The availability of International Business opportunities in Uzbekistan

The availability of world-wide business enterprise opportunities in Uzbekistan impertinent traffic is exchange of matures, services and upper moorage across the borders of contrary nations. No expanse in the world has every the instinctive resources present in sufficient quantity to sustain never-ending development. So the countries trade with each differentwise by exporting those goods or products which they have in abundance while importing those which they argon subscript in. foreign trade tends to be gener eachy more costlier than domestic as most countries imposes additional tariffs or duties on the goods travelling through their borders. transnational trade between two countries comprises both the trade between 2 companies present in different nation and trade between the political science of a surface area and the business inviolable present in other country.The main objective of this audit is to analyze the availability of International Business opportun ities present in the Uzbekistan. The report starts with examining the countrys attitude to transnational trade. Then a brief analysis of the countrys Cultural, Political and Economic surroundingss is through with(p). After that the countrys business surroundings is analysed using some of the proposed theories of international trade and besides Porters adamant puzzle of national competitiveness. Fin every(prenominal)y recommendations based on the above analysis atomic number 18 offered.An Overview of UzbekistanUzbekistan or Republic of Uzbekistan (Ozbekiston Respublikasi) is a country which is part of Central Asia having largest creation within the region. Uzbekistan became an independent state on September 1, 1991, from former Soviet Union. Uzbekistan elected Islom Karimov as its president who continues his office till date. Uzbekistan is a trim back locked country surrounded by Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan and Turkmenistan.Uzbekistan Essential FactsG e verywherenmentRepublic prideful Presidential RuleCapitalcapital of UzbekGeographic Area447,400 sq kmPopulation27,865,738Literacy Rate99.3%Labour DivisionAgriculture 44%, fabrication 20%, Services 36%BudgetRevenue 10.54 meg, Expenditure 10.48 Billion (2009 estimates)GDP (GDP Growth)$77.55 Billion (6.7%)GDP Per Capita$2,800Inflation14.1%IndustriesTextiles, Food Processing, Machine Building, Metallurgy, Gold, Petroleum, inwrought Gas, Chemicals antecedent CIA cosmos Fact Book (https//www.cia.gov/ program library/publications/the-world-factbook/geos/uz.html)Uzbekistan attitude to International TradeUzbekistan joined United Nations in 1992 as fully matured member and coope runs with 8 UN agencies including The World Bank which supports Uzbekistan in its national domesticise efforts (United Nations, n.d.). Currently Uzbekistan has foreign diplomatic relations with about 124 countries of the world (Ministry of abroad Affairs Uzbekistan, n.d.).Uzbekistan has membership in numerous, more than 33, International establishments including Asian teaching Bank (ADB), Commonwealth of Independent acress (CIS), International Finance Corporation, International monetary Fund, Islamic Development Bank, Shanghai Cooperation Organization and World Trade Organization (observer status) (Library of Congress, 2007). The main purpose of these organizations is to levy and facilitate international trade among unhomogeneous countries.Commonwealth of Independent States (CIS) countries atomic number 18 the biggest trade partners of Uzbekistan. Russian secures first charge as foreign trade partner of Uzbekistan. Other countries uniform Ukraine, Kazakhstan and Afghanistan and so forth are also heavy trade partners.Uzbekistan has very active trade relations with European Union. Bilateral trade between Germany and Uzbekistan amounted to 470 million USD in 2008. France, UK and Spain are other major trade partners (Ministry of Foreign Affairs Uzbekistan, n.d.). course 1 Major Trad e Partners of Uzbekistan (2009)Source http//www.buyusainfo.net/docs/x_6613529.pdfBusiness Environment of Uzbekistan stopping point of UzbekistanFigure 2 Ethnic Group CompositionSource https//www.cia.gov/library/publications/the-world-factbook/geos/uz.htmlFigure 3 Major ReligionsSource https//www.cia.gov/library/publications/the-world-factbook/geos/uz.htmlFigure 4 Spoken LanguagesSource https//www.cia.gov/library/publications/the-world-factbook/geos/uz.htmlUzbekistan since ancient time was the home of Arab Muslims and Turks. And thusly in Mid-Nineteenth century, Russia seeing the regions potential captured Uzbekistan. That is why on that point are traces of Russian language and ethnicity can be found in the country henpecked by Uzbeks. Islam being the major religion (about 88%) the culture of country is bit conservative. For both Men and Women conservative business suits are evaluate, occasional(a) clothes give care jeans, t-shirts etc are considered inappropriate. While greetin g someone it is special K for handshake between same sexes but simple hello is done between opposite sex. During a meeting it is important to go and speak to the most important person in the room first. These local usance must be