In the following article published in the latest issue of OCA Magazine, the magazine’s Editor-in-Chief, Nick Rowan, analyzes the investment landscape and offers forecasts for the future state of investment in Central Asia and the CIS:
Things are moving fast in Central Asia and the former Soviet Union (CIS) countries. The investment landscape has undergone significant changes driven by geopolitical shifts, economic reforms and evolving global market trends. Both traditional and non-traditional capital is finding its way into the region, with inflows generally finding homes in the energy, infrastructure, digital technology and agriculture sectors. A variety of factors sit behind this, but government diversification efforts, shifts in international alliances, and the post COVID-19 economic response are key as well as the ongoing effects of the war in Ukraine.
Geopolitical and economic shifts: A new regional dynamic
Much of the last two decades have seen investment flows into the region driven by Russia and China. Russia’s economic influence was underscored by its energy exports and trading hub role, while China increasingly extended its Belt and Road Initiative (BRI) into Central Asia. Since 2022, however, there has been a notable shift. The war in Ukraine and Russia’s growing isolation from the West has accelerated the diversification of investment sources. Central Asia and CIS countries, many of which have historically been close to Russia, have sought to reduce their economic dependence on Moscow, looking to alternative partners.
China, was already a major player in the region and has seized the opportunity to expand its economic footprint. Western countries, such as Turkey, South Korea, and even the Gulf States now also find themselves courted by the region. It is no secret that Uzbekistan and Kazakhstan want closer ties with the European Union, and the rise of the UAE and Qatar as key investors in Central Asia reflects the growing importance of the Gulf as a source of capital and technology.
Energy transition and infrastructure development
Energy has long been the backbone of the region’s economy, particularly in countries like Kazakhstan, Turkmenistan, and Azerbaijan, with rich oil and gas resources. However, there is now a clear shift towards energy diversification with the transition to renewable energy and green technologies. Central Asia has abundant solar and wind energy potential and could become a new hub for green energy investments.
Kazakhstan has been seeking international partners to develop not just its oil and gas sector but also solar and wind. Turkmenistan has sought to improve its gas extraction efficiency and reduce flaring and carbon emissions. Meanwhile Uzbekistan has been modernizing its energy infrastructure, including power plants, in order to meet domestic energy needs and expand export capacity. The Central Asia Regional Economic Cooperation (CAREC) Program, which involves multiple Central Asian countries along with international financial institutions like the Asian Development Bank, has been a key framework for developing cross-border infrastructure projects.
Technological transformation: The digital revolution
A growing tech-savvy population, and government-backed initiatives, have brought a digital and technological revolution to the region. Kazakhstan and Uzbekistan have invested heavily in digital infrastructure and the development of tech hubs. Kazakhstan, in particular, has established itself as a regional leader in terms of digital innovation, with the government fostering a start-up ecosystem in Almaty and Astana, as well as pursuing large-scale digitalization in public services and banking sectors. The country has been keen to export its FinTech expertise to neighbouring markets.
The creation of a more favourable regulatory environment for fintech and e-commerce has attracted international venture capital. Uzbekistan has focused on the development of a digital economy and digital payment infrastructure. In 2020, the country introduced reforms modernising its IT sector, with new laws promoting the use of blockchain and crypto technologies. Although some way behind due to infrastructure challenges and political stability, Kyrgyzstan, Tajikistan and Armenia are making initial strides in this arena.
Agricultural development: A strategic focus
Agriculture has been (and remains) a critical sector in many CIS and Central Asian economies, particularly for countries like Kyrgyzstan, Tajikistan, and Uzbekistan, where it accounts for a large portion of GDP and employment. The last five years have seen modernisations with better irrigation and higher value production. Uzbekistan has reformed its cotton farming to reduce export reliance and improve yields through better technology and farming practices. Kazakhstan has diversified away from grain export to organic products, seeing increased demand internationally. The region is advantaged by its strategic position between Europe, China, and the Middle East.
Water scarcity issues have been significant in the region. Investment in better water-efficient irrigation systems, as well as precision farming technologies, is key to the sector’s future growth.
A region that continues to rise
The investment landscape will continue to evolve through:
Increased Geopolitical Engagement: The Ukraine conflict has shown the fragility of depending on past partners and the region will have to balance relationships with Russia, China, the EU, and other regional powers. No doubt Central Asian countries will need to forge deeper ties with emerging markets, especially in Africa and the Middle East, to boost trade and investment.
Diversification: The region will need to continue its efforts to diversify away from energy dependence through technology, renewable energy, and sustainable agriculture. Central Asia’s natural resources will continue to attract investment, but there will be a growing focus on value-added industries, such as manufacturing and tech-driven services.
Digitalization and Innovation: As digital infrastructure improves, the region should become a hub for digital start-ups and innovation. Fintech, e-commerce, and AI will likely drive economic growth.
Sustainability: Although governments are slowing down or reversing policies on climate change and sustainability, the trend towards green investments (especially renewable energy, sustainable agriculture, and eco-friendly infrastructure) is likely to continue. However, challenges do remain. The regions markets are small, infrastructure is limited, property rights are not clear and there are regulatory and fiscal hurdles to overcome. We shouldn’t underestimate the role that regional trade as an economic bloc will have as protection from outside influences and the closer cultural ties and understanding will give neighbours an advantage. With its strategic location, rich resources, and a burgeoning digital economy, Central Asia is positioning itself well as a key player in the regional and likely global investment map in the years to come.
