IFC: Energy, privatization, logistics drive investment

Tashkent, Uzbekistan (UzDaily.com) — Lisa Kestner, Regional Director of the International Finance Corporation (IFC) for Kazakhstan, Türkiye, and Uzbekistan, in an interview provides an in-depth analysis of key economic development areas and investment attraction trends across Central Asia, with a particular focus on Uzbekistan.

She highlights the energy sector, privatization of state-owned enterprises, as well as the development of logistics, agribusiness, and industry as the main drivers of private investment growth. According to her, these sectors offer the greatest potential for job creation and for accelerating structural economic transformation amid rapid population growth in the working-age segment.

The discussion also focuses on the investment climate. Kestner notes significant progress made by Uzbekistan in attracting foreign investment and improving the regulatory environment, while also pointing to remaining challenges, including institutional constraints, limited access to financing for small and medium-sized enterprises, and infrastructure and skills gaps.

The interview further addresses the regional context of Central Asia. It emphasizes that increased mutual investment, development of cross-border infrastructure, and better coordination of economic policy could become key factors in enhancing the region’s competitiveness amid global uncertainty.

— Starting from Uzbekistan, which sectors or areas do you see as key drivers for attracting private investment? Where, in your view, is the most immediate and scalable potential? 
Uzbekistan presents compelling opportunities for private investment across several interconnected sectors, with job creation standing out as one of the most pressing needs. Growth in employment has lagged at just 1.1% on average over the last five years, while population growth averaged 2% over the same period — translating to a projected net increase of 250,000 working-age people every year . Closing this gap points to three areas where private investment potential is both immediate and scalable.

The energy sector stands out as the most urgent priority. The government has already initiated tariff reforms aimed at achieving cost-recovery levels for gas and electricity — a critical signal to private investors that the policy environment is shifting in the right direction. Modernizing electricity infrastructure, particularly in high-productivity manufacturing regions such as Tashkent and Qarshi, would unlock private investment in energy generation, transmission, and distribution. 

The second major opportunity lies in the privatization of state-owned enterprises (SOEs). In 2025, revenues of major 600 SOEs were equivalent to 35% of the country’s gross domestic product (GDP) . Four out of five of centrally owned SOEs operate in sectors where private firms could compete more effectively. A transparent and time-bound privatization roadmap — accompanied by corporate governance reforms — would allow investors to plan with confidence and engage at scale. In this regard, a privatization program for major SOEs announced in 2025 could be an important step.

Third, trade-linked sectors — including logistics, agribusiness, and manufacturing — offer scalable near-term potential. Uzbekistan's trade-to-GDP ratio almost tripled between 2017 and 2025 (in nominal US$ terms), reaching 60% of GDP. The country holds an export potential of US$4.7 billion within the manufacturing sector, but only 6 percent of Uzbek firms export . That level suggests a significant market opportunity. Investments in multimodal transport and logistics infrastructure, combined with streamlined customs procedures and expanded preferential trade agreements, could rapidly increase the number of firms integrated into regional and global value chains.

Cutting across all three areas is the jobs imperative, as I mentioned earlier. Uzbekistan has a young and growing population, and generating quality private sector employment is not only an economic priority — it is a social one. Private investment in energy, SOE privatization, and trade-linked industries has the potential to create the kind of productive, sustainable jobs that Uzbekistan needs at scale. This is also central to IFC and World Bank Group's priorities in the country: we see job creation as a critical measure of whether reform translates into shared prosperity, and it shapes how we target our support and engagement across sectors.

— What do you see as the most significant constraints to improving Uzbekistan’s investment climate, both in terms of attracting foreign investors and mobilizing domestic capital? 

Uzbekistan’s investment climate demonstrates sustained growth, supported by reforms and an influx of foreign capital. In 2025, the volume of foreign investment reached a record $43.1 billion , which exceeded the figure for 2024 by 24%. Going forward, for Uzbekistan's investment climate to transition from a stage of "active growth" to one of "mature stability," several fundamental barriers must be overcome.

Uzbekistan has made meaningful strides in simplifying its regulatory environment, with reforms to licensing and permitting procedures reducing administrative burden for investors. The next frontier is deepening institutional independence in key sectors, including energy, telecommunications, and railways. It would strengthen the predictability and consistency of market rules that foreign investors prioritize when making long-term capital commitments. Uzbekistan is well-positioned to deliver on this as its reform agenda matures.

Uzbekistan's banking sector remains heavily state-directed, with credit allocation often favoring SOEs and large government-linked projects over SMEs. This limits the ability of domestic entrepreneurs to grow, scale, and co-invest alongside foreign partners. Expanding alternative financing mechanisms — including capital markets, venture finance, and non-bank lending — is critical to broadening the domestic investor base and reducing dependence on foreign capital for growth. The country’s nascent capital markets — marked by limited liquidity and a lack of quality equities— mean that an enormous volume of household savings remains idle rather than being channeled productively into the economy.

Finally, human capital and connectivity infrastructure remain underlying constraints, particularly outside of Tashkent. Investors in manufacturing, agribusiness, and logistics consistently flag skills gaps and uneven infrastructure — especially in electricity reliability and transport connectivity — as factors that raise operational costs and limit the geographic scope of investable opportunities.

In sum, the most significant constraints are not primarily about legal frameworks on paper, but about implementation depth: whether SOE reform translates into genuine market opening, whether regulatory institutions grow into their full mandate, and whether the financial system evolves to serve private enterprise. Uzbekistan has the policy direction right — the next is now pace and credibility of execution.

