Overseas investment strategy aiming for 35% annual interest in the Uzbekistan M&A market

As we enter 2024, Uzbekistan's M&A market is showing incredible growth. Gross domestic product (GDP) grew by 5.8%, and foreign direct investment (FDI) increased by 45% from the previous year to $7.8 billion. These figures demonstrate the success of the government's foreign investment attraction policy. The Uzbek government is actively inviting foreign companies, providing an attractive market for many investors.

The background to this is that Uzbekistan has adopted a new economic liberalization policy and significantly improved the investment environment. In particular, tax reforms and the establishment of special economic zones have provided significant benefits to foreign investors. Furthermore, Uzbekistan's M&A market is still immature and is expected to grow in the future. In this article, we explore potential investment opportunities in the Uzbekistan market and specific strategies for success.

Explosive growth opportunity in Uzbekistan's investment market

Uzbekistan currently has a population of 35 million and is steadily expanding its economy. Among its major industries, manufacturing and energy are experiencing particularly strong growth, with these sectors recording annual growth rates of over 10%. Furthermore, the government is promoting investment incentives such as corporate tax exemptions and the provision of land free of charge, with even greater incentives being offered within special economic zones.

For example, Uzbekistan occupies a strategic geographical location in Central Asia and offers superior logistics infrastructure compared to neighboring countries. These comparative advantages are a major attraction for foreign investors. In fact, many foreign companies that have entered Uzbekistan have been successful in expanding their business there.

Analysis of successful companies (Part 1)

For example, Japanese manufacturer Company A invested $5 million and entered the Uzbekistan market by partnering with a local company. This partnership process began with thorough prior research and was carried out with a thorough understanding of local laws, regulations, and culture. As a result, Company A achieved the astonishing result of generating sales of $20 million in its first year.

The key to this success is developing products that meet the needs of the local market and collaborating with reliable local partners. Company A conducted thorough market research and was able to quickly provide products that met local consumer demand. They also focused on building relationships with local partners and built long-term business relationships.

Analysis of successful companies (part 2)

[Case 2] Korean IT company B is an example of a company that has achieved success in the Uzbekistan market. Company B started a joint venture with a leading local IT company and recovered its initial investment in 18 months. They conducted thorough market research and leveraged the strengths of local companies to meet the digitalization needs of Uzbekistan. As a result, they have captured 25% of the IT market share and are expecting further growth.

[Case 3] German agricultural technology company C took advantage of subsidies from the Uzbekistan government to invest in the latest agricultural equipment. This strategy achieved a 200% return on investment (ROI) within three years. The key to C's success was its early adoption of local agricultural reform policies and its promotion of the introduction of new technologies.

Important risks to know before entering and how to avoid them completely

[Legal risks] Labor laws and tax systems are frequently revised in Uzbekistan, so it is important to always check the latest legal information. In particular, we recommend utilizing specialized legal advice to deal with foreign investment restrictions.

[Cultural Risk] Consideration of Islamic culture has a profound impact on business practices. For example, it is wise to avoid making major business decisions during Ramadan. To address language barriers, hiring reliable translators and local staff is an effective solution.

Economic risk: Currency fluctuations and inflation are always issues to consider. We can minimize these risks by utilizing exchange rate risk hedging contracts, and by collecting data on political stability from multiple sources.

Decisive points for selecting a local partner

To select a reliable partner, thoroughly check the financial soundness of the partner. Analysis of past transaction history and balance sheets is essential. Partners with strong connections to the government will also have a major advantage. It is important to clearly state the division of roles and risk sharing in the contract and to define specific procedures to avoid problems.

Summary: Why you should start now

2024 is a great time to start investing in Uzbekistan. As the market enters a period of growth, procrastinating could result in significant missed opportunities. We recommend consulting with an expert to develop a fast and effective investment strategy.