Role of Foreign Investments in Developing Industry of Uzbekistan

by Usmanov, B.

Usmanov B (2017). Role of Foreign Investments in Developing Industry of Uzbekistan. In Young Scientist USA, Vol. 9 (p. 8). Auburn, WA: Lulu Press.



 

Abstract. Ensuring high and steady rates of attracting foreign investments is an essential prerequisite for the development of industrial production. This creates the need to formulate relevant scientific and theoretical and practical conclusions on the relationship between attraction of foreign investments and the change in the volume of industrial production.

This article analyzes the scientific and theoretical views on the relationship between foreign investment and industrial production, analyzes trends in attracting foreign investment into industrial production in Uzbekistan, and elaborates on scientifically-practical proposals to increase their importance.

Keywords: Foreign investment, credit, industry, modernization, investment activity.

 

1. Introduction

As it is known, industrial production and investments are interdependent, and the wider involvement of investments, in particular foreign investments, increases the growth rates of industrial production.

The economic mechanism of intensification of investment processes in the industrial sector and the mechanisms for its implementation are of great scientific and practical significance for continuous modernization, technical and technological renewal of production, active involvement of national and foreign investors in the investment process.

The wide involvement of foreign investments into the economy of the country and the efficiency of their use will enable to develop competitive products and further develop the real sector of the economy.

Therefore, investment attractiveness of industrial enterprises in the country should be high enough and able to attract foreign investment. In the future, the increase in the number of such industrial enterprises plays an important role in ensuring the economic stability of the country and improving the wellbeing of the population through employment.

It is important to note that foreign investment is a necessary condition and important factor for the development of any country's economy.

2. Literature review

The results of some studies indicate that foreign investment not only positively affects the growth of production, but also plays an important role in the industrial development, modernization and diversification of production, and innovative development.

In particular, according to some economists, the need to increase the volume of foreign investments is conditioned by the increasing demand for restructuring, technical and technological renewal of production to increase the competitiveness of products manufactured by the real sector of the economy (Vakhabov et al, 2010).

Indeed, one of the most important factors of deepening economic reforms, modernization and diversification of the industrial sectors of the economy, and the transformation of structural transformations is attraction of foreign investments into the economy.

At the same time, the importance of foreign investment in the development of the national economy is significant, which is explained by the following (Bekmurodov et al., 2010):

-  firstly, introducing modern technologies and technologies for the production of foreign investment, promotes the production of export-oriented products;

-  secondly, it will allow to establish production of import-substituting goods and to direct foreign investments to the priority sectors of the economy and, ultimately, to ensure the acceptable living standards of the population;

-  thirdly, provides jobs for growing populations by developing small businesses and accelerating agricultural production;

-  fourthly, it renews and re-equips the old production capacities, material and technical basis of enterprises.

Foreign investment in different sectors of the economy, depending on the capabilities of these sectors, will have different effectiveness. Technology in the economy differs in terms of international flexibility, risk factors, global integration and domestic policies.

J. M. Keynes, a classic economist of the twentieth century, as a result of research on raising the investment volume and long-term studies on improving the mechanisms of their financing has come to the conclusion that reduction in the interest rate due to the increase in the supply of money reduces the investment cost and effective interest rate which will allow firms to increase the volume of planned investments. This, in turn, leads to unexpected consumption of commodity stocks. Firms and companies, in such circumstances, increase productivity. As a result, there is an increase in national income (Keynes, 1999).

According to J. Rebecca Kehl, the industrial sector plays a key role in attracting foreign investment in the world and, eventually, increases its size. In particular, foreign investors operate differently in the mining industry than in other industries. Because investments to foreign investors in oil, gold, diamonds and other natural resources extraction and processing will be of great benefit (Jenny Rebecca Kehl, 2009).

It is also desirable for foreign investments to be used for the agrarian sector of agricultural processing and services. Because the recycling industry has the export potential and the domestic market's demand for finished products, while the services sector will improve product quality and productivity.

According to conclusions of Jeffrey Leonard, the interest of foreign investors and government in investing will vary depending on the sectors of the economy. Foreign investment in oil and mining operations varies greatly from investments into other manufacturing companies (Jeffrey Leonard, 1980).

In addition, direct foreign investments can play an important role in increasing the country's technological level, creating new jobs, and gaining economic growth. Therefore, attraction of foreign investors to different sectors of economy in the period of low economic growth spurs economic development (Heinz Herrmann and Robert Lipsey, 2003).

3. Analysis of foreign investment attraction into the industry of Uzbekistan

It should be noted that in the period of 2005–2016 investments into fixed capital, including foreign investments and loans, were observed in the Uzbek economy. This is due to the fact that the investment climate in this period was relatively high and stable (Table 1).