 — Central Asian countries are often perceived as competitors for foreign investment. In your view, how realistic is a shift toward a more coordinated regional approach to attracting capital, and what would be required to make such a transition viable? 

Central Asia collectively offers a market of over 80 million people, abundant natural resources, and a geographic position, making it a natural hub for trade, transit, and investment flows between East and West. No single country in the region can fully leverage that position alone. Investors looking to build regional supply chains, access diversified resource bases, or use Central Asia as a transit and processing hub need cross-border infrastructure, harmonized regulations, and predictable market access — none of which any one country can deliver unilaterally. 

Transport corridors are perhaps the clearest illustration of this logic. The Trans-Caspian International Transport Route — commonly known as the Middle Corridor —has gained significant strategic relevance and freight volumes along the corridor have grown substantially as a result. With the right investments and policies, it could triple trade volumes while halving travel time along the route by 2030 . But the Middle Corridor's competitiveness depends on seamless coordination across multiple jurisdictions: ports capacities, rail gauge compatibility, customs harmonization, and digital documentation systems. 

Regional coordination will require deliberate policy choices, credible institutions, and a shared recognition that a rising tide in the region lifts all boats. The Middle Corridor's growing importance already demonstrates what becomes possible when countries align around a common strategic interest. The task now is to extend that logic from infrastructure into investment, regulation, and market integration more broadly — and to build the institutional architecture that makes such alignment durable rather than opportunistic.

— How important is the expansion of intra-regional investment within Central Asia? Could it become a meaningful driver of deeper economic integration across the region?
Intra-regional investment is not simply one driver of integration among many — it is arguably the most durable foundation upon which deeper economic integration in Central Asia can be built. When countries in the region invest in each other — whether through joint ventures in manufacturing, shared energy infrastructure, or cross-border logistics platforms — they create structural incentives to harmonize legislation, simplify border procedures, and resolve disputes through institutions rather than political pressure. The development of regional value chains, such as Uzbek automotive components assembled in Kazakhstan, or shared textile clusters drawing on Uzbek cotton and Kyrgyz processing capacity, would make regional exports more competitive globally while reducing dependence on any single external market.

This can also extend to energy and infrastructure, where the interdependencies are already embedded in the physical geography of the region. Mutual investment in hydropower, solar generation, and cross-border transmission infrastructure does not simply benefit the investing country — it addresses shared resource deficits and creates the kind of long-term operational entanglement that makes economic decoupling costly for all parties. That is precisely the kind of structural glue that turns political declarations of friendship into durable economic relationships.

There is also a signaling effect that should not be underestimated. When external investors — whether from Europe, the Gulf, or East Asia — observe that Central Asian states trust each other enough to commit capital across borders, it materially improves the perceived investment risk of the entire region. A region where neighbors are investing in each other is a region that is managing its internal disputes and converging on common rules. That perception directly influences sovereign credit ratings, investor due diligence assessments, and the appetite of multilateral development banks to co-finance regional projects.

— Which approaches to attracting investment in conditions of increased risks and uncertainty globally do you consider most effective for Central Asia? 

Central Asia can attract investment even in uncertain times by combining stability-enhancing reforms with smart risk-sharing frameworks. Strengthening governance, regulatory predictability, and rule of law is foundational — investors need confidence that property rights are protected, disputes are resolved fairly, and business procedures are streamlined.

Alongside this, regional governments can deepen cooperation with international financial institutions to expand investment guarantees and political risk insurance, which can be the deciding factor for investors in a high-uncertainty environment.

At the same time, the region needs to think strategically about its value proposition. Improving trade corridors, harmonizing customs, and linking transport and energy infrastructure creates economies of scale that anchor Central Asia in transcontinental supply chains — increasingly attractive as global trade is being restructured. Coupling this with clear sectoral strategies in areas of comparative advantage — renewable energy, agri-processing, logistics, and digital services — sends a strong signal to investors. The overarching message can be that Central Asia is not simply weathering global uncertainty, but using it as a catalyst to accelerate reforms, deepen regional cooperation, and position itself as a stable, forward-looking destination for long-term capital.

—Looking at Türkiye, Kazakhstan, and Uzbekistan collectively, what common challenges do you see for the sustainable development of the private sector across these markets? 
Türkiye, Kazakhstan and Uzbekistan share a strong foundation for private sector growth — strategic locations, significant resource endowments, and expanding domestic markets that together represent a compelling investment landscape. Building on this, all three countries have clear opportunities to deepen their reform agendas in ways that strengthen investor confidence. Advancing regulatory consistency and transparency in public-private dealings, improving access to affordable finance for SMEs, and developing more dynamic capital markets — including venture capital and equity ecosystems — are areas where continued progress can meaningfully accelerate private sector dynamism. Formalizing more of the economy will also level the playing field, improve tax revenues, and reward compliant businesses that are driving sustainable growth.

At the same time, the shared priorities of human capital development and infrastructure investment present significant opportunities. Aligning education and vocational training systems with the demands of digital industries, advanced manufacturing, and green technologies will equip the workforce to support the next generation of private sector growth.

Further investment in transport, energy, and digital infrastructure — and greater integration across the region — can sharpen competitiveness and reduce logistics costs for businesses operating across borders.

IFC is actively engaged across all three markets, supporting private sector development through a combination of investment, advisory services, and efforts to improve the enabling environment for business. By working alongside governments, financial institutions, and private firms, IFC aims to help translate reform momentum into tangible outcomes — mobilizing private capital, expanding access to finance, and supporting the development of sustainable and inclusive economies across the region.