Uzbekistan is located in the heart of Central Asia. Once known for its closed economy, in recent years Uzbekistan has promoted bold economic reforms and open-door policies, and is rapidly emerging as one of the world’s most remarkable emerging markets. Now, reports that Uzbekistan’s “investment story” has reached a turning point are attracting attention. For the first time, full-fledged international capital has flowed into the country and begun investing in the country’s fastest-growing businesses.
This is an extremely important sign, especially for Japanese business owners who are considering setting up operations in the country through M&A.
Why Uzbekistan Now?
The following factors make Uzbekistan an attractive investment destination
- Large and growing market: With a population of approximately 35 million (the largest in Central Asia), approximately 60% of whom are under the age of 30, Uzbekistan is a young country. It contains an abundant labor force and an expanding consumer market.
- Aggressive economic reforms: Liberalization of the exchange rate, promotion of infrastructure development, and privatization are all part of an effort to create an attractive environment for foreign capital.
- Abundant natural resources: Gold, uranium, and natural gas provide a solid foundation for the economy.
- Strategic location: As a strategic point on the Silk Road, the region has the potential to serve as a gateway not only to Central Asia, but also to the CIS (Commonwealth of Independent States) countries, the Middle East, China, and Europe.
What “Arrival of International Capital” Means
While Uzbekistan’s growth has often been described as potential, the “arrival of international capital” is strong evidence that this potential is maturing into a real investment opportunity.
This specifically means the following
- A market-validated signal: it means that hard-eyed international investment funds and institutional investors have “validated” Uzbekistan’s business environment and growth potential and have actually started to put their money into the country. This is a sign that the market is reaching “critical mass.
- Increased liquidity and clearer exit strategies: The entry of international capital brings new liquidity to the M&A market. This means that in the future, there will be more options for “exit strategies” to resell acquired businesses to larger investors or strategic buyers.
- Improved quality of operating partners: Local companies backed by international capital are expected to have a stronger financial position and improved governance and management transparency. These companies can be ideal partners for M&A and joint ventures.
Specific advantages of entering the business through M&A
While “greenfield investment” is one way to enter the Uzbek market, starting a new business from scratch, M&A offers the following distinct advantages
- Speed: By acquiring an existing business, the time required to acquire licenses, build sales channels, establish brands, etc. can be significantly reduced.
- Access to existing resources: local know-how, human networks, customer bases, brands, supply chains, etc. can be transferred immediately.
- Reduce risk: acquiring a proven business reduces uncertainty compared to starting from scratch.
Which sectors to focus on?
Sectors that are experiencing an influx of international capital are those that are experiencing growth opportunities right now.
- Financial services and fintech: financial services are undergoing a major transformation, with rising bank account ownership and digitalization trends.
- Consumer Goods and Retail: The growing purchasing power of the middle class is boosting the market for all consumer goods, from daily necessities to luxury goods.
- Manufacturing: The country is establishing itself as an export base for auto parts, consumer electronics, and textiles.
- Agriculture and food processing : There is great potential for value-added food processing industries that take advantage of the abundance of agricultural products.
- IT and digital services: The digital economy is rapidly developing, backed by a young, IT-literate population.
Now is the Time to Move
With the first wave of international capital arriving, now is the perfect time to seize the opportunity to enter Uzbekistan’s M&A market before it heats up. It is possible to identify quality local companies while there is little competition and get the upper hand in negotiations.
Uzbekistan is in the “now” moment, when its great potential is beginning to turn into a real business opportunity, and diving into the growth story of this emerging market through M&A will be a major step toward making the next leap forward for your business.
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