Table 1. Investment activities in industrial sector of the Republic of Uzbekistan

Indicators

Years

2005

2010

2011

2012

2013

2014

2015

2016

Share of foreign investments and loans in investments made into the Republic, %

21,7

28,3

21,5

20,4

19,3

19,8

22,4

21,9

Share of the industry in the volume of investments into fixed assets, %

32,6

30,4

33,8

34,2

34,2

37,4

40,9

41,2

Share of foreign investments and loans in industry, %

46,4

23,6

42,5

45,9

46,2

67,7

44,7

61,1

Source: Annual statistical collection. -Tashkent: State Statistics Committee of the Republic of Uzbekistan, 2015; Industry of Uzbekistan. -Tashkent: State Statistics Committee of the Republic of Uzbekistan, 2006–2017. And compiled by the author on the basis of http: //www.stat.uz site information.

The data in Table 1 shows that foreign investment and loans have a high share of total investment sources. In particular, the industry has a high level of this indicator. If in 2005 the share of industry in the volume of investments into fixed capital was 32.6 %, by 2016 this indicator grew by 8.6 percentage points to 41.2 %, while in 2010 the share of foreign investments and loans in industry was 23.6 %, in 2016 it increased almost by 2.6 times to 61.1 %. This is due to the fact that large-scale projects are financed through foreign investments and loans in industrial sectors.

Analysis of distribution of foreign investments and loans by industry shows that in recent years, the share of the fuel and energy sector has been growing in Uzbekistan as a whole in the structure of total foreign investments and loans directed to industry. In particular, the share of the fuel and energy sector in the structure of total foreign investments and loans directed to industry sectors in 2005–2016 increased from 22.1 % to 78.3 %. This can be explained by the direct link between the work of modernization, technical and technological renewal of the fuel and energy sector.

Table 2. Distribution of foreign investments and loans attracted to the Republic of Uzbekistan by industrial sectors, %

Sectors

Years

2005

2010

2011

2012

2013

2014

2015

2016

Industry total

100

100

100

100

100

100

100

100

Energy: Electric energy

22,1

46,0

60,6

68,8

77,0

86,6

91,3

78,3

2,3

4,4

3,1

4,8

6,5

10,0

17,9

4,6

Metallurgy

13,5

0,9

1,8

1,0

2,0

0,1

1,1

0,6

Chemistry and petrochemistry

2,2

4,2

2,2

10,2

7,3

1,3

1,4

3,9

Car-manufacturing

1,8

7,8

4,2

5,2

2,8

2,8

1,1

2,3

Light industry

37,7

15,4

17,9

6,5

6,6

4,2

1,7

5,2

Food industry

6,9

6,4

3,0

2,4

2,6

2,8

1,2

4,9

Building materials

3,3

16,6

4,9

3,9

1,3

1,4

1,1

0,8

Wood, wood processing, and cellulose paper

1,3

1,3

2,0

0,5

0,1

0,2

0,2

0,1

Source: Annual statistical collection. -Tashkent: State Statistics Committee of the Republic of Uzbekistan, 2015; Industry of Uzbekistan. -Tashkent: State Statistics Committee of the Republic of Uzbekistan, 2017. Collections and author's calculations based on data from the site www.stat.uz.

3. Conclusion

In order to modernize the industry of Uzbekistan, to implement structural changes and, on the basis of this, to further enhance the investment, in particular, the impact of foreign investment in the development of this sector, it is desirable to implement the following activities:

  1. It is necessary to increase investment attractiveness of this sector in order to increase investment in industrial sectors, in particular, foreign investments. This, in turn, helps to improve the quality of the product and to equip it with new techniques and technologies.
  2. It is necessary to increase the volume of attracting modern techniques and technologies into the industrial production process through the use of international leasing in the industry of Uzbekistan.
  3. It is necessary to increase the amount of investment in the authorized capital of venture companies of industrial enterprises.
  4. It is necessary to increase the efficiency of foreign investments and bank loans in the development of high-tech industries. At the same time, it is desirable to focus foreign investment in the processing sectors with high capital intensity (fuel, energy, metallurgy and chemicals).

 

References

 

  1. Vakhabov A. V., Khadjibakiev Sh.Kh., Muminov N. G., Foreign Investments. Educational manual. — Tashkent: Finance, 2010. — page 291.
  2. Bekmurodov A.Sh., Karrieva Ya.K., Nematov I. U., Nabiev., D.H., Kattaev N. T., Foreign Investments. Educational manual. — Tashkent: Economics, 2010. — page 61.
  3. Keynes J. M. General theory of employment, interest and money. Translated from English. — M.: Helios APB, 1999. — page 184.
  4. Jenny Rebecca Kehl (2009). Foreign Investment and Domestic Development: Multinationals and the State. Lynne Rienner Publishers: USA. –pp.27–28.
  5. Jeffrey Leonard. 1980. «Multinational Corporations and Politics in Developing Countries». World Politics 32:11.
  6. Heinz Herrmann and Robert Lipsey (2003). Foreign Direct Investment in the Real and Financial Sector of Industrial Countries. Springer — Verlag Berlin Heidelberg. –p.52.
  7. Annual compilation of statistics. — Tashkent: The State Committee of Statistics of the Republic of Uzbekistan, 2015
  8. Industry of Uzbekistan. — Tashkent: The State Committee of Statistics of the Republic of Uzbekistan, 2006–2017.
  9. http://www.stаt.uz