EURASIAN JOURNAL OF ACADEMIC RESEARCH

Innovative Academy Research Support Center

www.innacademy.uz

FOREIGN DIRECT INVESTMENT IN UZBEKISTAN

Sobirov Fahriddin Sayfullayevich
China, Hubei Province, Wuhan city, Hubei University, Master’s degree
student, Major is Finance

https://doi.org/10.5281/zenodo.5450351

ARTICLE INFO ABSTRACT

Received:25th August 2021 This paper studies foreign direct investment determinants
Accepted: 30th August 2021 of Uzbekistan. Different variables have been chosen according to
Online: 05th September 2021
the previous researches in this field. According to the results,
KEY WORDS market size and population growth have statistical significance
FDI, GDP, Inflation to the FDI inflow of Uzbekistan. It is a very interesting process to
rate, exchange rate, discuss about the matter, which is related with the investment
income, division, matters, which are positively seen as the key issue in terms of the
awareness appropriate awareness of the conceptual understanding of the
economic processes.

Introduction more foreign investment, which studies FDI

determinants with linear
Foreign direct investment is a powerful tool
for shaping foreign economies and Regression. In addition, other guidelines
practices, and can therefore take the form of were formulated on the basis of the findings
public or private expenditure. Private of the study.
investment is the main form of FDI today,
In recent decades, foreign investor currency
but it is also regulated by investor countries
and trust in Uzbekistan have increased, as
' policies, and plays a role in conducting
the country took a number of measures in
foreign policy in a region.
building investment- friendly
In the interests of policy relations, the use of infrastructure; developing the energy
international private investment by firms in sector; providing the necessary facilities
their own countries is based on various and promoting the establishment of
political and economic processes that industries; and simplifying regulations and
decide the ties between foreign capital's rules. Concerning the period, which is
participation and shifts in host state politics. related with the current flows in particular
FDI appeal is more difficult in developing towards the year of 2021, FDI inflows
countries than developed countries. decreased slightly to 96 million US dollars in
Furthermore, in this case the regional the UNCTAD Foreign Investment Report in
factors play a role. Economists are trying to concordance with 2021 year’s report. In
define FDI determinants. A developing fact, the World Bank reports that
country like Uzbekistan aims to attract investment growth declined from 9.5% in
2019 to 9.1% in 2021. This reflects a decline
Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 23
 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz
of 47.82 percent (152 million) from 2019 strengthen Uzbekistan's FDI request, but in
rates, however high renewable energy these areas the country is moving gradually.
expenditure continues to see significantly
Literature review
stronger FDI estimates in future (FDI rise
744percent between 2019 and 2021). To FDI is described as an investment package
Russia, South Korea, China and Germany, in which a resident business maintains a
the FDI has historically arrived, but Canada long-term interest in a company outside its
increased its financial footprint overall in country borders in one country. FDI shall be
2019. The energy sector, particularly considered the possession or management
sustainable / renewable energy, has been of a non- corporate holding company or the
based on investments throughout recent equal value in 10% or more of its voting
years. The total amount of FDI in 2021 shares. Farrell described FDI as an
reached up to 11,3 billion USD encouraging entity to function and provide
(approximately) (13.5% of GDP). goods and services in a foreign market as a
bundle of money, technology,
In the year of 2019 World Bank as a
administration and entrepreneurship. FDI
primary organization , Uzbekistan ranked
can be separated into two groups, from
67th, with the 12th lightest company-
theoretical perspective: horizontal and
building region. In the Transparency
vertical. The Horizontal FDI (HFDI) is a type
International ranking 2021, the country
of investment, which either in the same
ranks 137th out of 180 nations. The
international industry that is in operation at
government's policy of setting up seven
home, or which provides the same services
special economic zones with fiscal
and is only tailored for local or original
opportunities has drawn international
markets without the export of large
capital. Examples include Syrdarya
amounts of output to host countries (Mask
Commercial Free Zone and a provisional
2002)
President's decree dated October 2019,
Shavkat Mirziyoyev (FDI Intelligence), Japanese MNE are commonly used in their
which calls for "further steps to accelerate international expansion as they assume that
and extend the operations in accessible this model would allow them to reduce the
commercial zones." Uzbekistan offered risk and share experiences, expertise, and
Eurobonds in 2019 to manufacture and reputation already established at home.
services (Bloomberg) for up to 300 million There is still no general census on these
dollars. Russia ordered the development of determinants and it is direct contribution to
a nuclear power plant through the Russian the influx of these economies, where many
Nuclear Energy Corporation (TASS) “Ros- research studies still are in attempt to
atom” through Saudi Arabia and Uzbekistan assess them. FDI has long-term ties.
in these nations. The Russian Central Bank Between economies which are good
posted on the matter of transfer of funds stimulus for economic growth and
from Russia to Uzbekistan. The development They also found out that GDP
privatization of large state-owned per capita is the main indicator of the
companies and entrance into the WTO will market size. In fact, the technology and
specialist workers are the main drivers of

