Valuation and investments

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21. Zoyirov Zafar








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  1. Guarantees and measures of protection of rights of foreign investors in Uzbekistan

  2. Attracted sources of investment financing

  3. The role of Multilateral Investment Guarantee Agency in regulating investment activities

Head of Department E.Nosirov

1. After Uzbekistan became independent, it chose the way to support investment activities and step by step to attract even more foreign investments as much as possible. So the country is trying to facilitate investors, especially foreign partners, by bringing in laws, documents which guarantee their sustainability. The law on “Guarantees and measures of protection of rights of foreign investors in Uzbekistan” conducted investment and investment activities. But it expired on January 27, 2020 in accordance with the Law of the Republic of Uzbekistan dated December 25, 2019 No. LRU 598 “On investments and investment activities”. This law establishes guarantees and measures for the protection of the rights of foreign investors engaged in investment activities on the territory of the Republic of Uzbekistan. The act forms a set of measures to guarantee and protect the rights of foreign investors and determine conditions for the provision of additional guarantees and protection measures for certain categories of foreign investors and foreign investments.

Discrimination against foreign investors is prohibited with respect to their citizenship, residence, religion, location of economic activity. If the subsequent legislation of the Republic of Uzbekistan hinders the investment conditions, then the legislation in force at the date of investment is applied to foreign investors within ten years from the date of investment. A foreign investor has the right to apply those provisions of the new legislation that improve the conditions for its investment.

State administrative bodies and local authorities do not have the right to interfere in the economic activities of foreign investors, carried out in accordance with the legislation.

Additional guarantees and protection measures may be provided to foreign investors in each particular case when investing in priority sectors ensuring sustainable economic growth, progressive structural changes in the country's economy.

Additional guarantees and protection measures are provided to foreign investors on the basis of decisions of the President of the Republic of Uzbekistan. or the Government of the Republic of Uzbekistan. The income of foreign investors received in Uzbekistan may be reinvested or used in any other way at the discretion of the foreign investor. Foreign investors are guaranteed free transfer of funds in foreign currency to and from the Republic of Uzbekistan without any restrictions provided that they pay taxes and other obligatory payments in the manner established by the legislation. Such transfers include:

initial and additional funds to maintain or increase foreign investment investment income, funds received as compensation for damages,payments made in the execution of contracts,proceeds from the sale of all or part of foreign investment and so on.

Legislative acts, departmental normative acts as well as court rulings that touch upon the interests of foreign investors in any way, should be made available to them. Upon the request of foreign investors, state administrative bodies and local authorities are obliged to provide information of interest.

Should any legislation be violated on guarantees and measures to protect the rights of foreign investors, a foreign investor has the right to receive adequate compensation for damages through the courts.

2. There are many approaches to how to attract sources to finance the investment. It is accepted globally to distinguish between internal and external sources of investment financing. The first are the authorized capital of the company, retained earnings and depreciation. Companies that can only attract equity as investments should have the highest level of financial sustainability. But it significantly limits the capabilities of the enterprise, since if the situation on the market changes, it will not be able to attract additional assets, and it will not be able to increase profit growth in the long term.

Share capital

Investors' funds are attracted by issuing preferred and common shares. The first give the opportunity to new shareholders to receive dividends from the company's profits, and the second provide the right to participate in the management. The advantages of this source include the following:

  • funds are attracted for a long time, and the company may not give any guarantees of their payback or return;

  • the sale of shares to all comers increases their level of liquidity;

  • the profit per security depends solely on the performance of the enterprise for a certain period.

Equity capital also has a number of drawbacks, among which there is a decline in profits and the emergence of problems in managing a company when there are a large number of investors. In addition, the open sale of securities may lead to a major investor taking control of the company.

Debt securities

These include:

  • corporate bonds;

  • convertible bonds, allowing at any time to purchase shares of the company against existing debt;

  • debentures.

The presence of these securities allows the lender to buy shares of the enterprise at special prices, which almost always provide him with the opportunity to make a profit from speculation.

In addition, there are such sources of financing investments as leasing and a bank loan. Both methods have a debt nature and imply a high interest on the cost of the transaction for the risks.

