DEVELOPMENT CHALLENGES
Having declared its independence in 1991, Tajikistan’s economy demonstrated record growth rates averaging nearly 9% per annum during the 2000s. Classified as a “low income” country, Tajikistan’s GNI per capita has doubled between 2006 and 2010, increasing from US$400 to US$800. Although economic growth fell to 3.9% in 2009 during the peak of the financial crisis due to a drastic fall in remittances and foreign direct investment (FDI), a timely response and generally good macroeconomic management helped the country to recover slowly. Nevertheless, the country remains the poorest in the region of Eastern Europe and Central Asia, with a “medium” Human Development Index (HDI) of 0.607, placing Tajikistan in 127th place of 187 countries. The country faces significant development challenges.
Poverty and inequality
Although poverty has gradually decreased from 87% in 1999, it was still very high in 2009 at 47.2%. A large proportion of the population is considered poor or at risk of poverty, and over 20% are considered “extremely poor”, defined as living on less than US$1.25 per day. Moreover, there are large and persistent disparities between sub-regions and population groups (women are particularly vulnerable to poverty). Rural areas account for over 70% of the national poverty incidence.
Lack of employment opportunities, labour migration, and heavy reliance on remittances
According to official national statistics, registered unemployment is low, accounting for only 2.1% of the workforce in 2010, and has remained relatively constant over the past decade. However, the labour participation rate in 2009 was only 59%. Moreover, unemployment remains generally higher for women than for men, and the majority of women still occupy lower-paid jobs, a leading cause of inequality and gender pay gap. Many women also work in the informal sector, where they have little or no job security and social protection. In the same vein, youth unemployment has worsened and is about twice as high as overall unemployment. Migration has been used as a compensatory scheme for this lack of employment opportunities. In fact, remittances are a vital source of income for the poorest and most vulnerable Tajik families and, prior to the economic crisis, accounted for 46% of GDP. However, since the crisis, remittances have fallen by an estimated 40-50%, and the number of returning migrants soared, with shrinking construction sectors in the Russian Federation and Kazakhstan.
Weak public administration
Local public institutions in Tajikistan remain poorly developed, lacking the capacity and resources to provide adequate social and community services. Moreover, there is a complex and conflicting framework of roles and relationships between levels of government, which limits transparency and accountability. Poor governance, in turn, creates room for rent-seeking behaviour in resource allocation, creates uncertainties in the business environment, discourages FDI, reinforces social exclusion, and impedes social and human development.
Skills gap
Tajikistan has achieved 100% adult literacy, with high gross secondary school enrolment rates (less than 85%). Yet school attendance has declined by 20% among 13-17 year olds, with girls having an 8% higher nonattendance rate than boys. In addition, the educational system suffers from rapidly depreciating infrastructure (80% of schools require repairs), short supply of qualified personnel (40% of teachers do not have higher education), and misalignment of educational programmes with job market realities. As a result, millions of young people lack the skills required for employment in the changing economy.
KEY TRADE ISSUES
Product concentration, weak competitiveness, low productive capacity and trade deficit
The Tajik economy is mainly based on raw metal extraction and agriculture (including cotton), despite renewed efforts to increase value-added production through the development of the textiles and clothing industry by making use of locally grown cotton. The range of other internationally competitive products is small, due to the weak productive capacity of enterprises. The country’s top three export items (aluminium, cotton fibre, and electricity) represent nearly three-quarters of total exports. Moreover, existing trade support institutions (TSIs) in the country have limited capacities to provide the services necessary for enterprises, in particular SMEs, to increase their international competitiveness. Relying on imports of fossil fuels, as well as higher value-added products (vehicles, machines, apparel and footwear), Tajikistan suffers from a wide trade deficit, with imports surpassing exports 2.7 times.
Market concentration and WTO accession
The level of market concentration is also high, with the top five markets (Russian Federation, China, Turkey, Iran, and Uzbekistan) accounting for over 55% of total exports in 2009. This dependence on natural resources and selected markets makes the country very vulnerable to fluctuations in commodity prices and foreign demand based on political and economic trends in other economies. As a result, there is a pressing need to finalize the WTO accession process (which began in 2001), in order for the country to become better integrated into the world economy and diversify its market base.
Limited access to finance
Tajik businesses, in particular SMEs, are significantly constrained by their lack of access to trade finance, which is hindered by high interest rates and collateral requirements, underdeveloped guarantee schemes, and limited sources of long-term financing. The financial system is not well integrated globally, with limited diversification of financial products. Tajikistan is also rated a 7 (out of 7) on the OECD Country Risk Classification, indicating a high risk to service its external debt. As a result, Tajikistan has been unable to attract much FDI, and FDI inflows have been steadily decreasing since 2006, from 12% of GDP to 0% in 2009 and 2010.
Cumbersome regulatory and business environment
The business climate in Tajikistan is among the most adverse in the world, with the country ranked 147th and 177th of 183 on the World Bank’s respective “ease of doing business” and “trading across borders” indicators in 2012. In particular, Tajikistan is among the ten most difficult countries in obtaining customs clearances, as a result of its very slow, unpredictable, cumbersome and costly border procedures. For example, it takes 82 days to export, and the cost of exporting a container from Tajikistan is US$3,850. The high transaction costs and long delays in trade operations make it difficult and risky to export certain types of goods, like perishable fruits and vegetables, where Tajikistan could otherwise have a competitive advantage.
Weak physical infrastructure
Tajikistan is landlocked, mountainous and located far from seaports. This isolation restricts the country’s access to world markets and raises costs for the movement of goods. Tajikistan is at a further disadvantage due to its underdeveloped trade-related infrastructure, including transport and telecommunications links, freight terminals, storage capacities, and border crossing facilities. Although some progress has been made in transport infrastructure development, it has been limited, since improving infrastructure involves large investments and takes time.
Underdeveloped quality management infrastructure
The quality management infrastructure is also little developed, leaving few possibilities for local exporters to ensure and to demonstrate the conformity of their goods with international standards.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the United Nations Development Assistance Framework for Tajikistan 2010-2015; the National Development Strategy of the Republic of Tajikistan for the Period to 2015; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; the 2010 UNDP Aid for Trade Regional Review for the Countries of the United Nations’ Special Programme for the Economies of Central Asia (SPECA): Trade and Human Development; and the 2011 OECD report on “Central Asia Competitiveness Outlook”.