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Startup revolution Can Central Asia reap the rewards of Russia’s IT exodus? 

Source: Meduza

Story by Katie Marie Davies for The Beet. Edited by Eilish Hart.

Russia’s February invasion of Ukraine and subsequent mobilization drive spurred an “IT exodus” in 2022: according to official statistics, 10 percent of the country’s tech workforce (more than 100,000 people) fled abroad and did not return. This brain drain was part of a larger emigration wave that has led to an array of social and economic tensions, particularly in countries in the Caucasus and Central Asia that Moscow once ruled. But it has also been a windfall for Central Asia’s already rising tech hubs as they continue to balance competition and cooperation in their quest to become the next Silicon Valley(s). Journalist Katie Marie Davies reports for The Beet. 

When Kyrgyzstan’s High-Tech Park opened in 2011, it didn’t dare to dream of creating the startup world’s greatest prize: a unicorn, the name given to elusive startups valued at over $1 billion. 

At first, the park was purely virtual. (A physical space where young entrepreneurs could gather, work, and swap expertise opened in 2019.) It had a sharp focus on helping companies who wished to export goods, operating under the banner: “Live in Kyrgyzstan, work with the world.” Its greatest pull was its special legal status. Startups and IT companies could apply to become park residents, earning special tax exemptions designed to boost business growth. 

Yet despite these incentives, the initial road was rocky. “Even in late 2013, we had only 60 people working here and a revenue of about 14 million soms [approximately $160,000],” says Chubak Temirov, the director of Kyrgyzstan’s High-Tech Park.

Looking at Central Asia’s startup ecosystem today paints a very different picture. The region has yet to produce its elusive unicorn, but one’s eventual appearance now feels inevitable. The region’s major startup hubs — High-Tech Park in Kyrgyzstan, Astana Hub in Kazakhstan, and IT Park in Uzbekistan — are all growing at breakneck speed, defying global economic turbulence. (Tajikistan’s startup ecosystem remains a step behind its neighbors, although the country is currently developing its own IT park and launched its own Venture Capital School in March 2022. Elsewhere, Turkmenistan’s oppressive dictatorship means that it’s almost completely excluded from the global startup scene.)

Daniil Usmanov

High-Tech Park now has 270 resident companies and aims to keep doubling in size each year. Astana Hub boasted export revenue of $165 million in 2022, attracting $130 million worth of startup investment. Uzbekistan’s IT Park, meanwhile, has seen year-over-year growth of 223 percent in revenue and 440 percent growth in total technology exports. 

The uptick has been rooted in cross-regional cooperation, proving that with commitment and investment, great strides can be made in just a few short years. 

For others, however, it has also raised questions as to which of Central Asia’s current major tech metropolises — whether that’s Almaty or Astana, Bishkek, or Tashkent— will eventually become the region’s undisputed tech leader, or whether Central Asia will pioneer a more decentralized startup scene.

‘The scene is very fluid’

For many, Kazakhstan appears the obvious choice for Central Asia’s own Silicon Valley. In their 2022 report, Startup Central Eurasia placed Kazakhstan firmly above its regional competitors in terms of ecosystem maturity. 

The report analyzed the strength of the building blocks that make up each country’s startup ecosystem in both the pre-seed and seed stages, digging into issues such as local entrepreneurial interest in startups, access to financing and infrastructure, education and talent development, and shared vision and strategy. And it found that many startups see Kazakhstan as an entry point to the Central Asian market.

Yet at this early stage in the region’s startup development, Kazakhstan’s dominant market position is not assured. Each country has its distinct advantages. 

Kazakhstan has invested heavily in fintech and has opened the Astana International Financial Center, which operates under the norms of English law. Uzbekistan has by far the region’s largest population (and the greatest number of potential consumers). As well as having the world’s second cheapest mobile Internet access, Kyrgyzstan has also long maintained a reputation of being more democratic and liberal than its neighbors.

“The nature of the people in this sector is that they are very mobile. As long as they have good Internet connectivity, and you have your laptop with you, you can probably work from anywhere,” says Talant Sultanov, a digital development specialist at the World Bank. “There are all kinds of factors that make a certain location attractive for people in this industry: [whether] there are places like theaters and museums, nice coffee places, even the price of beer. I think the scene is very fluid. And I think it will be changing quickly.” 

The Astana International Financial Centre
Nikita Melnichenko / Alamy / Vida Press

‘A win-win’

The specter of competition remains largely a non-issue in Central Asia’s tech scene. The region has found that cooperation, rather than competition, has been most helpful in establishing its nascent startup ecosystems. Often that has meant coordinating their efforts to make a splash and promote the entire region on the global stage. 

A joint forum by Kyrgyzstani officials in New York last year to showcase Central Asia as “the world’s next IT destination” also featured businesses from Kazakhstan and Uzbekistan. All three major hubs are also teaming up for 2023’s inaugural Central Asian Tech Awards, which will send winning startup founders to spend time in Silicon Valley.

This strategy means that Central Asia has been able to catch the attention of the world’s business owners (especially companies in Europe and the United States) at a particularly lucrative moment. The uptick in remote work during the Covid-19 pandemic made businesses open to the idea of outsourcing higher-skilled roles. Many large Western companies are now hunting for newer, more agile firms to use as subcontractors for various business-related tasks.

Startups that fill these niches — known as BPO, or business process outsourcing — are becoming highly lucrative for Central Asia. Such companies have a steady supply of young, educated employees available to carry out software development, IT management, customer support, and logistics, all of whom can be paid far less than their European and American counterparts. The success has been so resounding that Timurmalik Elmuradov, the business analyst and R&D specialist behind Skartaris Peak, Uzbekistan’s leading Telegram channel on the country's startup ecosystem, has described BPO as Uzbekistan’s “new cotton.” 

Want to keep reading? This article is from The Beet, a weekly email dispatch from Meduza covering Central and Eastern Europe, the Caucasus, and Central Asia. Sign up below to get the full story in your inbox. 

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Story by Katie Marie Davies for The Beet

Edited by Eilish Hart.

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