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Ways to improve the mechanism of state support for the localization of industrial
production
Sobitova Rano Solidjonovna
TerSU, iffd (PhD)
Xodjamurova Sevinch Nuriddinovna
TerSU Uzbekistan-Belarus
joint program 1st year student
Abstract
This article aims to study the regional aspects of import substitution in the process of integrating
the regions of Uzbekistan into the system of global economic relations, to highlight the issues of
economic policy and state support aimed at import substitution by the government of the republic
in order to protect domestic industrial producers and replace imported goods and technologies with
competitive products produced in our country.
Keywords:
Import substitution, industrial cooperation, localization program, localization projects
Regional aspects of import substitution are being studied as an important factor in the integration
of the regions of Uzbekistan into the system of global economic relations.
1
However, state support
for import substitution at the macro and micro levels and the practical organization of this process
are fragmentary, limited to tasks in the field of ensuring food security and developing the agro-
industrial complex.
2
In order to protect domestic industrial producers and replace imported goods and technologies with
competitive products produced in our country, the government of the republic has pursued an
economic policy aimed at import substitution. In 2015, the Chamber of Commerce and Industry
of the Republic of Uzbekistan Import substitution industry plans for 2016-2019 have been
developed, which provide for a significant reduction in the share of imports in domestic
intermediate consumption of products. Enterprises participating in the implementation of import
substitution industry plans are potential recipients of state support measures provided for in the
state programs of the Republic of Uzbekistan.
In Uzbekistan, industrial cooperation is being promoted on the basis of industrial cooperation
within the framework of the program for the localization of production of finished products,
components and materials. The Ministry of Foreign Trade, the Ministry of Economy and Finance,
and the State Committee of the Republic of Uzbekistan for Assistance to Privatized Enterprises
and Development of Competition are responsible for this. This program involves investment
1
Исмагилова Л.Р. Развитие экспортоориентированных и импортозамещающих производств как фактор
интеграции региона в систему мирохозяйственных связей. –
Дисс. канд. экон. наук, 2004 г.
;
. Кадочников П.А.
Влияние импортозамещения на процессы экономического роста в переходной экономике. –
Дисс. канд.
экон. наук, 2005 г.
2
Батчиков С. Импортозамещающий вектор алтернативной стратегии народнохозяйственного развития //
Российский экономический журнал, 2002, №3.
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projects that are important for the further development of industrial production based on local raw
materials, materials and components.
The legislation of the Republic of Uzbekistan clearly spells out the procedure for considering and
introducing investment projects in accordance with the Localization Program and its
implementation mechanism.
The project's performance meets the following criteria to be considered for inclusion in the
Localization Program:
a) availability of local raw material resources and capacities for the production of localized
products;
b) from the moment of inclusion in the localization program, the level of localization should be at
least 36% in the first year, at least 45% in the second year for manufactured products, and at least
50% in the third year, with 36%, 40%, and 45% for mechanical engineering and metalworking
products, respectively;
c) the share of exports in net proceeds from the sale of localized products should be at least 20%
in the second year and at least 30% in the third year from the moment of inclusion in the
Localization Program;
d) ensuring that the final product's place of origin in terms of the TIF TN code changes by at least
one of the four digits relative to the initial raw materials;
y) the presence of demand for localized products in domestic and foreign markets;
j) the presence of imports of similar products (except for the production of new types of products);
z) the presence of preliminary agreements or contracts with potential consumers of the products;
i) the sale prices of localized products do not exceed the prices of imported products of the same
type (taking into account transportation costs to the Republic of Uzbekistan, taxes and customs
duties).
The priority right to enter the localization program is enjoyed by enterprises that have implemented
a quality management system in accordance with international standards. Their projects, projects
that provide for the production of export-oriented types of products and are implemented in
districts and cities of the republic receiving subsidies, meet the above criteria.
The mechanisms for forming and implementing the localization program are insufficient to expand
sectoral and inter-sectoral cooperation as a set of measures in various fields to stimulate industrial
cooperation and support import substitution. In order to fully influence industrial cooperation as a
driving force of structural reforms, it is necessary to expand the use of market regulation
mechanisms in the future.
