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International Business: Uzbekistan and Kazakhstan

In: Business and Management

Submitted By ermek
Words 2685
Pages 11
Introduction
As it’s known from the passed course, International business is based on the possibility of benefit from the advantages of cross-national business operations, that is, from the fact that the sale of certain goods in another country, or establishing the production of the firm based in one country in the other one, ensure the high benefits to the involved business parts than they would have had, running business only in their countries.
In this work apart from the general integral summery of each of the sectors needed to study, also the history and specific features of the relationship between the Republic of Kazakhstan and the Republic of Uzbekistan are presented to fully understand the competitive advantages and to adequately assess the risks of doing business in the Republic of Uzbekistan.
As of today, the relationships between the Republics are legally regulated. The main document regulating the relations between the two states is the Treaty on Eternal Friendship between the Republic of Uzbekistan and the Republic of Kazakhstan dated 31 October 1998.Juridical base of cooperation between the two countries is composed by 116 interstate, intergovernmental and interdepartmental documents, which cover almost all spheres of life.
Only in trade and economic cooperation 68 documents are signed, including agreements of free trade, promotion and reciprocal protection of investments, avoidance of double taxation, etc.

Economics
Despite a significant decline in the share of agriculture in GDP - from 37% in 1991 to about 18% in 2009, this sector continues to play an important role in the country’s economy, providing employment for one third of its population. Cotton, which production was a powerful development during the Soviet period was only 19% of the total agricultural production in local prices of raw cotton (or about 3.5% of GDP) in 2008-09 the volume of industry composed 24% of GDP in 2009, construction - 7% and services - 44%.
Government policy relied on state control, planning and direct intervention in many sectors of the economy.

Uzbekistan has made progress in energy and food self-sufficiency, and pursued a policy of "allocation", that is to promote and protect the interests coincides with domestic production. In recent years this policy has demonstrated clear success in terms of increasing value added in industry with 14% of GDP in 2001 to 24% of GDP in 2009, following the slowdown of the industrial sector with 33% of GDP in 1991
In 1996-2003 there was observed an acceleration in economic growth from 4% to more than 7% in 2004-2006 and more than 9% in 2007-2008, stimulated mainly (but not only) by the demand in outer market. These growth rates, along with an impressive reduction (according to the official data) of the population growth from 2% in 1996-1999 to 1.3% in 2000-2008 contributed to a sharp increase per capita annual GDP - from 2% in late 1990 to 6% in 2004-2006 and more than 7% in 2007-2008. Despite the global slowdown, economic growth rates in Uzbekistan were continued keeping about 8% in 2009 and 2010.

Finance
The financial system of the Republic of Uzbekistan is regulated by the Ministry of Finance of the Republic of the Uzbekistan, which implements the financial, antimonopoly pricing policies of the Republic of Uzbekistan and is responsible for the supervision of the organization of finance and pricing on its entire territory.
In Uzbekistan the traditional two-tier banking system, headed by the Central Bank of Uzbekistan is established.
In 1996-2003 there was a system of multiple exchange rates and valued foreign exchange in Uzbekistan. In October 2003 the Government officially announced the national currency convertibility for current transactions.
Exchange value of the sum against the U.S. dollar is 1657.19 (as of January 2011). On July 1, 1994 the national currency "sum" was introduced as the only legal tender in the Republic of Uzbekistan.

Politics
According to the Constitution, Uzbekistan is a secular, democratic republic. The Republic of Uzbekistan, a unitary state, is headed by a president. The supreme state representative body is the Oliy Majlis of the Republic of Uzbekistan, legislating. Oliy Majlis consists of two chambers: the Legislative Chamber (lower house) and Senate (upper house) (the Constitution of the Republic of Uzbekistan, Ch. 18, Art. 76).

Over the history of bilateral cooperation there were held 10 high-level visits.
A major outcome of the President Islam Karimov’s visit to Astana was an agreement on the establishment of cross-border free trade zone. In general, bilateral relations are developing in line with agreements reached at the Summit. So, Uzbekistan and Kazakhstan successfully interact on issues of regional security and economic integration, are parties to the SCO, CSTO, and the Treaty on the joint actions for the antiterrorism protection, political and religious extremism, transnational organized crime and other threats to stability and security.

