Uzbek President Shavkat Mirziyoyev’s visit to Astana in August 2024 marked the inaugural meeting of the Supreme Interstate Council of Kazakhstan and Uzbekistan. As both parties celebrated strides made in bilateral cooperation, Kazakh President Kassym-Jomart Tokayev called for the accelerated development of an International Center for Industrial Cooperation, located in the border regions of Syrdarya and Turkestan. The center, with special economic zone status in Uzbekistan and industrial zone status in Kazakhstan, offers significant investment appeal through tax and regulatory incentives designed to draw greater foreign capital.
Foreign investment has long been a focus for Central Asia, as net recipients of foreign direct investment (FDI), but regional countries are now increasingly investing within the region itself. As of the first half of 2023, the Eurasian Development Bank reported 27 large-scale mutual FDI projects among Central Asian countries, valued at $1.1 billion, almost double the volume in 2016. The EDB identified Kazakhstan (87 percent) and Uzbekistan (13 percent) as the largest regional investors, with Kyrgyzstan receiving the majority of intra-regional FDI (63 percent). Tajikistan is also a net recipient of Central Asian capital.
Recent developments suggest an expansion in both the scale and scope of investment cooperation, including through joint ventures and portfolio investments.
A key milestone in these efforts was the trilateral agreement signed by Kazakhstan, Kyrgyzstan, and Uzbekistan to construct the Kambar-Ata-1 hydropower plant on the Naryn River. Announced at the International Energy Investment Forum in Vienna in June 2024, the $4.5 billion project has garnered interest from major donors, including the World Bank, Eurasian Development Bank, and the Asian Development Bank. Financing will also come from the three Central Asian governments, each taking an equity stake in the joint-stock company established to oversee the project.
What’s noteworthy about this investment cooperation is not only its sheer scale, but that it focuses on the energy sector, signaling a regional commitment to sustainable development and energy security.
In fact, downstream countries Kazakhstan and Uzbekistan are increasingly investing in renewable energy in upstream republics, in part to address energy security concerns. For example, Uzbekistan is backing two hydropower plants (with a combined capacity of 275 MW) along the Zarafshan River in Tajikistan, totaling $552 million that will provide electricity to Uzbekistan as well. Uzbekistan is also supporting a 6.7 MW hydropower plant in Jalal-Abad, Kyrgyzstan, through the Uzbek-Kyrgyz Development Fund. Kazakhstan is investing in solar power in Kyrgyzstan with the $35 million “Kun-Bulagy” power plant in the Issyk-Kul region.
Beyond energy, Central Asian nations are making inroads in joint logistics projects, essential for facilitating intra-regional trade. PTC Holding from Kazakhstan is establishing a logistics hub near Tashkent with an initial investment of $70 million, expected to grow to $230 million by 2034. The center will channel cargo flows from China, Southeast Asia, CIS countries, and West Asia to Uzbekistan and the other way round, also benefiting Kazakhstan as a transit location. In turn, Uzbekistan is financing logistics initiatives in Tajikistan, such as the Oybek and Fatekhobod trade-industrial zones and the Andarkhon logistics center in the Sughd region.
Industrial cooperation between Kazakhstan and Uzbekistan continues to grow, with Kazakh officials projecting 60 joint projects worth $2.6 billion. Existing Kazakh projects in Uzbekistan include an autoclaved aerated concrete plant in the Tashkent region ($12 million), and three cement plants – Kusavaycement, Bekabadcement, and Kyzylkum Cement. In Kyrgyzstan, one of Kazakhstan’s major investments is KazMinerals’ Bozymchak gold and copper mine, valued at $350 million.
Uzbekistan’s investments across Central Asia prioritize high-value manufacturing, with projects in Kazakhstan such as an metallurgical plant in Taraz ($121.3 million), a metal rolling facility in Almaty ($60 million), a household appliances manufacturing plant in the Karaganda region ($54.2 million), a steel blanks plant in the Kostanay region ($40 million), and an automobile production partnership in Kostanay with SaryarkaAvtoProm ($50 million). In Kyrgyzstan, UzAuto jointly with Kyrgyz DT Technic oversaw the launch of the Tulpar Motors plant ($50 million). In 2023, Tashkent and Bishkek signed 15 intergovernmental agreements, including investment agreements on the joint pharmaceutical production facility ($10 million), and a joint production of plastic pipes, plastic products and furniture in Kyrgyzstan ($3 million). Meanwhile, in Tajikistan, Uzbek firms have established a textile production plant and a utility appliances manufacturing plant.
Uzbekistan’s approach to regional industrial investments frequently involves joint investment funds, a model demonstrating long-term commitment to neighboring markets. The Uzbek-Kyrgyz Development Fund, founded in 2021 with $50 million in capital, reportedly holds a portfolio of 33 projects valued at $186 million. Similarly, the Tajik-Uzbek Investment Company, formed with a capital pool of $12 million (later increased to $50 million), is planning to implement 14 projects valued at $135 million in Tajikistan. Uzbekistan is also considering the possibility of creating a joint investment fund with Kazakhstan.
In the financial sector, Kazakhstan stands as a leader in regional investments. The Uzbek subsidiary of Kazakhstan’s Halyk Bank, Tenge Bank, holds an FDI stock exceeding $100 million, along with $400 million in direct loans for Uzbek projects. Halyk used to have a subsidiary in the Kyrgyz Republic, which was sold to Visor, a company majority owned by Kazakhstani businessman Aidan Karibzhanov, for around $38 million, and is now called “O! Bank.” The new owners of the rebranded bank are planning to create a “financial ecosystem.” In addition, Kazakhstan’s Freedom Bank announced plans to open a subsidiary in Tajikistan.
The export of Kazakhstan’s fin-tech expertise to neighboring markets represents another remarkable tendency in mutual investments. Compared to investments from external actors, which often focus heavily on extractive industries, intra-regional investments in Central Asia are notably more diverse, covering sectors with higher added value, such as manufacturing, infrastructure, and financial services. This mirrors regional trade patterns, which a recent study by CAPS Unlock showed are more diversified and less commodity-focused compared to Central Asia’s trade with external markets.
Despite these promising trends in mutual investment, challenges remain. Most incoming capital in Central Asia still originates from outside the region. Structural challenges – small markets, limited infrastructure, property rights issues, informality, regulatory hurdles, and fiscal pressures – continue to complicate investment conditions for both foreign and regional investors. However, the latter hold a competitive advantage while entering the Central Asian markets, at least according to the Uppsala model of internationalization. In that model, firms’ entry into international markets starts with the neighboring markets given geographical and cultural proximity as well as similar business environments.
Whether regional businesses can fully leverage such familiarity advantage depends on the pace and scale of improvements to business environments and enhanced infrastructure. The impetus for deeper investment cooperation from the top appears steady.