Tajikistan presents high-risk, high-reward opportunities for foreign investors who have experience in the region, a long-term investment horizon, and the patience and resources to conduct significant research and due diligence.  At the most senior levels, the Tajik government has consistently expressed interest in attracting more U.S. investment, but has not implemented reforms that would make the poorest of the Central Asian countries a more competitive investment destination.

In 2016, the government introduced the 2016-2030 National Development Strategy and the 2016-2020 Mid-Term Economic Development Strategy.  These strategies emphasize the importance of investment as a driver of growth.  President Rahmon created an investment council in 2007 with European Bank for Reconstruction and Development (EBRD) support that includes government and private-sector stakeholders and conducts annual meetings.  Nonetheless, the council has not achieved tangible results in terms of increasing investment and improving the country’s business climate.  President Rahmon announced 300 days of reforms in January 2019, but has not made public a roadmap detailing what reforms this proposal would entail.

On January 15, President Rahmon announced a moratorium on all irregular inspections for the manufacturing sector for two years.  The moratorium applies to all inspection and law enforcement agencies, including the Prosecutor General’s office, Chamber of Accounts, Agency on State Financial Control and Fight Against Corruption, National Bank of Tajikistan, and Tax and Customs Authorities.

Tajikistan’s three main strategic goals are energy independence, transportation connectivity, and food security.  The Tajik government has made some progress on these fronts, mostly with grant support from International Financial Institutions (IFIs).  Tajikistan has also benefited from Chinese Belt and Road Initiative loans for infrastructure projects.  However, the terms of these loans remain opaque and the international community – through fora such as the Paris Club – has expressed concerns over Tajikistan’s ability to service the increasing debt burden.  Nonetheless, advancing these strategic goals would make Tajikistan a more competitive investment destination.

The main obstacles to increased investment flows are Tajikistan’s authoritarian policies, geographic isolation, bureaucratic and financial hurdles, widespread corruption, a dysfunctional banking sector, non-transparent tax system, and countless business inspections.  Absent private investment, Tajikistan uses fiscal stimulus to achieve GDP growth, which pressures the Tax Committee to meet ever-increasing revenue targets.  Investors complain most vocally about the Tax Committee, which they claim arbitrarily enforces the tax code to maximize revenue collection.  Potential investors say the uncertainty this causes is ore of a deterrent than high taxes.

The Tajik government has dedicated significant financial resources to the construction of Roghun Dam, an ambitious hydropower plant whose 3,600 MW capacity would double Tajikistan’s energy output.  Once completed in 2032, Roghun Dam’s electricity will meet Tajikistan’s domestic energy needs, provide sufficient power for the expansion of industrial enterprises, and be exported to South Asia.  Nonetheless, Roghun’s USD 3.9 billion price tag and the Tajik government’s struggle to secure concessional loans or investor financing has led the government to rely on its budget to fund construction.  This has severely affected Tajikistan’s investment climate, as tax collectors turn to the private sector to meet revenue targets.

The Antimonopoly Service, in consultation with the Tax Committee, the Ministry of Finance, and the Telecommunication Service, has raised rates for internet-based telephone calls and for mobile internet, services on which average Tajiks and businesses rely.  The plan increased internet-based phone tariffs tenfold and in the best case tripled mobile internet tariffs.  Mobile internet now costs USD 6.50 per gigabyte, one of the highest prices for internet in the world.

Tajikistan’s banking sector, which had suffered from lower remittance flows during the 2015 Russian recession, began to stabilize in 2017 despite an official non-performing loan rate of 30.3 percent in December 2018.  Some Embassy contacts believe this rate should be closer to 70 percent of the total loan portfolio.  Nonetheless, the improved stability was more a result of a rebounding world economy and larger remittance volumes, and not structural, economic changes.  At present, the National Bank of Tajikistan (NBT)’s policy rate is at 14.75 percent, with nominal lending rates at about 26 percent for loans in local currency and 18 percent for dollar loans.  A low financial inclusion rate of about 11 percent has forced commercial banks to restrict loan amounts they make available to borrowers.  Loans are therefore unaffordable for small- and medium-sized businesses (SMEs).  Although IFIs have worked to make Tajikistan’s banking sector more resilient, many of the same vulnerabilities that led to Tajikistan’s 2015 liquidity crisis remain.  There are no U.S. or European banks in Tajikistan.  Tajik banks have not had correspondent banking accounts at U.S. or European banks since 2012.  Russian and Kazakh banks clear virtually all of Tajikistan’s international payments.

Despite Tajikistan’s March 2, 2013 accession to the World Trade Organization (WTO), contract sanctity and adequate intellectual property right protections remain elusive.  The Tajik government has not fully engaged with international stakeholders to provide these protections.  The Tajik government has also imposed arbitrary trade policy to protect fledgling, domestic industries without notifying its partners, as occurred with its ban on imported chicken meat in 2017.  It continues to develop its WTO post-accession plan, which requires adaptation and amendment of the legislation and regulation aspects for the post-accession period.  Tajikistan is still considering joining the Russian-led Eurasian Economic Union.  Should it apply for and receive membership, U.S. firms could experience higher trade tariffs.

Consumption is a major driver of Tajikistan’s GDP growth and household purchase power relies on migrant remittance flows, mostly from Russia where about one million labor migrants reside.  This reality heavily exposes Tajikistan’s economic performance to external shocks, especially to those from Russia.

Despite these challenges and risks to potential investors, Tajikistan is in the midst of historical opportunities.  Some economists believe the Tajik government recognizes the harm its tax and customs policies, as well as its fragile banking sector, pose to economic growth, and understand they will never finish Roghun’s construction without sustainable economic, structural changes.  Other experts are optimistic that improved regional cooperation might lead to supply and value chains and customs and standards harmonization.  For instance, Tajikistan and Uzbekistan signed a strategic partnership agreement in August 2018.  The Uzbekistan-Tajikistan energy and consumer trades have already experienced a surge since improved ties.