign trade and investment, will facilitate foreign capital flow into the country and accelerate the transition to a market economy.