VZCZCXRO3478
RR RUEHLN RUEHVK RUEHYG
DE RUEHDBU #1154/01 2600501
ZNR UUUUU ZZH
R 160501Z SEP 08
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 0987
INFO RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0220
RUEHBUL/AMEMBASSY KABUL 0255
RUEHNE/AMEMBASSY NEW DELHI 0173

UNCLAS SECTION 01 OF 02 DUSHANBE 001154 
 
SIPDIS 
SENSITIVE 
 
DEPARTMENT FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: ECON PGOV TI
SUBJECT: TAJIKISTAN - NORTHERN REGION'S ISOLATION WILL END, SOMEDAY 
 
¶1. (U) This message is sensitive but unclassified.  Please protect 
accordingly. 
 
¶2. (SBU) Summary: The isolation of Tajikistan's second city and 
historic leading economic center will continue to retard the 
country's economic development.  Khujand suffers from chronic 
electricity shortages and is often inaccessible by road from other 
parts of Tajikistan.  Efforts to connect Khujand to southern 
Tajikistan are progressing, but will not make much difference for at 
least the next year.  End Summary. 
 
GETTING TO KHUJAND 
 
¶3. (SBU) In late July Emboff drove to Khujand for economic 
consultations.  The trip north showed the difficulties in 
communication between Dushanbe and Khujand, Tajikistan's second 
largest city and center of the historically most economically 
advanced part of the country.  Khujand is effectively cut off from 
the rest of Tajikistan by high mountains and poor roads, and because 
of bad relations between Tajikistan and Uzbekistan; it is difficult 
for Tajiks to obtain Uzbek visas, so driving through Uzbekistan to 
Khujand is not a practical option for most.  Khujand is also cut off 
from the south's electricity grid; it depends on Uzbek power 
stations, and the power is cut off for most of the day in winter 
because of Tajikistan's unpaid debts to Uzbekistan. 
 
¶4. (SBU) The drive from Dushanbe to Khujand took 18 hours, much of 
it spent waiting at roadblocks while Chinese road construction crews 
worked on the road.  When the Chinese finish the road improvement 
project, due to happen in summer 2009, the trip may take only five 
or six hours [there is also a Chinese-financed power transmission 
project to connect Khujand with the southern grid, due to complete 
in 2009].  Long term maintenance of the road will be a problem; it 
passes over steep and crumbling mountainsides, and emboff 
encountered numerous small rock falls onto the new pavement.  The 
road has a serious weak link - the Iran-funded tunnel under Anzob 
pass.  The five- kilometer tunnel is unfinished, dark, choked with 
exhaust fumes and blocked by piles of construction materials.  So 
much water leaks into it that a small river runs out the downhill 
end, and pools form at several places deep enough to stop smaller 
cars.  Going through the Anzob tunnel is one of Tajikistan's more 
memorable experiences. 
 
¶5. (SBU) Until the road work is finished, thousands of Tajik 
travelers must endure hours of delay.  Hundreds of vehicles line up 
on the road north from Dushanbe in the evening, waiting for the road 
to open at nightfall.  The Government allowed the Chinese road 
construction company to close the road during daylight hours, and 
the contract apparently has no public relations clause.  There are 
no interpreters at the Chinese road blocks, and the road workers 
ignore Tajik police and citizens who wish to pass, regardless of the 
reason.  Emboff watched at one roadblock as a family tried to take 
an ill woman to hospital on the far side of the construction zone. 
The Chinese foreman brusquely waived them away, until the waiting 
crowd of Tajiks resolved the problem by gathering around him in a 
menacing manner; he got the hint (and broke into a profuse sweat), 
and let the ill woman's car pass. 
 
IN KHUJAND SOME IDEAS, DEVELOPMENTS, AND LIMITATIONS 
 
¶6. (SBU) Emboff met with Anvar Yakubov, head of the State 
Investments and State Property Department of Sughd Oblast.  Yakubov 
showed off the north's reputation for a modern outlook and new 
ideas, emphasizing the private sector and specifically small 
Qideas, emphasizing the private sector and specifically small 
businesses as central to regional economic growth.  He talked up the 
oblast's efforts to improve the agricultural sector, including new 
agricultural financing schemes, and claimed that the oblast was 
trying to reduce the share of land devoted to cotton. Of 275,000 
hectares of irrigated land in Sughd Oblast, only 63,000 hectares was 
used for cotton growth, and the oblast was rapidly increasing its 
production and exports of fruits and vegetables.  He described 
fruits and vegetables as the engine of agricultural growth in Sughd 
Oblast. 
 
