Uzbekistan’s outsourcing is open for business and the ICT Ministry together with the country’s IT Park have taken the show on the road with an enticing “zero-risk” offer to bring in customers. Uzbekistan will basically pay for everything for the first year, and if partners like how their business is going at the end of that period, it's only then they will have to sign a contract.

About twenty people turned up for a presentation that is part of the Offshore Outsourcing Tour to bring the message to international markets via a string of conferences in the coming year.

The country’s best resource is its fast-growing population – almost unique in not only the Former Soviet Union (FSU) but all of Europe; the average age of the population is now 20 years old. Uzbekistan has already overtaken Ukraine in terms of population and will overtake Poland in the coming decade, making it the most populous country in Eurasia, behind only Germany and Russia.

“Only two days ago the state statistics agency announced that there are now 37mn people in Uzbekistan,” an ebullient Farkhod Ibragimov, the CEO of IT Park, told the delegates enthusiastically at the meeting at the Uzbek embassy in a leafy suburb of Berlin on April 24. “Uzbekistan has one of the fastest growing populations in the world! From this total about 10mn Uzbeks are between the ages of 18 and 30 and bolstering the workforce. It’s the best age to be entering the IT business,” said Ibragimov.

Uzbekistan is relatively new to the IT outsourcing business, having launched a drive to build up exports in 2019, but the government in Tashkent has thrown itself into the task.

The focus is on Uzbekistan's large and quickly growing population as it is seeking well paid jobs for its youth and added value exports to develop the economy. Some 200 universities have been opened since Uzbek President Shavkat Mirziyoyev took over in 2016 and education plays a key role in his labour strategy.

IT is one of key focuses for the new educational policy: IT Park launched a "one million Uzbek Coders" initiative in 2019 at the start of the drive and Uzbekistan has been churning out software engineers ever since. The entire country has been hooked up to high-speed internet connections with 99% penetration amongst schools and coding introduced to the school curriculum.

“The government has invested heavily in expanding the IT infrastructure,” says Ibragimov. IT Park has also expanded into the regions; in addition to its flagship campus in Tashkent, there are dozens of regional offices in all the major cities that have also been supplied with power, largely from renewable sources.

Flourishing

Uzbekistan’s outsourcing sector is taking off. It is hoping to establish itself as a major IT outsourcing centre, able to compete with the likes of India, Belarus, Ukraine and Romania, and has already seen its export revenue grow exponentially in the last four years.

Revenues earned from IT exports have hockey-sticked, rising from $6mn when the initiative was launched in 2019 to $16.3mn in 2020 to $140mn in 2022 and a whopping $344mn last year. This year Shermatov says they hope to breach half a billion – after only five years of work – and the goal is to get to $5bn by 2030. According to KPMG, Uzbekistan is home to the fastest-growing e-commerce market in Central Asia, with the potential to grow seven-fold by the end of 2027.

Part of the Uzbek National Development Strategy, IT exports are ideal for Uzbekistan as it bypasses one of the country’s biggest problems.

“Uzbekistan is one of only two double-landlocked countries in the world and we have a very fast-growing population, so the president’s top priority is to create jobs,” Sherzod Shermatov told bne IntelliNews in a recent interview.

“When you are double-landlocked then physical exports become much harder to do, so it is hard to achieve economies of scale. We cannot only export IT easily, but it also creates well paid jobs. If the jobs are not paying well then the people will just leave the country.”

More recently, the World Bank signalled its support for Uzbekistan’s digital transformation efforts after it approved a $50mn concessional loan for the Uzbekistan Digital Inclusion Project.

“These incentives have also encouraged a lot of IT companies that were operating in the shadows to move into the formal economy. Today we have about 6,000 people working in the IT sector,” says Shermatov.

Zero-risk deal

It is tempting to draw a parallel with the highly successful IT Park in Minsk that blossomed and became an engine of growth for the Belarusian economy before the 2020 mass demonstrations protesting against the massively falsified presidential election and the sanctions that followed President Alexander Lukashenko’s support for President Vladimir Putin’s war in Ukraine.

Uzbekistan has none of these problems and is attempting to repeat the success of the Minsk IT park.

“It’s a zero-risk option. Come and see if you like and after a year you can make up your mind if it is working for you,” Ibragimov told bne IntelliNews on the sidelines of the Berlin event over a plate of plov, the national dish.