3
In particular, for the full development of industrial cooperation relations in Uzbekistan, it is
necessary to improve the general framework conditions, which include:
- legislation in the field of industrial cooperation;
- effective state support for relations within the framework of industrial cooperation through the
provision of tax benefits and preferences;
3
Информация о ходе реализации Программы локализации производства готовой
продукции,
комплектующих изделий и материалов за январ
-
декабр 2017 г. Государственный
комитет Республики
Узбекистан по статистике.https://s tat
.u z/u p loads/docs /localisation-yan-dek-2017-ru .pdf
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- development of the infrastructure of industrial cooperation (industrial cooperation centers,
regional subcontracting centers, etc.);
- information support for industrial cooperation (issuance of subcontractor catalogs, preparation
of information materials, etc.).
Due to favorable macroeconomic conditions, including an appropriate tax policy that stimulates
the deepening of cooperation and specialization between enterprises, facilitated access to financial
resources necessary for business development, a reduced level of customs duties on imported
components of finished products, and high qualification of labor resources, there is no strong need
for targeted state stimulation of the development of industrial cooperation.
As is known, the current tax system, due to the features of tax payments under simplified and
generally established taxation, promotes the specialization and cooperation of enterprises. Also, in
the case of a simplified procedure, all small business entities included in the chain pay VAT on
the proceeds received. In the case of the formation of a value-added chain under the general
taxation system, suppliers who are not VAT payers pay VAT on the entire proceeds of the
enterprise at the next link in the chain. In addition, the reduction in the tax burden occurs mainly
due to the reduction of tax payments from the volume of proceeds. This also reduces tax barriers
for enterprises in the case of specialization and cooperation. In such conditions, specialization and
cooperation are beneficial for enterprises to form a value-added chain and produce goods with
high added value.
The Concept of Improving the Tax Policy of the Republic of Uzbekistan, aimed at reducing tax
obstacles, simplifying the taxation system and improving tax administration, provides, among
other measures, for the following from January 1, 2019:
4
a) the abolition of mandatory contributions to state target funds from the turnover (income) of legal
entities;
b) the transfer of enterprises with an annual turnover (income) of more than 1 billion soums at the
end of the previous year or reaching the established threshold during the year to a generally
established tax payment;
c) for taxpayers with an annual turnover (income) of up to 1 billion soums, the payment of turnover
(income) tax with a base calculation rate of 4% and, depending on the possibilities, the payment
of value added tax on a voluntary basis;
g) introducing a complete system of tax calculation, clarifying the taxable base and reducing the
number of benefits, and maintaining the current rate of value-added tax at 20% by gradually
reducing the amount of this tax based on the results of 2019.
If the above measures are successfully implemented, they will lead to the development of
cooperation and specialization between our enterprises, becoming an important condition for the
growth of the production of finished goods with high added value.
In order to solve the problems of developing industrial cooperation in individual sectors and
regions of the industry, it is necessary to conduct a thorough study of the state of development of
4
O‘zbekiston Respu
blikasi Prezidentining 2018 yil 29 iyundagi PF-5468-
sonli “O‘zbekiston Respublikasining soliq
siyosatini takomillashtirish konsepsiyasi to‘g‘risida”gi Farmoni. http:/ /le x .u z /ru/pdfs/3802374
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regional industries, identify the competitive advantages of sectors, assess the state of cooperative
relations of industrial enterprises, and develop promising directions and optimal forms of
developing industrial cooperation, identify problems of developing cooperation in the regions and
ways to solve them. There is great potential for the development of industrial cooperation in such
industrial sectors of the republic as mechanical engineering, textile, chemical, food, and
pharmaceutical industries.
On July 3, 2019, the Ministry of Investments and Foreign Trade of the Republic of Uzbekistan
published a proposal on optimizing import duty rates. It states that the current customs duty rates
can have negative consequences for the development of the real sector of the economy. That is, a
situation has arisen in which the import of goods serves to be profitable, and manufacturing
enterprises lose their investment attractiveness and are focused on importing finished products.
