Uzbekistan: Investing

FDI in Figures

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty has put significant downward pressure on global FDI in 2022, and new investment project numbers, including greenfield announcements, international project finance (IPF) deals, and cross-border mergers and acquisitions, all shifted in reverse after the first quarter of 2022 to start declining. Cross-border M&A sales were 6% lower and IPF values more than 30% lower in 2022. The outlook for global FDI in 2023 appears weak, with a significant number of economies around the world expected to enter a recession. Negative or slow growth in many economies, further deteriorating financing conditions, investor uncertainty in the face of multiple crises and, especially in developing countries, increasing risks associated with debt levels will put significant downward pressure on FDI (UNCTAD Global Investment Trends Monitor, January 2023). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession.

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 2022 World Investment Report, FDI inflows increased from USD 1.72 billion in 2020 to USD 2.04 billion in 2021, despite of the global economic crisis triggered by the Covid-19 pandemic. The total stock of FDI stood at USD 11.27 billion in 2021. 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.

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.

Uzbekistan Foreign Direct Investment (FDI) registered a growth equal to 3.8 % of the country's Nominal GDP in September 2022, compared with a growth equal to 2.9 % in the previous quarter (CEIC Data, 2023). The country plans to implement projects worth USD17.34 billion in 2023, with Foreign direct investment amounting to US$7.06 billion. As in 2022, most of the funds (US$9.24 billion) will be directed to geology, energy and industry. In 2024, it is planned to implement projects for USD18.2 billion and it is expected that foreign direct investments will reach the amount of USD 7.73 billion (2022 Presidential decree on the investment program of Uzbekistan for 2022-2024).

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.

Procedures Relative to Foreign Investment

Freedom of Establishment

The freedom of establishment is, in principle, guaranteed, but there are many exceptions.

Private capital is not allowed in some industries and enterprises. The Law on Denationalization and Privatization (adopted in 1991, last amended in 2017) lists state assets that cannot be privatized, including land with mineral and water resources, the air basin, flora and fauna, cultural heritage sites, state budget funds, foreign and gold reserves, state trust funds, the Central Bank, enterprises that facilitate monetary circulation, military and security-related assets and enterprises, firearms and ammunition producers, nuclear research and development enterprises, some specialized producers of drugs and toxic chemicals, emergency response entities, civil protection and mobilization facilities, public roads, and cemeteries.

There are several other official limits on foreign investment. Foreign ownership and control are prohibited for airlines, railways, power generation, long-distance telecommunication networks, and other sectors deemed related to national security. Foreign nationals cannot obtain a license or tax permission for individual entrepreneurship in Uzbekistan.

Acquisition of Holdings

A foreign majority holding interest in the capital of a local company is legal.

Obligation to Declare

Businesses need to be register at the One-Window center of the Ministry of Justice to obtain a Certificate of State Registration. To learn more about the registration process of a new company, please consult the World Bank Report on Uzbekistan.

Competent Organisation For the Declaration

Ministry of Justice website

Requests For Specific Authorisations

The government closely scrutinizes all foreign investment, with special emphasis on sectors of the economy that it considers strategic, such as mining, cotton processing, oil and gas refining, and transportation. There is no standard and transparent screening mechanism, and some elements of the legal framework are designed to protect domestic industries and limit competition from abroad. The government also uses licensing as a tool to control enterprises in several important sectors such as energy, telecommunications, wholesale trade businesses and tourism.

Investment Opportunities

Investment Aid Agency

Authority for foreign investment Uzbekistan
PWC guide to investment in Uzbekistan 2016

Tenders, Projects and Public Procurement

Tenders Info, Tenders in Uzbekistan
Globaltenders, Tenders & Projects from Uzbekistan
Asian Development Bank, Proposed Projects in Asia
DgMarket, Tenders Worldwide

Other Useful Resources

The Chamber of Commerce and Industry of Uzbekistan

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