Dramatic Changes in Uzbekistan’s Investment Environment and M&A Trends

Uzbekistan continues to enjoy high economic growth against a backdrop of abundant natural resources and Central Asia’s largest population of approximately 35 million people. This growth is supported by a series of reforms that have accelerated since 2017.

1. rapid increase in foreign investment and specific M&A cases

As a result of the government’s aggressive attraction measures, foreign direct investment has shown remarkable growth in recent years. in 2024, foreign investment was reported to have increased by more than 60% year-on-year, indicating growing international confidence. in the M&A market, the sale of state-owned assets is particularly notable.

The latest M&A case study: Large-scale sale of an automobile factory

As the most recent concrete example, on September 30, 2025, the State-owned Assets Management Agency of Uzbekistan announced the sale of the state’s 75.2% stake in the Samarkand Automobile Plant to Anadolu Isuzu of Turkey. The sale amounted to $80 million, and Anadolu Isuzu plans to invest an additional $80 million to start up production of large buses and electric buses. These large-scale projects demonstrate the strong commitment to foreign investment in the country’s manufacturing industry.

2. government incentives for foreign investment: tax exemptions

One of the most significant advantages for Japanese business owners considering M&A is tax incentives. Companies that make direct investments in encouraged sectors (e.g., IT and software, light industry, food, automobiles, etc.) are exempt from land tax, corporate property tax, and water use tax, depending on the amount of investment.

Tax incentive periods based on the amount of direct investment

Direct Investment Amount Preferential treatment period
Between $300,000 and $3,000,000 3-year tax exemption
More than $3 million but less than $10 million 5-year tax exemption
More than $10 million Up to 7 years tax exemption (conditions apply)

In order to take full advantage of this incentive, it is important to carefully calculate which incentive period applies to the investment amount in the post-acquisition business plan before executing the M&A transaction.

Growth Sectors to Target

To increase the probability of M&A success, you should target sectors where the government is encouraging growth or where there is high market potential.

A. Technology Startups (VC Investment Trends)

Uzbekistan has a young population and is rapidly digitizing. VC investment across Central Asia is increasing 7% YoY in 2024, and the startup ecosystem in Uzbekistan is particularly active. M&A and minority investments in local fintech, e-commerce, and agri-tech startups, leveraging Japan’s technological and financial capabilities, could yield significant future returns.

B. Light Manufacturing and Textile Industry

Leveraging its strength as a world-class cotton producer, the country is shifting toward the manufacture of high value-added end products (clothing and knitwear). Japanese expertise in advanced quality control (QC) and production efficiency is highly sought after by local companies, and securing a production base through technical tie-ups and M&A will pave the way for low-cost access to the Central Asian and European markets.

C. Transportation, Logistics, and Infrastructure

As a landlocked country, Uzbekistan is strengthening its role as a “Central Asian Gateway” linking China and Europe, and modernization of railroads, roads, and logistics is an urgent priority. M&As for privatization of infrastructure-related state-owned enterprises and local logistics companies have strategic significance in seizing key points in the supply chain.

M&A Strategies and Considerations for Successful M&A by Japanese Companies

While M&A in Uzbekistan is attractive, there are challenges unique to emerging markets. The following strategic approaches and measures are necessary for success.

1. perform thorough due diligence (DD)

  • Ensure financial and legal transparency: In order to keep up with local accounting standards and frequent changes in the legal system, it is necessary to assemble a team of experts familiar with legal and accounting practices in both Japan and Uzbekistan, and conduct DD more carefully and over a longer period of time than in a typical M&A transaction. In particular, the status of off-balance-sheet debt and compliance with environmental regulations during the past period of state-owned enterprises should be investigated in detail.
  • 1 . confirmation of government relationships: Understanding the M&A target company’s relationships with local ministries and government-affiliated organizations is extremely important from the perspective of future business approvals and maintaining preferential treatment

2. understanding local culture and human resource strategy

  • Focus on localization: Uzbek and Russian are the primary languages, and business practices are very different from those in Japan. It is essential to have a “localization” strategy that respects local employees and introduces Japanese technology and management know-how in a way that is adapted to the local culture, rather than imposing it on them.
  • Introduce youth development programs: Due to the young average age of the workforce, introducing Japanese “on-the-job training” (OJT) and technology transfer programs to develop and retain talented young people will be a source of long-term competitiveness.

3. risk management and exit strategies

Economic policy and geopolitical risks are non-zero. Constant monitoring of foreign exchange risks and deregulation of fund transfers, as well as considering exit strategies (e.g., business sale, IPO) from the initial stage in the event of an emergency, will serve as a risk hedge.