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FM AMEMBASSY DUSHANBE
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RUEHVEN/USMISSION USOSCE 1891
RUCPDOC/USDOC WASHDC 0126

UNCLAS SECTION 01 OF 10 DUSHANBE 000125 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR SCA/CEN (GEHRENBECK), EB/IFD/OIA (HATCHER), EUR/ACE, DEPT FOR USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB OPIC USTR TI
SUBJECT: 2007 INVESTMENT CLIMATE STATEMENT FOR TAJIKISTAN 
 
REF: STATE 06 178303 
 
DUSHANBE 00000125  001.2 OF 010 
 
 
¶1. (U) Following is our submission per the referenced telegram 
for the 2007 Investment Climate Statement for Tajikistan. 
 
---------- 
BEGIN TEXT 
---------- 
2006 INVESTMENT CLIMATE STATEMENT -- TAJIKISTAN 
Tajikistan presents selected opportunities for savvy investors 
who are willing to put in significant research and effort into 
market development activities.  Tajikistan lagged behind other 
Soviet republics economically and remains the poorest of the 
former Soviet republics and one of the poorest countries in the 
world.  The Tajik government has shown interest in attracting 
foreign investment but seems unsure of how to implement much 
needed economic reforms, including the incorporation of the 
country's considerable gray economy and sizeable remittances. 
The Tajik government has committed to addressing Tajikistan's 
internal and external isolation, but progress is slow.  In 
addition, corruption and rent-seeking in Tajikistan is still 
high.  Until Tajikistan addresses internal infrastructure 
impediments to investment, the system will not attract or 
support significant growth in Foreign Direct Investment. 
 
Openness to Foreign Investment 
----------------------------------- 
Although the Government of Tajikistan is hungry for foreign 
investments, through 2004 it was only able to attract on average 
$27 million per annum.   President Rahmonov has made numerous 
public and private statements, calling for foreign investment, 
particularly in the hydropower sector.  However, his 
administration has yet to fully implement key reforms and 
regulations to create an attractive business climate.  The Tajik 
Government still burdens the private sector with unnecessary 
costs and creates substantial uncertainty and risk through 
non-transparent practices and unjustified barriers to 
competition. 
 
Major opportunities for investment exist in the hydropower, food 
processing, construction, and consumer goods sectors. 
 
To accelerate flow of foreign investments the Government of 
Tajikistan adopted a Law on Foreign Investments in 1992. 
Although this law establishes the general investment conditions, 
it has many gaps and contradicts other legislative acts. 
 
According to existing legislation, foreign investments can be 
made through acquisitions, mergers, and takeovers by: 
 
-       Owning a share in existing companies, either jointly with 
other Tajik companies or Tajik citizens; 
-       Creating fully foreign-owned companies under the laws of 
Tajikistan; 
-       Acquiring assets, including shares and other securities; 
-       Acquiring the right for use of land and other mineral 
resources, as well as exercising other property rights either 
independently or in shared with other Tajik companies and 
citizens of Tajikistan; 
-       Concluding agreements with legal entities and citizens of 
Tajikistan providing for other forms of foreign investment 
activity; 
 
The judicial system recognizes sanctity of contracts; however 
contract enforcement is poor, due in part to general inadequate 
legal awareness and a non-independent court system.  While 
Tajikistan is party to a number of arbitration agreements and 
conventions, it does not have its own internationally recognized 
arbitration system.  The courts do not always respect or uphold 
international arbitration rulings. 
 
The Tajik Government's Economic Development Strategy for 
2005-2015 emphasizes economic and industrial growth.  The 
Strategy has no discriminatory effects on foreign-owned 
 
DUSHANBE 00000125  002.2 OF 010 
 
 
investors.  According to the Civil Code (Article 1) there are no 
legal discriminations against foreign companies and foreign 
entities.  Practically all international agreements of 
Tajikistan have a provision for most favored nations regime 
(climate). 
 
