Uzbekistan flag Uzbekistan: Investing in Uzbekistan

Foreign direct investment (FDI) in Uzbekistan

FDI in Figures

Global foreign direct investment (FDI) flows showed a strong rebound in 2021, up 77% to an estimated USD 1.65 trillion, from 929 billion in 2020, surpassing their pre-COVID19 level. FDI flows in developing countries increased by 30% but almost three quarters of the total increase in global FDI (USD 500 billion) was recorder in developed economies, with developing economies showing a more modest recovery growth. FDI inflows to Central Asia increased by more than 59% in 2021 to 10 billion USD (UNCTAD, January 2022).

Reforms in Uzbekistan during the three last years, such as liberalising the foreign currency market and establishing seven special economic zones with tax breaks for investors, has made the country a more appealing destination for international capital. According to UNCTAD's World Investment Report 2021, FDI inflows declined by 25.5 per cent to USD 1.7 billion in 2020, compared to USD 2.3 billion in 2019, as a result of the global economic crisis triggered by the Covid-19 pandemic. The total stock of FDI stood at USD 10.3 billion in 2020. Combined with the country being landlocked, border closures and other restrictive measures taken by national and neighbouring authorities following the pandemic have doubly affected the economy and delayed investment projects.  However, the SEZ law adopted in February 2020 has facilitated new investment projects in the energy sector, as well as in the telecommunications industry. In May 2020, the government announced that 70 companies and consortia from 30 countries had submitted proposals for green energy projects. In addition, the Volkswagen Group (Germany) has launched an investment project in the Jizzakh SEZ. In February 2021, Russian telecoms company MegaFon announced that it would invest USD 100 million to set up a joint venture with Uzbekistan’s biggest mobile phone company Ucell and enter the country’s telecoms market. Additionally, Saudi-based ACWA Power invested USD 2.5 billion in Uzbekistan in 2020 to develop three ground-breaking power projects as part of the country's ambitious energy transformation plan that should increase energy capacity by 2500MW. FDI traditionally arrives from Russia, South Korea, China and Germany, but Canada recently increased its financial presence. Investments focus on the energy sector, including alternative/renewable energy in recent years.

Uzbekistan ranked 69th in the last World Bank's 2020 Doing Business Report, same as the previous year. The country is among the economies that improved the most across three or more Doing Business reports. The national investment promotion agency provides aid for foreign investors who seek to invest in Uzbekistan. The government seeks to attract FDI, especially in specific sectors - such as banking, energy, oil and gas, manufacturing, telecommunications, transport, and agriculture - as part of the president's large-scale privatisation plan. Uzbekistan is rich in natural resources and has a strategic position between China and Europe. Still, restructuring of large state enterprises and joining the WTO would bolster Uzbekistan's plea for FDI, but the country has been slow to advance on said fronts, and corruption is endemic and penetrates all levels of the business, government and social environment. In order to improve that, however, President Shavkat Mirziyoyev established a new Anti Corruption Agency in 2020, as part of the State Anti-Corruption Program, which is responsible for implementing policies to prevent and combat corruption within the country.

Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 2,3161,7262,044
FDI Stock (million USD) 9,58210,28811,278
Number of Greenfield Investments* 452225
Value of Greenfield Investments (million USD) 4,8433,2311,922

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Uzbekistan Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 8.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 3.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 7.0 6.8 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Uzbekistan

Strong Points
Uzbekistan's key assets attracting FDI include:

- abundant and diversified natural resources (gas, gold, cotton, hydropower potential);
- low level of debt and comfortable foreign exchange reserves;
- ambitious public investment program;
- important size of the domestic market (population of 32 million)
- strategic position between China and Europe ("New Silk Road").

Weak Points
The major obstacles to FDI in Uzbekistan are :

- low economic diversification and dependence on commodity prices;
- low competitiveness;
- underdeveloped banking sector;
- state interventionism and difficult general business climate;
- autocratic regime.

Government Measures to Motivate or Restrict FDI
To improve the business environment, the Governement of Uzbekistan introduced in 2017 a number of legislative changes, including the cancellation of unscheduled, and seemingly arbitrary or punitive, inspections of businesses as of January 1, 2017; elimination of the requirement to convert certain percentages of hard currency export earnings at the official (artificially low) exchange rate; simplification of business registration procedures; creation of a Business Ombudsman office; and a Law on Countering Corruption that attempts to increase transparency in Government of Uzbekistan functions.

By law, foreign investors are welcome in all sectors of the Uzbek economy and the government cannot discriminate against foreign investors based on nationality, place of residence, or country of origin. However, government control of key industries has discriminatory effects on foreign investors. For example, the Governement of Uzbekistan retains strong control over all economic processes and maintains controlling shares of key industries, including energy, telecommunications, airlines, and mining. The government still regulates investment and capital flows in the raw cotton market and controls all silk sold in the country, dampening foreign investment in the textile and rug-weaving industries. Partial state ownership and government influence are common in many key sectors of the economy.

The state still reserves the right to export some commodities, such as nonferrous metals and minerals. In theory, private enterprises may freely establish, acquire, and dispose of equity interests in private businesses, but in practice, this is difficult to do because Uzbekistan’s securities markets are still underdeveloped.

Investment programmes were launched in order to encourage big investments in the priority sectors. Programmes include 86 foreign direct investment projects totaling 1.8 billion dollars, of which more than half is for the energy sector.

To encourage foreign investment, the Government provides tax incentives to joint stock companies for which foreign investment participation accounts for at least 15% of the authorised capital.

Bilateral investment conventions signed by Uzbekistan
The bilateral treaties on investment signed by Uzbekistan may be found on the Investment policy hub website.

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Latest Update: January 2023

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