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 24

 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz
FDI's successful productivity increase. The Data and methodology
national currency uncertainty on the
A panel data from 2019 to 2021 has been
international market is one of the other
collected and the paper “DETERMINANTS of
influences. He states, meanwhile, that
foreign direct investment (fdi) in
foreign investors have a large number of
agriculture sector based on selected
FDI influxes from countries with tax
highincome developing economies in oic
incentives, usually about 9 percent higher
countries: an empirical study on the
than from others.
provincial panel data by using stata, 2019-
Research objectives 2021” by intan

The primary objective of conducting this Maizura Abdul Rashid and et al has been
study is to determine the determinants of chosen as a benchmark paper. The
foreign direct investment (FDI) in availability of data is one of the justifications
Uzbekistan. Based on the theoretical behind choosing these periods. The
framework and research questions of this variables that have been taken as the
study, the research objectives of this independent variable are exchange rate,
research study had been constructed. The population growth, market size, inflation,
followings are the research objectives of the logistics performance unlikely the
this research study: benchmark paper, whereas the dependent
variable is foreign direct investment. The
1. To investigate the relationship between
sample of data that has been taken for
exchange rate and foreign direct investment
empirical analysis will take credit on 11
(FDI) in Uzbekistan. 2. To examine the
years data in annually basis. Expected
relationship between population growth
Outcomes in the study is to estimate the
and foreign direct investment (FDI) in
effect of several factors on the FDI inflow.
Uzbekistan.
Therefore we study the relationship
To investigate the relationship between between FDI and these factors and their
market size and business climate and significance level to the FDI inflow into
foreign direct investment (FDI) in Uzbekistan
Uzbekistan. Data Collection Methods
Unit Measurement for all variables1
To examine the relationship between
inflation and foreign direct investment
(FDI) in Uzbekistan.

Variable Abbreviation Unit of Sources

Measurement
Foreign Direct FDI FDI (USD) World Bank Data
Investment
Exchange Rate EXC Inflation, GDP World Bank Data
deflator (annual %)
Market Size GDP GDP per capita World Bank Data
growth (annual %)
Population growth POPGR Growth in World Bank Data
population
Inflation INFL Inflation Rate World Bank Data

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 25

 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz
Research Framework

Exchange rate Market size

Foreign
direct
investment
Population growth Inflation rate

Figure 1: Research Frameworks of the Determinants of Foreign Direct Investment (FDI) in

Uzbekistan2
The study context is important to of random effects used for variance
understand the relationship between between items. The tool used to evaluate
dependent variable and indigenous the impact of time-consuming factors.
variables, as shown in Graph , which Combined OLS–If a single influence does not
describes the determinants of FDI in occur, an efficient and accurate parameter
agricultural sectors between OIC countries. approximation is given by the normal
The component plays a key role in smallest square (OLS). Summarize GLS
promoting work and in any other aspects. focused on the production of “rough”
Here is a samples of the FDI in Uzbekistan. measures of proportional journal threats
Regression model and the estimation of the modified linear
pattern. Summarize the minimum square
Our framework is as follows
technique. All these measurements are
𝐹𝐷𝐼 = 𝛼 + 𝛽1𝐺𝐷𝑃𝑖 + 𝛽2𝐼𝑁𝐹𝐿𝑖 + 𝛽3𝑃𝑂𝑃𝐺𝑅𝑖 + conducted and data used in a STATA
𝛽4𝐸𝑋𝐶𝑖 + 𝜀𝑖 Comprehensive analytical framework is
built for data analyzing which indicates the
Based on equation , the positive GDP
number of observations required for
symbol, INFL, POPGR and EXC are a result of
observation on the basis of the data
te positive effects on foreign direct
collected. An overview of the FDI, market
investment in Uzbekistan of market size,
size, inflation, population growth and
development, population increase,
exchange rates, focused on descriptive
exchange rate and logistics indicators. In
statistics to assess the statistics of each
Uzbekistan, GDP growth, INFL, POPGR, EXC
component. The mean of each of the factors
cause FDI and vice versa.
was then also included and the square root
Results and Principles Firstly, it is believed of the standard deviation. Furthermore the
to be natural and uncorrelated to predictor data which is performed have a minimum
or independent variables in the model when and maximum meaning.
evaluating Panel results, including the form

