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Free Economic Zones in Uzbekistan

Free Economic Zones in Uzbekistan

Navoi Free Industrial Economic Zone (Navoi FIEZ) was established in late 2008 – early 2009 around the international Navoi Airport, Uzbekistan. At that time many sources mentioned that this was one of the anti-crisis policies of the Government of the Republic.

Decree of the President of the Republic of Uzbekistan “On the establishment of Free Industrial Economic Zone in Navoi Region” sighed on December 2, 2008, was the starting point. It was assumed that the zone would function for 30 years, having investments mobilization and production of worldwide competitive goods as main objectives. Legal foundation of the zone was provided by the Regulation on Navoi Free Industrial Economic Zone approved by the Cabinet of the Republic of Uzbekistan on January 27, 2009.

Theoretical Background

Free economic zone (FEZ) or Special Economic Zone (SEZ) is a designated area in a country that possesses special economic regulations that are different from other areas in the same country. Conducting business in a SEZ usually means that a company will receive tax incentives and the opportunity to pay lower tariffs (Investopedia). The aim of FEZ is activation of home economy and integration into the global economy.

The first FEZs were established in 1934 in the USA and these were airports, docks, and storehouses for duty free import. After World War II similar zones have been opening in Ireland, Netherlands, Great Britain and then all over the world. The establishment of FEZ in advanced countries aimed at import while in developing countries on export and mobilization of (foreign) investments.

Why city of Navoi?

Let’s come back to Uzbekistan. According to the Regulation of the Cabinet of the Republic of Uzbekistan, Navoi FIEZ is a part of Navoi Region, Uzbekistan, located in Karmaninskiy Region with the area of 500 hectares and circuit of 205-216; 381-388; 404-470, that possess special legal order including taxation, currency and customs treatment, simplified procedure of entry, stay and departure, and permission to carry out work activity for the non-resident citizens of the Republic of Uzbekistan.

There are several reasons why the city of Navoi was chosen as the first FIZ in Uzbekistan. They are as follows:

1. Developed transport infrastructure. Navoi is situated at the crossroads of important trade routes between China and Europe.

2. Navoi Airport has been recently reconstructed and cargo aircrafts can land there now.

3. Broad resource potential.

4. Favorable geographical location. The city is located in the geographical center of Uzbekistan hence there is almost the same distance to neighboring countries.

What is operating already?

The leading state stock companies such as Uzbekneftegaz (oil and gas industry), Uzkimyosanoat (chemical industry), Uzeltechsanoat (radio-electronic industry), Uzavtosanoat (car industry), Uzmarkazisanoatexport (export of goods) have been involved in the project implementation. The first international investors have been companies from South Korea, China, India, United Arab Emirates, Turkey, and Singapore.

By the end of January 2009 management of Navoi Airport have been devolved to Korean Air for establishment of international intermodal logistics center there. By the end of 2009 it has been planned to implement up to 40 projects for foreign investments of about USD 900 million. Korean companies (specializing in electrical equipment production) were first investors.

To attract international investors, presentations of Navoi FIEZ have been held at domestic and foreign exhibitions.

During his interview to one of the local publications, Chief Architect of Design Department at Shakharzozlik Public Corporation said: Navoi FIEZ Project was presented in Korea Republic in early 2009, which aroused great interest among business circles of the country. As a result, many Korean companies have expressed a wish to become residents of FIEZ. Representatives of large companies from China, Europe, and Asia have also shown their interest.

On September 21-23, 2009, a forum dedicated to demonstration of Navoi FIEZ potential took place in Tashkent. In May 2010, during HannoverMesse 2010 in Germany a presentation on investment potential into Navoi FIEZ was made.

A lot of agreements have been signed and enterprises construction began. Thereby, in early 2010 Shurtan gaz kimyo kurilish was launched, a polyethylene pipes production plant built together with OmanOilCompany. By June 9, 2010, nine enterprises with foreign investments have already been operating on the territory of Navoi FIEZ, by August 12. Moreover, construction of Korean Air Housing Estate was completed.

In March 2011 UzErae ALTERNATOR was launched, an Uzbek-Korean venture company for production of automobile components set up by Uzavtosanoat, Uzbekistan,and ERAE CS Ltd, Korea. In May two more enterprises were established. They are KO UNG CYLINDER by Avtogaztaminot and Uzbekkhimmash, Uzbekistan, and Kogas, Kolon, and NK, Korea, for production of gas cylinders and KOR UNG INVESTMENT by Avtogaztaminot, Uzbekistan, and Kogas, Kolon, Kwangshin, and EngineTech, Korea, for construction and operation of 50 CNG filling stations in Uzbekistan.

In early September 2011 a processing line for production of DSLAM equipment and ADSL modems was launched at Telecom Innovations JV, established by Uzbektelecom, Uzbekistan, and ZTE, Korea. Moreover, Uzbekistan-Singapore JV CFM ProEnergies for the production of LED lamps was placed in operation. Navoiy Hunan Pulp, another Uzbekistan-Korean JV, started production of diapers Pannolino and ultra-thin sanitary pads Dream Soft.

In Early November 2011Navoi-Beauty Cosmetics was launched in partnership with South Korean DK Cosmetics.

Accordingly, 13 modern enterprises have been launched for two years of FIEZ functioning in such industrial spheres as light industry, automobile industry, energy sector, construction, and other important sectors of economy. In September-January 2011 the amount of produced goods was 23.3 billion Soums in money equivalent.

Plans and perspectives

Considering the capacity of all planned production, it was decided to modernize Navoi Thermal Power Plant and to build Steam-gas Plant. Three international companies will implement the project. These are Turkish Calik, Spanish Initec, and Japanese Mitsubishi.

Omani CyberOptic Company and Uzbekneftegaz have signed the memorandum worth USD 5 million on production of fiber-optic cable. Japanese OMETA is going to invest into building of medical equipment production enterprise. Singapore company Beacons Pharmaceuticals signed the agreement with Uzmfarmsanoat for building of pharmaceutical plant in Uzbekistan for USD 10 million. UzMinda, a JV by Uzavtosanoat and MindaGroup, India, is going to produce automobile components. In September 2011 Uzbektelecom and Olive Telecommunication, India, have signed the agreement for production of tablet PC, game consoles, and smartphones in Uzbekistan.

By the end of 2011 a plant for production of technical silicon at Uz-Kor Silicon JV which was set together with Korean Neo Plant is expected to be launched. Moreover, four more JVs will be opened by the end of the year.

Establishment of FEZ or FEIZ helps to fulfill economic and industrial potential of the country. By establishing FEZ Uzbekistan gets a lot of advantages such as production of competitive goods of high quality, completion of the budget, personnel development (job creation and trainings for staff), access to new technologies, and even the development of transport infrastructure of the Republic.

Uzbekistan has all the prerequisites for the establishment of new FEZ: its location in the very center of Central Asia (implies that many international trade routes go through it); rich resources and staff potential; and desire to attract international investments.

Establishment of FIEZ Navoi is one of the most important events in Central Asia for the last several years. Despite all the doubts, time shows that similar projects are worth being implemented.

Keeping in mind all the information described above, do you think similar FEZ are going to be established in other regions of Uzbekistan in nearest future. If yes, where then?

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