Uzbekistan remains the sole country in Central Asia where PayPal is not operational — and that’s a sign, critics say, of an increasingly costly and inflexible data policy that’s hampering economic growth and deterring foreign investment.

At the heart of the issue is Article 27-1 of Uzbekistan’s Law on Personal Data. It mandates that all data related to citizens must be physically stored within the country’s borders. 

Though framed as a measure to safeguard sovereignty and personal information, the regulation has come under fire from industry leaders. They say it’s effectively walling the country off from the global digital economy. 

In practical terms, compliance requires international firms to build data centres in Uzbekistan. They must also establish local communications infrastructure, hire staff on the ground and navigate a complex certification process. 

The result is a prohibitive cost burden. It often runs into the tens of millions of dollars. And that’s for access to a market of only a modest size. 

Unsurprisingly, many global players opt to stay out.

According to Kotib AI Research, the absence of PayPal alone is estimated to have cost the Uzbek economy $1.8bn over the past five years. 

Broader losses stemming from the personal data law are projected to have reached as much as $4.5bn, equivalent to more than 5% of GDP.

Estimated yearly losses include $900-1,250mn in e-commerce, $850-1,170mn in banking, $675-975mn in IT and startups and $575-825mn in fintech. 

Among the first to speak out in conversations with the highest levels of government is TBC Bank, Uzbekistan’s top fintech player. In a recent meeting with President Shavkat Mirziyoyev, Oliver Hughes, head of international operations at TBC, laid out the case for reform.

“…we are required to store data in our own data centres, which is expensive and not very scalable,” Hughes said. “So far so good, but the further we go, the more difficult it is. This can ... slow down the development of technology companies.”

TBC has proposed a compromise: allowing data storage both in local clouds and abroad, provided appropriate safeguards such as encryption, audits and certification are in place. 

According to people familiar with the meeting, the president acknowledged that the issue had matured and ordered a detailed review.

But data localisation is not only impacting fintech. 

Artificial intelligence, a sector heavily reliant on cloud-based infrastructure and application programming interfaces (APIs) hosted abroad is also feeling the chill. 

Under current Uzbek legislation, use of most major AI tools is effectively prohibited, freezing the market and pushing away would-be investors.

As AI.Pulatov noted on Telegram, advocates for reform are not calling for the abandonment of data protection in Uzbekistan, but rather for a more balanced and pragmatic approach that upholds sovereignty while enabling technological and economic growth.

(Credit: Thierry Gregorius, cc-by-sa 2.0).