Due to the fact that in the modern world there are micro and macro levels of the economy, sources of financing for the same enterprise can be either external or internal. For example, take foreign loans. If we consider them to finance a domestic enterprise, these will be external sources of financing. If this enterprise is owned by a foreign resident, then such investments will be internal, which means they will be transferred to the micro level.

At the micro level, internal sources of financing include any funds accumulated due to various circumstances and factors. The external at the micro level includes funds received from the sale of securities, shares, and funds received from investment funds and loans.

As for the macro level, the situation is somehow different. So the external sources of funding include funds received from investment and pension funds, credit institutions, targeted programs and government support. Funds received from abroad are external sources of financing, regardless of whether the investor is a private person or a state.

The ability to choose the right sources of investment allows the company to create the most acceptable capital structure, which in turn makes the company attractive to investors.

3. The Multilateral Investment Guarantee Agency is an international institution that promotes investment in developing countries by offering political and economic risk insurance. By promoting foreign direct investment into developing countries, the agency aims to support economic growth, reduce poverty, and improve living standarts. The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank Group and is headquartered in Washington, D.C. As of March 2020, 181 member governments make up MIGA—156 developing nations and another 25 industrialized countries. The agency was created to complement both public and private investment insurance sources against non-commercial risks in developing countries. Its multilateral character and sponsorship by advanced and developing nations were seen as reinforcing confidence among people going across borders to invest their money.

In September 1985, the World Bank approved the idea of a multilateral political risk insurance provider and established MIGA in April 1988. The agency started out with $1 billion worth of capital among its initial 29 member states. These nations included Bahrain, Bangladesh, Barbados, Canada, Chile, Cyprus, Denmark, Ecuador, Egypt, Germany, Grenada, Indonesia, Jamaica, Japan, Jordan, Korea, Kuwait, Lesotho, Malawi, Netherlands, Nigeria, Pakistan, Samoa, Saudi Arabia, Senegal, Sweden, Switzerland, United Kingdom, and the United States.

In 1991, the number of member states of MIGA topped 100. Eight years later, guarantees issued by the agency reached a total of $1.3 billion, topping the $1 billion dollar mark for the first time ever. The agency also provided guarantees worth $1.2 billion in 2009 to support the economies in Europe and Central Asia following the global financial crisis.

MIGA offers a variety of services in order to encourage foreign direct investment. These include risk insurance against foreign exchange restrictions, an outbreak of conflicts or wars, imposed spending limits, and related restrictions on company assets.

In addition to providing political risk insurance to corporations that want to invest in developing countries, MIGA offers advisory services to developing country governments. The organization advises on the policies and procedures these governments should follow and the best ways these countries can attract foreign investment. Other services by MIGA include licensing arrangements, franchising, and technology support.

To help ease the flow of foreign investment dollars into certain regions, the agency supports and runs a number of international projects. One of those is the Afghanistan Investment Guarantee Facility, launched in 2005. The agency's aim was to help the country in its reconstruction efforts while the country was embroiled in the war by opening up the doors to direct foreign investment.

According to MIGA, the people in its group have experience in political risk insurance and are well versed in banking and capital markets, environmental and social sustainability, project finance and sector specialties, and international law and dispute settlement.

The group's current management team consists of Hiroshi Matano, executive vice president and CEO, and S. Vijay Iyer, senior vice president and COO.

Considering the need to strengthen international cooperation for economic development and to foster the contribution to such development of foreign investment in general and private foreign investment in particular;

The objective of the Agency shall be to encourage the flow of investments for productive purposes among member countries, and in particular to developing member countries, thus supplementing the activities of the International Bank for Reconstruction and Development, the International Finance Corporation and other international development finance institutions. It issues guarantees, including coinsurance and reinsurance, against non-commercial risks in respect of investments in a member country which flow from other member countries

The member countries convinced that the Multilateral Investment Guarantee Agency can play an important role in the encouragement of foreign investment complementing national and regional investment guarantee programs and private insurers of non‑commercial risk

To sum it up, the agency aroused where something was necessary to allocate capital more evenly among developed and developing countries. Its role is to conduct such an investment policy that the members can flourish their economy with the help of appropriate investment climate.
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