Uzbekistan 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.

“Last year the revenues we earned from IT outsources increased three-fold to over $300mn and they have been more than doubling every year over the last four years,” said Uzbekistan’s ICT Minister Sherzod Shermatov in an exclusive interview with bne IntelliNews in Tashkent.

The government has been pouring massive resources into developing the sector both as a prospective new industry for the country’s well educated and rapidly growing population, and also as a source of highly paid jobs for the burgeoning population.

“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,” says Shermatov. “When you are double landlocked then physical exports become much harder to do, so it is hard to achieve the 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.”

Shermatov says that some of Uzbekistan’s most talented engineers left the country in the past to work for the international IT titans such as Facebook, but now as Uzbekistan has begun to flourish on the back of Uzbekistan’s President Shavkat Mirziyoyev’s liberal economic reforms they see more opportunity in their homeland and are starting to return home and set up new businesses, as are an increasing number of foreign firms.

“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?” says Shermatov.

Uzbekistan has several things going for it. Its 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.

Playing to its strengths, the government has poured resources into education and training for these new members of society. The number of universities has mushroomed to more than 200 today and a system of Presidential schools has been set up to pioneer new teaching methods and provide a role model for the general reform of education.

“It used to be that there were enough higher education places for about 9% of school graduates, but that has been increased to around 50% now,” says Shermatov, who previously severed as the Minister for Education.

New textbooks have been acquired from publishers such as Cambridge University Press, which also operates a university in Tashkent along with several other international universities to offer specialised curricula, and distributed to 10,000 schools which have all also been hooked up the internet with high sped broadband connections.

In addition, a scheme to education the best students at foreign universities has been running for several years in the UK, the US and other countries, and these students bring back home specialist training.

In parallel the government has been investing into building an IT ecosystem. A Digital Ministry has been created which is housed in the Tashkent’s new IT Park that is the epicentre of the technology revolution the government is trying to engineer, as reported by bne IntelliNews.

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 economy until the mass demonstrations and then Belarus President Alexander Lukashenko’s support for President Vladimir Putin’s war in Ukraine brought down heavy sanctions and stymied the industry. However, Shermatov emphasises that Uzbekistan has not just setting up the Tashkent IT Park, but is attempting to build a countrywide ecosystem to support the industry.

IT companies have been given several incentives to help promote the sector; IT companies pay no corporate taxes and income tax for their workers has been reduced to a mere 5% as a way of encouraging more people to choose the sector as a profession.

“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.

As part of this effort the president issued a decree to better coordinate supply and demand for workers that gave IT companies that couldn't find suitable candidates subsidies to train graduates of up to $2,000 per worker (and $3,000 if they suffered from disabilities) to help companies better meet clients demand.

And the industry is now growing very fast, although export revenues remains an order of magnitude less than more established software outsourcing giants.

 

Annual export revenue for IT sourcing services
2020	$16mn
2021	$46mn
2022	$140mn
2023	$344mn
2024E	$550mm
source: Uzbekistan ICT Ministry

 

The main export market so far is the US, which accounts for half all IT exports and the combination of high quality work and lower cost has been well received by customers. But Shermatov says that he is already looking to diversify to new markets.

“Growth in outsourcing exports is already starting to show up in the national statistics: in 2022 exports to the US jumped to the fifteenth place from twentieth the year before, almost all driven by the increase in IT exports,” says Shermatov.

And the government has ambitious targets; the goal is to increase IT outsourcing exports to $5bn employing 300,000 people, as part of the president’s 2030 development plan, says Shermatov.

With most of the infrastructure and potential workers already in place, the government is now turning its attention to marketing and finding new customers. Shermatov has been on the road, having attended a conference in New York the week before the interview, and will be in UAE, Germany, the Netherlands and the US in the coming months at similar conferences.

“The Arab counties are especially interesting, as they are spending billions on IT development,” says Shermatov.