Overview

Uzbekistan is a landlocked country with a surface area of 447,400 km². It is surrounded by Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, and Turkmenistan. Its capital and largest city is Tashkent. It is the most populous country in Central Asia, with a population of around 35 million.

The Uzbek government has a firm grip on power and civil unrest is rare. Protests are harshly repressed. Freedom House categorises Uzbekistan as a consolidated authoritarian regime, with a score of 4/100.

Border disputes with Kyrgyzstan and Tajikistan can lead to border closures. Organised crime is rife in border areas and skirmishes involving criminal gangs pose a threat in outlying areas. Uzbekistan placed landmines along the borders with Kyrgyzstan and Tajikistan in 2000 to deter terrorists. The government reportedly cleared landmines along the Uzbek-Tajik border in late 2019.

Uzbekistan’s GDP grew by 5.8% in 2019, making it one of the fastest growing economies in the world. Primary sector products make up the bulk of the country’s exports, with the largest earnings coming from gold, copper, zinc, cotton, and natural gas.

 

Political Risk

Domestic politics

Uzbekistan is a parliamentary republic that has operated as a de facto authoritarian regime since its creation in 1991. The death of Uzbekistan’s long-running leader, Islam Karimov, and the appointment of Shavkat Mirziyoyev as his successor in 2016 led to cautious optimism that the investment climate would gradually improve thanks to limited political reforms. However, the election that followed did not result in any real change to the country’s power dynamics. The 2021 presidential elections confirmed incumbent President Shavkat Mirziyoyev with 80.1 % of the vote. The election was not competitive, and candidates avoided challenging or criticising Mirziyoyev. Snap elections were held in July 2023 after the constitution was amended by a referendum that reset Mirziyoyev’s term count and extended the presidential term from five to seven years. Mirziyoyev was re-elected for a third term with 87% of the vote. Three other candidates contested the election, but all represented parties that support the president. International observers from the Organisation for Security and Cooperation in Europe noted the absence of “genuine political competition.”

No genuine opposition party operates legally. During the 2021 elections, only registered parties were allowed to nominate candidates, and candidates affiliated to the opposition parties Erk Democratic Party and the Truth and Development Party were refused registration, preventing any opposition or independent candidates from taking part in the election. Unregistered opposition groups operate mainly in exile. Domestic supporters or family members of exiled opposition figures have been persecuted and are barred from participating in elections. Political dissent is strongly repressed, and constitutional and other legal guarantees of freedom of expression are not observed in practice.

Media freedom

The state controls the main media outlets and related facilities, and independent media were mostly closed or blocked under Karimov, although a dozen of them were unblocked in 2019. However, the national media, including news sites and live TV programmes, now cautiously discuss social issues and criticise local officials, reflecting a slight reduction in media repression since Mirziyoyev came to power. Most media still avoid open criticism of the president and the government.

While a number of journalists have been released from prison under Mirziyoyev, others have been imprisoned, most recently in September 2023. Independent journalists are frequently harassed or interrogated by the security services for their coverage of topics that are deemed sensitive by the authorities. In 2022, journalists covering the Russian military invasion of Ukraine were warned by the state security services to “exercise restraint” in their coverage of the war, and some were reportedly ordered to delete their work.

 

Economic Risk

World Bank data shows that Uzbekistan’s GDP grew by 5.7% in 2022, driven by strong remittances, consumption, and exports. Non-gold exports rose by 21% in 2022, led by textiles, non-ferrous metals, fertilisers, and food, largely due to strong growth in exports to Russia (52%). Services exports, mainly in transport and tourism, rose by 53%. Remittance doubled as a share of GDP to 18.9% in 2022 due to the appreciation of the ruble and the increase of migratory flows. Part of this financial inflow reflects the increase in private remittances from Russian citizens fleeing Russia and companies relocating to Uzbekistan following Russia's invasion of Ukraine. Furthermore, rising food, fuel and logistics costs have pushed up consumer price index inflation to 12.3% year-on-year in December 2022.