observed in order to forge good business relationship in the country (Culture Crossings, n.d.).Political Civil Environment of UzbekistanWhen Soviet Union broke in 1991, Uzbekistan gained its independence and appointed Islom Karimov as the Presidential head (Angus Reid Public Opinion, 2008). Since then Karimov have led an oppressive rule by extending his term of office in 2000 and 2007 in a series of democratic election that has come into fierce criticism from the international community (Harding, 2007). Next elections are scheduled to be held in 2014.In virtually all international political and civil parameters Uzbekistan has shown downward trends indicating its declivity of the situation overtime.Figure 5 Uzbekistan Political Indicators.Source Autho rUzbekistan also has highly high level of corruption. According to recent Transparency Internationals rottenness Perception major force-out (CPI), Uzbekistan ranks among the bottom of the 180 countries at rank 174. It has extremely poor confidence range of 1.5 1.8 (Transperency International, 2009).Figure 6 CPI Index 2009Source http//www. enhancer.org/ polity_research/surveys_indices/cpi/2009Due to this firms a great deal have to pay on the loose(p) payments (bribes) to disposal to get the things done. About 67% percent of the firms are expected to make these payments to get things done (Enterprise Surveys, 2009).Figure 7 Informal Payments StatisticsSource http//www.enterprisesurveys.org/documents/CountryNotes/Uzbekistan_09.pdfEconomic Structure of UzbekistanUzbekistan when it got freedom had relatively slow economic evolution rank for first 12 age. Uzbekistan GDP, between 1994 to 2003, grew at average identify of 3.9% per year. But from 2005 onwards the country witness ed average fruit of 8.2% (Asian Development Bank, 2010). Although the prescribed data is doubtful as it probably overstates the level of economic growth. The U.S. subdivision of State Background Note for Uzbekistan states that many observers believe that employment growth and real wage growth have been stagnant (U.S. Department of State Background Notes, 2009). The poverty is quite prevalent in the country with 76.7% of cosmos living below $2 a day (United Nations Development Programme, 2009).Although regimen is taking some positive steps to ramp up the economy. Policies like Anti-Crisis Program for 2009-2012 that government adopted in 2008 to combat the global street corner had quite beneficial impact on Uzbekistan economy. Part of the policy was to promote foreign investment, for which government established free industrial economic zones in 2008, which provided foreign investors with tax and custom preferential facilities. Due to this government was competent to tie up w ith 37 foreign investors for $500 million investment. This resulted in huge increase of 80% in foreign investment in 2009. Uzbekistan also observed very high import growth rate of 25.8% in 2009, mainly in infrastructure development, indicates governments acceptance to allow foreign investment in the country (Asian Development Bank, 2010).Figure 8 Uzbekistan outcome/Export IndicatorsSource http//www.adb.org/Documents/Books/ADO/2010/UZB.pdfPetroleum, Gold, intrinsic Gas and cotton plant are the main 4 exports products of the Uzbekistan. According to the IMF estimations, energy products (Petroleum and Natural Gas) comprised about 26.3% of fare exports in 2008 followed by gold at 15.7% and cotton at 13.1% (International fiscal Fund, 2008).International Trade of UzbekistanInternational Trade Theory Framework is all about analysing from a countrys perspective about with whom they should trade and what products to trade. According to Daniels, Radebaugh and Sullivan (2010), there are five theories which try to explain a countrys advantage in International Trade.Figure 9 Theories of International TradeThe advantage in international trade of Uzbekistan will be explained using two theories Natural Advantage and divisor Proportion Theory.Natural Advantage in case of UzbekistanAccording to this theory a country produces those goods in which it has some natural advantage by way of its climate, people, resources etc.Uzbekistan has substantial advantage over most of the countries in the world in production of cotton payable to favourable climatic conditions and availability of low cost labour. Climate in Uzbekistan is generally hot which is suitable for cotton growth. Hence Uzbekistan is the worlds 6th largest Cotton producer and 3rd largest Cotton exporter (National Cotton Council of America, 2010).Figure 10 World Cotton Export Rankings (2009)Source AuthorAlso the country has superabundant energy resources. Uzbekistan is a major producer and exporter of Natural bo llix up. Natural gas production was 2,387 billion cubic feet in 2008 ranking it at quaternaryteenth place in the world. Out of this Uzbekistan exported about 22.20%, i.e. 530 bcf of natural gas (US capacity Information Administration, 2010).Factor Proportion TheoryAccording to this theory different countries have different level of endowment of land, labour and majuscule. And the factor which is in more abundance will have lower costs than other factors. So the country tends to take advantage of this in the international