Focus on Uzbekistan: Navigating Growth, Investment, Sustainability in the EBRD Regions

The EBRD lead economists Dr. Zsoka Koczan and Ana Kresic talk to Kursiv Uzbekistan about the economic challenges and opportunities in the EBRD regions, particularly focusing on Uzbekistan. They provide insights into how global disruptions are reshaping trade patterns, impacting financial access and influencing industrial policies.

— The EBRD has revised its growth forecasts downward across the region. What are the main drivers behind this slowdown, and how is it expected to impact different sectors?

Zsoka Koczan: The Regional Economic Prospects report provides an overview of macroeconomic developments and forecasts across our countries of operation in the EBRD regions.
Our latest report, published at the end of February, revised growth in the EBRD regions as a whole in 2025 down by 0.3 percentage points. Growth in 2024 also turned out to be weaker than anticipated in our September 2024 forecast. This downward revision for 2025 is primarily due to a challenging external environment—particularly weaker-than-expected external demand. This is especially evident in Central and Southeastern Europe and the Baltic regions, where sluggish growth in advanced Europe, notably Germany, has a significant impact.
We are observing a growing divergence in economic prospects between the US and Europe, visible in short-term indicators like purchasing manager indices and structural factors like innovation levels and R&D investment. A shift in innovation and patent activity from Europe toward the US and China is also apparent.
In the Southern and Eastern Mediterranean region, slower growth is largely the result of ongoing conflicts and slower-than-expected structural reforms.

— Geopolitical tensions are fragmenting global trade and investment. How is this trend affecting EBRD economies, and do you see signs of trade diversion or reshoring of supply chains?

Zsoka Koczan: Our analysis shows that supply chains respond in complex ways to rising geopolitical tensions. One major trend is the decoupling of economic ties between the US and China, which is visible in trade and foreign direct investment (FDI) flows.
Greenfield FDI flows have declined sharply between the Western bloc (defined here as economies which imposed sanctions on Russia) and the Eastern bloc (China, Russia, etc.). At the same time, investment is being redirected toward «connector» or non-aligned economies — countries that maintain trade relations with both blocs. These include, for instance, Mexico, Spain, UAE, Saudi Arabia, Malaysia, Vietnam, Kazakhstan and Uzbekistan.
These countries often have preferential access to large markets and a foundation of manufacturing capabilities. We’ve also observed increased trade flows. For example, EU exports to Central Asia and the Caucasus have risen significantly since 2021, though growth has plateaued since 2023.

Ana Kresic: In Uzbekistan specifically, we’ve seen strong FDI inflows, supported by improvements in the business environment. Revisions of key laws, including those on subsoil, electricity markets, and privatisation— often with EBRD assistance — contribute. The Foreign Investors Council has become a valuable platform for dialogue between the foreign investors and the authorities of Uzbekistan, which the EBRD co-chairs.

— Foreign direct investment is increasingly redirected along geopolitical lines. What trends are you observing in the EBRD regions, particularly in Uzbekistan?

Zsoka Koczan: In addition to what I mentioned earlier, another key trend is the proliferation of Special Economic Zones (SEZs), which have grown from under 100 in the EBRD regions in 1990 to over 1,000 by 2020. These zones are attractive due to their tax incentives, infrastructure, and predictable business environments, especially amid global uncertainty. Central Asia, including Uzbekistan, has seen a rise in SEZs, benefiting from geopolitical shifts and investor interest in more stable environments.

— Despite easing inflation, interest rates remain high. How is this impacting credit conditions and access to finance for SMEs?

Zsoka Koczan: Inflation across the EBRD regions has declined from its October 2022 peak, driven largely by moderation in food and energy prices. However, demand-side pressures, like wage growth and loose fiscal policies, are now more prominent.
Interest rates are expected to remain higher for longer in many economies, increasing financing costs for governments and businesses.

Ana Kresic: For SMEs, this makes access to credit more difficult. Alternatives to traditional bank lending, like leasing, factoring and microfinance, are increasingly important. Reforming the financial sector and improving capital markets is also crucial. In Uzbekistan, further privatisation of state banks and deepening capital markets and other non-banking financing options can help. We’re actively supporting these reforms.

— How is the current economic climate affecting progress on climate-related investments, particularly in Uzbekistan?

Ana Kresic: We support significant renewable energy initiatives in Uzbekistan, such as wind and solar power projects. We have financed more than 3GW of renewable capacity in the country. Further, one flagship project will make Uzbekistan the 6th country worldwide to have a renewable hydrogen facility.
We’re also working with the government on the policy angle, including long-term decarbonisation strategy, a national methane emissions programme, and a water-food-energy investment platform.

Zsoka Koczan: Our research shows that green investments are gaining traction, although public awareness remains low. Firms and households often underestimate the progress made. Incentives and clear communication are key to further engagement.

— The latest Transition Report highlights the importance of economic security and resilience. How are EBRD regions adapting, and how is the EBRD supporting this transition?

Zsoka Koczan: Our report shows a rise in industrial policies, including those targeting security of supply and strategic sectors, such as defense, semiconductors and green technologies. This is partly a response to global fragmentation and partly to domestic political pressures. Subsidies are more popular than taxes, even though they have long-term costs. We also see more investment in IT services, digital infrastructure, and specialised industry clusters.

— Is IT sector development a good direction for Uzbekistan, mainly focusing on outsourcing?

Zsoka Koczan: Yes. Even countries with weaker general digital skills develop strong export-oriented IT sectors. Uzbekistan has solid human capital and relatively low labour costs, which are favourable conditions for IT development. Digital transformation is increasingly relevant across sectors, even in traditional areas like agriculture and textiles.

Ana Kresic: Outsourcing is often the first step. As digital skills deepen, countries can scale up into more advanced sectors.

— How is EBRD supporting innovation and digital transformation in the region, particularly in Uzbekistan?

Ana Kresic: We support digitalisation through a combination of advisory services and innovation support programs for SMEs like Star Venture programme, which we hope to roll out in Uzbekistan soon.

— What policy recommendations does the EBRD emphasise for building a more inclusive, sustainable, and resilient economy in Uzbekistan?

Ana Kresic: Our key priorities are further investment in green transition, including renewables and energy security, which is especially crucial now that Uzbekistan is a net importer of gas, strengthening the private sector which includes continuing privatisations and improving the investment climate, improving regional connectivity and infrastructure.
Small businesses also indirectly benefit from these horizontal reforms such as infrastructure improvements, financial sector reforms, and better education systems. We need to ensure the enabling environment supports SMEs in participating in the sustainable economy.

Zsoka Koczan: Non-tariff barriers, such as customs inefficiencies, have a more significant economic cost than tariffs. Improving these can unlock significant gains for Uzbekistan’s trade potential.