Based on this, as well as on the results of discussions held through meetings and round tables with
numerous entrepreneurs, manufacturers and businessmen, a draft government resolution on
reviewing and optimizing import duty rates was agreed on the following principles:
- for natural raw materials and goods of important social importance (grain, flour, ore and metal
concentrates) - a 0% customs duty rate;
- raw material goods; products not produced in the republic; products of social importance; for
products that have not been imported in the last 3 years - from 2% to 5%;
- semi-finished or finished products, the production of which is considered inefficient or
economically inexpedient due to natural and climatic conditions; food products produced and
processed in the country, but not meeting existing requirements; goods whose production volume
is increasing; for food products that have a negative impact on human health - from 10% to 15%;
- agricultural products that are produced and exported in sufficient quantities; finished products
for final consumption produced in a volume that covers consumer demand in the republic; for
products that have a negative impact on human health, are consumed for luxury and are not
considered essential in the first place - from 20% to 30%.
At the same time, it is planned to reduce customs rates for 197 goods that are not produced in the
republic. In particular, customs duties were reduced for 89 goods - from 5% to 2%, for 79 - from
10% to 5%, and for 7 - from 20% to 2%. In addition, taking into account the market conditions,
the amount of duties for 2,818 goods was left unchanged.
It should be noted here that the decision taken, first of all, should not contradict the priority areas
set out in the Action Strategy, including reforms aimed at creating an effective competitive
environment and gradually reducing monopoly in the product and services market.
Secondly, it is advisable to widely discuss the important decision to optimize and increase import
duty rates, not through a unilateral approach, but with a thorough analysis of the consequences of
its results.
That is, it was mainly attended by agencies that were more interested in increasing the volume of
local production and the potential of producers in exchange for increasing customs rates, as well
as representatives of local manufacturing enterprises that sell their products mainly under state
protection.
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It is known from world experience that, firstly, increasing customs rates reduces the liberalization
of the country's economy and leads to the failure of free market mechanisms to function fully. As
a result, this situation may cause the country's economy to lag behind.
Secondly, increasing import duty rates in developing countries may not reduce the flow of
imported goods, but may lead to the spread of counterfeit goods, a "gray" system and corruption
in that country.
Thirdly, temporarily (2-3 years) protecting local producers from external competition is, in fact,
tantamount to suspending the development of those enterprises for the same period. That is, the
local manufacturer, taking advantage of the lack of competition, tries to forcefully sell more
products on the market at the price it sets, without paying attention to product quality or innovation.
Just one example, when the demand for cars from the GM Uzbekistan plant was high, due to
insufficient attention to product quality, product improvement, and cost reduction, these cars are
now morally obsolete, while improving the quality of the car and adding modern comfort and
functions leads to an increase in cost. The resulting price is not raised by the market. Ultimately,
GM Uzbekistan has ceded its place in the Russian and Kazakh markets to other competitive, cheap,
modern car manufacturers, in practice.
Fourth, due to the lack of alternative goods in the domestic market, the country's population is
forced to buy high-priced, low-quality, morally obsolete products. As a result, the standard of
living of the population decreases in line with the high price. That is, the higher the price of the
consumed goods, the poorer the population that buys them becomes.
Fifth, an environment of "unfair" competition is created for "honest" entrepreneurs working
through imports. They will have to fight hard against “counterfeit” goods.
In our opinion, it is advisable for the state to protect local producers not in a protectionist way, but
in modern, non-harmful economic methods.
In particular, it would be more effective if the state allocated the necessary financial resources and
subsidies to producers of import-substituting and export-oriented products to purchase raw
materials, materials, or to form working capital, to purchase modern energy-efficient equipment.
For example, in the countries of Southeast Asia, small and medium-sized enterprises (SMEs) are
supported by the state through subsidies. Subsidies are allocated to the following areas:
innovative development of industries;
establishment of new production facilities, involvement of employees in research and
development;
promotion of goods of national producers;
creation of infrastructure, promotion of goods on the international market;
improvement of product quality;
introduction of new production technologies in accordance with new scientific principles, as well
as environmental requirements;
financing of technical modernization;
creation of technological parks, etc.
Also, in China, a special state fund has been established for state support of small and medium-
sized businesses;
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In India, the government has adopted a comprehensive program for the development of the leather
industry, the expansion (modernization) of production is carried out in the form of subsidies. The
programs also provide for the creation of new research institutes involved in the development of
technologies for the industry and the expansion of existing ones.
