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INCREASING EXPORT POTENTIAL WITH SPECIAL ECONOMIC
ZONES IN UZBEKISTAN
Nazarov Nazar
PhD student of the Department of World Economy
Tashkent State University of Economics
Abstract:
Intensified international competition has led to the loss by domestic enterprises of
world markets and a direct threat to national markets. The lack of investment and new innovative
technologies promoted new economic zones in the country. In this paper work author explains main
concepts of free economic zones and it formulation into new forms in regions. Main purpose of the
article is clarifying role of special economic zones in world economy with theoretical approaches and
find out most optimized models for implementation of them into least developed regions of
Uzbekistan. As outcomes can be considered international legislation and fundamental frameworks
of the research objectives. Conclusion presented as three optimal model structure set up and
innovative modern class specialized zones for improvement urban places for providing economic
growth. Result of this study was a conceptual review of special economic zones as a full-fledged
international mechanism that promotes increase investment attractiveness and competitiveness of
the entire state and its individual industry sectors.
Keywords:
international relations, competitiveness, investment, commerce, investment
attractiveness, development of territories, special economic zones, territories of priority.
Introduction
Transformation of the world economy, the variability of the geographic location due
to the established integration, the formation of new centers of economic growth determine
a clear vector for the development of the Uzbekistan economy. Transition from a raw
material orientation to innovative, technological development. The basis of this transition
should be a strategy for the modernization of sectors of the economy, based on their
effective technological development. Among the priorities of economic growth, special
attention should be paid to the formation of a competitive industry in all regions of the
country.
The SEZ is a restricted area with special legal status and economic conditions for
national and foreign entrepreneurs. The main objective of the SEZ is the solution of strategic
tasks of development, including foreign trade, economic, social, regional and scientific-
technical problems[1].
Special Economic Zones (SEZs) have, over the past five years, become synonymous in
India with grabbing land from farmers[2].
Although, special economic zones as a policy concept and tool were tested over long
periods of time in countries like India or China, being the most visible examples, we should
remind that in a large number of different parts of the world this kind of policies were in
various levels or modifications used for accomplishment of the same or the alternative
policy goals in both developing and industrialized countries. These policies brought diverse
experience and policy implications in the different countries [3].
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A necessary condition for economic development and strengthen the sovereignty of
the state is to provide comprehensive and equal development of its various territories.
Socio-economic development of regions should be based on their production, investment,
resource potentials and taking into account geographic, demographic and other features [4].
In general, there is to note that issues regarding a policy of special economic zones are
really not simply interpretable ones. They are surrounded by a number of versatile risks [5].
Though, the richest empirical instances of application of these tools are related to the
economic transformations and the institutional experiments with the market mechanisms,
whilst some of these instruments are being applied also in the certain European Union
member states in the present time [6].
Literature review
Special economic zones (SEZs) have long existed in various forms, but it was not until
the mid-1900s that they were used as a deliberate policy tool. The US built its first SEZ in
New York in 1937, and then in 1942 constructed SEZs in in Puerto Rico [7]. However, the
first modern industrial free zone was introduced and constructed in Shannon, Ireland, in
1959 [8]. Since the 1960s, SEZs have become critical components of national industrial and
economic strategies around the world, especially in East Asia and Latin America. Colombia,
for instance, established its first zone called Barranquilla in 1964. A year later, the
Dominican Republic followed Colombia by creating La Romana zone in 1965 [9]. In Asia,
India set up its first SEZ in 1965, Taiwan in 1966, South Korea in 1970 and China in 1980 [10].
Developing country, filled with unattached multinational companies; the economic
“miracle of Shenzhen”, the
remote fishing village that grew into one of
the world’s
most
dynamic metropolises and China’s capital of innovation; and the world
-class trade and
logistics hubs of Dubai and Singapore. In general, most SEZs share the following features: (1)
a secured demarcated area, (2) managed by a single management or administrative div,
(3) providing advantages depending on their location, (4) under special customs regimes and
streamlined procedures [11]. Among the four features, the last one is the most important
determining feature of an SEZ (Farole 2011), because other SEZ features are very
heterogeneous. In contrast, the Chinese SEZ model has been conceptualized as a complex
of related economic activities and services rather than a single-function entity. Therefore,
China’s SEZs are larger and cover a wider range of functions than SEZs elsewhere (Wong
1987; Zeng 2010). Shah (2008, 4) defines SEZs as “contai
ned geographic regions within
countries
—
a demarcated area of land used to encourage industry, manufacturing, and
services for export
—typically characterized by liberal tax laws and economic policies”.
