History, Politics, Economy and Startups in Uzbekistan.

Uzbekistan is a country of gold, cotton and regulations.

Historically, the territory of the present-days Uzbekistan had been part of the Persian empire (Bactria province) prior to its dissolution because of Alexander the Great conquests. Later it was dominated by Kushan, Parthian, Sassanid as well as by other local empires like that of Hephthalite, then conquered by Arabs. In 13th century it came under the Mongols until Timur’s invasion in 1388. In early 16th century Uzbek tribes ousted Timurids and established Emirate of Bukhara and two khanates of Khiva and Kokand. In 19th-century at the period of the “Great Game” between Russia and the United Kingdom the future Uzbekistan was absorbed by the Russian Empire and, later, after the Bolshevik Revolution of 1917 entered into the Soviet Union as one of its socialist republic in 1924.

Uzbekistan obtained its independence in September 1991 and until September 2016 its one and the only President had been Islam Karimov.

Uzbekistan had become one of the few countries of the former communist block which has preserved almost intact past era bureaucratic institutions. Reasoning behind that decision of the Uzbek elite was not to allow the processes of religious disintegration to take over the country. The example of the nearby Tajikistan served as an indication of where it could lead the nation.

In its socialist times Uzbekistan was famous for two reasons, firstly, it was one of the largest Soviet producers of cotton and, secondly, it was, allegedly, the most corrupt Republic in the USSR. The famous “cotton” criminal investigation became the largest anti-corruption crackdown campaigns in the Soviet Union. Leonid Brezhnev’s son-in-law Yuri Churbanov as well as the general secretary of the communist party of Uzbekistan Sharaf Rashidov both were found guilty of bribing Moscow Ministries’ officials in order to reduce government’s demand on the amount of the cotton which must be produced according to the five years socialist plan of the regional economic development.

After the dissolution of the Soviet Union Uzbekistan officially became a democratic country. However, essentially it still remains the one party state where its president wields practically unlimited authorities. Uzbek economy is heavily concentrated around several major industrial sectors, namely, the gold mining and cotton production. At the same time, more than 25% of Uzbekistan GDP consists of remittances from more than 4 million Uzbek citizens living and working outside of the country. In 2000th the Republic became notorious for its extremely high imports-exports tariffs making many common consumer’s goods highly over-priced. Public market places have become crucial to sustain the local economy. There most of internally produced fruits and vegetables are sold and bought generating life-supporting revenues for the local farming population.

Today Uzbekistan is a country where government is trying to keep the secular character of the governance by implementing harsh restrictions on civic activities and economic freedoms.

Uzbek startup entrepreneur have many difficulties to overcome. This country’s economic and political regimes are deeply rooted in its past and today present multiple challenges to an advancement of technological sector. At the same time, well educated population (literacy rate is close to 100%) more than 50% of which has an access to fixed line Internet, living in a country which GDP growth rate is now among the highest in the World (about 7%), presents multiple unexplored market opportunities for daring tech-startups’ founders.

However, traditional mining and agriculture sectors hold in Uzbekistan an undisputed priority over technologically intense industries. By the number of scientific publications Uzbekistan is now ranked at the bottom of the World’s list. Additionally, this country’s SME are heavily regulated, foreign investments legal regime is harsh and local currency exchange-rate is artificially maintained by government. Among other things, it creates a deficit of seed and VC money.

On the positive side, local population is traditionally economically active and there are more than 4 million Uzbek (many of them young people) which are currently living and working abroad, ready to return and launch their own businesses in case of major improvements in the regulatory climate.

In such a cash-driven society, with 32 million potential users, FinTech as well as e-commerce startups have a large market to explore. However, at this stage of country’s economic and political developments, they will be more likely stuck on a very slow up-ward curve. Although Uzbek authorities have publicly declared their official support for startups ecosystem, too many of those declarations still remain unfulfilled. With that, the future of tech-markets in Uzbekistan remains uncertain.

Business Notes for Startups Founders:

  • political climate: not friendly;
  • economic climate: not friendly;
  • regions to focus: locally;
  • industries to focus: FinTech, E-commerce;
  • major limitations: outdated economic regulation module, multiple bureaucratic barriers, legal obstacles to investments flows, over-reliance on agriculture and mineral industries, brain-drainage;
  • stimulus: low costs, no competition, large diaspora, highly educated population;
  • opportunities: to bootstrap and slowly grow on local niche markets.

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