2023 not only marked a year of macroeconomic and budgetary challenges for Uzbekistan, but it also laid the groundwork for substantial investment opportunities in 2024. The government's focus on sectors such as education, healthcare, infrastructure, and support for private entrepreneurship, coupled with financial reforms, has set the stage for a dynamic investment climate. Avesta Investment Group’s 2023 review highlighted the highs and lows of 2023 and a forecast for 2024’s investment opportunities in Uzbekistan.
Utility Sector Reforms: A Gateway for Investment
The government's decision to increase tariffs for utilities and transportation by 50-100% starting in the second quarter of 2024 is expected to reduce budget expenses by about $2bn annually. This reform not only brings tariffs closer to breakeven but also opens doors for investments in the efficient management and modernization of utility companies.
Renewable Energy: The Next Investment Frontier
Uzbekistan's commitment to renewable energy, with over 10GW capacity projects in the pipeline, presents significant investment potential. These projects, primarily in wind and solar power, will require substantial technology imports, engineering expertise, and capital investment, particularly in grid improvement to reduce transportation losses.
Green Bonds and Sustainable Development
The successful placement of $1bn Eurobonds, including green bonds, underscores Uzbekistan's dedication to sustainable development. Investors have a unique opportunity to contribute to projects addressing ecological issues like water scarcity, air quality, and the Aral Sea problem. The focus on energy and resource-saving technologies further amplifies investment potential in environmentally sustainable projects.
Mergers and Acquisitions: A Sign of a Maturing Market
Recent high-profile M&A transactions, such as OTP Bank's acquisition of Ipotekabank, indicate a growing interest from international investors. The real estate market, in particular, shows promise with strong growth in prices and significant developments, offering diverse investment opportunities in commercial and residential properties.
Stock Market Reforms: Nurturing Investor Confidence
The appointment of the National Agency for Perspective Projects (NAPP) as the regulator of capital, insurance, and crypto markets heralds a new era of transparency and efficiency. The planned connectivity of the local market with international infrastructure will further attract foreign investments, particularly in state debt securities and later in corporate bonds and equities.
Key Economic Trends in Uzbekistan for 2024
Investors in 2024 should be mindful of several key trends:
Inflation and Currency Pressures
- Expect rising inflation and currency devaluation, particularly against the USD, influenced by economic trends in key trading partners like Russia, China, Kazakhstan, and Turkey.
- Remittances, mainly from Russia, accounting for 70-80% of inflows, will likely decrease.
- Gold production will continue to be a primary method to offset the trade deficit, which will remain significant due to ongoing large-scale infrastructure projects.
Central Bank Strategies
- The Central Bank of Uzbekistan probably might maintain high key rates to control deposit and borrowing rates, aiming to target inflation and combat the informal economy.
- The government will strategically use gold sales and reserve spending to stabilize inflation and currency rates, attracting foreign investment without the risk of market volatility.
Private Equity and Debt Investment Growth
- Increasing activities in the private equity market and direct debt investments are anticipated, as companies seek funding beyond Uzbekistan due to high local banking rates and limited liquidity.
- International Financial Institutions (IFIs) and Development Banks (DBs) will play significant roles in providing long-term funding, focusing on transparent, compliant, and well-governed corporate structures.
Market Consolidation
- Legal changes and international competition will drive consolidation in finance, insurance, e-commerce, and fintech sectors.
- Smaller entities may exit the market, while mid-sized players may merge to strengthen their positions.
E-Commerce and Fintech Boom
- E-commerce and fintech are poised to be rapidly growing sectors, influencing related industries like IT, telecom, banking, retail, logistics, and real estate.
- These sectors will create new market requirements and drive competition, particularly in areas like online banking, BNPL schemes, and last-mile delivery.
Economic Forecasts
- GDP growth is expected to range between 5.5-5.6%, with potential for acceleration if global market conditions improve.
- Inflation might remain high due to external pressures, but the Central Bank aims to bring it to a high single-digit range.
- The FX rate depreciation is projected to be aligned with or slightly below inflation rates, potentially not exceeding 10% in 2024.
Bond and Stock Market Outlook
- Moderate growth in coupon rates for local corporate bonds is expected, with a potential increase in yield rates from 21.1% to 22-23%.
- Stock prices might see an upturn after a period of stagnation, driven by growth in financial results and significant developments in blue-chip companies, alongside the introduction of new market players.
Investment Prospects and Opportunities
In 2024, investors can explore various avenues in Uzbekistan:
- Investors have the opportunity to engage in the additional issuance of shares by Uzmetkombinat (UZMK), Uzbekistan's foremost steel producer. The company intends to offer an extra 5% of its equity, supplementing the roughly 10% currently available for trading on the Tashkent Stock Exchange.
- There are options for USD-denominated private lending to financial entities, aimed at bolstering working capital and BNPL (Buy Now Pay Later) operations. These investments, adhering to Islamic/Sharia financing principles, offer a yield of 11-13% based on a profit-sharing model.
- For those interested in corporate bonds, there are UZS-denominated options from prominent local companies, with maturities ranging from 12-36 months and coupon rates between 22-26%. We are prepared to discuss the specific details of these bonds to align with your investment needs and facilitate connections with potential issuers.
- Local private enterprises are seeking borrowing opportunities at interest rates of approximately 12-14% in USD. While USD-denominated corporate bonds are not currently permissible in Uzbekistan, we can arrange for UZS-denominated bonds linked to alternative benchmarks to safeguard against currency depreciation risks.
- The real estate market presents various opportunities in the development, acquisition, and operational management of office and trading centers of different sizes.
With a GDP growth forecast of 5.5-5.6% (State 5.6-5.8%, IMF 5.5%, ADB 5.6%, EBRD 6.5%, WB 5.6%), Uzbekistan is poised for economic expansion, offering a wide array of investment opportunities. The government's commitment to reforms, combined with a proactive approach towards sustainable development and market modernization, presents a promising landscape for investors in 2024.
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