Similarly, but more comprehensively [12]
Methods and Materials
Current paper work developed under ground theory qualitative methods with various
scholars’ point of views by
using of secondary source data from international organizations
and Sciencedirect platform. World Investment Report and World Bank Group data set
provides as a main material in this research paper work. As the next approaches on
explained methodology framework distributed from major articles, reports and Decrees of
the Republic of Uzbekistan.
Results
The evidence of the lack of alternative strategy for innovative renewal of industrial
production requires closer attention to investment processes and their innovative
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component. Today to justify managerial investment decisions at regional levels are still not
clearly defined. Attraction of progressive innovations and their mass replication,
combination of borrowed foreign technologies with domestic R&D can be ensured by the
creation of special territorial entities - special economic zones.
There are many approaches to the classification of the indicators and indicators of
socio-economic development. In general, indicators can be divided into 4 groups:
▪
indicators of socio-economic development;
▪
indicators of economic security;
▪
forecast indicators of crisis situations;
▪
indicators of the environment.
Within this classification, it is advisable to use a number of criteria that characterize
the following fields and directions of social-economic development of the following areas:
▪
construction;
▪
transport;
▪
trade;
▪
services;
▪
investment;
▪
the institutional characteristics of credit organizations;
▪
operations with foreign currency;
▪
raised funds;
▪
allocated funds;
▪
the standard of living of the population;
▪
employment;
▪
institutional change;
▪
demographics [7]
Figure 1. Historical trend in SEZs (Numbers of countries and SEZs
Source
: Special Economic Zones, World Investment Report 2019, Page 129
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Current deceleration in globalization and international production is having the
opposite effect, as governments are responding to greater competition for mobile industrial
activity with more SEZs and new types of SEZs. There are nearly 5,400 SEZs today, more than
1,000 of which were established in the last five years. At least 500 more zones
(approximately 10 per cent of the current total) have been announced and are expected to
open in the coming years. The continued enthusiasm for SEZs among governments around
the world belies the impact of these zones, which is often mixed.
Figure 2.
A functional taxonomy of SEZs Organizing
Source:
UNCTAD, 2018
Figure 2 shows that classification of special zones in case of specialization and other
factors which indicated design and governance of the targeted areas. It is clear stated that
functions of the taxonomy types defined common description of zones.
Figure 3. Main elements of the regulatory framework of SEZs
SEZ-specific rules are generally more favorable for zone users, as they offer certain
benefits and privileges not available outside the zones. The manner in which this special
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regime and the general legislation interact, as well as the degree to which SEZ rules differ
from the general legal framework, vary considerably between countries as indicated at
Figure 3. Trade rules establish tariff systems for imports and stipulate other non-tariff
related requirements and administrative procedures to be fulfilled for both imports and
exports.
Figure 4. Regional distribution of SEZ laws
The number of SEZ laws in force has increased significantly since the 1990s, with
almost 70 per cent adopted since 2000 (Figure 4). This trend has accelerated over the last
decade, with nearly 40 per cent of all recorded national legislation having entered into force
since 2010
–
the vast majority in developing countries. The existing legal frameworks are
therefore relatively recent.
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Prominent elements of a well-organized policy framework for SEZs are discussed in
Table 1. A best-practice policy and incentive framework is stream- lined, encouraging zones
to compete on the basis of facilitation, facilities, and services rather than on the provision
of incentives. The relevance of regulatory issue to investors is a crucial, yet overlooked
factors of successful SEZ programs. The host government should aim to simplify investment
approvals and expatriate work permissions; control over the import and export licenses; and
monitoring customs audit procedures and stability of the exchange access.
Table 1.
International Standard Basic Policy Framework for SEZs [9]
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Concept of extra-territoriality
Outside domestic customs territory; eligible for national certificates of
origin; eligible to participate in national trade agreements and
arrangements.
Eligibility for benefts
No minimum export requirement; manufacturers and services; foreign
and local firms;
expansions of existing enterprises; private developers of zones.
Foreign and local ownership
No limitations; equal treatment
Private zone development
Clearly defined in legislation; specific zone designation criteria; eligible
for full benefits; competition from government-run zones on a level
playing field.