Foreign investors can acquire up to 50-year land-use rights, 
although all land belongs to the state.  There are no legal 
limitations for foreign investors to buy shares on the local 
stock exchange.  The law on foreign investments guarantees 
foreign investors' right to buy shares on the local market, 
according to the procedures set forth by the Ministry of 
Finance.  Foreign investors' activity on the stock exchange is 
regulated by the Law on Security and Exchanges which in turn 
refers to the Law on Foreign Investments.  The foreign 
investments law has no articles that regulate professional 
activity of foreign investors on stock exchange. 
 
In December 2006, the Government of Tajikistan created a new 
Committee on Investments and State Property.  Top officials 
claim this will be dedicated to attracting foreign investment, 
but as of January 2007, no decisions regarding the committee's 
authority have been made. 
 
There are no established criteria to screen investment 
proposals.  Instead of working with delegated investment 
promotion agency, a potential investor has to go through a 
lengthy screening process by all concerned government agencies. 
In practice, a proposed statement of foreign investments 
forwarded to the Government of Tajikistan is circulated among 
the relevant government offices and ministries with instruction 
to review and express their formal no-objection statement.  If a 
certain ministry of the government objects to the proposed 
investment activity statement it forwards an official note to 
the attention of the Government.  The criteria for screening 
include a background check on the company, person(s) 
representing the company, and identification of a financial 
source to comply with anti money-laundering regulations.  Much 
of this could change when the investments committee is up and 
running. 
 
In general, privatization of small and medium enterprises is 
complete.  The privatization process began during the civil war 
(1992-1997) which limited potential international owners 
exposure and access to small and medium enterprises. 
Privatization of state property still continues, and although 
there are no limitations on foreign investor participation in 
privatization of state owned assets, in many circumstances the 
decisions are made in favor of selected interest groups through 
behind-the-scene arrangements.   Some of the largest 
enterprises, belonging to Tajikistan's transportation, 
infrastructure and electricity distribution and maintenance 
sectors, are still government-owned but are planned for 
restructuring. 
 
There is no discrimination against foreign investors at the time 
of the initial investment or after the investment is made. 
Current investment law and tax code provide for a number of 
incentives, including a waiver on taxation on initial 
investment, and Value Added Tax-free importation of industrial 
equipment.  Companies may have a difficult time actually 
receiving these tax breaks, however, due to poor implementation 
of taxation regulations.  Companies with foreign investments are 
treated equally as domestic companies in terms of access to and 
procedures for obtaining licenses, approvals and procurements. 
 
There are no laws or regulations specifically authorizing 
private firms to adopt articles of incorporation or association 
which limit or prohibit foreign investment, participation, or 
control.  Also, there are no other practices by private firms to 
restrict foreign investment, participation in, or control of 
domestic enterprises. 
 
 
DUSHANBE 00000125  003.2 OF 010 
 
 
The Tajik economy began its rapid growth at 8-10% per annum in 
¶2000.  Since then, regulation and taxation are still under 
reform.  Economic indicators remain below the benchmarks of 
1991, when Tajikistan gained its independence.  The government 
has increased revenue collection for its social expenditures, 
although investments in health and education remain extremely 
low.  In addition, non-transparent administration and corruption 
in tax agencies results in high-level informalities.  The tax 
burden is placed on the private sector and companies who do 
actually comply, resulting in distorted competition. 
 
Although bank deposits in 2006 increased by almost 60% on a 
year-to-year basis, the informal economy is still quite 
substantial.  According to some estimates, it is approximately 
$1 billion, one-third the size of official Gross Domestic 
Product. 
 