In Korea, state grants are allocated for the development and commercialization of industrial
ecosystems for the production of high-tech materials.
Finally, in Turkey, in order to support industrial enterprises, a procedure for providing interest-
free state loans has been introduced with the participation of the Small and Medium-sized Business
Development and Support Agency (KOSGEB).
Therefore, at the same time, it is more important for us not to interrupt this technological process
chain with various protectionist methods, but to create favorable conditions that will serve to
increase the flow of modern innovative technologies, as well as intellectual and investment
resources to our country.
We believe that in protecting domestic producers through customs payments, it is necessary to
take into account the experience of advanced countries, and most importantly, to take into account
the results of artificial protection that has been in effect in our country for many years. Based on
this, we are implementing a project on the production of localized products at the expense of the
State Fund for Support for the Development of Entrepreneurship
It is advisable to provide guarantees for 50 percent of the loan attracted for the purpose of
increasing the volume of loans and to cover the interest rates of commercial banks up to 5 percent
in the established manner.
The following measures to stimulate the industrial sector, including the production of import-
substituting products, at the state level, are implemented in the state programs of the Republic of
Uzbekistan "Development of Industry and Increasing Its Competitiveness", including:
1. Financial support for individual industrial sectors (subsidies to industrial organizations or
organizations included in the infrastructure for supporting activities in the industrial sector under
the Chamber of Commerce and Industry of Uzbekistan): automotive industry; transport
machinery; agricultural machinery, machinery for the food and processing industries; machinery
for special industries (construction, road and municipal machinery, fire, airfield, forest
machinery); machine-tool industry, including R&D; light and textile industry; organization of folk
arts and crafts; children's goods industry, including R&D; metallurgy and rare earth metals; forest
industry complex; chemical complex; production of composite materials (composites) and
products made from them.
Mechanical engineering products dominate the republic's import structure. In 2022, the share of
machinery, equipment and vehicles in the total volume of goods imported into Uzbekistan will be
37.6%. We can note that machinery and transport equipment, which make up the main share in the
import structure, are mainly imported from the People's Republic of China (31.6%), the Republic
of Korea (16.6%), the Russian Federation (9.0%), Turkey (6.0%), and Germany (5.7%).
5
5
O‘zbekiston sanoati. 2020. –
T.: B.34. Mahalliy budjetlarni
ng qo‘shimcha manbalari hisobiga amalga oshirilgan.
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This indicator is higher in the regions of the republic, for example, in the Andijan region - the
republic's market capacity in terms of soum equivalent amounted to approximately 26.3 trillion
soums, which is comparable to the volume of self-produced products shipped by machine-building
and instrument-making organizations, including organizations producing electrical equipment and
vehicles, in 2022 throughout the republic (Table 1).
Table 1
Separate indicators of the mechanical engineering market in 2021
6
National production volume of
machinery, equipment and
vehicles
The volume of industry
incentives in the form of
subsidies
Billions of soums
As a
percentage
of the total
Billions of
soums
As a
percentage of
the total
Republic of
Uzbekistan
59112,0
16,1
1378,0
32,9
Republic of
Karakalpakstan
353,6
2,5
137
40,9
Regions:
Andijan
26300,0
74,0
137
42,3
Bukhara
421,6
2,4
26
8,9
Jizzakh
572,7
10,3
13
7,3
Kashkadarya
145,7
1,0
68
22,9
Navoi
1237,2
1,9
121
49,6
Namangan
974,6
8,9
177
65,8
Samarkand
5078,5
28,1
81
41,3
Surkhandarya
308,9
5,6
97
40,1
Syrdarya
301,3
3,8
88
65,2
Tashkent
5958,4
9,2
171
45,0
Fergana
1272,6
6,0
34
10,2
Khorezm
5028,7
53,4
87
49,4
Tashkent city
11468,7
31,2
142
18,2
Scientific, technical and innovative activities, including patenting, which increased more than 3
times in the processing industry from 2011 to 2022 alone, reducing dependence on technological
imports, and creating and using our own advanced technologies should be an important component
of all these processes (Table 2).
