CEE’s Last Frontier: Opportunities and Challenges for Multinationals in Central Asia

As FSG’s clients increasingly look for expansion opportunities in the Commonwealth of Independent States (CIS), I took a two-week trip to Central Asia to find out more about the operating environment in the region. I traveled to Turkmenistan, Uzbekistan, and Kazakhstan and spoke with local business people, academics, bankers, and journalists. Here are a few highlights of what I learned during the trip:

Turkmenistan: A closed, state-controlled economy undermines potential opportunities for investment in the market. Oil and gas production, plus investment in infrastructure and construction are the main growth drivers. This is very visible in Ashgabat, the capital, a city re-built in white marble to dominate the surrounding desert (see photo). Despite the wealth that the capital city tries so hard to demonstrate, opportunities for multinationals are limited by a small domestic market, high level of government control of the economy, opaque political decision-making, and import restrictions. Because of this, the country is unlikely to present significant opportunity for multinationals in the medium term.

Turkmenistan’s capital, Ashgabat

Turkmenistan: Turkmenistan’s capital, Ashgabat, is impressive in its white marble buildings, but seems to be largely populated by policemen, rather than by regular Turkmen


Uzbekistan: With its 30-million-strong population and a history of industrialization, Uzbekistan should be the economic driver of the region. Instead, it is struggling with a barely-contained economic crisis. Hidden inflation makes the black-market exchange rate 30% higher than the official one, getting access to foreign currency is extremely challenging, and in some cases, illegal, and shortages plague the economy. A policy of import substitution means that getting goods into the market could involve working with corrupt individuals or breaking the law, and repatriating earnings can be next-to-impossible. Not to mention the very real risk of government expropriation. Not surprisingly, this is resulting in deep poverty visible at every step in the country. Whether social dissatisfaction with the economic failures of the government will ever turn into a push for political change, and whether such change will come peacefully or result in violence, is one of key questions facing Uzbekistan in the medium term. In the meantime, Uzbekistan will present an opportunity only for companies with an extremely high risk appetite.


Uzbekistan: Economic mismanagement has spurred poverty in Uzbekistan. Thousands of Uzbeks seek to work in Russia every year in search of higher salaries with which they support their families back home


Kazakhstan: The economic leader in the region, Kazakhstan is a natural extension of multinationals’ Russia presence. Its membership in the Customs Union with Russia and Belarus and its relatively open operating environment (Kazakhstan ranked 49th in the World Bank Doing Business Survey in 2013) attract a growing number of Russian and multinational players. Almaty, the biggest city, is brimming with flashy shopping malls and a middle class that is not unlike the one you may encounter in Russia’s biggest provincial cities. Yet, Kazakhstan’s relatively small (16 million) and dispersed population and large territory drive up transportation costs. Beyond Almaty and a few other big cities, average incomes are low, and the real addressable market may be as small as 5 million people. This makes it critical for multinationals to think carefully about the most efficient way to capture Kazakhstan without overspending in the market.

Kazakhstan’s biggest city, Almaty

Kazakhstan: Demand for luxury goods is thriving in Kazakhstan’s biggest city, Almaty

To find out more about each of these markets, including which foreign companies are most advanced in Turkmenistan, what it takes to buy a car in Uzbekistan, and whether Kazakhstan can be a viable hub for Central Asia, listen to our podcast Notes From the Field: The Central Asia Business Landscape by clicking this link to access the iTunes store.


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