“The IT industry in Uzbekistan is now one of the key priorities of the economy. Unprecedented measures to support the companies in the industry and the rapid response to changes in legislation have become the foundation for the support that IT Park now provides to business,” Ibragimov added.

The deal for incoming IT companies is extraordinary: there is no rent for offices for the first year; companies get all their furniture and equipment for free; and a 15% grant to offset staff costs. In addition, there are grants of up to $5,000 to train staff, and IT Park will take care of all the HR issues including finding and hiring staff.

There is help with the “local to global” sales and business relations efforts that includes 50% compensation for export consultancy services, sponsored travel to Uzbekistan for a company’s clients and overseas business trip compensation. A one-stop registration process means it takes only a few days to register with IT Park.

But the really big saving is from paying next to no taxes. IT companies are exempt from all corporate taxes, reduction of personal income tax from 12% to 7.5%.

All in all, a resident company with annual revenues of $4mn can save a total of $920,000 a year from tax breaks and reduced costs, Shermatov calculates.

Reduced taxes for IT Park residents, %
	Non-resident	Resident
Personal income tax	12	7.5
Corporate taxes	5-10%	0%
Social tax	12%	0%
VAT on imports	yes	no
Source: IT Park

 

Moving in

A total of 426 foreign companies have already signed up for residency. In January, 75 companies joined the ranks of IT Park residents, with another 134 joining in February. The surge propelled the total number of resident companies to 1,828 by the end of February 2024, IT Park reported on March 13.

“We anticipate a substantial growth in these numbers, both in terms of new companies joining us and the expansion of local business,” says Ibragimov, who hopes to attract over 1,000 foreign IT firms that will create job opportunities for 300,000 young individuals in the IT domain.

Among the new residents, 49 companies were export-oriented, while 24 boasted foreign capital participation. This diversity is reflected in the geographic distribution of foreign companies, including representatives from Russia, the United States, South Korea, Germany, the United Kingdom, India, Cyprus, Egypt, Pakistan and Tajikistan.

“In the last two years alone the number of companies with foreign capital being set up has increased seven and half times. Where else in the world can you see that sort of growth?” asked Shermatov.

Uzbekistan’s IT sector is still immature as the export revenues from more established players like Ukraine remain an order of magnitude larger, but it is evolving fast. In March, Uzum, an Uzbek e-commerce start-up, raised $52mn in funding, making it Uzbekistan’s first tech unicorn with a valuation of over $1bn.

Maybe the most significant entry to the Uzbek IT Park is Epam, one of the leading global software engineering and digital solutions companies in the world. Established in 1993 in Minsk, and a founding member of the Minsk IT Park, Epam is now headquartered in New York and listed on NASDAQ, with half of its $1.1bn in 3Q23 revenues earned from US clients.

The company today is in over 50 countries on six continents employing over 60,000 people and enjoying an annual revenue growth of 27% last year.

Epam is already one of the biggest foreign IT companies in Uzbekistan with a rapidly growing staff that now totals 600 engineers, up from 19 “Epamers” in 2019 when the company arrived.

“Our biggest base of operation is still Ukraine. We have an office in Kharkiv [close to the Russian border] and when I call sometimes they have to close the window as missiles are flying overhead,” Alexei Kuznetsov, Epam's German office director, told bne IntelliNews at the Berlin event. “But we are all in the race for human resources and in Uzbekistan we have the advantage of being able to pick the talent first.” Kuznetsov expects the Uzbek office will continue to grow fast and expects to have over 2000 employees by the end of 2026.

“Uzbekistan is not a tier two location for our employees but a tier one. That means employees have the same conditions in Tashkent as they would enjoy in Berlin,” says Kuznetsov. “Epamers that come here can enjoy a better quality of life and some old hands [have] relocated to Uzbekistan. We like that as it helps breed the company culture by mixing old with new.”

The company has also invested in education and helped establish the country’s first IT university that is a breeding ground for new talent. Epam also backs university student labs for the larger clients that also encourages innovation.

Central Asia remains something of a “white patch” on the global IT map, as most of the businesses are clustered in Western Europe, the US and the Chinese coastal cities. However, Tashkent is in a strategic position in this global business, located in the “navel of the world” half way between Europe and Asia – a missing link. And Uzbekistan is currently the only Central Asian country offering these kinds of services.

“Epam Uzbekistan has a borderless delivery framework that links the US, Europe, Uzbekistan and India,” says Kuznetsov.