Sunday, October 28, 2007


Information on the new measures of State Support for Attraction of Foreign Investments into the Textile Industry of Uzbekistan.
Numerous quantitative and qualitative changes, according to the expert evaluations, have recently taken place in the textile industry of Uzbekistan. These changes are reflected by a gradual saturation of the domestic market by the qualitative industrial and consumer products and a considerable increase of goods export as a result of increased volume of production, assortment expansion and improved quality. The most important indicator that demonstrates a dynamic development of the industry, however, is the stable inflow of direct foreign investments.
Before 1991 there were only 4 large textile complexes operating throughout the Republic, but since 1995 the volume of foreign investments attracted into the industry is already more than USD 800 mln., more than 44 projects have been implemented and 36 joint ventures have been established with the partners from Germany, Switzerland, Japan, Turkey, the US and other countries.
From the moment the first JVs in textile industry have been put into operation, their volume of exports has increased from USD 10 mln. up to USD 195.2 mln. in 2004. Moreover, in 2004 the JVs for the first time have managed to export finished garments and apparel at the amount of USD 10.2 mln.
Only in 2004 the State Joint-Stock Company "O’zbekyengilsanoat" launched the implementation of the 17 new projects with the total value of USD 180 mln. The portion of this sum totaling USD 99.4 mln. of direct foreign investments and credits without attraction of the Government guarantee were already utilized by the end of the year 2004. This figure has seen a 2.5 –fold increase comparing to the result of the year 2003, and accounts for almost 30% of the total volume of direct foreign investments, attracted into the economy of the Republic.
Attractiveness of the industry for foreign investors is secured by availability of steady and vast stocks of raw materials, specifically, high quality cotton fibre, low costs for energy resources, qualified and relatively inexpensive labour resources, but primarily, by support and special favourable and liberalized conditions created by the Government and the Leadership of the Republic. These conditions include stable legal framework for economic activity of undertakings, elimination of excessive external intervention into economic activity, reduction and rationalization of inspections, simplification of procedures of licensing, registration and certification, but primarily, wide range of various privileges, preferences and guarantees for joint and foreign enterprises, which are secured by current legislation.
The Law of the Republic of Uzbekistan "On Guarantees and Measures of Protection of the Rights of Foreign Investors", for example, stipulates, that the State guarantees and protects all the rights of foreign investors, and in case when the subsequent legislation of the Republic of Uzbekistan worsens the conditions of investment, the legislation effective on the date of investment is to be applied towards foreign investors within the ten years from the date of investment. The Law of the Republic of Uzbekistan "On Foreign Investments" clearly stipulates that “Legal regime for foreign investments shall not be less favorable, than relevant regime for investments, made by legal entities and individuals of the Republic of Uzbekistan”.
The Decree of the President of the Republic of Uzbekistan “On Additional Measures on Provision of Incentives for Establishment and Activity of Enterprises with Foreign Investments” dated May 31, 1996, determines, that “provision of incentives for establishment and efficient activity of enterprises with foreign investments, which produce export-oriented and imports-substituting products, is the major priority of foreign economic and investment policies of the Republic of Uzbekistan”. Furthermore, the national legislation regulating activity of foreign investors has been constantly improved and during last several years the special attention is being paid to enabling a maximum attraction of foreign investments for projects on deep processing of cotton fiber and fostering production of finished export-oriented goods.
One of the recent acts of that kind, which lays out a ground for considerable improvement of the investment climate of the textile industry is the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan "On measures on attraction of investments into the textile industry of the Republic" dated January 27th 2005. This Resolution approves the State Program on attraction of investments into the textile industry for the period of 2005-2008.
The Program embraces 94 projects throughout the republic, envisaging for the attraction of the investments at the amount of more than USD 1.2 bln. for modernization, re-equipment and complete reconstruction of the enterprises, as well as for establishment of new enterprises with a complete production cycle. It is expected, that implementation of the given projects will produce a gradual increase in the volume of domestic processing by the most up-to-date equipment and technologies up to 50 % of the total volume of cotton fiber grown domestically.
This sets a reason to believe that the production volume of the cotton yarn will see an increase by 329,9 thousand tons, of cotton fabrics by 144,4 mln. running meters, of knitted cloth for 34,8 thousand tons, and most importantly, the number of finished garment and knitted products manufactured will increase by almost 252 mln. pieces.
Implementation of the projects will ensure that the high-quality textile products are offered to satisfy the consumer demand, more than 46 thousand new working places are created and exports are increased by more than 1.1 bln USD.
Successful implementation of these substantial goals is ensured through granting investors significant privileges, as stipulated in the aforementioned governmental decision.
Most importantly, until January 1, 2009 the enterprises with foreign investments specializing in production of garments and apparel and hosiery products are exempted from all kinds of budget taxes and duties, except for the value added tax (in case of the domestic sales). Thus, enterprises, which are subject for application of the general taxation system, are exempted from 9 kinds of budget taxes and duties; and those, applying the simplified taxation system – from 4 kinds of budget taxes and duties.
Accordingly, the enterprises, producing and exporting finished garment and apparel and hosiery products may enjoy unprecedented economy of financial resources with the purpose of using them for technical re-equipment and modernization of production, introduction of new types of products, accumulation of working capital and motivation of employees.
Moreover, enterprises, included into the Program and undergoing re-equipment process, are exempted from the payment of customs duties (except for the customs registration fees) on imports of technological and auxiliary equipment, technological accessories and spare parts for industrial needs, on the basis of the expertise of the Council under SJSC "O’zbekyengilsanoat". It is expected that this measure of state support will lead to significant reduction of costs, whereas prior privileges were applicable only towards technological equipment and spare parts.
Enterprises importing chemicals, dyes, accessories and other auxiliary materials not produced domestically are exempted from payment of customs duties for another 4 years due to prolongation of the existing privilege.
A significant benefit is granted to the enterprises with foreign investments when they purchase the main raw material – cotton fiber. Existing legislation provides enterprises a 15 percents discount from the price set at the Liverpool Cotton Exchange and a purchase is made for hard currency. At the same time, if they have full cycle processing of the entire volume of cotton fiber with finished goods as end product and the export volume is not less than 80 percents of the total production volume, they receive an additional 5 percent discount, thus receiving a total discount of 20 percent.
Currently majority of newly established enterprises, producing finished export-oriented goods are undergoing the process of consumer market formation and establishment of partnership with foreign companies, dealing with retailing of the textile products. With regards to these, the provision of an exclusive right to set the maturity date of letter of credit up to 90 days, given that use of such type of payment is confirmed, became an important aspect of financial activity. Taking into consideration relative farness of domestic producers from the markets of potential distribution, application of the given privilege enables to simplify significantly and speed up the procedure of payment settlements of the textile enterprises – exporters, as well as to set more flexible terms of shipment for external markets.
At the same time, commercial banks of the republic are recommended to issue the short-term credits (up to 180 days) to the enterprises of the textile industry, including credits in foreign currency, for production and distribution of the export-oriented goods.
The above-mentioned privileges and other numerous preferences extended to the enterprises in the textile industry, and particularly to those implementing deep processing of raw material up to finished products, are aimed at creation of the most favorable conditions for exploring potential of the industry, improvement of its investment climate and ensuring its further dynamic growth.
With regard to the above-mentioned, SJSC "O’zbekyengilsanoat" invites all potential investors to be a part of the success of the textile industry of Uzbekistan and to make a perspective long-term investment and a valuable contribution into the development of economy of the Republic.

No comments: