After receiving the necessary documents (application form and project presentation), our team will try to review your request as soon as possible, and leading experts will offer the best options for project funding.
In 2023, Uzbekistan is expected to have the highest GDP growth in Central Asia.
Project finance plays an increasingly important role in the development of the local economy.
The attractiveness of a country for foreign investment is determined by the following:
1. Liberalization: Since 2016, Uzbekistan has been actively pursuing economic reforms aimed at liberalizing and opening up the economy. The removal of foreign exchange restrictions, tax cuts, and an improved investment climate have created a more attractive environment for foreign investors.
2. Infrastructure projects: The country is actively investing in infrastructure development, including transport, energy and logistics. This creates opportunities for investment in numerous business projects related to construction and modernization.
3. Energy sector development: Uzbekistan has enormous reserves of energy resources, including natural gas, oil and thermal coal. This provides ample investment opportunities in energy sector development.
4. Developed agriculture: The country has vast agricultural lands and very high potential for the development of agriculture and some sectors of food industry. Investments in this sector can be promising.
5. Human capital: Uzbekistan has a large number of highly qualified specialists, which can be useful for companies looking for talent.
6. Favorable geopolitical position: Uzbekistan has a strategic geopolitical location in Central Asia and is an important transit route, which opens up opportunities for the development of logistics and trade projects.
7. Investment protection: Uzbekistan is actively working to improve the legal and regulatory environment for investors. Protection and guarantees are also provided for foreign investments.
While there is a huge business potential, investors must also consider the risks associated with political stability and regional situations. Before investing, it is very important to conduct a detailed analysis and consult with experienced professionals who are familiar with the market and have local business contacts.
ESFC Investment Group provides comprehensive project finance services (PF) for investment projects in Uzbekistan and other Central Asian countries, including large projects aimed at the construction, expansion and technical modernization of factories, mines, power plants, farms, as well as strategic infrastructure.
We also provide investment loans in Central Asia to support promising business ventures and projects in the region. These loans can be utilized for a wide range of purposes, including capital investment and working capital needs.
Economy and foreign investment in Uzbekistan
Uzbekistan, located in Central Asia, has been undergoing significant economic reforms in recent decades.Local government has been working to liberalize the economy and attract foreign investment on a large scale.
The economy of Uzbekistan looks more balanced compared to neighboring republics. Thus, the share of the mining industry in the structure of Uzbekistan’s GDP in 2021 is less than 4%, while the most developed sectors of the economy are agriculture (25%) and industrial manufacturing (20%). Leading industries in Uzbekistan traditionally include cotton ginning, mechanical engineering, textiles, gas, non-ferrous metallurgy, electrical engineering, electronics, instrument making, oil refining, automobile manufacturing, and agricultural processing.
Thanks to a well-balanced government policy, over the past decades, Uzbekistan has been able to form production clusters in many high-tech industries, attracting foreign investment and technology. In the domestic market of Uzbekistan, the share of sales of locally produced TVs is about 70%, air conditioners – almost 60%, refrigerators – about half of sales.
This applies to many other types of household appliances and equipment, which in most countries of the former USSR are largely imported from China and other countries.
In addition, large investments in agriculture provide Uzbekistan with most of the main types of agricultural products. In addition, local agricultural producers have established successful exports of a number of products far beyond Central Asia.
Economy development in 2022-2024
According to recent IMF estimates, the economy is expected to grow at 3% this year and next, representing an improvement of 0.2% from previously forecasted in April.Real GDP growth is expected to be around 5% in 2023, and then could accelerate to 6% in 2024. Along with GDP growth, experts expect exports to grow by up to 17%, and in the next two years – up to 12%. Today, the economy of Uzbekistan is one of the most dynamic and attractive in the region, which contributes to the development and improvement of various instruments for raising capital, including project finance.
Even before the onset of geopolitical upheaval in Eurasia in 2022, Uzbekistan's economy was attracting tens of billions of dollars in investment loans from major countries, including China and Germany. The conflict in Ukraine, contrary to some expectations, did not negatively affect the rate of economic growth of Uzbekistan.
Factors for local economic success in the new normal include the following:
• Growth of local exports (the growth in exports of goods and services to Russia amounted to 52.6% compared to 2021, and reached 17% in total exports).
• Significant increase in money transfers to Uzbekistan from abroad. In 2022, this figure doubled as a percentage of GDP, reaching an impressive 18.9%
• Large foreign investments and loans from Russian Federation, China, Saudi Arabia and Turkey. Other important investor countries include Switzerland, Cyprus, Germany, South Korea, Italy, the UK and the USA.
• Rapid growth in consumer demand, fueled by increased prosperity and decreased unemployment in key sectors of the local economy.
Thanks to favorable external conditions and reforms, Uzbekistan’s gold and foreign exchange reserves reached $35.8 billion by the end of 2022. Today the country has the largest reserves of monetary gold in Central Asia. These resources are sufficient to cover the costs of imported goods and services for about 14 months.
According to the Statistics Agency of the Republic of Uzbekistan, the volume of capital investments in the first half of 2023 amounted to 139 trillion soums (more than 11 billion US dollars).
Of these, the total amount of foreign investments and loans allocated to fixed capital amounted to 59 trillion soums.
Multilateral institutions like the Asian Development Bank and the World Bank have been involved in financing and supporting infrastructure development projects in Uzbekistan. These institutions often play a role in large project finance schemes.
The national development program of Uzbekistan for the next five years includes attraction of foreign investment, digitalization, and trade liberalization. The country has been actively seeking foreign investment in different sectors, including infrastructure, energy, and agriculture.
Project finance plays a crucial role in financing large-scale investment projects across the country.
