VZCZCXRO8522
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #0064/01 0160812
ZNR UUUUU ZZH
R 160812Z JAN 09
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 1346
INFO RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHINGTON DC
RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0285
RUEHBUL/AMEMBASSY KABUL 0394
RUEHBJ/AMEMBASSY BEIJING 0256
RUEAIIA/CIA WASHDC 0276
RUCPDOC/DEPARTMENT OF COMMERCE WASHINGTON DC 0111
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNS/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 10 DUSHANBE 000064 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR EB/IFD/OIA, SCA/CEN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR TI
 
SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT -- TAJIKISTAN 
 
Ref: 08 State 123907 
 
¶1. Tajikistan presents selected opportunities for savvy investors 
who are willing to put significant research and effort into market 
development.  Tajikistan, which lags behind most of its neighbors 
economically, remains not only the poorest of the former Soviet 
republics but one of the poorest countries in the world.  The Tajik 
Government relies largely on foreign state-led investment and loans 
from international financial institutions for major infrastructure 
projects.  The Government has shown interest in attracting broader 
foreign investment but seems unwilling or uncertain how to implement 
much needed economic reforms, including the incorporation of the 
country's considerable gray economy, streamlining the business 
registration process, rationalizing the country's tax codes, and 
dealing with Tajikistan's endemic corruption.  Even where the legal 
structure is favorable to attracting investment, the actual practice 
of the authorities discourages investors.  Until Tajikistan 
addresses these and other impediments to investment, it will not 
attract or support significant growth in foreign direct investment. 
 
Openness to Foreign Investment 
 
¶2. Although the Government of Tajikistan is hungry for foreign 
investments, private investment from abroad has been minimal.  The 
principal investors in recent years have been governments with 
geopolitical interests in the area, especially Russia, China, and 
Iran.  Those three countries were responsible for $317 million in 
investments in between January and October 2008.  Foreign direct 
investment from other sources totaled $145 million during the same 
period. 
 
¶3. President Rahmon has made numerous public and private statements 
calling for increased foreign investment, particularly in the 
hydropower sector.  However, his administration has yet to implement 
the key reforms and regulations necessary to create an attractive 
business climate.  Tajikistan's authorities focus their efforts on 
courting state-led investments from the country's perceived 
geopolitical friends rather than making conditions favorable to 
private investors from the West, the EU, or other countries. The 
Tajik Government burdens the private sector with unnecessary costs 
and creates substantial uncertainty and risk through non-transparent 
practices and unjustified barriers to competition. 
 
¶4. Major opportunities for investment exist in the hydropower, food 
processing, construction, textile, and consumer goods sectors, as 
well as natural resource extraction. 
 
A new Investment Law was signed in May 2007. 
 
¶5. According to the law, foreign investments can be made 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 
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. 
Qactivity. 
 
¶6. The judicial system recognizes sanctity of contracts in 
principal; however contract enforcement is poor, due in part to 
generally inadequate legal awareness and the court system's lack of 
independence.  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. 
 
¶7. The Tajik Government's Economic Development Strategy for 
2005-2015 emphasizes economic and industrial growth.  The Strategy 
has no discriminatory effects on foreign-owned investors.  According 
to the Civil Code (Article 1) there is no legal discrimination 
against foreign companies and entities.  Practically all of 
Tajikistan's international agreements have a provision for most 
favored nation status. 
 
 
DUSHANBE 00000064  002 OF 010 
 
 
¶8. Foreign investors can acquire up to 50-year land-use rights, 
although all land belongs to the state.  There are no legal 
limitations on foreign ownership or control of other property. 
 
¶9. Tajikistan's Committee on Investments and State Property, which 
was created in December 2006 with the aim of assisting investors, 
has so far done little to fulfill its mission.  Plans to create a 
"one-stop shop" for business registration as well as a website for 
foreign investors seeking information on opportunities in Tajikistan 
have not gotten off the ground yet. 
 
¶10. There are no established criteria for screening investment 
proposals.  Instead of working with a delegated investment promotion 
agency, a potential investor has to go through a lengthy screening 
process by all (potentially) 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 a formal no-objection statement.  If an office objects to 
the proposed investment activity statement it forwards an official 
note to the attention of the Government.  In principle, screening 
includes a background check on the company and its representatives 
as well as identification of a financial source to comply with anti 
money-laundering regulations. 
 