Conversion and Transfer Policies 
----------------------------------- 
Currently Tajikistan does not actively restrict funds conversion 
or transfer, although the National Bank has been preparing a 
package of new regulations on this topic for two years. 
However, less developed and strictly controlled banking 
infrastructure with limited capital present obstacles for 
investors in terms of local sources of financing.  Currency can 
be freely exchanged; however it is often difficult to conduct 
large currency transactions, due to limited amount of foreign 
currencies available in the domestic financial market. 
Investors are free to import currency. 
Starting in 2006, the minimum regulating capital for commercials 
banks was $5 million.  All banking institutions (9 commercial 
banks, and one branch of Iranian Tijorat bank) fulfilled this 
requirement. 
 
Expropriation and Compensation 
----------------------------------- 
There are no recent cases of the government expropriating 
commercial property. The Law on Foreign Investments details the 
types of actions that can be taken with regard to expropriation 
of property. The Law states that investors are to be compensated 
for expropriated property, but compensation levels are likely to 
be minimal. The sectors most likely to face expropriation are 
monopolies where the state controls almost all of the market. 
 
Dispute Settlement 
----------------------------------- 
In official pronouncements, the Tajik government recognizes the 
value of the rule of law, but has not demonstrated a clear 
understanding of its importance to investors. The international 
community has encouraged Tajikistan to improve its legal system 
with mixed results. Many well-written laws have been passed, but 
implementation and consistent interpretation lag behind. The 
Tajik government does not openly publish laws and regulations, 
and few people, especially small business owners, are aware of 
their rights and responsibilities. Further compounding the 
problem is a weak judiciary that is ill equipped to defend the 
interests of investors. 
In 2005-2006, one American company was involved in an investment 
dispute with a state-owned enterprise.  In all hearings and 
appeals, the court system has ruled against the American company 
in favor of the state-owned company.  The case is in the final 
stages of the appeals process in foreign arbitration.  This is 
the first investment dispute concerning an American company, and 
does not reflect a trend, but in past years, investors from The 
Netherlands, Switzerland, Italy and Iran among other countries 
have been involved in legal disputes.  A Norwegian company 
successfully settled a suit in foreign arbitration. 
Tajikistan does have well-written commercial and bankruptcy laws 
including rights for foreign creditors and investors and 
bankruptcy legislation revised in 2005.   The country's contract 
law is modeled on European law.  These laws are regulated under 
the country's civil code; however, they are not always enforced 
in the court system. 
 
DUSHANBE 00000125  004.2 OF 010 
 
 
Tajikistan is just starting to develop an Institute of 
International Arbitration.  It has signed bilateral agreements 
with several countries on arbitration and investment disputes. 
However, these agreements are not always enforced or recognized. 
 Tajikistan does not have a bilateral agreement with the United 
States. 
In 1993 Tajikistan became a member of the International 
Association on Investment Guarantees as well as the 
International Center for the Settlement of Investment Disputes 
(Washington Convention).  Tajikistan is not a party to the New 
York Convention of 1958 on the Recognition and Enforcement of 
Foreign Arbitral Awards. 
 
Performance Requirements/Incentives 
----------------------------------- 
Joint stock companies with foreign investments receive 
significant tax incentives that are not offered to private 
companies with domestic investments. The government does not 
formally impose performance requirements as a condition for 
establishing, maintaining, or expanding investment. There are 
few requirements for locally owned shares or reduced foreign 
sales over time. While there is no requirement to "buy locally," 
it is encouraged. Under the Law on Foreign Investment, not less 
than 70% of employees in foreign-owned enterprises must be local 
employees. 
The government does not impose geographic restrictions or 
conditions, but the topography and poor infrastructure of the 
country pose their own de facto restrictions. Transportation is 
difficult. Roads within Dushanbe and Khujand are substandard 
even by regional standards, and roads outside of major 
population centers are generally unpaved and poorly maintained. 
Weather also impacts travel, making overland travel to parts of 
the country (e.g., Gorno Badakshan and Khujand via Anzob Pass) 
impossible for much of the year. Overland import/export requires 
patience and ingenuity as customs agents at borders and at 
internal checkpoints frequently operate on the principle that 
they constitute an assumed cost of doing business. 
 