Table 2
6
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Indicators of innovation activities implemented in Uzbekistan in 2011-2022
7
Indicators
2011
2012
2014
2017
2018
2019
2020
In %
in
2022
comp
ared
to
2011
Volume of innovative
products produced and
sold by own efforts by
manufacturing industry,
in percent (self-
sufficiency coefficient)
0,78
0,92
0,65
0,92
0,78
0,92
The ratio of the number
of implemented national
and foreign
technological
innovations
(dependency
coefficient)
0,22
0,08
0,35
0,08
0,22
0,08
Import of technologies,
total in million US
dollars, including:
4991,6
5882,8
5523,
8
5054,
0
8358,
9
9568,
6
7955,
2
159,4
By type of activity
"Processing industries"
1999,
3
3599,
5
4811,
1
4033,
6
More
than 4
times
Technology exports,
million US dollars.
991,4
884,0
550,2
353,3
209,8
419,0
458,6
46,3
Technology export-
import balance (+,-),
million US dollars.
-4000,2 -4998,8 -
4973,
6
-
4700,
7
-
8149,
1
-
9149,
6
-
7496,
6
-187,4
Thus, the process of import substitution is a complex, multifaceted phenomenon, in which socio-
economic, organizational (administrative) and socio-political aspects are intertwined. The
organization and effective implementation of this process at the state (regional) level is possible
on a programmatic and targeted and planned basis.
The active participation of business communities, regional associations of entrepreneurs
(chambers of commerce and industry, associations of industrialists and entrepreneurs, sectoral
7
O‘zbekistonda ilm
-fan va innovatsion faoliyat, 2020.
–
B.65-66.; Korxona va tashkilotlarning innovatsion faoliyati.
2017.
–
T.: 2018.
–
B.1-5
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associations and unions) and organizations that form the infrastructure to support activities in the
industrial sector (cluster development centers, outsourcing and subcontracting centers), and
innovative infrastructure organizations is a prerequisite for achieving the planned results in the
field of import substitution.
8
The main aspects of the import substitution plan (on the example of agricultural machinery):
1. Formation of a list of types of agricultural machinery products consumed by agricultural
commodity producers.
2. Analysis of information on the consumption of agricultural products by processors of
agricultural products, agricultural producers in terms of import products (volumes, names).
3. Conducting field meetings and consultations with representatives of agroholdings and industrial
enterprises on the basis of suppliers of agricultural machinery products - large regional importers
- in order to familiarize them with agricultural machinery products offered for import substitution.
4. Formation of a list of agricultural machinery products, the production of which is advisable to
organize at regional industrial enterprises. Preparation of recommendations on the establishment
of the production of agricultural machinery and technological equipment for agricultural
production.
5. Formation of a list of industrial enterprises ready to produce products for producers of
agricultural goods in the region.
6. Develop a mechanism for interaction between the manufacturer and the customer, form a
package of orders and form communication platforms (including regular exhibitions with product
samples) for interaction, through the mediation of competent authorities in the field of industry
and agriculture.
References:
1.Obolensky V.P. Possibilities and limitations of import substitution policy in industry //Russian
Foreign Economic Bulletin. 2015. No. 2. P. 66−3
2.Sobitova R.S. Possibilities of reducing the import content based on the localization of production
// Collection of materials of the Republican conference on scientific and practical research in
Uzbekistan-Tashkent. 2020. No. 18. conferences.uz.B.67-70.
3.Sobitova R.S. Improving the theoretical foundations of industrial production. Dissertation
written for the degree of Iffd:08.00.01.Tashkent.2024
4.Sobitova R.S. Directions of innovative improvement of the system of economic relations aimed
at replacing imported goods // Collection of materials of the Republican scientific and practical
conference on the topic of econometric modeling of innovative and investment development of
the region.-Urgench. 2022. P. 166-169.
5. Suchkova N. A. Importozameshchenie v prodovolstvennom sektero Rossii: autoref. dis. ...
candy. economy date: 08.00.14 / N. A. Suchkova; GNU VNIIESX. -M., 2009. - S.8
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Пигунова М.В. Инновационные механизмы повышения эффективности промышленной политики //
Интернет
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журнал «Науковедение». Том 7, №2 (выпуск 2 (27) 2015). URL стати:
http://naukovedenie.ru/PDF/77EVN215.pdf.