¶11. The government has embarked on an on-again, off-again process of 
privatizing state-owned companies.  Privatization of small and 
medium enterprises is mostly complete.  Because the privatization 
process began during the civil war (1992-1997), few international 
investors showed much interest.  Privatization of state property, 
particularly larger concerns, still continues; although there are no 
limitations on foreign participation, in many circumstances 
non-transparent decisions are made that favor investors with 
connections to the existing power structure.  Some of the largest 
enterprises, belonging to Tajikistan's transportation, 
infrastructure and electricity distribution and maintenance sectors, 
are still government-owned but are slated for restructuring. 
 
¶12. There is no legally-sanctioned 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 VAT-free importation of industrial equipment. 
Companies may have a difficult time actually realizing these 
benefits, however, due to poor implementation of taxation 
regulations and/or corrupt tax authorities.  In practice the onus of 
proving that an investment qualifies for the benefits is on the 
investor, and Tajik authorities are often skeptical.  In addition, 
President Rahmon pushes his government to increase tax revenue by 
unfairly taxing profitable companies.  Legally, companies with 
foreign investments are treated the same as domestic companies in 
obtaining licenses, approvals and procurements.  They may find, 
however, that Tajik authorities demand higher official and 
unofficial payments from them. 
 
¶13. There are no laws or regulations specifically authorizing 
Q13. There are no laws or regulations specifically authorizing 
private firms to adopt articles of incorporation or association that 
limit or prohibit foreign investment, participation, or control. 
There are no other practices by private firms to restrict foreign 
investment, participation in, or control of domestic enterprises. 
 
¶14. Although the Tajik economy began growing rapidly at 8-10% per 
annum in 2000, economic indicators remain below the benchmarks of 
1991, when Tajikistan gained its independence.  The government has 
increased revenue collection for its social expenditures, but 
investments in health and education remain extremely low.  In 
addition, as a result of non-transparent administration and 
corruption in tax agencies, the tax burden is placed on private 
sector companies that have a greater degree of compliance with 
regulations, resulting in distorted competition.  According to some 
sources, even well-meaning companies are forced to breach some tax 
legislation, since internal contradictions and draconian rules make 
it impossible to abide by all existing rules. 
 
 
¶15. Partly as a result of the global financial crisis, there has 
been some nervousness among depositors, and bank deposits (legal 
entities and personal) decreased by 27% from December 2007 to 
November 2008 (from $676 million to $494 million).  The informal 
 
DUSHANBE 00000064  003 OF 010 
 
 
economy is still quite substantial; according to some estimates, it 
may be as high as $2 billion, over one-third the size of official 
GDP.  The global financial crisis that began in late 2008 may 
continue to have a chilling effect on Tajikistan's nascent banking 
sector. 
 
Conversion and Transfer Policies 
 
¶16. Tajikistan does not actively restrict conversion or transfer of 
funds, although the National Bank has been preparing a package of 
new regulations on this topic for three years.  However, 
underdeveloped banking infrastructure, with strict government 
controls and limited capital, presents obstacles for investors in 
finding local sources of financing.  Although legal, it is often 
difficult in practice to conduct large currency transactions, due to 
the limited amount of foreign currency available in the domestic 
financial market.  Investors are free to import currency. 
 
¶17. The minimum regulatory capital for commercials banks is $5 
million.  All banking institutions (11 commercial banks and one 
branch of Iranian Tijorat bank) meet this requirement. 
 
Expropriation and Compensation 
 
¶18. The Law on Foreign Investments details the types of actions that 
can be taken with regard to expropriation of property.  There have 
been no known cases where foreign commercial entities have had their 
property seized, but there have been several recent cases of 
potential or actual state expropriation of other privately-owned 
property under dubious circumstances.  In one case, that of a 
foreign-owned church, the rationale appears to be political.  In 
another case involving the nationalization of a privately owned 
warehouse for storing natural gas, the reasons may have been more 
economic.  While the Law states that investors are to be reimbursed 
for expropriated property, actual compensation has been minimal in 
the cases noted above.  The sectors most likely to face 
expropriation are monopolies where the state controls almost all of 
the market. 
 
