Lucky Central Asia!
Updated: Jun 22, 2021
The luck with Central Asia is that it's sandwiched between 3 mammoth nations and key economies. The blessing is that its foreign-looking entrepreneurs have multiple giant options to decide from to chase. The gamble is that, depending on one's perspective, Central Asia has 4 winning lottery tickets or 4 deceiving matryoshkas in hand.
Ideal setting
Central Asia sits between key economies - China, Russia, and India - regional and global giants. It is also a masterpiece in the New Silk Road aka Belt and Road Initiative (BRI) - the $7 trillion China-led investment boosting connectivity between Asia, Europe, the Middle East and Africa, and gathering 70 countries and 4bn folks.
Equally important is the proximity of tech powerhouses - Russia, Belarus, and Ukraine - providing excellent tech engineers who shine across the region. This provides immense execution capabilities that other frontier markets like South East Asia or Africa never had at their onset.
The 4 winning tickets.
The long historic and privileged ties with Russia no doubt provide market access for Central Asia goods, people and ideas. In tech terms, this converts into certain expansion and exit strategies for many startups such as SmartGas, Clicklog, Jowi, Paloma365, etc.
China could represent a key winning ticket. Its next 5-year economic plan will pivot away from an export focus, prioritise local consumption, and welcome more foreign participation. Such opening to this big market represents real opportunities, as China accepts products from Central Asia (see China gradually opens its markets to Central Asia) - despite recent local trade-related tensions with Kyrgyzstan and Kazakhstan. A recent award winning article described how China is to be approached through multiple, independent levels, which represents opportunities for those in search of leads.
In the fintech space, this could be a catalyst for fintech innovations - especially as we start hearing about a ‘yuanisation’ of fintech. The likes of Astana International Financial Centre (AIFC), which aims at becoming the region's fintech hub, can win big if they take advantage of such structural changes.
India is a market to provide for and, why not, compete with. To be sure, Kyrgyzstan plans to become an outsourcing powerhouse which can resonate among global customers in need of alternatives. Noticeably, ties are being built: we know of one Kazakh techie Arman who successfully made his way in and out of the country, while Uzbekistan's ITP is developing long term relationships with a wide variety of India's tech private and public entities. The 2020 launch of an India-Central Asia Business Council epitomises this increased partnership between the 2 regions. Such developments boost India’s Connect Central Asia Policy.
As for Iran, the ancient links with Central Asia and common languages in parts of Uzbekistan and Tajikistan are sources of opportunities among a resilient tech community. Given Iran is also an essential part of the BRI structure, e-logistics and blockchain solutions could be developed -- when geopolitical tensions cool off. Central Asia can strategically benefit from global experts with knowledge of that ecosystem such as well-travelled Tech Garden's CEO, Cyrus Baghai.
These 4 countries offer new markets and real potentials, albeit the obvious negative covid impacts. The onus is on each entrepreneur to dig deep, paying attention to rewards and risks which are real.
The 4 risky matryoshkas
Approaching and entering each of these countries is similar to opening one of those Russian dolls: it's tough to know when one reaches the bottom. For novices, diving in these competitive markets could prove cumbersome and costly, as they will face a maze of issues.
Cultural sensitivities, the 1st doll, matter. So hooking up with local, trusted partners is essential to navigate efficiently, and overcome language barriers that cause headaches when facing for instance unfamiliar legal documents/jurisdictions, the 2nd doll.
Bureaucracy, the 3rd, is one almighty deterrent, but we in Central Asia have our share of it, and few will be shaken by it. But admittedly facing it in a foreign land is a source of worries. The 4th doll is the exchange rate-taxation duo that will dictate the level of investment and returns. While we could add geopolitics as a 5th doll, we will instead leave that to be the topic of another story.
Taking it forwards
Central Asia founders entertaining ambitions to expand across and outside the region need to avoid falling prey to the four risky matryoshkas, while at the same time take advantage of the 4 winning lottery tickets. To achieve their potential, startup founding teams should look for partners and advisors in incubators, accelerators, VCs, government and private entities that have proven connections and international execution capabilities to help them. Partnership is the key word.