Sales to the domestic market
Liberalized, provided on a blanket basis rather than case by case;
treated as import into domestic market; subject to payment of import
duties and taxes
Purchases from domestic
market
Treated as exports from domestic market; enterprises eligible for
indirect exporter benefits.
Labor policies
Full consistency with International labor organization labor standards;
specialized
dispute settlement mechanism.
Source:
Special economic zones performance, lessons learned, and implications for zone
development, The World Bank Group, FIAS, 2008, Page 6.
Figure 5. Types of Zones
[10]
Source
: The Multi-Donor Investment Investment Advisory Service of the World bank
Group, 45869, Report, Page 10.
In modern economic relations expanding optimal organizational structure of the
economic zones such as at Figure 5 states clearly which development objectivities, location,
eligibility of them individually and market potentials and orientation with examples.
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Figure 6. Examples of Specialized Zones
Current
analyses show that special economic zones can be differ from various
prospective. According to the Figure 6 Enterprise zones are intended to revitalize distressed
urban or rural areas through the provision of tax incentives and financial grants. Most zones
are in developed countries, for example the United States, France, and the United Kingdom,
although South Africa is developing a similar mechanism (Figure 6). Single factory EPZ
schemes provide incentives to major enterprises regardless of location; factories do not
have to locate within a relevant zone to receive incentives and privileges. Leading examples
of countries relying exclusively on a single factory scheme include Mauritius, Madagascar,
Mexico and Fiji; other countries such as Costa Rica, the United States, and Sri Lanka allow
both industrial estate-style zones and single factory designations.
If we analyze the next research objectives the main principles incorporated in the
basic concept of a special economic zone can be considered as follows:
•
Geographically delimited area, usually physically secured (fenced-in);
•
Single management/administration;
•
Eligibility for benefits based upon physical location within the zone;
•
Separate customs area (duty-free benefits) and streamlined procedures;
•
Government Revenues and Costs from Zone Development.
And one of the relevant factors can be discussed in our research as a revenue. For
further improvement of earning from special zones in case of manufacturing or service
based economic activities may include below convinced causes and effects which directly
goes relationship economic benefits of the zones:
•
Corporate income tax (if no tax holiday);
•
Personal income tax on direct and indirect employment;
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•
Permit fees and service charges;
•
Rental or sales fees (from sale or rental of public land to developers);
•
Import duties and taxes on zone products sold to the domestic customs territory;
•
Concession fees for other facilities (port, power plant, and so on), linked to zone
development.
For expenditures of each special zones legally obligatory as indicated Decree or Codes
of individual countries can be applicable as indicated below costs:
•
Wage bill of government workers needed to regulate zone activity or operate the
zone and other operating expenditures;
•
Public sector capital outlays for external infrastructure (and internal infrastructure
and facilities in the case of a publicly developed zone);
•
Import duties and charges lost from smuggling;
•
Taxes forgone from enterprises relocating from the domestic customs territory to
the zone;
•
Subsidies.
Figure 7. SEZs and international law: the interface (Examples)
The next research argues that international legislation on privileges ang support each
selected factor can be find out from the figure 7. According to it special measurements and
international law implementation, control over process and permission on some given
activity permission requirements. From this point of view in our country optimized
legislative structure regarding some regions standardized above articles and some
compulsory activities.
Discussion
Increasing export potential with special economic zones in Uzbekistan issued tax
incentives for foreign investors as for the Deloitte, 2017. State Advisor to the President of
the Republic of Uzbekistan with the members of the Special Commission, to implement the
decision on a monthly basis, to implement investment projects in each FIEZ, to improve the
financial and economic activity of economic entities participating in the FIEZ. Attaching of
commercial banks of the Central Bank of the Republic of Uzbekistan and commercial banks
to free economic zones with the purpose of rendering financial and credit assistance to
economic entities - participants of FIEZ on timely implementation of investment projects.
Authorized commercial banks recommendations on provide full support to economic
entities that are participants of the FIEZ, implementing investment projects, and provide
business entities with a special attention to the feasibility study, efficiency and cost recovery
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of projects. The Fund for Reconstruction and Development of Uzbekistan provide authorized
commercial banks with a credit line of $ 100 million to finance investment projects in the
FIEZ as outlined in Annex 2 to this Resolution.