Between 2022 and 2024, Uzbekistan intends to implement investment projects totaling more than $52 billion. For 2022 alone, the country's government has planned investment projects worth more than $16 billion, including about $6 billion in FDI. Many of these projects require large capital investments amounting to hundreds of millions of dollars.
For their practical implementation, the assistance of international financial institutions, investment loans from large commercial banks, project finance instruments, leasing agreements and other mechanisms are widely used.
If you are considering project finance in Uzbekistan, consult with our experts, legal and financial advisors with extensive experience in business development in Central Asia.
They can provide guidance on the latest developments and regulatory changes.
Main development scenarios for Uzbekistan
Based on the key internal factors determining the development of Uzbekistan, several possible options for the further economic development can be identified.All scenarios considered are based on the long-term results of political and economic reforms launched by the local government back in 2016. They rely, among other things, on the modernization of the legal and financial systems, in particular on the development of advanced instruments for attracting capital, such as project finance.
The first scenario assumes the continuation of current development trends and financing priorities, which will lead to further unlocking the potential of existing growth factors. This includes new investment programs aimed at modernizing the real economy, increasing employment in traditional small businesses and services, and increasing revenues from mineral exports.
Experts believe that if this scenario is followed, it will be difficult for Uzbekistan to achieve the status of an above-average developing country by the end of the decade.
One of the significant obstacles for this scenario is the limited water resources. The increase in water scarcity is due to rapid economic growth (average annual growth rate approx. 7%) and population growth (Uzbekistan's population could increase to almost 40 million people by 2030). Under such conditions, water shortages will increase to 45% by the end of the decade. This, in turn, will lead to a slowdown in the development of not only agriculture, but also other industries.
Experts call the second scenario oriented towards energy resources.
This option provides for additional investment in the energy sector, which includes the rapid development of project finance services in this area.
If this concept is successfully implemented, GDP growth rates should increase from 5% to 6% per year or more.
However, such growth will not provide a comprehensive boost to the economy. In particular, challenges associated with job creation in innovative and labor-intensive sectors will remain unresolved. In addition, the share of energy resources and primary products in the country's exports may continue to increase. The sustainability of such a model is also a concern as the risk of environmental problems increases.
The third scenario for Uzbekistan is the so-called innovative model that assumes a less resource-intensive approach to economic development. Key priorities should be strengthening the capacity of government institutions to combat corruption, as well as implementing strict environmental regulations and standards for more efficient resource management.
This model provides for a limitation of administrative regulation. Instead, it is supposed to create incentives for preserving resources, effective antimonopoly policy, tax reform and foreign investment attraction. The desired result of this scenario is to achieve a higher quality of economic growth and increase its sustainability.
Project finance services in Uzbekistan
The term “project finance” refers to the method of implementation of capital-intensive business projects with limited recourse to the borrower.Project finance is the financing of project in which the source of servicing debt obligations is the cash flows generated by the project. An important feature of this type of financing is that the assessment of costs and income is carried out taking into account the distribution of risk between project participants.
Project finance is essentially a method of attracting long-term debt financing for large projects through financial engineering instruments, based on borrowing against the cash flows generated only by the project itself. In the modern realities of doing business in Central Asia, PF is a complex organizational and financial event for financing and monitoring the implementation of a project by all its participants, requiring significant experience and perfect methodology.
The most attractive sectors for project finance in Uzbekistan:
• Energy sector: Uzbekistan has a significant focus on large energy projects, including renewable energy sources such as solar and wind power, as well as oil and gas exploration and production.
• Transportation: Infrastructure development, including roads, railways, and local airports, has been a priority to improve connectivity within the country and the broader Central Asian region.
• Mining and natural resources: Uzbekistan has rich resources, including gold, copper, and uranium, which may attract investment in mining projects.
• Agriculture: Local agriculture is another sector with potential for investment, as the country has a long history of cotton and grain production.
International financial organizations play an important role in project finance in Uzbekistan.
In 1993, Uzbekistan became a member of the World Bank. In subsequent years, the IBRD and other international financial institutions successfully financed a dozen large projects worth more than $700 million, and this cooperation continues.
The partnership strategy between the Republic of Uzbekistan and the World Bank is focused on modernizing infrastructure, projects in the water supply sector, modernizing the education and health care systems, and improving the efficiency of the energy sector.
The International Development Association (IDA) actively supports local projects to introduce innovative technologies in viticulture, vegetable growing and other agricultural sectors.
All this fits into the general vision of the structural economic transformation of the country for the next decade.
However, the use of project finance in Uzbekistan is not limited to cooperation between the public sector and international organizations. Private capital actively uses this tool to develop highly profitable investment projects in the field of mining, downstream projects in oil and gas sector, energy, metallurgy, and other industries.
Challenges and considerations for large business in Uzbekistan:
• Access to finance: While Uzbekistan is taking steps to improve access to financing, it's essential to consider how project financing will be secured and whether there are local or international sources of funding.
• Local partnerships: In some investment projects, forming partnerships with local entities or the government may be required or beneficial.
• Cultural and language differences: Understanding the local culture and working effectively with local partners is crucial for successful investment project implementation.
• Political and regulatory risks: As with any emerging Asian market, investors should be aware of potential political and regulatory risks.
• Bureaucracy: Despite the reforms, dealing with bureaucratic processes can sometimes be challenging. Investors should be prepared for administrative procedures and paperwork.
Despite challenges, Uzbekistan offers potential opportunities for business development based on project finance, particularly in sectors like energy, infrastructure, and agriculture.
It's essential for investors to conduct thorough due diligence, seek legal and financial advice, and stay informed about the evolving business and regulatory environment.
If you are looking for a reliable partner for long-term financing of capital-intensive projects in Central Asia, contact our team at any time.