Culture
Cooperation between the two countries in this area is currently being implemented under the program and plan of cooperation in the cultural sphere.
In recent years, there have been intensified contacts between the drama theaters of the two countries. In particular, the Uzbek National Drama Theatre and Kazakh Academic Drama Theatre named after M. Auezov have signed an agreement to hold road tour exchange between theatrical troupes of these groups.

Society
According to the data of the International Bank for Reconstruction and Development, total expenditure on social protection of the population remained at about 8% of GDP in 2004-2008, 6.5% of GDP accounted for by the pension fund. During the global crisis, these costs increased up to 11% of GDP in 2009-10, of which the share of the pension fund increased to 9% of GDP. Despite the fact that the situation in Uzbekistan looks better than in other countries in the region in terms of outreach programs to the poor, targeted response to those programs need to be improved, as there is potential for considerable discretion and arbitrariness at the local level (mahalley level).
Uzbekistan has better level of literacy of adult population (99.3%) in some economically developed countries. Total index of educational level in Uzbekistan (0.92) is comparable and exceeds that of some member states of EU.
Expenditures on education are currently at 9% of GDP and account for more than a quarter of the total budget, significantly exceeding the average OECD level. Budget-recurrent expenditures on health (including external financing) amounted to 2,6% of GDP in 2008 compared to 3,8% in 1995

Demographics
Population is 28,095,900 people (according to Goskomstat data for the first quarter of 2010), among them 37% from urban and 63% from rural areas. The average population density is 62 people at 1 sq. km. In terms of population Uzbekistan is ranked third among the CIS countries, after the Russian Federation and Ukraine. However, unlike those a high birth rate and a positive population growth is recorded in Uzbekistan. The country has 120 cities and 115 urban villages, where about 9.4 million people live, a little over 37% of the total population. The national composition of population in%
More than 70 percent of the population of Uzbekistan is Uzbek, and over time, the percentage of them will increase. This suggests that Uzbekistan becomes a mono-ethnic state. Consequently, a number of inter-ethnic problems will be naturally removed. Kazakhstan, by virtue of historical and other reasons, will long remain a multiethnic country. At the same time ethnic Uzbeks occupied and will occupy an important place among the Kazakhs, who by tradition keep their language and their customs. This is can not be said about the Kazakhs living in Uzbekistan. Although numerically they are about twice as exceed the Kazakhstan Uzbeks, but the degree of integration of the Uzbek environment and even assimilation function of their position can not be compared with the position of the Uzbeks in Kazakhstan.

Ethics. In the international rating “Index of Corruption Implication”, which was conducted by “Transparency International”, Uzbekistan takes up 172nd place positioning before just four countries of Iraq, Afghanistan, Burma and Somali. While making his speech for commemoration of Independence Day in Uzbekistan, president Islam Karimov stated that corruption is country’s first enemy and “the time has come to eradicate such illegal phenomena in our country”.
According to Hatam Mahkamov, a political scientist, the affirmation of presence of corruption in the country, is the first step to its eradication. “It is untimely to speak about its full abolition, while corruption is way too spread around the country, but the first steps in its elimination should definitely take place” – says Mahkamov.
Business.
Bilateral trading relations are presently regulated by the Agreement between the Governments of two countries – Uzbekistan and Kazakhstan, signed on June, 2 in 1997, and the Protocol for exceptions for free trading. Particularly, bilateral trade is carried out on the basis of free trade with tax withdrawals.
The following table describes the dynamics of foreign trade between Kazakhstan and Uzbekistan for the period of 2001-2008:

2004 year 2005 year 2006 year 2007 year 2008 year Commodity turnover 425,9 516,4 718,6 1193,9 912,5 Export 184,7 246,9 304,7 661,7 459,9 Import 241,2 269,5 413,9 532,2 452,6 Balance -56,4 -22,5 -109,2 129,5 7,3

