Tajikistan is a fragile and landlocked country located in Central Asia. Tajikistan presents limited opportunities for investors who are willing to put significant research and effort into market development, and who have experience with the area. The Government of Tajikistan has expressed interest in attracting more U.S. investment, but is still working to implement reforms that will allow it to become a more competitive investment destination.
In 2015, Russia’s economic crisis affected Tajikistan’s economy severely. According to the Ministry of Labor, Migration, and Employment of Tajikistan, remittances in 2015 were equivalent to 34-35 percent of GDP – a drop from 2014 when remittances were roughly equivalent to 50 percent of Tajikistan’s GDP. Remittances are typically transferred to Tajikistan in Russian rubles; these money transfers lost between 42 and 66 percent of their value in dollar terms as the ruble devalued faster than the Tajik somoni. The result was at least a 30 percent drop in Tajik real incomes, as well as a depreciation of the somoni.
Each year up to one million Tajiks work abroad, primarily in Russia. In 2015, the number of Tajik migrants working in Russia decreased not only because of fewer work opportunities there, but also due to entry bans introduced by Russian migration authorities. According to the latest available information, 300,000 Tajiks are on this work “blacklist.” In 2015, migrant workers sent home roughly $2.2 billion through the banking system as well as other informal channels, a $1.7 billion decrease compared to 2014. Tajik authorities and international experts forecast that a continued ruble devaluation and slowing Russian economy, along with new restrictions placed on migrant employment in Russia, will likely continue to decrease Tajikistan’s remittance inflow in 2016. Reduced opportunities for migrant labor could result in markedly higher unemployment in Tajikistan.
Since small and medium-sized businesses already have limited access to finance in the local banking system, the depreciation of the ruble and somoni made dollar-based debt even more unattractive. The rate of non-performing loans in commercial banks soared to around 45 percent as of March 2016.
Tajikistan’s business environment also lacks predictability in terms of its regulatory regime. In spite of having over 200 different strategies and sectoral development programs, the Tajik authorities do not have capacity for either forecasting, or planning that responds to real circumstances in the country. In addition, the Tajik government does not manage risk appropriately; there is no concept of the “possibility to fail.”
Tajikistan became the 159th member of the World Trade Organization (WTO) March 2, 2013. At that time, Tajikistan adopted a new national Tax Code; however, even with this reform the tax system still remains complex. Due to the economic crisis, taxation of large companies (more than 100 employees) has become more aggressive and an “artistic” interpretation of the Tajik tax code became the norm. Businesses tell the embassy they feel like that are treated as “guilty” until proven innocent by the tax committee.
Tajikistan joined the 1961 Hague convention “On Abolishing the Requirement of Legalization for Foreign Public Documents” October 31, 2015 (http://mfa.tj/ru/novosti-i-sobytiya/nachalo-prostavleniya-apostilya-v-tadzhikistane.html). This accession should make it easier for investors to gain legal recognition of foreign contracts within Tajikistan.
Tajikistan has large-scale potential for hydroelectric power generation, and is poised to expand seasonal electricity exports to South Asian markets along the CASA-1000 power transmission line and planned future lines. Uzbekistan has raised concerns as a downstream country over the planned hydroelectric projects in Tajikistan by questioning their economic value; what Uzbekistan predominantly fears is loss of water flow to its predominantly agricultural land. New hydroelectric dam construction projects in Tajikistan represent a commercial opportunity for U.S. equipment manufacturers and construction firms. The Tajik government has also expressed an interest in developing its solar industry.
Outside of the major cities, Tajikistan currently faces electricity rationing between October 1 through March 31, due to its heavy reliance on seasonal hydropower. The implementation of proposed infrastructure projects or energy trade agreements to resolve the winter energy deficit could end seasonal rationing and spur significant economic development.
After demurring for years, the Government of Tajikistan is still considering joining the Russian-led Eurasian Economic Union. Should they apply for membership and be accepted, it could result in higher trade tariffs and greater difficulty for U.S. firms to invest in Tajikistan.