The most common obstacles to success for zones are:
•
Poor site locations, entailing heavy capital expenditures;
•
Uncompetitive policies
—
reliance on tax holidays, rigid performance requirements,
poor;
•
Labor policies and practices;
•
Poor zone development practices
—
inappropriately designed or over-designed
facilities, inadequate maintenance and promotion practices;
•
Subsidized rent and other services;
•
Cumbersome procedures and controls;
•
Inadequate administrative structures or too;
•
Many bodies involved in zone administration;
•
Weak coordination between private developers;
•
Governments in infrastructure provision.
The "Presence of systemic problems and deficiencies" in the Free Economic Zones
(the FEZ) is a major reason for the adoption of the Decree of the President of the Republic
of Uzbekistan "On Measures for Further Development of the System of Coordination and
Management of the Activities of the Free Economic Zones" dated December 21, 2018 [11].
This Decree was issued in the light of recent polls, which indicated negative attitudes of the
FEZ participants. The participants claimed that the ineffectiveness of the system is hindering
their businesses: particularly, long bureaucratic procedures and extremely long terms of
consideration of their applications by state bodies; unclear separation of obligations, as well
as a lack of infrastructure for conducting and developing business. The polls showed that
only 112 companies (28 percent) out of 402 registered participants of the FEZ have started
their activities. The Decree approved new procedures for conducting activities in the FEZ,
specifically:
•
From now on, a separate decision of the khokim (Mayor) of the city is not required
for the provision of a land plot to the FEZ participants.
•
Exports of at least 25 percent of production by the end of the second financial year,
and at least 50 percent for subsequent years became one of the conditions for the
placement of projects in the FEZ.
•
FEZ directors are appointed by the administrative council with the consent of the
Cabinet of Ministers. Previously, they have been appointed by the Republican Council on
Coordination of the Activities of Administrative Councils of the Free Economic Zones and
Small Industrial Zones (the Republican Council) [12].
Suggestions
One more step for improvement of special zones activities an be implemented
following organizational structure for individual sector and region from the point of
specialization.
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Figure 8. Public model of SEZ institutional set-up
[13]
Source:
UNCTAD,
World Investment Report 2019 Special Economic Zones, Page 170.
In the general model (Figure 8), all institutions at national and regional levels,
including public or community control of area developers. Frequently the developer zone
called "zone administration." Although these administrations may be organized
Administrators of FIEZ, which are financially independent, carry out strict control and
supervision their operations. In this model, the choice of zone users is an administrative
decision. Often central and local governments delegate regulatory authorities to the zone
administrations. A strong regional government-backed government can also help with
coordination Responsibilities of various state agencies involved in the SIZ.
Figure 9. Private model of SEZ institutional set-up
At the opposite end of the spectrum is the private model with private zone
developers being selected in a competitive process on the basis of statutory criteria (Figure
9). They have broad operational autonomy and report to the SEZ authorities, which have
limited and strictly defined regulatory powers. Most importantly, zone developers are
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responsible for the admittance of zone users, with which they conclude investment
contracts that regulate land leases, relevant fees and charges, or other operational issues.
Figure 10. Hybrid model of SEZ institutional
set-up
The hybrid model is a combination of the two models (Figure 10). It provides for the
possibility of public or private zone developers that retain relatively broad autonomy in their
operations. As regulators, SEZ authorities license all private stakeholders and thus retain
some control over the admission process. Nevertheless, the admission of zone users at the
zone level falls again into the purview of zone developers, as user status in the zone is
governed predominantly by a contract. This model gives broad flexibility to policymakers to
shape SEZ regimes according to zone activities and specific investment.
Conclusion
In conclusion increasing economic development of the special economic zones in
Uzbekistan it is applicable of privileges on taxes and fees cannot be of a relevant factor. It is
not only depending on fiscal instruments or privileges but also dependent on knowledge
based and well-planned business plan and providing competitive manufacturing goods with
innovations, electronic governance and commerce, high level of productivity and
effectiveness of individual firms, companies and enterprises which located in Uzbekistan.
The next findings can be assumed that creating the SEZ as the most popular methods
of stimulating the activities of residents in world practice. Technologies, training managers
for innovative activities in the scientific, technical and industrial fields; Attraction of capital
investments to priority sectors of the economy; Increasing the efficiency of products and
the technical level of production, substitution of imported products with products of their
own production; increasing the modern of industrial organizations based on new
technologies and the development of high-tech products; expansion of information services,
development of new production technologies; increasing the profitability of tourism and
other tourism activities, and creation of a new and reconstruction of zones in Uzbekistan.
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