According to Customs Committee of Ministry of Finances of Kazakhstan the commodity turnover between the two countries included $477,1 million for the period of January-May, 2009. While Uzbekistan’s took only 1,9% of Kazakhstan’s total turnover. Kazakhstan’s export for Uzbekistan includes $344,9 millions, while import is only $132,2 millions.
Mainly export for this period consisted of oil gases, oil processing products (34.4%), black metals and their wares (16,9%), cement (16%), transport and communication services (9,5%), fertilizers (6,4%), glass and glass wares (2,4%), electric equipment (2%), transport vehicles (1,7%), processing products of fruits and vegetables (1,5%) and so on.
Majorly, Kazakhstan provides Uzbekistan with food products, energy, ferrous and non-ferrous metals, plastics and chemical products. In turn, Uzbekistan sells abroad to Kazakhstan cotton fiber, ferrous and non-ferrous metals, energy, transport vehicles, construction materials, chemical products, and plastics.
Nowadays, there are 163 Kazakh enterprises functioning in Uzbekistan with 124 joint ventures, and 39 enterprises fully financed with foreign funds.
At the same time, there are 715 small and middle enterprises operating with the help of Uzbek financing. Mostly, these ventures run in such spheres as processing industry, trading, in food production, production of construction, furnishing, glass wares, real-estate operations and various services for enterprises.
Remarkably, Uzbekistan takes third place in Kazakhstan’s foreign trade turnover after Russia and Ukraine amongst the former soviet republics.
Special attention is paid by Kazakhstan to collaboration with other countries in investments, financial and credit policy, industrial policy, agriculture, transportation, scientific and technical cooperation, development of border-line trade, textile and oil industry, and some other branches. Kazakhstan buys gas from Uzbekistan each year for amount of 1,5 billions of cubic meters of gas for its southern territories.
Kazakhstan and Uzbekistan successfully cooperate with each other being the participants of different organizations, such as CICA, SCO, EurAsEC, ATC CIA, and transport corridors as TRACECA and “North-South”.

Risk analysis.
One of the risk sources may be: a) possible non-sequence in an economic management; b) insufficient political support of realization of IDSIWP and blanks in measures on its realization, c) the lack of development of civil society tricks into the risk efficiency of realization of the program in the area of policy and state administration; d) regional frictions based on different judgments between the countries of region of relative conflicting of national interests; e) external alarms in the field of trade.
After disintegration of Soviet Union the absence of the expressly outlined and carefully guarded scopes in Middle Asia often resulted in conflicts.
After the accusation of US and other foreign companies operating in Uzbekistan of violating their tax laws, in the past, Uzbekistan has frozen their assets, but no new expropriations occurred in 2008-09. Instead, the Uzbek Government has actively courted several major U.S. and international corporations, offering attractive financing and tax advantages, and has landed a significant US investment in the automotive industry.
Both Kazakhstan and Uzbekistan are the states, causing big interest of world power centers. Mostly it concerns such countries, as the USA, Russia, China, Japan, India.
Secondly, it is such blocks of the states, as NATO, Islam world, European Union, etc.
For the USA, strengthening of the positions is important both in Uzbekistan and in Kazakhstan. However if Kazakhstan is examined by them as territory between Russia and China, which are the primary competitors of the USA on a world scale, Uzbekistan is the state, being on the joint of the islam and post-soviet worlds.

