Startup revolution

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

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.

This story first appeared in The Beet, a weekly email dispatch from Meduza covering Central and Eastern Europe, the Caucasus, and Central Asia. Sign up here to get the next issue delivered directly to your inbox.

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 companiescould 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.)

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, the chair of the Internet Society–Kyrgyz Chapter. “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.”

‘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.”

“For companies in the U.S. or the U.K. or Europe, as a single country of 7 million people, Kyrgyzstan is just not that interesting to them,” says High-Tech Park director Temirov. “But as part of the Central Asian region of 80 million people: that’s a market where they can expand their services, where they can open companies and recruit people. From a promotion perspective, it’s much easier. It's a win-win situation.”

‘In the right place at the right time’

Central Asia’s growing footprint on the startup scene has brought benefits to all of the region’s major tech players, so far. But this delicate balance of shared success could yet be easily disturbed by world events — like an exodus of IT workers from neighboring Russia, for example.

While there are no concrete figures, as many as 700,000 Russians are believed to have moved abroad since Moscow’s full-scale invasion of Ukraine in February 2022. Their arrival has perhaps been most obvious in Armenia and Georgia, but many also relocated to Central Asia, drawn by proximity and a more relaxed visa regime.

Among these newcomers is a significant cohort of IT professionals, many of whom are keen to move their companies out of Russia. (In the weeks and months following Russia’s full-scale invasion of Ukraine, some IT companies reportedly even chartered flights in a bid to get their employees out of the country as soon as possible.) As a result, the number of foreign-owned businesses taking root within Central Asia’s startup ecosystem has ballooned.

Each country has handled this influx in different ways. Some, like Kyrgyzstan, have remained open to newcomers and offer digital nomad visas specifically for Azerbaijani, Armenian, Belarusian, Kazakhstani, Moldovan, and Russian citizens. Generally, however, they’ve taken a more relaxed approach. “Obviously, like many other countries, we’re seeing more newcomers coming to Kyrgyzstan, mostly individual entrepreneurs, because it's much easier for them to relocate,” says Temirov. “In most cases. It's not about politics: it's about work and everyday life. They just have to be secure and get an Internet connection.”

Uzbekistan, meanwhile, has opted for a more proactive, dedicated relocation program: TashRush. The scheme offers foreign startup founders who wish to move to Uzbekistan a full range of services to help them settle into their new home: help with registrations and visas, accommodation support, and group excursions.

The idea had been in the works since 2021, but its launch in the spring of 2022 coincided with the start of Russian IT workers fleeing their country en masse. Business analyst Elmuradov simply describes TashRush as being “in the right place at the right time.”

“TashRush representatives would meet newcomers at the airport late at night, take them to the hotel, help with registration and other issues,” says Elmuradov. “I know several IT specialists who were pleasantly surprised by this reception: they were leaving their homeland against the backdrop of mobilization, heading into the unknown, into nowhere — and here they were warmly received.”

So far, TashRush has brought some 3,000 foreign IT specialists to Uzbekistan. It’s also part of the reason why the total number of IT companies with foreign capital in Uzbekistan increased by 89.8 percent in 2022, and why the number of resident companies at Tashkent’s IT Park exceeded 1,000 for the first time.

Like many other cities in the Caucasus and Central Asia, the ongoing influx of Russians has distorted the housing market and, in some cases, increased competition for jobs. But Uzbekistani officials hope that the local startup scene will largely benefit from these new arrivals, and that Russian companies can contribute to the economy in terms of new jobs or taxes.

“There has been some dissatisfaction [with the new arrivals],” says Elmuradov, “[but] Uzbekistan is smart enough to understand and accept healthy competition.”

Trending upward

The full impact of Russia’s IT exodus may not be felt for some time. It’s unclear how long IT professionals from Moscow and St. Petersburg will stay in Central Asia. Although there is little in the way of official statistics, anecdotal evidence suggests that some military-aged men who fled Russia have already returned, driven either by their struggle to find work and accommodations, or the belief that they had escaped being drafted — at least for now.

“Not everything depends on wages and work. People want to be able to cross the road safely, to take a walk somewhere in the evening,” adds Elmuradov. “The Tashkent IT Park has done a lot, but it is unable to provide safe roads or increase the number of parks and sidewalks. The infrastructure in cities here leaves much to be desired.”

These problems are significant enough that they can even force businesses to grind to a halt. Over the winter, plunging temperatures pushed Central Asia’s outdated energy supply grids to the brink, triggering electricity blackouts. Even in the region’s major cities, IT workers were knocked offline, putting their livelihoods at risk.

But most hope that this new influx of skills will benefit businesses in the entire region, even as different cities and countries begin to develop a stronger sense of their own technological identity.

“Many of the countries [in] the region have made digital transformation a top priority for economic development, and I think that’s bringing dividends,” says Sultanov. “At some point, our countries will start focusing on and distinguishing themselves within Central Asia — for example, Kazakhstan may be focusing on certain aspects of fintech. But even though countries are going at different speeds and have different success rates, the general trend is going upward.”

Elmuradov agrees: “We don’t really need one hub. If Uzbekistan and Kazakhstan continue to compete with each other, then everyone will benefit — with more money, specialists, jobs, and companies.”

Story by Katie Marie Davies for The Beet

Edited by Eilish Hart.