Miracle on the Chirchiq: Uzbekistan Goes All In on IT

by Anthony Deckoff.

 

Global IT spending climbed a negligible 0.8% in 2022 – a rate that’s expected to tick up to a sturdier 5% in the current year. But it can’t hold a candle to the rapid growth now taking place in one of the world’s hottest new tech sectors. The Central Asian nation of Uzbekistan is betting heavily on its rising IT industry, and government officials have been trumpeting headline growth of well over 100% in the past two years. From next to nothing in 2017, export revenues from the sector have grown to more than 300 million USD in 2023, and the nation is plausibly targeting export sales of more than 5 billion USD by 2030.

 

To accomplish this, Uzbekistan’s government, under President Shavkat Mirziyoyev, is investing heavily both in IT and in business process outsourcing. Since taking office in late 2016, Mirziyoyev has implemented an aggressive approach to opening the country’s markets to outsiders and to beefing up its infrastructure and educational institutions.

 

This largess is especially apparent when it comes to Uzbekistan’s IT infrastructure and educational institutions. Sherzod Shermatov, who has served as Uzbekistan’s Minister of Digital Technologies since 2021, recently remarked at an outsourcing forum in the capital of Tashkent, “We now have 60 IT universities in operation across the country. And every primary school in Uzbekistan has been connected to broadband since 2021. No other country in Central Asia can say that.”

 

Shermatov’s interest in the educational aspects of the project at hand is no coincidence. Before 2021, he held the post of minister of public education. That means he is also well aware of the value of language skills in any campaign for success in the competitive arena of global outsourcing. English is now a mandatory course of study for all public school students in Uzbekistan. The nation of 36 million currently lays claim to more than 5 million English speakers, a statistic that is now climbing quickly.

 

One of the most visible ways the government has been investing in the sector is in the form of its seemingly ubiquitous IT Park facilities. The government-sponsored entity occupied one modest structure on the eastern edge of Tashkent in 2019. It now operates more than 200 facilities, strategically scattered across the country and running startup incubators, business accelerator programs and coding schools. To supercharge the expansion of the IT Park ecosystem, the government has been generous not just with office space and staffing; it also provides generous subsidies for local outfits and foreign investors alike. Businesses that take up residence at an IT Park facility benefit from lower payroll and income taxes, a 0% corporate tax rate, reduced rents, subsidized office equipment and easy access to broadband connections. IT Park also offers one-stop shopping for foreign businesses seeking to obtain necessary licenses or to recruit trained personnel.

 

Farkhod Ibragimov, CEO of IT Park since 2019, admits that when he first learned of the government tax breaks for IT companies, he expected it would apply principally to enterprises based in Uzbekistan and selling to the local market. But 80% of the sector’s revenue now stems from exports. “We want Uzbekistan to be known as a tech-forward nation,” he said. “That is why we offer free rent for a year to tech businesses at sites outside the capital and subsidies for HR services and training. We even cover 15% of staff salaries for companies meeting minimum requirements.”

 

Everyone involved in the effort of turning Uzbekistan into a hub for IT and business process outsourcing is keenly aware of the nation’s low profile in international business circles. For centuries, it has been known, at least regionally, for its agriculture. Tashkent lies at the same latitude as Barcelona, and the countryside has long provided a fertile landscape for the cultivation of fruits and nuts. Minister Shermatov speaks darkly of the time under the Soviets when forced labor was deployed to ensure a bountiful cotton crop, which was then shipped off to Russia’s textile mills. But no one seems to believe that the future lies in the extractive industries or in supplying basic goods to faraway markets.

 

“For one thing,” says Ibragimov, “this is a double-landlocked country. We have no seaport, and it’s very expensive to ship goods from here. But the internet is not bound by that problem. We can offer strong human resources, and the time zone difference from major markets can even be useful when it comes to offering BPO and IT services at all hours of the night.”

 

While the sector is still modest in global terms, it already has a few success stories to spotlight. EPAM Systems, a US-based software engineering firm, has a substantial presence in Tashkent. Following the outbreak of war in Ukraine, EPAM doubled down on its activities in Uzbekistan, expanding its staff from a couple hundred to roughly a thousand. Plug and Play Tech Center, a Silicon Valley-based venture capital fund, has also taken an interest in Uzbekistan, setting up an office in Tashkent and providing funding to a variety of startups.

 

On the geopolitical front, the folks in charge of growing the IT sector follow the lead of President Mirziyoyev’s administration, seeking to convey an attitude of amicable neutrality. US tech companies are being courted assiduously. But so are firms from China and beyond. Huawei, the Chinese electronics giant, has a significant presence in Uzbekistan, and has indeed supplied much of the equipment for the nation’s data network. As Minister Shermatov readily admits, “They offered the best prices and financing.”

 

The nation has sought to maintain a friendly relationship with Russia. One might expect this to present a knotty challenge while simultaneously courting western venture capitalists and outsourcing enterprises. But like some of its counterparts in the Middle East, Uzbekistan’s regime threads the needle by combining a business-friendly climate with a top-down approach to governance.

 

So far, it looks like a winning combination for the nation’s IT industry. Foreign direct investment is rising, as is the number of expats seeking business opportunity, a modest cost of living, a friendly and tolerant culture, and pleasant weather. The banks of the Chirchiq River, a few miles to the south of IT Park’s shiny headquarters in central Tashkent , may now be basking in the glow of a mellow, golden autumn. But it’s springtime in Uzbekistan’s tech sector, and a thousand green shoots are poking through the Central Asian steppe.

 

In the photo: Digital Technologies Minister Sherzod Shermatov addressing a conference.

 

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