Right to Private Ownership and Establishment 
----------------------------------- 
The government wants to encourage business development but faces 
major obstacles in doing so, including its own practices. On the 
one hand, private entities may establish and own businesses and 
engage in almost all forms of remunerative activity. Foreign 
entities may establish, acquire, and dispose of interests in 
business enterprises. On the other hand, the old Soviet 
mentality still negatively impacts businesses. The average 
government inspector believes that certain activities are not 
permitted unless they are expressly allowed, and since laws are 
neither published nor uniformly applied and interpreted, 
businesspeople often find Tajikistan frustrating. 
Tajikstandart is the government agency that handles 
certifications of goods and services, calibration and 
accreditation of testing laboratories, as well as supervises 
compliance with state standards requirements. Tajikstandart does 
not publish its fees for licenses and certificates, nor does it 
publish the requirements necessary to run a business. As a 
result, businesspeople are vulnerable to individual tax 
inspectors' interpretations of the requirements and the prices 
for them. 
In addition, investors may need to work creatively to deal with 
unofficial barriers to success. Informal networks of clan-based, 
interrelated suppliers often exist, forcing would-be investors 
to "buy in" to the system. This hinders competition and 
sometimes constrains new investors from fully participating. 
The government faces a daunting task to improve the operating 
environment. Any restructuring must be implemented at each 
sub-governmental level for each area of reform (communication, 
expectations and patronage system, and so on). The Tajik 
government has begun reviewing these weaknesses and is making 
some improvements. 
 
Protection of Property Rights 
 
DUSHANBE 00000125  005.2 OF 010 
 
 
----------------------------------- 
Undeveloped legal avenues for dispute resolution create a weak 
environment for property rights protection in Tajikistan. 
All land belongs to the state, and there are significant 
restrictions on using property titles as collateral.  The World 
Bank has been working for several years to develop a mortgage 
program in Tajikistan, it is expected that the draft of mortgage 
law will be completed in 2007. 
Even when secured interests in property do exist, enforcement 
remains an issue.  Investors should be aware that establishing 
title may be a more involved process than in western countries, 
as it is often unclear who owns title, making it more difficult 
to effectively transfer or acquire title.  A system to record, 
protect and facilitate acquisition and disposition of property 
exists but would benefit from improvement.  After many banks 
failed or nearly failed as a result of the high default rate on 
mortgages, they began a policy of taking upwards of 30% off the 
top in service fees, with interest rates for repayment ranging 
from 12-18%. Finally, the legal system is not adept at quickly 
and efficiently settling disputes. 
An erstwhile member of key international agreements on 
international property rights, Tajikistan affords little real 
protections for patents, copyrights, trademarks and other 
intellectual property.  However, with United States government 
assistance, the drafting of Part III of the Civil Code that 
addresses intellectual property rights has been completed.  In 
addition, Tajikistan has taken significant steps over the past 
year to protect intellectual property, including: an amendment 
to the Law on Intellectual Property to protect copyright owners 
from Internet theft; a new office dealing with intellectual 
property violations in the Ministry of Interior; and a November 
parliamentary agreement to join the Rome Convention for the 
protection of intellectual property. 
 
Transparency of the Regulatory System 
----------------------------------- 
Tajikistan does not yet use transparent policies or effective 
laws to foster competition; cronyism, nepotism and corruption 
all work to create a business environment that favors those with 
connections to the government.  Tajikistan's regulatory system 
lacks transparency and poses a serious impediment to businesses' 
operational abilities.  Regulators and officials often apply 
laws arbitrarily, and are frequently unable or unwilling to make 
decisions without a supervisor's permission, leading to lengthy 
delays.  Transparent executive documents are frequently 
inaccessible, leaving businesses and investors in the dark as to 
the rules of a particular game. 
Tajikistan's tax code offers a sound legal basis for the tax 
system; however, it is undermined by inconsistent application 
that impedes development of small and medium enterprises.  The 
tax code came into effect January 2005, and is compliant with 
World Trade Organization standards. 
Tajikistan is also working towards international accounting 
norms; however, these have yet to be implemented. 
A new inspections law signed in 2006 could significantly reduce 
the hassles associated with government agencies patting down 
enterprises for money, if implemented properly. 
Structural problems aside, the Tajik government needs to convey 
its goals and procedures to the inspectors and other government 
employees who interact with businesses daily.  Bureaucratic 
hassles are common, and as long as Tajikstandart, the agency 
responsible for licenses and certificates, refuses to publish 
requirements for specific enterprises and prices for required 
documents, businesses will find it challenging to adequately 
cost such fees, and the mysteriousness of the requirements may 
leave businesses vulnerable to investigations of alleged 
violations. 
 