The World Bank expects growth to moderate to 5.1% in 2023 and gradually accelerate in the medium term. Russia’s protracted war in Ukraine, and increased logistical challenges associated with sanctions against Russia are expected to prolong high food and energy prices and reduce growth in private consumption. Private investment and trade are expected to grow. Additionally, increased revenues from gold and copper exports and slowdown in public investment spending will reduce the budget deficit to 3.3% of GDP in 2023, close to the government’s target of 3%.

Business climate

While the World Bank acknowledges that Uzbekistan has implemented an ambitious set of reforms in recent years, the financial institution stresses that much remain to be done to further stimulate private sector-led growth and job creation, including reducing the dominance of state-owned enterprises (particularly in the industrial and financial sectors) and opening up key sectors of the economy to competition, thereby strengthening incentives and market viability.

Nevertheless, Uzbekistan has the potential to attract more foreign investment, with the International Trade Administration citing the country’s fast-growing economy, its dynamic and entrepreneurial population, the relatively good quality of its infrastructure, and a large potential consumer market.

Overall, the current business climate in Uzbekistan presents an acceptable risk to investors.

 

Security Risk

Demonstrations and social unrest

Demonstrations and social unrest are rare in Uzbekistan due to the repressive nature of the regime. Nevertheless, non-violent protests appeared during the autumn-winter of 2019-2020 due to energy shortages in several regions of the country. In July 2022, protests broke out in Karakalpak’s capital, Nukus, following Mirziyoyev’s plan to remove the Karakalpakstan region's right to self-determination. A day after the demonstrations began, Mirziyoyev withdrew the constitutional amendments. The unrest and subsequent crackdown in the northwestern territory left at least 21 people dead.

Human rights

Police detain people on false charges in order to intimidate whistleblowers and prevent them from exposing corruption. Reports suggest that law enforcement authorities routinely use bribery schemes to undermine political and business rivals, and to detain and prosecute business executives, as part of their extortion and expropriation mechanisms. Police violence is common.

Organised crime

Due to its geographic location in the heart of Central Asia, Uzbekistan is a major transit point for most organised criminal markets. The country is located along major trafficking routes, such as the opium and heroin markets of Afghanistan, which exacerbates its vulnerability to criminal flows.

Border security

The country’s extensive borders are difficult to monitor and control, making them relatively porous. The mountainous terrain on the borders with Tajikistan, Afghanistan, and Kyrgyzstan presents an additional challenge. However, due to the perceived dangers of a spillover of the Islamist insurgency in recent years, protection along the borders with Afghanistan and Tajikistan has increased.

 

Geopolitical Risk

Russia

Russian influence is strong in Uzbekistan. This is mainly due to the fact Moscow is Tashkent’s main trading partner and that a large Russian diaspora lives in Uzbekistan. Russian media are also widely represented in Uzbekistan and for decades have been a tool for Russian ideological domination. However, the situation is changing. Russia’s continued dominance is raising concerns about the erosion of Uzbekistan’s distinct cultural identity and values. The war in Ukraine accelerated this process. Concurrently, the media landscape has changed dramatically, with a marked increase  in anti-Russian content. Furthermore, the Uzbek government is following international sanctions against Russia and supports Ukraine’s territorial integrity. 

Nevertheless, the two countries remain close and continue to develop their relations. In September 2022, Tashkent and Moscow signed a Declaration on Comprehensive Strategic Partnership which, as stated in an Uzbek government press release “marks a new stage in the development of multifaceted Uzbek-Russian cooperation.” Talks held in January 2023 focused on strengthening bilateral relations and cooperation, particularly in the oil and gas sector, while Russia and Uzbekistan adopted a Joint Statement on Deepening the Strategic Partnership aimed at giving further impetus to joint work in the political, trade, investment, cultural and humanitarian spheres, in the field of security, including biological and information security. The adoption of the declaration and joint statement underlines the importance of the relationship for both countries and the unlikelihood of Tashkent turning away from Moscow despite its stance on the territorial integrity of Ukraine and the implementation of sanctions.

