Uzbek President Shavkat Mirziyoyev’s go to to Astana in August 2024 marked the inaugural assembly of the Supreme Interstate Council of Kazakhstan and Uzbekistan. As each events celebrated strides made in bilateral cooperation, Kazakh President Kassym-Jomart Tokayev referred to as for the accelerated improvement of an Worldwide Middle for Industrial Cooperation, positioned within the border areas of Syrdarya and Turkestan. The middle, with particular financial zone standing in Uzbekistan and industrial zone standing in Kazakhstan, affords vital funding enchantment by tax and regulatory incentives designed to attract better overseas capital.
International funding has lengthy been a spotlight for Central Asia, as web recipients of overseas direct funding (FDI), however regional international locations are actually more and more investing inside the area itself. As of the primary half of 2023, the Eurasian Growth Financial institution reported 27 large-scale mutual FDI initiatives amongst Central Asian international locations, valued at $1.1 billion, virtually double the amount in 2016. The EDB recognized Kazakhstan (87 p.c) and Uzbekistan (13 p.c) as the most important regional traders, with Kyrgyzstan receiving the vast majority of intra-regional FDI (63 p.c). Tajikistan can be a web recipient of Central Asian capital.
Latest developments counsel an enlargement in each the dimensions and scope of funding cooperation, together with by joint ventures and portfolio investments.
A key milestone in these efforts was the trilateral settlement signed by Kazakhstan, Kyrgyzstan, and Uzbekistan to assemble the Kambar-Ata-1 hydropower plant on the Naryn River. Introduced on the Worldwide Vitality Funding Discussion board in Vienna in June 2024, the $4.5 billion undertaking has garnered curiosity from main donors, together with the World Financial institution, Eurasian Growth Financial institution, and the Asian Growth Financial institution. Financing can even come from the three Central Asian governments, every taking an fairness stake within the joint-stock firm established to supervise the undertaking.
What’s noteworthy about this funding cooperation just isn’t solely its sheer scale, however that it focuses on the power sector, signaling a regional dedication to sustainable improvement and power safety.
The truth is, downstream international locations Kazakhstan and Uzbekistan are more and more investing in renewable power in upstream republics, partly to deal with power safety issues. For instance, Uzbekistan is backing two hydropower vegetation (with a mixed capability of 275 MW) alongside the Zarafshan River in Tajikistan, totaling $552 million that can present electrical energy to Uzbekistan as effectively. Uzbekistan can be supporting a 6.7 MW hydropower plant in Jalal-Abad, Kyrgyzstan, by the Uzbek-Kyrgyz Growth Fund. Kazakhstan is investing in solar energy in Kyrgyzstan with the $35 million “Kun-Bulagy” energy plant within the Issyk-Kul area.
Past power, Central Asian nations are making inroads in joint logistics initiatives, important for facilitating intra-regional commerce. PTC Holding from Kazakhstan is establishing a logistics hub close to Tashkent with an preliminary funding of $70 million, anticipated to develop to $230 million by 2034. The middle will channel cargo flows from China, Southeast Asia, CIS international locations, and West Asia to Uzbekistan and the opposite method spherical, additionally benefiting Kazakhstan as a transit location. In flip, Uzbekistan is financing logistics initiatives in Tajikistan, such because the Oybek and Fatekhobod trade-industrial zones and the Andarkhon logistics middle within the Sughd area.
Industrial cooperation between Kazakhstan and Uzbekistan continues to develop, with Kazakh officers projecting 60 joint initiatives price $2.6 billion. Current Kazakh initiatives in Uzbekistan embrace an autoclaved aerated concrete plant within the Tashkent area ($12 million), and three cement vegetation – Kusavaycement, Bekabadcement, and Kyzylkum Cement. In Kyrgyzstan, one in every of Kazakhstan’s main investments is KazMinerals’ Bozymchak gold and copper mine, valued at $350 million.
Uzbekistan’s investments throughout Central Asia prioritize high-value manufacturing, with initiatives in Kazakhstan reminiscent of an metallurgical plant in Taraz ($121.3 million), a steel rolling facility in Almaty ($60 million), a family home equipment manufacturing plant within the Karaganda area ($54.2 million), a metal blanks plant within the Kostanay area ($40 million), and an car manufacturing partnership in Kostanay with SaryarkaAvtoProm ($50 million). In Kyrgyzstan, UzAuto collectively with Kyrgyz DT Technic oversaw the launch of the Tulpar Motors plant ($50 million). In 2023, Tashkent and Bishkek signed 15 intergovernmental agreements, together with funding agreements on the joint pharmaceutical manufacturing facility ($10 million), and a joint manufacturing of plastic pipes, plastic merchandise and furnishings in Kyrgyzstan ($3 million). In the meantime, in Tajikistan, Uzbek corporations have established a textile manufacturing plant and a utility home equipment manufacturing plant.
Uzbekistan’s strategy to regional industrial investments ceaselessly includes joint funding funds, a mannequin demonstrating long-term dedication to neighboring markets. The Uzbek-Kyrgyz Growth Fund, based in 2021 with $50 million in capital, reportedly holds a portfolio of 33 initiatives valued at $186 million. Equally, the Tajik-Uzbek Funding Firm, shaped with a capital pool of $12 million (later elevated to $50 million), is planning to implement 14 initiatives valued at $135 million in Tajikistan. Uzbekistan can be contemplating the potential for making a joint funding fund with Kazakhstan.
Within the monetary sector, Kazakhstan stands as a pacesetter in regional investments. The Uzbek subsidiary of Kazakhstan’s Halyk Financial institution, Tenge Financial institution, holds an FDI inventory exceeding $100 million, together with $400 million in direct loans for Uzbek initiatives. Halyk used to have a subsidiary within the Kyrgyz Republic, which was bought to Visor, an organization majority owned by Kazakhstani businessman Aidan Karibzhanov, for round $38 million, and is now referred to as “O! Financial institution.” The brand new house owners of the rebranded financial institution are planning to create a “monetary ecosystem.” As well as, Kazakhstan’s Freedom Financial institution introduced plans to open a subsidiary in Tajikistan.
The export of Kazakhstan’s fin-tech experience to neighboring markets represents one other exceptional tendency in mutual investments. In comparison with investments from exterior actors, which frequently focus closely on extractive industries, intra-regional investments in Central Asia are notably extra numerous, masking sectors with increased added worth, reminiscent of manufacturing, infrastructure, and monetary providers. This mirrors regional commerce patterns, which a latest research by CAPS Unlock confirmed are extra diversified and fewer commodity-focused in comparison with Central Asia’s commerce with exterior markets.
Regardless of these promising developments in mutual funding, challenges stay. Most incoming capital in Central Asia nonetheless originates from exterior the area. Structural challenges – small markets, restricted infrastructure, property rights points, informality, regulatory hurdles, and monetary pressures – proceed to complicate funding situations for each overseas and regional traders. Nevertheless, the latter maintain a aggressive benefit whereas getting into the Central Asian markets, no less than in line with the Uppsala mannequin of internationalization. In that mannequin, corporations’ entry into worldwide markets begins with the neighboring markets given geographical and cultural proximity in addition to related enterprise environments.
Whether or not regional companies can totally leverage such familiarity benefit will depend on the tempo and scale of enhancements to enterprise environments and enhanced infrastructure. The impetus for deeper funding cooperation from the highest seems regular.