Efficient Capital Markets and Portfolio Investment 
----------------------------------- 
 
Tajikistan's nascent banking sector faces numerous challenges: 
insufficient capital, limited banking services, mistrust as a 
 
DUSHANBE 00000125  006.2 OF 010 
 
 
result of banking system crisis in early 1990's.  The banking 
structure in Tajikistan is two-tiered - National Bank of 
Tajikistan performs central bank functions, and commercial banks 
represent the second level.  The national currency, the somoni, 
was introduced in 1995. 
 
Total value of regulatory capital of all commercial banks in 
Tajikistan is approximately $90 million.  Estimated net worth of 
top five commercial banks is below: 
 
Orion Bank              58,8 million Somoni ($17.1 million) 
AgroInvestBonk          52.4 million Somoni ($15.2 million 
TajikSodirot Bank       39,89 million Somoni ($11.6 million) 
Tajprom Bank            28.52 million Somoni ($8.3 million) 
Sohibor Bank            18.27 million Somoni ($5.3 million) 
 
Five banks are public and three banks are non-public joint stock 
companies.  All banks, except for Amonat Bank (State Savings 
Bank) are privately owned. 
 
The banking sector received a boost from a capital amnesty held 
in 2003.  According to data from the National Bank of Tajikistan 
more than $190 million (USD equivalent) was transferred to 
special tax-free accounts set up in several commercial banks in 
Tajikistan. 
While over $1 billion in foreign remittances flowed through the 
banking system in 2006, banks have difficulty luring consumers 
to deposit their funds into savings accounts that could be used 
for economic investment.  Having lost all their savings in the 
Soviet Union to the Russia ruble conversion in 1993, few people 
trust banks and hence hold money in their homes.  Intractable 
agricultural debts of up to $300 million hurt the overall 
confidence in the banking sector.  However, the increase in 
deposits over the past year reflects growing confidence in the 
banking system.  Personal deposits continue to increase and 
totaled approximately $250 million in October 2006, seven times 
greater than in 2003.  Still, a large number of Tajik migrant 
workers use informal money transfer channels, including 
traveling with cash. 
The National Bank has launched a campaign to encourage more 
Tajiks to open accounts, and although rising, the rate of 
consumer savings accounts remains low.  As a result, few 
investors secure business or personal loans through banks partly 
due to high interest rates, and capital remains tight.  Local 
commercial banks issue 12-month loans worth more than $100,000 
at 24% annual percentage rate, prohibitively expensive for most 
local customers to develop a new business.  Interest on smaller, 
shorter term loans reaches 36% annual percentage rate.  Checking 
accounts do exist but are not widely used due to strict 
requirements on cash withdrawal procedures. 
 
The private sector has access to micro-credit, commercial 
credit, and factoring instruments.  Some banks provide trade 
financing services as well.  In an effort to reduce barriers to 
competition, the Government of Tajikistan has paved the way for 
non-bank financial organizations and commercial microfinance. 
However, there is no credit bureau; and much work is needed in 
strengthening creditor and shareholder rights.  Performance on 
micro-credit loans exceeds 90%; business loans also perform well. 
 
