Uzbekistan’s Booming IT Outsourcing Industry: An Inside Look

Over the past few weeks, I have been given an inside look at how Uzbekistan is developing its IT sector. In short, the state — via the Ministry of Information Technologies and IT Park, which sits within this ministry — is leading the creation of an IT outsourcing industry by offering a range of subsidies and incentives.

 

IT Park was created in 2018, and today ‘residents’ of IT Park benefit from a range of generous incentives. These include 0% corporate, social and property tax and VAT, a reduced personal income tax rate of 7.5%. Companies that participate in IT Park’s “Zero Risk” program receive free office space in the regions for up to a year, up to 15% of employee salaries paid for, reimbursement of a portion of HR expenses, free technical equipment for as many as 100 employees and up to $5,000 in grants for staff trainings.

 

The Ministry of Information Technologies and IT Park teams are perpetually on the road, meeting with prospective resident companies and partners across the North America, Europe, the Middle East and elsewhere. Just in the last few months they have hit Washington, New York, Austin, San Francisco, London, Amsterdam and Dublin.

 

In October, the Ministry of Information Technologies and IT Park teamed up to host a spectacular series of events highlighting Uzbekistan’s success as an IT outsourcing hub under the banner of ICT Week. The event brought together thousands of local IT professionals, dozens of international companies that are outsourcing IT services to Uzbekistan, and media from more than 10 countries. The four key events of the week were the Uzbekistan Outsourcing Forum, the Startup Summit, the EBRD Star Venture Summit and the Uzbekistan-Korea ICT Business Partnership Forum.

 

It’s a state-led effort to create a new industry, and it’s working.

 

Uzbekistan has grown its IT outsourcing industry from essentially zero a few years ago to a forecast of $300m+ this year. For a small economy, with a GDP of about $80b, creating a brand-new industry that generates that much revenue — dollar revenue at that — is a significant accomplishment. The government hopes it can grow IT exports to at least $5b by 2030.

 

Uzbekistan has a very young population, with an average age of 29. Moreover, this population is growing rapidly. This year nearly a million babies will be born in Uzbekistan, more than in the UK, Ireland, Norway, Sweden, Finland and Denmark combined. More than 25,000 students graduate from university annually.

 

All of these young people need jobs. Uzbekistan has a number of robust industries that generate employment, notably manufacturing, mining and agriculture. But with the country’s population boom, new industries will need to emerge, particularly those that generate dollar revenue. The state has chosen tourism and IT as two of those key new sectors.

 

I’m a capitalist. And I have seen the failure of state-led economies time and time again since I first arrived in the former Soviet Union in the mid-1990s. Like many professionals working in New Uzbekistan, I had hoped that the country was on the path toward large-scale privatization, getting the state out of its dominant role in the economy and letting Adam Smith’s invisible hand do its thing.

 

Over the last few years, however, it’s become clear that the Uzbek government intends to maintain its central role in the economy. Selected assets will be privatized and foreign investors will be welcomed and their rights protected. But the core economic model is state-led and its quasi-capitalism.

 

For the rapidly emerging IT industry, this model seems to be working.

 

Quinn Martin is co-founder and president of Bluestone, an American investment banking firm focused on Central Asia.

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