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 26

 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz

Exchange rate Market Size Population Inflation rate

Variables growth
Observations 11 11 11 11
Mean 16.12 6.1263873 1.827837 12.21939
Std.Dev 0.054993496 1.1931205 0.470105 1.565411
Min 7.98 3.5465823 1.423475 9.399636
Max 26.83 8.3675377 2.82285 14.11765

According to the table above exchange rate respectively. In addition this table includes
has the highest mean and the highest the data about the minimum and maximum
maximum and the lowest mean belongs to points of the collected data.
the population growth, exchange rate has
Correlation between variables
the lowest standard deviation of
0.150761702 while inflation rate has the Variable correlation is the relationship
highest standard deviation of 1.565411. between each variable included in the
Market size, population growth and dependent variable and the independent
inflation rate have middle range Std.Dev variable analyzed in the study.
1.1931205, 0.470105, 1.565411

FDI Exchange rate Market size Population Inflation rate

growth
FDI 1.0000
Exchange rate 0.3694 1.0000
Market size 0.3213 0.1991 1.0000
Population 0.4395 -0.0679 -0.3976 1.0000
Growth
Inflation rate -0.1575 0.2571 -0.1302 -0.3654 1.0000

The presence of a high correlation between correlation between variables is

the independent variables will lead to the determined by the value for each variable
problem of multicollinearity on the between other variables. The highest
estimates. Still consider these variables correlation rate is FDI and population
because of the evaluation of the panel data, growth and it is 0.4395. In addition we see
which takes care of collinearity issues. The there is a slight positive correlation
highest correlation value means a very good between exchange rate and FDI (0.3694). It
relationship between the two can be seen that market size and population
growth has the negative correlation (-
variables in this study. It also shows that an
0.3976). Negative correlation exists
aspect has emerged between the two
between inflation rate and population
variables that can be used for future
growth too (-0.3654)
research. Based on the above table, the

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 27

 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz

Variables Coefficient Standard error t-statistics

Exchange rate 2.40495 2.468131 0.97
Market size .2274241 .1265234 1.80*
Population growth .7356233 .3319358 2.22**

Inflation rate .0335291 .0964266 0.35

R squared 0.5862 Adj. R squared 0.3103

Conclusion Uzbekistan is the world’s sixth largest

producer of cotton. The country grows
Uzbekistan’s potential also relies on strong
about 3.5 million tons of raw cotton
macroeconomic fundamentals, with a
annually and produces 1.1 million tons of
strong domestic market, a relatively young
cotton fiber9. It also produces silk and wool.
with abundant natural resources, a
relatively diversified economy and fast-
improving infrastructure. Overall,
Cotton processing and fabric production
Uzbekistan bene- fits from macroeconomic
remain below optimal levels and are
stability, which, combined with the current
expected to grow. The government has
reforms, is opening up opportunities in
expressed its intention to develop the
diverse economic sectors such as financial
textile industry further and process more of
services, construction, and tourism.
its own raw cotton into intermediary or
Leveraging a positive macro-environment, consumer goods for export. According to
the country is undertaking large-scale “Uztextilprom,” a major association of
reforms to generate further economic textile producers, about $1 billion will be
growth and improve the investment allocated for the modernization of the
climate. In recent years, Uzbekistan’s textile industry between 2015 and 2020.
business climate has improved Currently, the cotton processing rate is
tremendously, leapfrogging in the World ~70%. According to a government forecast,
Bank’s Doing Business ranking from 166th Uzbekistan is expected to achieve full
place in 2021 to 76th place in 2021. Fast- processing of cotton fiber in 2021.
paced reforms are in progress to address
Huawei Technologies is one of the largest
the barriers in the legal environment, as
Chinese telecommunications companies,
well as within the tax and customs systems.
known around the world as a leading
The currency liberalization in September
producer and solution provider in the field
2021 is one of the most significant reforms.
of information and telecommunications
Uzbekistan has a large textile industry,
In its 18-year history in Uzbekistan, the
which represents around 3.8% of the
company has equipped several mobile
country’s GDP, with high potential for
operators with telecommunications
development thanks to several competitive
hardware and software. It launched the first
advantages. The textile industry benefits
3G network in Uzbekistan and the first 4G
from local raw materials.
network in the CIS. In 2015, in a joint
venture with “Uzbektelecom,” Huawei also