The securities market in Tajikistan is under-developed; no 
regulatory system exists to encourage and to facilitate 
portfolio investment. 
There are no known cross-shareholding or stable shareholder 
arrangements. Hostile takeovers are rare, although there are no 
written protections against foreign takeovers.  State 
authorities use selective application of laws and regulations to 
take over or completely shut down companies. 
The stock market in Tajikistan was founded in 1994. Since then, 
it has foundered due to a lack of new financial instruments. In 
2000, the Government of Tajikistan established a Central Share 
Registry within the Ministry of Finance of Tajikistan. The 
Registry records, monitors, and facilitates share purchase and 
 
DUSHANBE 00000125  007.2 OF 010 
 
 
sale for more than 400 stock companies. The government issues 
treasury bills to cover budget deficits, using local banks to 
cover the loans. 
 
Political Violence 
----------------------------------- 
 
Political violence in Tajikistan is minimal.  The Civil War 
ended in 1997 and since then, the situation has stabilized 
considerably.  All factions signed a peace agreement and the 
government incorporated members of the opposition into a 
multi-party system.  The Tajik government is anxious to attract 
foreign investment and has worked to minimize the impact of 
political discord on foreign investors.  President Rahmonov has 
taken measures to consolidate his power base and eliminate 
potential threats.  With the civil war in recent memory, the 
people of Tajikistan are keen on maintaining peace and there 
have been no reported incidents of significant political 
violence in 2005.  The November 2006 Presidential Election took 
place with no political violence or public demonstrations. 
 
Tajikistan sometimes serves as a transit country for extremist 
terrorist groups.  Many terrorists use Tajikistan's uncontrolled 
mountainous regions as a safe haven, but evidence suggests they 
are no longer politically active.  Narcotics trafficking from 
Afghanistan is also significant. 
 
Corruption 
----------------------------------- 
As in previous years, the 2006 Transparency International 
Corruption Perceptions Index ranked Tajikistan as the 15th most 
corrupt nation out of 163 surveyed.  Anemic anti-corruption 
efforts from the Tajik government and the United Nations have 
proven ineffective.  Extremely low official salaries have forced 
many Tajiks to look for other means of making ends meet.  Buying 
a job position is a norm, and people frequently bribe superiors 
for promotions.  Cultural expectations play a role as well: 
people are expected to share their good fortune with superiors 
and extended family, and nepotism or other favors for 
clan-members, extended family or superiors are commonplace. 
Endemic corruption stifles business by local and international 
investors.  Officials at any number of agencies expect payoffs 
for opening and running a business.  Although a signatory to the 
Organization for Economic Cooperation and Development Convention 
on Combating Bribery, and to the United Nations Convention 
against Corruption, corrupt practices are deeply embedded in 
every aspect of commercial dealings and calculating the actual 
cost is difficult. A new and untested Agency to Fight Corruption 
and Economic Crimes, reporting directly to the Presidential 
Administration, will monitor fiscal activity of individuals, 
banks and corporations. 
 
Bilateral Investment Agreements and Double Tax Treaties 
----------------------------------- 
Agreements on avoiding double taxation exist between Tajikistan 
and Russia, Belarus, Ukraine and Turkey, but not between 
Tajikistan and the United States.  There is an agreement between 
Tajikistan and the Netherlands on the "encouragement and mutual 
protection of investments."  Tajikistan is a member of the 
Eurasec trade organization, which provides loose regulation of 
trade among Central Asian states minus Turkmenistan, Russia, and 
Belarus. 
 
Overseas Private Investment Corporation and Other Investment 
Insurance Programs 
----------------------------------- 
Tajikistan is open to insurance and financing programs of the 
Overseas Private Investment Corporation. Thus far, Overseas 
Private Investment Corporation involvement in investments in 
Tajikistan has been limited to a beverage bottling project. 
Macroeconomic stability and a growing economy provides for a 
number of opportunities for OPIC insurance and financing. 
Tajikistan generally does not qualify for programs of the 
 
DUSHANBE 00000125  008.2 OF 010 
 
 
Export-Import Bank of the U.S. and are considered on a 
case-by-case basis. Opportunities exist in infrastructure 
projects, aircraft export financing and agricultural machinery, 
and food processing. 
 
