Uzbekistan Targets AI Investments for Long-Term Growth

Uzbekistan’s recent establishment of a tax-free zone dedicated exclusively to artificial intelligence and data-center investments marks a significant strategic pivot in Central Asia toward high-value, technology-led growth. The ambitious initiative, centered in the Karakalpakstan region, provides comprehensive exemptions on corporate tax, land duties, and import tariffs for investments totaling at least US $100 million. These substantial fiscal benefits are guaranteed to extend until the year 2040. This robust policy framework is explicitly designed to attract both large multinational tech firms and innovative startups seeking a low-cost, policy-stable environment for advanced AI development, data processing, and cloud infrastructure.

The move is particularly significant given the country’s traditional economic structure: long-standing sectors such as cotton, natural gas, and gold currently contribute roughly 30 to 35 percent of the national GDP, while high-value manufacturing and Information and Communications Technology (ICT) remain demonstrably underdeveloped. By creating this high-tech enclave, Uzbekistan is seeking to rapidly diversify its GDP composition, accelerate national digitalization efforts, and meaningfully integrate into global technology value chains.

Mechanistically, the policy leverages powerful fiscal incentives to overcome persistent historical constraints, including limited access to high-risk capital, a relatively nascent human capital base for specialized AI development, and logistical challenges inherent to frontier markets. The exemption of corporate income tax and land duties significantly reduces effective capital costs by an estimated 15 to 20 percent, which effectively enhances project internal rates of return (IRR) to levels that are highly attractive to global investors accustomed to competitive incentives.

In parallel, the government has made concrete commitments to provide streamlined regulatory approvals and dedicated infrastructure support. This includes pledging high-capacity fiber optic networks and explicit energy reliability guarantees, measures which collectively reduce the high operational risks commonly associated with large-scale projects in frontier markets. By strategically targeting large-scale investments of US $100 million or more, the policy ensures that the initial capital inflows are material enough to generate significant spillover effects across the local economy, including critical knowledge transfer and sustainable, high-skill job creation.

For global markets and institutional portfolios, the implications of this pivot are multifaceted. Foreign direct investment (FDI) inflows into the dedicated AI zone are expected to generate both direct returns from high-tech operations and substantial indirect returns via enhanced domestic capital formation and productivity gains. If even a handful of anchor tenants—for instance, global chip design firms or large-scale cloud infrastructure providers—successfully locate within the zone, it could quickly catalyze a broader domestic tech ecosystem. Conservative estimates project employment gains of 15 to 20 thousand high-skill jobs over the first five years.

This development also signals clearly to global investors that Uzbekistan is positioning itself as a legitimate regional technology hub, potentially competing for talent and investment with more established East Asian and Eastern European centers. Currency and capital markets may see incremental pressure from these dollar-denominated inflows, particularly if the local currency (UZS) appreciates in response, though the central bank is expected to intervene prudently to moderate any excessive volatility.

From a policy perspective, the initiative reflects a critical broader strategic objective of structural diversification and digital transformation. Uzbekistan’s medium-term growth projections of 5 to 6 percent could be materially enhanced if the zone succeeds in attracting multinational AI firms, significantly increasing the volume of high value-added exports, and fostering high-skill employment opportunities. Crucially, the move also mitigates Uzbekistan’s external vulnerability stemming from volatile global commodity price swings, given the country’s historical and continued reliance on natural resources.

Institutional investors should vigilantly monitor Key Performance Indicators (KPIs) such as the total number of active projects, the total FDI committed and disbursed, AI-related patent filings originating from the zone, and the total export revenues generated. These hard data indicators will serve as early signals of the initiative’s structural success or limitations, informing both sovereign risk assessments and portfolio allocation decisions for emerging markets.

Forward-looking risks are present and include potential talent shortages, high global AI market volatility, and lingering geopolitical considerations, particularly given Uzbekistan’s proximity to major powers like Russia and China. Successful policy execution through 2026–2027 could see the AI zone directly contributing 2 to 3 percentage points to national GDP growth, materially enhancing both the country’s fiscal stability and external balances.

Conversely, significant underperformance could expose the country to substantial opportunity costs in foregone revenue and might reinforce structural dependency on traditional commodity sectors. Continuous and granular monitoring of investment flows, project completion rates, and sectoral spillovers will be absolutely essential to gauge the long-term sustainability and scalability of this critical new technology-led growth initiative.