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 28

 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz
launched “Uzmobile,” the national mobile An investment into a foreign firm is
operator. In 2016, in a JV with considered an FDI if it establishes a lasting
“Uzbektelecom.“ “Huawei” launched interest. A lasting interest is established
production facilities for optical equipment. when an investor obtains at least 10% of the
The total cost of the project was $3 million, voting power in a firm. The key to foreign
which was equally split between the two direct investment is the element of control.
companies. Control represents the intent to actively
manage and influence a foreign firm’s
Huawei also provides products and
operations. This is the major differentiating
advanced “ITC” solutions for large organiza-
factor between FDI and a passive foreign
tions and enterprises in education, energy
portfolio investment. For this reason, a 10%
and other areas.
stake in the foreign company’s voting stock
In the consumer segment, Huawei mobile is necessary to define FDI. However, there
phones are gaining popularity among are cases where this criterion is not always
Uzbekistani citizens. According to the applied. For example, it is possible to exert
control over more widely traded firms
company, 65% of Uzbekistan’s population
despite owning a smaller percentage of
uses communications services based on
voting stock.
Huawei equipment.
Methods of Foreign Direct Investment
Since 2012, the company’s Tashkent office
has been the regional headquarters for all of As mentioned above, an investor can make
Central Asia, the Caucasus, Turkey and a foreign direct investment by expanding
Mongolia. Huawei’s CEO stated that moving their business in a foreign country. Amazon
the regional headquarters from Istanbul to opening a new headquarters in Vancouver,
Tashkent was made possible by the support Canada would be an example of this.
of both governments and other partners.
Reinvesting profits from overseas
Huawei has developed social programs in operations, as well as intra-company loans
the country, such as Seeds for the Future, to overseas subsidiaries, are also
launched in January 2019. In a partnership considered foreign direct investments.
between Huawei and Tashkent University
Finally, there are multiple methods for a
of Information Technology, students were
domestic investor to acquire voting power
selected to participate in two-week training
in a foreign company. Below are some
courses in China. The two institutions also
examples:
launched a new research and educational
project, HAINA (Huawei Authorized -Acquiring voting stock in a foreign
Information and Network Academy), company
in 2016 to help train professionals in -Mergers and acquisitions-Joint ventures
information and network technologies. with foreign corporations
Through these programs and similar
-- Starting a subsidiary of a domestic firm in
activities, Huawei is trying to support the
a foreign country
development of digital skills in the country.
Benefits of Foreign Direct Investment
Recommendations
Foreign direct investment offers advantages
to both the investor and the foreign host

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 29

 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz
country. These incentives encourage both regional investment trends and national
parties to engage in and allow FDI. and international policy developments. This
year’s report reviews investment in the
Below are some of the benefits for
Sustainable Development Goals (SDGs) and
businesses:
shows the influence of investment policies
Market diversification, Tax incentives, on public health and economic recovery
Lower labor costs, Preferential tariffs from the pandemic.

Subsidies A concerted global effort is needed to

increase “SDG” investment leading up to
The international investment flows are vital
2030. The package of recommendations put
for sustainable development in the poorer
forward by “UNCTAD” for promoting
regions of the world. Increasing investment
investment in sustainable recovery
to support a sustainable and inclusive
provides an important tool for
recovery from the pandemic is now a global
policymakers and the international
policy priority. This entails promoting
development community.
investment in infrastructure and the energy
transition, in resilience and in health care. António Guterres

