Tashkent financial institute department of finance from "finance"

THE REPUBLIC OF UZBEKISTAN HIGHER AND SECONDARY MINISTRY OF SPECIAL EDUCATION

TASHKENT FINANCIAL INSTITUTE


DEPARTMENT OF FINANCE

FROM "FINANCE"

COURSE WORK
Theme: Foreign investments as a source of financing sectors of the economy.

Done by: MM64i group student

Nematillaev Bekzod

Superviser: Y. Akhunova
Toshkent-2021

Theme: Foreign investments as a source of financing sectors of the economy

PLAN:

Introduction

Investments play an important role in the development of the economy. Our president, Shavkat Mirziyayev Miramanovich, is saying “Without investment, the economy will not develop” saying for not only a reason but numerous reasons. Attracting both foreign and domestic investments can increase productivity, substitute import based goods and improve life quality, create more vacancies for local people, speeds up industrial relations and develop country generally in all spheres. Reforms in Uzbekistan during the three last years, such as liberalizing the foreign currency market and establishing seven special economic zones with tax breaks for investors, has made the country a more appealing destination for international capital. According to the UNCTAD's 2020 World Investment Report, FDI inflows increased significantly in 2019 to USD 2,3 billion, compared to USD 625 million in 2018. Total FDI stock stood at USD 9.5 billion in 2019. FDI traditionally arrives from Russia, South Korea, China and Germany, but Canada recently increased its financial presence. Investments focus on the energy sector, including alternative/renewable energy in recent years.¹

To improve the business environment, the Government of Uzbekistan introduced in 2017 a number of legislative changes, including the cancellation of unscheduled, and seemingly arbitrary or punitive, inspections of businesses as of January 1, 2017; elimination of the requirement to convert certain percentages of hard currency export earnings at the official (artificially low) exchange rate; simplification of business registration procedures; creation of a Business Ombudsman office; and a Law on Countering Corruption that attempts to increase transparency in Government of Uzbekistan functions.

By law, foreign investors are welcome in all sectors of the Uzbek economy and the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin. However, government control of key industries has discriminatory effects on foreign investors. For example, the Government of Uzbekistan retains strong control over all economic processes and maintains controlling shares of key industries, including energy, telecommunications, airlines, and mining. The government still regulates investment and capital flows in the raw cotton market and controls all silk sold in the country, dampening foreign investment in the textile and rug-weaving industries. Partial state ownership and government influence are common in many key sectors of the economy.

The state still reserves the right to export some commodities, such as nonferrous metals and minerals. In theory, private enterprises may freely establish, acquire, and dispose of equity interests in private businesses, but in practice, this is difficult to do because Uzbekistan’s securities markets are still underdeveloped.

Investment programmers were launched in order to encourage big investments in the priority sectors. Programmers include 86 foreign direct investment projects totaling 1.8 billion dollars, of which more than half is for the energy sector.²

Uzbekistan ranked 69th in the World Bank 2020 Doing Business, same as the previous year. The country is among the economies that improved the most across three or more Doing Business reports. The national investment promotion agency provides aid for foreign investors who seek to invest in Uzbekistan. The government seeks to attract FDI, especially in specific sectors - such as banking, energy, oil and gas, manufacturing, telecommunications, transport, and agriculture - as part of the president's large-scale privatization plan. As we have seen here, the huge part of the investments is spent on innovative industry which is correlated with telecommunications, IT industry and so on. Moreover, due to the abundant number of natural recourses, more an more investors are keen on having a modest stake in any sphere related to advanced industry such as metallurgy, gold mining, gas and rock substances.

All in all, Investments are raining over our country because of very rich natural environment and it directly has an impact to all spheres and develops infrastructure step by step. FDI has become an important source of private external finance for developing countries. It is different from other major types of external private capital flows in that it is motivated largely by the investors' long-term prospects for making profits in production activities that they directly control. Foreign bank lending and portfolio investment, in contrast, are not invested in activities controlled by banks or portfolio investors, which are often motivated by short-term profit considerations that can be influenced by a variety of factors (interest rates, for example) and are prone to herd behavior.

While FDI represents investment in production facilities, its significance for developing countries is much greater. Not only can FDI add to investible resources and capital formation, but, perhaps more important, it is also a means of transferring production technology, skills, innovative capacity, and organizational and managerial practices between locations, as well as of accessing international marketing networks. The first to benefit are enterprises that are part of transnational systems (consisting of parent firms and affiliates) or that are directly linked to such systems through non- equity arrangements, but these assets can also be transferred to domestic firms and the wider economies of host countries if the environment is conducive.