Labor 
----------------------------------- 
Due to a crumbling and corrupt education system, Tajikistan's 
labor force is becoming increasingly less educated and trained, 
and is ill-equipped to deal with Western standards of customer 
service and business.  International businesses and 
non-governmental organizations lament the small pool of 
qualified office staff for their organizations.  Corruption in 
secondary schools and universities means degrees do not reflect 
real professional training or competency.  The overall quality 
and availability of education have sharply declined and the 
younger generation will be less skilled and educated.  Although 
education is compulsory, many students must work in order to 
support their families.  Youth unemployment exceeds 60% in some 
rural areas. 
The official unemployment rate in Tajikistan is under 
approximately two percent, but the actual rate may be as high as 
40% nationwide with some areas with up to 60% unemployment. 
Government statistics show that the average salary per month is 
$27.  Nearly 60% of the population lives below the poverty line. 
 Many well-educated Tajiks have sought employment abroad because 
of greater job availability and higher wages.  Estimates of the 
number of labor migrants working outside Tajikistan (mainly in 
Russia) at any given time range from five hundred thousand to as 
high as one million.  Labor emigration leads to shortages in the 
workforce in parts of the country.  Migrant remittances account 
for 30-50 percent of Tajikistan's Gross Domestic Product. 
Tajikistan's high birth rate means that 50% of the population is 
less than 25 years old and if the trend continues, unemployment 
will increase. 
 
Nepotism and corruption play a large role in the labor market. 
Many of the higher prestige or more lucrative jobs require a 
"buy-in," leading to bribes to pay back the buy-in loan and 
continue to pay off supervisors and higher-ups. 
 
The labor market favors employers. Although technically, the 
majority of workers are unionized, most are not aware of their 
rights and few unions have the willpower or know-how to 
effectively advocate for workers' rights. 
Tajikistan is a party to 44 international labor conventions.  In 
June 2005, Tajikistan signed to the Worst Forms of Child Labor 
Convention, 1999 to eliminate child labor and protect children 
and young people.  The International Labor Organization notes 
that Tajikistan has not submitted reports due on the application 
of ratified Conventions in accordance with its Constitution in 
the past four years. 
 
Foreign Trade Zones/Free Ports 
----------------------------------- 
Tajikistan is a landlocked country whose neighbors demonstrate 
varying ability and interest in trade. Trade routes flow mainly 
through Uzbekistan, however, because of political reasons, 
Uzbekistan is not an ideal trading partner.  For example, there 
are no regular flights between the Uzbek and Tajik capitals, 
despite ready markets.  In some respects, however, the Tajiks 
have used this poor relationship as an excuse to avoid difficult 
but necessary improvements themselves. 
Some experts have suggested that Tajikistan look to Kyrgyzstan 
as a model.  While Kyrgyzstan's free trade agreement could be 
used as a model, Tajik-Kyrgyz trade is concentrated in the 
poorest oblast in Kyrgyzstan - not a motivating factor for the 
Tajiks.  There continue to be untapped opportunities for 
cooperation and development.  The government may be more willing 
to take the steps necessary to make Central Asia a more friendly 
trading ground. 
A new opening along the Chinese border in Kulma, Murgab District 
will help facilitate increased trade with China.  Transit times 
 