Conclusion.
At the same time, the dynamics of economic relations of Kazakhstan and Uzbekistan is not so active. In spite of presence of joint ventures, businesses are not too successful with mutual investments. Gross influx of direct investments from Uzbekistan to Kazakhstan from 2001 to 2009 included only 3,7 million dollars. In retrograde investments went step lively, but only to the certain moment, and from 2004 the gross outflow of direct investments has been fixed from Kazakhstan to Uzbekistan. Its number exceeded 130 million dollars. Value of external trade of Kazakhstan and Uzbekistan last year included 1,2 milliards of dollars, that exactly on one-third part less than it was in the year before. An export from Kazakhstan to Uzbekistan in 2009 did not «drag» even as far as to 900 million dollars, falling down as comparely to 2008 year on 29,9%.
Certainly, in a very large degree this decline became the result of falling of building volumes in Kazakhstan. In previous years we got a lot of construction materials from neighbors, now on some positions their import to Kazakhstan went down magnificently (for example, the import of Uzbek cement diminished in 3,6 times). Kazakhstan’s construction sector will begin to regenerate if the volumes of trading in construction materials will return. But the pattern of mutual trade also must be paid attention at: mostly the supplying of Kazakhstan to Uzbekistan in a greater measure are the raw materials, rather than their import. Deliveries from a nearby country also include the cars. Their stake in price expression is insignificant, but grows quickly - in 2009 this sphere was one of few, showing growth.
Certainly, in a very large degree this decline became the result of falling of building volumes in Kazakhstan. In previous years we got a lot of construction materials from neighbors, now on some positions their import to Kazakhstan went down magnificently (for example, the import of Uzbek cement diminished in 3,6 times). Kazakhstan’s construction sector will begin to regenerate if the volumes of trading in construction materials will return. But the pattern of mutual trade also must be paid attention at: mostly the supplying of Kazakhstan to Uzbekistan in a greater measure are the raw materials, rather than their import. Deliveries from a nearby country also include the cars. Their stake in price expression is insignificant, but grows quickly - in 2009 this sphere was one of few, showing growth.
Co-operation of Uzbekistan and Kazakhstan in an economic sphere is to be developed at least by virtue of their geographical position and interdependence. So, the south regions of Kazakhstan already utilize Uzbekistan gas, and, say, largest city of Kazakhstan - Almaty - practically fully depends on Uzbekistan deliveries of gas.
At the same time Uzbekistan needs transportation localities of Kazakhstan, for mainly aiming to export its resources.
Excessive state control above an economy continues to hamper the functioning of markets and also the development of private sector. Privatization, particularly of big enterprises, held the limited character, and rights on a private ownership frequently are not taken into consideration by state structures. Widely spread interference of the government with entrepreneurial activity is carried out through industrial associations with participation a state capital.…...

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...LL.M INTERNATIONAL BUSINESS TRANSACTIONS LAW 5901 Kazakhstan Institute of Management, Economics, and Strategic Research School of Law REQUIRED TEXT: International Business and Trade [4th ed.] Ricky W. Griffen, Michael W. Pustay COURSE MATERIALS: http://www.eilfe.com/online-courses/kimep.html International Business Transactions REQUIRED TEXT: International Business and Trade [4th ed.] Ricky W. Griffen, Michael W. Pustay COURSE MATERIALS: http://www.eilfe.com/online-courses/kimep.html International Business Transactions KIMEP SUMMER I 2010 COURSE NUMBER: LAW5901 COURSE NAME: INTERNATIONAL BUSINESS TRANSACTIONS CLASS TIME: MTWTHF 20:15 – 21:45, HALL, NEW BUILDING FINAL EXAM: WEEK SIX; Time and date TBA KIMEP SUMMER I 2010 COURSE NUMBER: LAW5901 COURSE NAME: INTERNATIONAL BUSINESS TRANSACTIONS CLASS TIME: MTWTHF 20:15 – 21:45, HALL, NEW BUILDING FINAL EXAM: WEEK SIX; Time and date TBA Instructor: Prof. Dr. John JA Burke BA, JD, Ph.D. E-Mail: jburke@kimep.kz Office: 119, New Building Hours: Appointment Only Instructor: Prof. Dr. John JA Burke BA, JD, Ph.D. E-Mail: jburke@kimep.kz Office: 119, New Building Hours: Appointment Only INTRODUCTION AND OVERVIEW Joseph E. Stiglizt, the winner of the 2001 Nobel Prize in Economics, states, “We have a process of “globalisation” analogous to the earlier processes in which......

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