Consulting company BCG published an analytical report “Uzbekistan: a window of opportunity”

Thanks to the reforms, Uzbekistan is becoming one of the most promising, albeit undervalued, directions for investment in the region of Central Asia. Those investors who will have time in the next two years to use the window of opportunity and occupy the most attractive niches will win.

UZBEKISTAN AS A NEW FRONTIER FOR FOREIGN INVESTMENTS

The investment prospects of Uzbekistan in the light of recent changes in the country have expanded significantly, experts at BCG say. In the new report “Uzbekistan: a window of opportunity”, the authors analyze investment opportunities and suggest a number of steps that will help investors build a successful strategy and achieve sustainable results. The investment potential of Uzbekistan in the next ten years reaches $ 65 billion, of which non-primary industries account for up to $ 20 billion.

“If the rate of change and willingness to change remain as high as in the previous two years, the country will be able to offer investors interesting opportunities for long-term investments,” said Reza Nuriev, partner and managing director, head of BCG in the Central Asian and Caspian regions. – So, in a very short time, Uzbekistan was able to make a jump from 166th to 76th place in the Doing Business rating. The rapid growth of the economies of neighboring China and India also has a positive effect on the development of the country, while integration and closer cooperation within the Central Asian region creates additional potential for all its constituent countries along with Uzbekistan” .

AVORABLE FACTORS

Uzbekistan may become a new driver for attracting foreign direct investment and economic growth in the Central Asian region (Central Asia). The main prerequisites for this are a large domestic market and growth in the number of solvent population, macroeconomic stability, favorable geographical position, rich natural resources and a diversified economic structure, steady GDP growth.

Uzbekistan has the largest population in the region, 32.9 million people, which is slightly less than all the other Central Asian countries combined (38.9 million people). In addition, 72% of the population is younger than 40 years, and the median age is 28 years. The labor force is also the highest in the region, 15.2 million people, which, together with a high level of literacy, provides investment attractiveness for labor-intensive industries — mining, textile, engineering and agriculture,

Traditional industries have the greatest investment potential, namely, oil and gas, chemical and mining, agriculture and textile industry, as well as new promising areas – construction, banking and telecommunications sectors and tourism.

Rich natural resources – gold, copper, uranium – are not yet sufficiently developed. For example, taking the 10th place in the world in terms of copper reserves, Uzbekistan is in the 20th place in terms of their production. Foreign investment will attract new technologies, accelerate the development of reserves and ultimately stimulate regional economic activity, increase employment and tax revenues.

The economy of Uzbekistan is quite diversified: the share of individual sectors of the economy accounts for no more than 20% of GDP. According to the State Statistics Committee of Uzbekistan, in 2018, GDP growth was 5.1%, the IMF forecast for 2019 is also 5%. Uzbekistan occupies a strategic location in the Central Asian region and has a developed transport infrastructure.

INVESTMENT BARRIERS AND MEASURES FOR THEIR ELIMINATION

According to the results of a survey conducted by BCG in 2017-2018 among investors in various sectors of Uzbekistan – agriculture, oil and gas, finance, technology and IT, chemical and pharmaceutical sector, food industry, retail, etc. – a number of barriers were identified. To eliminate these barriers, Uzbekistan initiated reforms in the following areas:

• profit repatriation; capital facilitation reforms;
• simplification of procedures, regulation and compliance with legislation, ensuring equal conditions for participants in economic activities, increasing transparency;
• improving the reliability of power supply, gas and water supply, and simplifying their connection;
• elimination of unequal customs conditions for market players, simplification of customs clearance procedures;
• reducing the tax burden and simplifying the tax regime.

NEW OPPORTUNITIES FOR INVESTMENT

Traditional for the country industry, such as oil and gas and mining, agriculture and textile production, already occupy stable positions, but their investment potential has not yet been fully realized. At the same time, such global trends as digital transformation, growth of incomes of the population, as well as the current demographic trajectory create significant development potential in relatively new sectors for Uzbekistan – the financial and banking sectors, the construction industry, and telecommunications.

“In the next ten years, the investment potential of Uzbekistan will be $ 65 billion, of which non-primary industries account for up to $ 20 billion. It is important for investors not to lose time – after a couple of years, the expected return on investment will decline, although it will remain attractive, ”said Vladislav Butenko, senior partner and managing director, BCG Russia chairman.

FIVE STRATEGIC PRIORITIES FOR INVESTORS

The unique combination of opportunities and challenges makes today’s Uzbekistan a frontier economy attractive for investment. Investors can succeed in Uzbekistan by focusing on the five strategic priorities identified by analyzing the dynamics of the country’s development and the success stories of local and international investors:

• enter the market earlier, while competition in many industries and segments is still low;
• use local knowledge and experience using JV format and local staff;
• develop an adaptive strategy in order to be in time for rapid changes;
• to rely more on people than on capital, which means maintaining a country’s degree of dependence on labor-intensive industries for the next decade, in contrast to countries that have already made or are making the transition to digitalization;
• to see in Uzbekistan a part of a larger system, which means expanding opportunities beyond one country’s borders. For example, Uzbekistan may become a logistics or telecommunications hub.

Source: kommersant.uz