Uzbekistan President Shavkat Mirziyoyev has led a series of reforms in the country designed to attract more foreign investment. (Photo by Anvar Ilyasov/AFP via Getty Images)

Uzbekistan, which is considered to be both a transition economy and a landlocked developing country, has gone through something of a renaissance in recent years. Following the death of dictator Islom Karimov in 2016, the Uzbekistan government has embraced radical reforms in a bid to overhaul the economy.

A big part of Uzbekistan’s reform strategy includes boosting investment and this has met with initial success. In fact, since 2016, foreign direct investment (FDI) as a percentage of GDP has had an average annual growth rate of 2.56%, according to figures from theglobaleconomy.com.

Before the impact of Covid-19, Uzbekistan had recorded its strongest FDI numbers to date. The UN Conference on Trade and Development 2020 World Investment Report shows that Uzbekistan’s FDI inflows more than tripled in 2019, up by a massive 266% at $2.3bn.

Part of Uzbekistan’s recent success could be attributed to a loosening of regulations and red tape for investors, alongside the launch of some investment incentives. This includes giving visa-free access to Uzbekistan to more than 45 countries, relaxing rules for its foreign exchange market and establishing seven special economic zones with investor tax breaks.

Uzbekistan has also made strides to ensure security for investors, setting up a new legal framework designed to regulate public-private relationships. The country has also implemented a presidential advisory body focused on investment and in January 2020 it debuted a new mechanism for investor-state dispute settlements.

Uzbekistan’s untapped FDI potential

Uzbekistan, which sits between China and Europe and is part of the former’s Belt and Road Initiative, benefits from having a relatively untapped market with a low level of debt. Its key source markets include Russia, South Korea, China and Germany, with Canadian investors growing exponentially in the past year. A key sector in the country is energy, in particular a rapidly developing clean renewable energy sub-sector. Key to this is the country’s plenitude of natural resources, including gas, but the country also holds potential for the hydropower sub-sector.

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Alongside the opportunities that Uzbekistan holds for investors, there are also challenges to consider. The country still has reputational issues to overcome. In Transparency International’s 2019 Corruption Perceptions Index, Uzbekistan ranked 153rd out of 180 countries. The index rated countries from zero to 100, with zero being completely corrupt and 100 being clean of corruption. Uzbekistan scored 25 on the scale and was one of the three lowest-rated countries in the eastern Europe and central Asia region.

In response to this issue, in May 2019 President Shavkat Mirziyoyev approved a decree to establish an anti-corruption agency, an authorised state body put in place to combat and prevent corruption.

Despite Covid-19 proving disruptive to global markets, the Uzbekistan Ministry of Investments and Foreign Trade reported a successful 2020 for investment. According to the press release, Uzbekistan attracted $4.9bn in FDI between January and September, citing large investments in the electrical, chemical and technology sectors.