PESTEL analysis of Uzbekistan's business environment and economy

PESTEL Analysis for Uzebekistan

Uzbekistan is located in Central Asia and was a part of the former USSR. Agriculture is one of the primary occupations and it is the second largest exporter of cotton in the world. It also produces significant amounts of gold, silver, copper and natural gas.

PESTEL Analysis

PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal factors that can affect the operations of a business. These factors have to be considered before a company explores new markets to understand the risks and profits that are likely to result from its operations.

Political

In Uzbekistan, the political factors play a prominent role because the Government exercises strict control over all parts of the economy and stifles the growth of private sector because of the dilution of control. "The Soviet Union -- and hence its constituent republics such as Uzbekistan -- had what is referred to as a command economy. Under this system, central government planners determined which goods would be produced, in what quantities, and at which locations, and then gave subsidies to various business entities (often state-owned enterprises) to produce the goods." (Sicherman & Libal, 2005, p. 53). To boost its economy and provide better opportunities for its people, the Government is slowly making a transition to a market economy. However, there are numerous roadblocks in this transition and any company setting up operations in this country has to be prepared for related contingencies.

Economic

Uzbekistan is a poor country with a per capita income of $1,320. (International Monetary Fund, 2010). It has a working population of 14.2 million and out of this, 44% are engaged in agriculture, 20% in industries and 36% in services.

Uzbekistan is currently ranked as 150 among 183 economies in terms of the ease of doing business. It is ranked as 106 for starting a business, 145 for construction permits, 138 for getting credit, 132 for protecting investors, 154 for paying taxes and 44 for enforcing contracts. (Doing Business, Uzbekistan, 2011). Bribery is rampant and this can have a profound impact on the business.

Technological

There is a good amount of technical know-how in this country. It has many hydro power projects with Tajikistan and it is self-sufficient when it comes to energy. Metallurgy and ore extraction are advanced. However, the agricultural practices are old-fashioned and it lacks desired skills in the services industry.

Environmental

Uzbekistan is self-sufficient when it comes to energy with significant deposits of natural gas. It is also rich in other mineral resources such as gold, copper, lead, tungsten and uranium. With long and hot summers and mild winters, it is mostly plains and has limited access to the Aral Sea.

Legal

The legal system is still immature in Uzbekistan and this can pose some serious problems for businesses. "The legal system is an evolution of Soviet civil law and the country still lacks an independent judicial system. As regards dispute settlement, businesses have complained that they lack access under Uzbak law to international arbitration. Moreover, the judiciary in Uzbekistan is not independent and courts frequently favor firms that are controlled or owned by the state." (Uzbekistan Review 2010, p.64).

In short, the PESTEL analysis for Uzbekistan looks relatively moderate with the most favorable factor being its young population.