The World Investment Report supports Secretary-General of the United Nations

policymakers by monitoring global and

References:
1. Rush, E., McLennan, S., Obolonkin, V., Cooper, R., & Hamlin, M. (2015a). Beyond the
randomised controlled trial and BMI--evaluation of effectiveness of through-school nutrition
and physical activity programmes. Public Health Nutrition, 18(9), 1578–1581.
https://doi.org/10.1017/S1368980014003322
2. Rush, E. C., Obolonkin, V., Battin, M., Wouldes, T., & Rowan, J. (2015b). Body composition in
offspring of New Zealand women: Ethnic and gender differences at age 1–3 years in 2005–
2009. Annals Of Human Biology, 42(5), 492–497.
3. Li, S., & Seale, C. (2007). Learning to do qualitative data analysis: An observational study of
doctoral work. Qualitative Health Research, 17(10), 1442-1452.
https://doi.org/10.1177/1049732307306924
4. Barnard, R., de Luca, R., & Li, J. (2015). First-year undergraduate students’ perceptions of
lecturer and peer feedback: A New Zealand action research project. Studies In Higher
Education, 40(5), 933–944. https://doi.org/10.1080/03075079.2014.881343
5. Szcz Ę Sna, A., Nowak, A., Grabiec, P., Paszkuta, M., Tajstra, M., & Wojciechowska, M. (2017).
Survey of wearable multi-modal vital parameters measurement systems. Advances in
Intelligent Systems and Computing, 526. https://doi.org/10.1007/978-3-319-47154-9_37
6. Kasabov, N., Scott, N. M., Tu, E., Marks, S., Sengupta, N., Capecci, E., . . . Yang, J. (2016). Evolving
spatio-temporal data machines based on the NeuCube neuromorphic framework: Design
methodology and selected applications. Neural Networks, 78, 1-14.
https://doi.org/10.1016/j.neunet.2015.09.011
7. Alred, G. J., Brusaw, C. T., & Oliu, W. E. (2009). The business writer’s handbook. New York, NY:
St Martin's Press.
8. Best, A. (2004). International history of the twentieth century. Retrieved from
http://www.netlibrary.com

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 30

 EURASIAN JOURNAL OF ACADEMIC RESEARCH
Innovative Academy Research Support Center
www.innacademy.uz
9. Easton, B. (2008). Does poverty affect health? In K. Dew & A. Matheson (Eds.), Understanding
health inequalities in Aotearoa New Zealand (pp. 97-106). Dunedin, New Zealand: Otago
University Press.
10. Flesch, R. (n.d.). How to write plain English. Retrieved April 12, 2009, from
http://www.mang.canterbury.ac.nz/writing_guide /writing/flesch.shtml
11. Global warming. (2009, June 1). Retrieved June 4, 2009, from
http://en.wikipedia.org/wiki/Global_warming
12. Li, S., & Seale, C. (2007). Learning to do qualitative data analysis: An observational
study of doctoral work. Qualitative Health Research, 17, 1442–1452.
https://doi.org/10.1177/1049732307306924
13. Radio New Zealand. (2008). Annual report 2007-2008. Retrieved from
http://static.radionz.net.nz/assets
/pdf_file/0010/179676/Radio_NZ_Annual_Report_2008.pdf
14. Read, E. (2007, November 1). Myth-busting gen Y. New Zealand Management.
Retrieved from http://www.management.co.nz
15. Rush, E., McLennan, S., Obolonkin, V., Cooper, R., & Hamlin, M. 2019
16. Rush, E. C., Obolonkin, V., Battin, M., Wouldes, T., & Rowan, J. 2019, Body composition
in offspring of New Zealand.
17. Eaton, T. V., & Akers, M. D. (2021). Whistleblowing and good governance. CPA Journal,
77(6), 66–71.
18. Blocker, D & Wahl-Alexander, Z 2021, 'Using sport education in a university physical
activity course', JOPERD: The Journal of Physical Education, Recreation & Dance, vol. 89, no. 2,
pp. 56-61.
19. Branford, A & Coutts, L 2021, The precious ring, Walker Books Australia, Newtown,
NSW.
20. Branford, A & Coutts, L 2021, The wishing seed, Walker Books Australia, Newtown,
NSW.
21. Cancer Council 2021, Causes of cancer, Cancer Council, viewed 21 May 2018,
<https://www.cancer.org.au/about-cancer/causes-of-cancer/>.
22. Foot, G 2021, ‘Health drinks: turmeric', The best thing since sliced bread?, podcast, 20
February, accessed 25 February 2019, <https://www.bbc.co.uk/programmes/p071h3tx>.
23. Fujishin, R 2021, Natural bridges: a guide to interpersonal communication, Routledge,
Abbingdon, England.
24. Fujishin, R 2021, The natural speaker, 9th edn, Routledge, New York.
25. Hasler, E 2018, The built environment, Liverpool University Press, Liverpool.
26. Hay, B 2016, ‘Drone tourism: a study of the current and potential use of drones in
hospitality and tourism’, CAUTHE 2021: the changing landscape of tourism and hospitality:
the impact of emerging markets and emerging destinations, Blue Mountains, Sydney, 8-11
February, 2016, pp. 49-68.
27. Larson, C, Reid, TR & Oronsky, BT 2021, Immunomodulatory fusion proteins,
US20180134766, viewed 23 May 2021, retrieved from Scopus.

Volume 1 Issue 06, September 2021 ISSN 2181-2020 Page 31