DUSHANBE 00000125  009.2 OF 010 
 
 
to the larger markets in Dushanbe remain long, however, and 
without upgrades in the transportation infrastructure, this new 
route will limit the potential from being realized.  Several 
international financial institutions are planning projects to 
improve the road system, and China is funding and building a 360 
km road from Dushanbe to the Uzbek border.  The United States 
Government is constructing a $30 million bridge linking 
Tajikistan and Afghanistan, connected to a new road financed by 
the Japanese, which will increase trade and help develop the 
economy in the south.  There is strong interest with 
Tajikistan's neighbors to the south to cooperate on energy 
trade. 
Although the Law on Free Trade Zones was enacted in 2004, the 
government has made no progress on implementation.  The law is 
designed to attract foreign capital, investments, and 
technology, and to develop Tajikistan's economic potential by 
setting favorable conditions for foreign investors including 
lower taxes, lower land leasing rates, lower duties on imports 
and exports, and special visa rules.  The government has yet to 
announce the locations, but it is likely these zones will be 
created in Sughd and Khatlon provinces, because of the 
geographical advantage for free flow of trade to Uzbekistan and 
Kyrgyzstan. 
World Trade Organization accession negotiations were launched in 
2004 after intensive preparatory work conducted by the Tajik 
government with the assistance from the U.S. Government and 
other donors.  In March 2004, the first round of multilateral 
negotiations on the accession of Tajikistan and a number of 
bilateral market access negotiations were conducted at the World 
Trade Organization Headquarters in Geneva.  The Tajik government 
remains committed to World Trade Organization accession and 
implementing the necessary reforms required as accession 
conditions.  Progress was made in 2005 on the Legislative Action 
Plan and Goods and Services Offers Market Access Negotiations. 
Working Party meetings on market access negotiations continued 
into 2006, moving Tajikistan closer to its integration into the 
world trading system. 
 
Foreign Direct Investment Statistics 
----------------------------------- 
 
According to data from the State Statistical Committee, total 
foreign direct investment (Foreign Direct Investment) in the 
first nine months of 2006 was $233.1 million.  Of this, $162 
million originated in the former Soviet states, mostly Russia, 
while $70.1 million came from outside countries.  In 2005, total 
Foreign Direct Investment was $54.5 million.  Between 1997 and 
2006, total Foreign Direct Investment equaled $497.3 million. 
In the first six months of 2006, the Foreign Direct Investment 
to Gross Domestic Product ratio equals 12.0.  In 2005, the 
Foreign Direct Investment to Gross Domestic Product ratio was 
2.4. 
 
The largest foreign direct investors for the first nine months 
in 2006 of are: 
 
Russia - $160.6 million 
Cyprus - $24.0 million 
United States - $18.6 million 
Great Britain - $15.7 million 
 
The top companies included in these investments (first nine 
months of 2006) are: 
 
Open Joint Stock Co. Sangtuda HPS 1 of Russia (Energy): $160.2 
million 
Sozidanie Ltd. of Cyprus (Construction): $20.4 million 
Joint Venture Takom of USA (Telecom): $9.7 million 
Joint Venture Zaravshan of Great Britain (Mining): $8.3 million 
Combined Joint Stock Co. Indigo of USA (Telecom): $4.6 million 
Closed Joint Stock Co. Guliston of Great Britain (Textiles): 
$3.9 million 
Closed Joint Stock Co. Babilon Mobile of USA (Telecom): $3.8 
 
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million 
Joint Venture Pakrut of Great Britain (Mining): $2.9 million 
 
Foreign Direct Investment by Sector (January - September 2006): 
 
Energy: $162.1 million 
Industry: $21.0 million 
Other: $20.5 million 
Trade: $10.0 million 
Communication: $8.3 million 
Services: $5.3 million 
Construction: $4.2 million 
Agriculture: $1.5 million 
Health: $0.1 million 
 
Several major foreign direct investors from Cyprus and United 
States are Tajik-held companies registered offshore.  Major 
Russian investment in the Sangtuda I dam project should continue 
into 2007, in addition to expected Iranian investment in 
Sangtuda II. 
 
Statements above reflect fully materialized projects.  Data on 
contracts for foreign-investment projects are not included in 
statements above.  Tajikistan has not made any direct 
investments abroad. 
JACOBSON