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Business  30, Jun 2014

Echelon 2014: Why is Kazakhstan lacking a healthy startup ecosystem?

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Five Kazak startups share the challenges they face in post-Soviet era. What is the best way to address these issues?

Image Courtesy: rm / Shutterstock

It’s been nearly 23 years since the dissolution of the USSR. Along with it went the anti-business policies of the government. But the era had already set in a culture, which discouraged entrepreneurship. The mood though slowly, but surely is changing, which was evident at Echelon 2014, where five startups from Kazakhstan, showcased their entrepreneurial spirit. Their trip to Singapore and Asia’s largest tech event was sponsored by Samruk Kazyna and accelerator – Idea Lab. e27 caught up with the startups to find out the challenges they face and how they are overcoming them.

Also Read: Startups must embrace Blue Ocean strategy

Lack of entrepreneurial spirit
According to Ruslan Yegembayev, Founder of Mobiliuz (a platform connecting cars to the internet), generations have been carrying the legacy of the erstwhile USSR, and entrepreneurship is still looked down upon. “Due to USSR’s discouragement of entrepreneurship and anti-business policies, cultural barriers still exist in the country. Older generations still maintain a negative attitude towards entrepreneurship, hampering the growth of startups in Kazakhstan,” he said.

Kairat Akhmetov, CEO and Founder of Phonebooth added, “Young professionals prefer working in state-owned oil and gas companies or the civil services, due to a greater stability and salaries.”

Sparse talent
Phonebooth is a free application for contacting call centres consisting of a visual directory allowing users to call businesses free of charge, with IP telephony similar to Viber or Skype. Facing a shortage of programmers, Akhmetov had to outsource programming to Ukraine, Belarus and Russia. And any little talent available in the country is lost to brain-drain, as many Kazakhs prefer to work and settle overseas.

Combined with stereotype of post-Soviet states, and the stigma against entrepreneurs from the region, Igor Lekontcev, CEO of Nerby, also blames the “archaic education system” for insufficient talent. Nerby is a platform that connects businesses with consumers directly through a mobile application, providing a user-friendly web admin platform for companies to create intelligent Wi-Fi networks that can spot business-specific content and share it with users.

Also Read: Echelon 2014: 5 startups from Kazakhstan join Asia’s mega tech event

Copy rather than innovate
Meanwhile, Mobiliuz is a platform  that is termed as ‘iTunes for cars’ by its Founder Yegembayev. It monitors locations, technical state and driving style, allowing for effective vehicular fleet management.

Piroq, another gadget, aims to reduce motor vehicle collisions by having a system automatically detecting poor road condition and informing drivers, public services and relevant private companies.

The solutions above though not similar, aren’t new. Magzhan Kairanbay, a researcher, developing Piroq, opined that Kazakh firms are unprepared to invest in technology projects. “Rather than implementing new solutions, which are perceived as difficult and risky, many businesses prefer to use traditional technologies without investing in research. They’d rather use off-the-shelf solutions than explore new solutions, innovate and support local developers.”

That said, Russia too isn’t behind when it comes to lacking innovation. According to Arman Suleimenov, Co-founder of Being Beethoven (a mobile app enabling people to adopt effective habits from famous people), “Kazakhstan has a tendency to follow neighbouring Russia’s lead, using a copy-paste model rather than native innovation.”

Yegembayev cites a predictable development trend, which starts in Moscow and spreads outwards, allowing entrepreneurs to evaluate trends, replicate concepts and adapt them to local markets. “Where the US market requires innovation, post-Soviet markets simply need replication and adaptation,” he added. To exemplify the trend, he noted that most successful online businesses in Kazakhstan are copies of Groupon, Chocolife.me and BeSmart.

Poor infrastructure
In spite of a copy-paste model that doesn’t require much investments, what also is hampering the tech startup scenario in the country is a limited logistics and underdeveloped online payment systems. “Despite the presence of debit cards, cash payments predominate in Kazakhstan. This has prevented e-commerce from validating ideas and gaining traction,” said Suleimenov.

Another point that he feels is obstructing the growth of web technology in the country is low penetration of iOS devices – largely due to their high cost. “This has made the market Android-dominated and minimised the market for high-end applications and iOS development, which is hampering the development and diversity of the mobile ecosystem,” he added.

Also Read: Six key steps to build a successful digital business

Slow government
An underdeveloped investment sector means most investors lack experience in structuring deals, assessing risks and conducting due diligence. That, in Kairanbay’s words, “is despite governments efforts to offer grants to pursue research projects in computer science.”

Mobiliuz’s Yegembayev noted in the same vein that while efforts are being made to grow the startup ecosystem, and that money from state-owned companies is being invested in innovation, “the startup scenario in Kazakhstan is largely suffering due to state inefficiency.”

Akhmetov too acknowledged the availability of government grants for startups. “However, these came with high administrative overheads, as well as processing times of six months to clear,” he added.

Shiwen Yap

Shiwen Yap

Shiwen is passionate about exploring science, technology and entrepreneurship ideas and is an avid advocate of open source technologies and methodologies.

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