In 2024, Uzbekistan is one of the brightest growing economies in Central Asia, with a GDP growth rate of 5.8% and an astounding $7.8 billion in foreign direct investment ( up 45% from the previous year), attracting the attention of investors from around the world. The M&A market is particularly active, and great business opportunities are expanding for Japanese companies. This article details the latest market trends, best practices, and entry strategies for business owners considering M&A in Uzbekistan.
Uzbekistan’s Rapid Economic Growth and Investment Environment
Uzbekistan is undergoing aggressive economic reforms under President Shavkat Mirziyoyev, and attractive incentives are being offered to foreign companies.
- Tax incentives: corporate tax rate is reduced to 12% for manufacturing companies, and IT companies are exempted from corporate tax for the first three years.
- Eased foreign exchange restrictions: profit remittance by foreign companies increased from the previous 30% limit to 80%.
- Demographic bonus: A huge market with a population of 35 million, annual consumer spending of $45 billion, and a rapidly growing middle class.
- In the capital city of Tashkent, per capita GDP has surpassed $2,800, and consumer demand is rapidly increasing
Industry sectors with particularly strong growth
1. energy and resources sector
Uzbekistan is blessed with abundant natural resources. The country boasts the world’s 12th largest natural gas reserves at 1.9 trillion cubic meters and the third largest copper reserves in Asia at 3.4 million tons. Backed by these resources, the heavy industry sector is growing at an annual rate of 8.2%.
2. IT and Digital Industry
The IT industry is growing particularly fast, with Tashkent currently home to 210 IT companies. The annual growth rate is high , at over 25%.
- The average annual salary of programmers is $2,400, 1.8 times the level of neighboring countries, making it possible to secure excellent human resources.
- The government has established an investment plan totaling $1.5 billionfrom 2024 to 2030 to promote digitalization
- IT services exports are expected to grow rapidly from $600,000,000 in 2017 to over $1 billion by 2025.
3. agriculture sector
The agricultural sector has traditionally been strong, with cotton production of 3.2 million tons per year, ranking 5th in the world, and wheat production of 6.3 million tons per year, providing a stable supply system. The mechanization rate in agriculture is currently 35%, but the government plans to raise it to 60% by 2027, and demand related to agricultural machinery is growing rapidly.
Specific Examples of Successful M&A
Case Study 1: Success Story of Japanese Manufacturing Company A
Japanese manufacturer Company A (pseudonym) acquired a local Uzbek manufacturer Company B for $5 million inMarch 2022. Company B was a medium-sized company with 120 employees that manufactured construction materials.
Company A introduced advanced Japanese technology to improve production efficiency by 1.8 times. The introduction of automated lines reduced the defective product rate from 8% to 2% and increased monthly production from 1,200 tons to 2,200 tons.
As a result of technical training for local staff for three months and the establishment of a quality control system, sales in the first year reached $20 million, and the payback period was reduced from the originally planned five years to 2.8 years.
As of 2024, Company A’s local subsidiary has expanded to 200 employees and has grown into an excellent company with annual sales of $35 million and an operating margin of 18%.
Case Study 2: Successful Joint Venture of Korean IT Company C
Korean IT company C (pseudonym) started a joint venture with Uzbekistan’s software development company D in January 2023. The investment amount is $3 million, with Company C holding a 70% stake and Company D holding a 30% stake.
Company D was a small company with 45 employees, but had high technical capabilities specializing in mobile app development; Company C took advantage of its experience in Korea and received an order for a mobile banking app for National Bank, the largest bank in Uzbekistan, and achieved sales of $12 million in6 months of development time! C also participated in government digitalization projects.
The company also participated in a government digitization project, winning an $8 million contract to develop a tax filing system. The joint venture now has 120 employees and annual sales of $45 million.
Case Study 3: Acquisition of German Agricultural Technology Company E
In June 2023, German agricultural technology company E acquired Uzbekistan-based agricultural machinery manufacturer F for $1.8 million.
This has improved farming efficiency by 2.3 times and reduced pesticide use by 40%. The company is also contributing to the realization of environmentally friendly agriculture.
Key Risks and Avoidance Measures for Successful M&A
Legal Risks and Workarounds
- Strict labor laws: at least 60 days’ advance notice required for dismissal, and obligation to pay 6 months’ salary in case of dismissal without just cause.
- Workaround: Clear performance evaluation criteria in employment contracts and regular appraisal systems
- Taxation: Corporate tax rate is low at 12%, but value-added tax (VAT) is high at 15%, so proper tax planning is essential.
Cultural Risks and Countermeasures
- Impact of Islamic culture: Working hours are reduced during Ramadan (one month a year), which affects production planning
- Prayer time: Consideration must be given to temporarily halting factory operations on Fridays from 1:00pm to 2:00pm
- Language: Official language is Uzbek, but Russian is also important. It is essential to secure interpreting staff.
Economic Risks and Countermeasures
- Fluctuation of the currency sm: Over the past 3 years, the exchange rate against the dollar has depreciated by an average of 8% per year
- Countermeasures: Implementation of hedging strategies against currency fluctuations is important
Decisive Points in Selecting Local Partners
Selection of the right local partner is crucial for a successful M&A.
- Check financial health: Analyze financial statements for the past 3 years. Ideally, sales growth rate of at least 10% per year, operating margin of at least 8%, and equity ratio of at least 30%.
- Government connections: Preference is given to companies that have received at least three government projects in the past five years.
- Reputation in the industry: At least three letters of recommendation from peers or business partners
- Clarity of contract terms: clearly define profit sharing, decision-making authority, and exit clauses
Why You Should Move Now
As of 2024 is the best time to enter the Uzbekistan market.
- Expiration of preferential policies: the government’s policy of preferential treatment of foreign investment is expected to continue until 2027
- End of tax incentives: The current corporate tax rate of 12% will be gradually increased starting in 2026
- Progress in infrastructure development: Infrastructure investment is progressing rapidly as a key location for China’s “One Belt, One Road” initiative.
- Opening of high-speed railroad: High-speed railroad to Kazakhstan will open in 2025, significantly reducing transportation time
- High returns: An excellent opportunity to achieve high returns of over 30% per annum
Conclusion
Uzbekistan’s M&A market offers very attractive investment opportunities for Japanese companies, supported by its rapidly growing economy, preferential policies for foreign investment, and abundant human resources. The key to success is to develop a deep understanding of the local market, select the right partners, and operate strategically while respecting cultural differences. Great opportunities are opening up, especially in areas such as IT, manufacturing, and agricultural technology. We recommend that you first start discussions with local experts and begin formulating a concrete investment plan.
*Data in this article is as of 2024-2025
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