¶7. (SBU) He also talked up the mining sector, noting northern 
Tajikistan's huge mineral resources, and the increasing involvement 
of Chinese companies in the sector.  The most interesting mineral 
resource for him was coal; Yakubov suggested the coal deposits at 
Fon Yagnob [soon to be the object of a USTDA-funded feasibility 
study] could become a key fuel source to power other industries in 
Sughd.  Lack of electrical power continued to be the great obstacle 
to Sughd's development. 
 
CHINA TRADE 
 
¶8. (SBU) A later meeting with Zebonisso Solieva, Development 
Director of Vavilon Transportation Company, highlighted imbalances 
 
DUSHANBE 00001154  002 OF 002 
 
 
in Tajikistan's foreign trade.  Vavilon is the dominant rail 
transport company in the oblast, bringing in cargoes from around 
Asia and Europe.  Solieva said China was the main trading partner 
for the oblast, but it was almost all imports - virtually nothing 
was exported to China.  This was in contrast to the large exports of 
aluminum and cotton from southern Tajikistan.  She said several 
years ago individual Tajiks would book single freight containers, 
but this had evolved, and now it was individuals arranging shipments 
of five containers per month full of "Chinese rubbish" - mainly 
building materials, consumer goods of all kinds, cement, and barley 
for beer production. 
 
¶9. (SBU) Solieva said exports were becoming more difficult to 
arrange because of delays in transit imposed by Uzbek authorities, 
and this especially impacted shipments of fruits and vegetables. 
She noted that there was a busy illegal trade in Chinese goods 
brought to Tajikistan and then smuggled into Uzbekistan. 
 
MICRO-FINANCE NO LONGER MICRO 
 
¶10. (SBU) Emboff visited a successful microfinance bank, which was 
graduating to larger loans and becoming a for-profit bank.  Gulbahor 
Mahkamova, deputy director of Imon International Microfinance Fund 
(originally funded by U.S. NGO Mercy Corps), said 35% of Imon's 
loans were to agriculture, farming and livestock entrepreneurs. 
Imon International was not working with cotton production at all, 
not out of principle but because of the complicated debt situation 
for cotton farmers.  65% of Imon loans were to clients engaged in 
trade, usually small shops.  Imon had grown from $1 million in 
capital when it was founded in 2000 to $25 million in its active 
loan portfolio, 26,000 clients, and average loan size of $1000. 
Imon started by loaning exclusively to women, but by 2008 women had 
become a minority of its clients, 48%.  She described Imon clients 
in trade as increasingly hard pressed by import shipment problems 
and the efficiency of larger retailers. 
 
NAKED ENTHUSIASM 
 
¶11. (SBU) In Kanibadam and Isfara Emboff met with small scale 
entrepreneurs.  Their mixed experiences were reflective of the 
difficulties of small businesses which Imon described.  One small 
fruit processor was being run out of business by electricity 
shortages and poor fruit harvests in the past two years.  He said 
his business survived on "naked enthusiasm."  Another entrepreneur, 
producing bottled water, also referred to the difficulty of 
maintaining his business when electricity frequently failed.  He 
cited lack of access to finance as another obstacle to expanding his 
successful business, and said it was impossible for him to stay in 
business and still pay his legal tax bill.  He estimated that 70% of 
the labor force from Kanibadam had gone to Russia to work, and noted 
increasing numbers of women and entire families leaving for Russia. 
The Deputy Chairman of the Kanibadam Hukumat noted all of these 
problems, but also noted that Tajiks who had done well in Russia 
sometimes returned and invested in Tajikistan; one local returned 
and built a $1.5 million brick factory in Kanibadam. 
 
COMMENT: STILL AN ECONOMIC ISLAND 
 
¶12. (SBU) Khujand is not the economic power house it once was. 
Closed borders, lack of electricity, and bad roads have taken their 
toll.  The road and power infrastructure projects funded by China 
will eventually help correct these problems, but for the next few 
years it will continue to be a region critically short of 
electricity, with a hinterland lacking sufficient agricultural 
Qelectricity, with a hinterland lacking sufficient agricultural 
financing, and a rural population eager to leave for work abroad. 
End Comment.