trade by exporting those products that utilize the abundant factor and importing products that requires usage of deficient factor.Uzbekistan has the advantage of low cost and skilled labour. It also has relatively low land. The country has very high literacy rate of 99.3% in 2003. in that location is lack of substantial capital or high level engineering science present in the country. Therefore Uzbekistans export mainly comprises of agricultural products, mine natural resources, services or low tech industrial products like chemical, plastic etc.Figure 11 Percentage Distribution of sum ExportsSource http//www.statistics.uz/data_finder/128/On the other hand the country is severely lack in the modern infrastructure and necessary technology or capital required to develop it. Therefore the bulk of its import, almost 50% comprised mainly of machinery and equipments.Figure 12 Percentage Distribution of Total ImportsSource http//www.statistics.uz/data_finder/128/Porters infield of National CompetitivenessFigure 13 Extended Porters Diamond stumper of National CompetitivenessSource Porter (1990)Michael Porter introduced a diamond shaped model to analyze the areas of strength or weakness that gives a country a competitive advantage or disadvantage. This model includes four interconnected key elementsFigure 14 Key elements of Porters DiamondFactor ConditionsUzbekistan has inconsistent infrastructure development. Main roads in the capital Tashke nt and other major cities are relatively maintained outside the cities their conditions are poor. Suppliers have trouble in transporting goods from one place to another. The country has encompassing rails network but hardly 17% is electrified. Although government deep announced big plans to improve both its national highway and rail network. Literacy in the country is very high at 99.3% for 15 years and up. The country also has abundant energy resources. The country is able to almost meet its coal requirement and produces enough natural gas that it manages to export 22% of it.Firm Strategy or RivalryAlmost all the Industrial firms in the Uzbekistan are government have and as much(prenominal) there is little to no competition among them. There are only few industries like energy, gold, foodstuff etc. present in the country which have some foreign investment. Most foreign investing companies are only allowed to invest by creating joint venture with state owned company in which th e government owns majority stakes.Related and Supporting Industries nonpareil of the most important supporting industry to establish a firm is financial sector which is seriously underdeveloped in Uzbekistan. It is dominated by state-owned banks and lacks competition. The government banks give loans to state owned companies at subsidized rate and for all else the interest rate is very high. Due to this mystical investors rarely take loans from local credit market.The whole country has access to electricity but the infrastructure is quite old and need modernizations. And as such(prenominal) there are frequent power outages.Demand ConditionsDue to far-flung poverty of 76.7% there is not much demand of products apart from raw material need like food, clothes, energy needs etc. And in these rudimentary need the country is self-sufficient hence demand never exceeds supply. The government of Uzbekistan is the major importer of goods and services. Most of the imports comprises of equi pments in energy, telecommunication and Information Technology hardware and software.Role of GovernmentThe government did not liberalise the economy sufficiently enough since freedom. It owns all major companies, strictly regulates foreign trade and follows the policy of import substitution. Monopolistic environment created by state-owned companies stifle the development of secluded sector.Recommendations for UzbekistanThe following are the recommendations the Uzbekistan government should implement for sustained growth of the countryImproving Business Climate Government should stop pursuing the policy of import substitution and make it easier for foreign investment to invest in the country.Sustaining Macroeconomic Stability Need improved macroeconomic policies to control inflation, carry off restrictions on currency conversion, better regulation of financial sector would answer in maintaining high economic growth rates.Boosting Agriculture Productivity ruin agricultural reforms , abolition of state dictated crop production, more power to farmers and investment in modern machinery would raise per capita income and reduce poverty.Improve answerableness and Transparency The country ranks very poor in Transparency International Index at 174 of 180 nations. Corruption is rampant and Firms are frequently subjected to pay bribes. The government must put efforts in improving transparency for the firms to have any confidence in doing business in the country. advocate Open Competition Government should end the policy of controlling all industries and creating monopolistic environment. Government should allow free control of industries by private sector. This will create more competition, promote innovation and would improve overall efficiency of the industries and boost economy.