European Union

Prior to the Russia-Ukraine war, the European Union (EU) and Uzbekistan had relatively limited relations. However, the war has given new impetus to cooperation between the two sides. Uzbekistan is strengthening its economic relations with the EU against the backdrop of sanctions against Russia. In September 2022, the Central Bank of Uzbekistan suspended the operation of the Russian payment system MIR in Uzbekistan. EU officials took very positive note of the steps taken by the Central Bank of Uzbekistan and expressed their willingness to strengthen bilateral relations within the framework of sectoral regulations. Trade relations have increased since the start of war, although the roots of this increase predate it. In 2021, Uzbekistan joined the EU’s GSP+ system, lifting tariffs on several key export products from Uzbekistan. This has opened new opportunities for increased trade between the EU and Uzbekistan, making Europe an important partner for the diversification of Uzbekistan's exports. Trade flow between Uzbekistan and the EU stood at €4.6 billion in 2022, a 77.1% increase in export from Uzbekistan to the EU and a 63.9% increase in import.

The EU and Uzbekistan are expected to sign the Enhanced Partnership and Cooperation Agreement (EPCA) in 2024, an agreement first initiated in 2019 that should foster closer cooperation in the political, economic and security fields, propelling the two regions towards closer alignment.

China

Against the backdrop of the war in Ukraine, Uzbekistan’s strategic importance in Central Asia is growing for China. Uzbekistan's relative stability and its stable relations with regional and global players offer China the opportunity to diversify its relations and adopt a more balanced approach to Central Asia.

In terms of economic relations, China is Uzbekistan’s second largest trading partner. Trade with China amounted to $8.9 billion in 2022. China is Uzbekistan’s second largest export market. Its exports to China represented $1.7 billion in 2022. Chinese investment in Uzbekistan is also on the increase. Uzbekistan is an important transit point for China’s overland trade ambitions due to the country’s proximity to the Caspian Sea and hydrocarbon-rich Turkmenistan. As a result, Chinese investment flows into Uzbekistan have soared. In 2021, China ranked among investor countries in Uzbekistan, with an investment of $2.2 billion.

The relations deepened even more following bilateral talks held in May 2023. Uzbekistan and China signed a Joint Statement, approved a plan for the development of the Comprehensive Strategic Partnership in the New Era between the People's Republic of China and the Republic of Uzbekistan for 2023-2027, and jointly signed multiple bilateral documents on cooperation in priority investment projects, poverty reduction, agricultural trade, inspection and quarantine, and sub-national cooperation.

 

Conclusion and forecast

Uzbekistan’s constitutional referendum has extended the presidential term limit to seven years and reset the number of terms Mirziyoyev has held to zero, which will not only allow him to run twice more and theoretically remain in power until 2040, but also to consolidate his power. The opposition, which operates mainly from abroad, will remain under close surveillance.

On the economic front, growth is expected to moderate in 2023 and then gradually accelerate over the medium term. The war in Ukraine and the increased logistical challenges associated with the sanctions against Russia are likely to prolong high food and energy prices and reduce growth in private consumption. While much remains to be done to further stimulate private sector-led growth and job creation, Uzbekistan represents a potential market for foreign investment and the current business climate makes the risk of investing in the country acceptable.

In terms of security, while demonstrations are rare, many have taken place since the end of 2019, and they can turn violent. Human rights abuses will remain an issue. The government is unlikely to address them as it continues to crack down on dissents.

Although Uzbekistan appears to have distanced itself from Russia following the war in Ukraine, the two countries remain close and continue to develop their relations. Nevertheless, Tashkent is looking east and west to develop and strengthen relations with other partners such as the EU and China. The signing of the EPCA in 2024 between the EU and Uzbekistan is expected to foster closer cooperation in the political, economic and security spheres, propelling them towards closer alignment, while the talks held in May 2023 between Beijing and Tashkent highlighted the deepening of their relationship and China's growing influence on Uzbekistan's economy and development.