Uzbekistan, a lower-middle-income country in Central Asia, is actively pursuing foreign direct investment (FDI) to achieve its development goals, the U.S. Department of State reports. The Government of Uzbekistan (GOU) aims to reduce poverty and elevate the country to upper-middle-income status by 2030. With a population of 37mn, abundant natural resources, and established infrastructure, Uzbekistan is gaining attention from U.S. investors as a potential leader in the regional economy.
The GOU's strategy to stimulate economic growth focuses on promoting investment, diversifying foreign trade, and boosting domestic consumption. In 2023, Uzbekistan's GDP grew by 6%, and the country attracted over $7.2bn in FDI, nearly double the previous year's inflow. Key sectors such as energy, mining, and manufacturing are benefiting from development programs, creating a favourable environment for public-private partnerships.
To support its investment objectives, Uzbekistan has initiated the National Investment Program for 2023-2025, which encompasses nearly 800 projects valued at $55.4bn. This program prioritizes infrastructure development, industrialization, and resource management. The Law on Investments and Investment Activities guarantees the free transfer of capital and protection against nationalization. Additionally, platforms like the Foreign Investor’s Council and the Ministry of Investments, Industry, and Trade facilitate collaboration between the public and private sectors.
Uzbekistan's investment environment is evolving, with several legislative changes aimed at improving conditions for foreign investors. Notable laws include the Law on Compliance with WTO Agreements, the Law on Privatization of State Property, and the Law on Cryptocurrency Licensing. The country is also pursuing membership in the World Trade Organization (WTO) and has opted not to participate in regional economic alliances like the Eurasian Economic Union (EAEU) or the Collective Security Treaty Organization (CSTO). This aligns with Uzbekistan's broader strategy to diversify trade and investment sources and reduce reliance on Russia.
Despite progress, challenges remain, particularly in areas such as transparency and asset protection. For instance, while property rights are protected under laws like the Law on Guarantees of Freedoms of Entrepreneurial Activity, risks of asset confiscation persist. Business registration has been streamlined through one-window and online systems, and the GOU offers support through various agencies, including the Investments Promotion Agency and the Chamber of Commerce and Industry.
Uzbekistan's banking system, as of March 2024, comprises 36 commercial banks with a diverse ownership structure. Of these, ten are fully state-owned, 15 are partially state-owned, and 11 are private, including seven foreign-owned institutions. State-owned banks dominate the sector, holding 65% of capital and 67% of assets. The non-banking sector includes 87 microcredit organizations and 80 pawnshops.
The banking sector has undergone significant reforms since 2017, with a focus on liberalizing services such as currency conversion and import transactions. The GOU's ongoing reform strategy for 2020-2025 aims to reduce the state's share in the banking sector to 40%. As part of these efforts, two state-owned banks were privatized between 2022 and 2023. The remaining state-owned banks are working on enhancing corporate governance with assistance from international financial organizations.
International rating agencies, including S&P, Fitch, and Moody's, assess Uzbekistan's banking sector as stable. The sector's average capital adequacy ratio stands at 15.9%, with immediate liquidity levels at 87.4%. Public investment supports the stability of large commercial banks, which are crucial to the government's development strategy. S&P Global highlights that economic recovery and low retail credit penetration are expected to drive credit demand in the coming years.
In January 2024, Moody's Investors Service maintained Uzbekistan's Ba3 long-term issuer rating with a stable outlook. This rating reflects the balance between potential risks, such as higher-than-expected government debt, and the positive impact of strong reform momentum and policy effectiveness. However, concerns remain about geopolitical risks and the economy's dependence on foreign trade.
As of February 2024, non-performing loans (NPLs) accounted for 4.3% of total gross loans, with state-owned banks having a slightly higher NPL ratio of 4.7% compared to 3.3% for private banks. The overall capitalization of Uzbekistan's banking sector is valued at $7.9bn, with total assets amounting to $52.3bn. The four largest state-owned banks—National Bank of Uzbekistan, Agrobank, Asaka Bank, and SQB—hold a combined 46% of the sector's capital ($3.6bn) and 49% of its assets ($25.8bn).
Uzbekistan's central banking system is overseen by the Central Bank of Uzbekistan (CBU), which serves as the state's issuing and reserve bank and manages the country's monetary policy. The CBU continues to monitor commercial banks to ensure stability across the sector.
The U.S. International Development Finance Corporation (DFC), which began operations in Uzbekistan in 1992 under its former name, the Overseas Private Investment Corporation (OPIC), has provided approximately $231mn in loans during its tenure in the country. The most recent DFC (OPIC) project in Uzbekistan was approved in 2011. Currently, the DFC is assessing several new initiatives.
The country is also a member of the Multilateral Investment Guarantee Agency, a global institution that supports developing countries. On January 9, 2021, Uzbekistan pledged its support for the Abraham (Ibrahim) Fund, and on January 7, 2021, it joined the Central Asia Investment Partnership, a regional private sector development initiative managed by the DFC and the Astana International Finance Center in Kazakhstan.
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