Dispute Settlement 
 
¶19. In official pronouncements, the Tajik government recognizes the 
value of the rule of law; in practice, however, it has not 
demonstrated a clear understanding of its importance to investors. 
The international community, including the United States, 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.  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. 
 
¶20. Despite this, foreign investors have found some relief in 
disputes involving Tajik entities.  In 2007, a trade dispute 
involving a U.S. company and a state-owned enterprise was resolved 
by the Tajik government paying off the full amount of the claim.  A 
Norwegian company successfully settled a suit in foreign 
arbitration.  So far, though, such cases have been very few. 
 
¶21. Tajikistan does have well-written commercial and bankruptcy 
laws.  The country's contract law is modeled on European law.  These 
laws are regulated under the country's civil code; however, they are 
Qlaws are regulated under the country's civil code; however, they are 
not always enforced in the court system. 
 
¶22. Tajikistan is just starting to develop an Institute of 
International Arbitration.  It has signed bilateral agreements with 
several countries on arbitration and investment disputes, but these 
agreements are not always enforced or recognized.  Tajikistan does 
not have a bilateral agreement with the United States. 
 
¶23. 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 
 
DUSHANBE 00000064  004 OF 010 
 
 
 
¶24. Current legislation provides the same tax and customs incentives 
to local and foreign investors.  In practice, however, companies 
with close connections to the government get preferential treatment. 
 The government does not formally impose performance requirements as 
formal a condition for establishing, maintaining, or expanding 
investment.  While there is no requirement to "buy locally," it is 
encouraged. 
 
¶25. The government does not impose geographic restrictions or 
conditions, but the topography and poor infrastructure of the 
country pose their own de facto restrictions. Roads within Dushanbe 
and Khujand are poor even by regional standards, and roads outside 
of major population centers are generally unpaved and poorly 
maintained.  A few major routes, such as that between Dushanbe and 
Khujand, are being renovated with foreign financing.  Weather also 
impacts travel, making overland travel to some parts of the country 
(e.g., the Gorno-Badakhshan Autonomous Oblast) impossible for some 
of the year.  Electric power production is well short of demand, 
especially in the winter.  For three to six months of the year, most 
parts of the country outside of Dushanbe are limited to a few hours 
of power each day.  Overland import/export requires patience and 
ingenuity as customs agents at borders and internal checkpoints 
frequently operate on the principle that they constitute an assumed 
cost of doing business. 
 
Right to Private Ownership and Establishment 
 
¶26. The government wants to encourage business development but faces 
major obstacles, including its own practices.  There is a major gulf 
between legislation that is ostensibly business-friendly and actual 
practices that are business-stifling.  In principle, 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.  In 
practice, however, the old Soviet mentality still prevails.  The 
average government inspector believes that activities are not 
permitted unless they are expressly allowed (or unless he is 
remunerated for adopting a more flexible interpretation), and since 
laws are neither published nor uniformly applied and interpreted, 
businesspeople often find Tajikistan frustrating. 
 
¶27. There are other unofficial barriers to success.  Informal 
networks of clan-based, interrelated suppliers often exist, forcing 
would-be investors to "buy in" to the system, hindering competition 
and sometimes constraining new investors from fully participating. 
 
¶28. 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.  While the Tajik 
government has begun reviewing these weaknesses and is making some 
improvements, the business environment remains difficult. 
 
Protection of Property Rights 
 
¶29. Undeveloped legal avenues for dispute resolution create a weak 
environment for property rights protection in Tajikistan. 
 
¶30. As noted above, all land belongs to the state, and there are 
significant restrictions on using property titles as collateral.  A 
revised Land Code submitted to the government last year providing 
Qrevised Land Code submitted to the government last year providing 
for the sale of land-use rights, an equivalent to buying and selling 
land, was changed at the last minute by an unknown official, leaving 
the issue confused.  Efforts are underway by donors to clarify the 
language.  The government also adopted mortgage legislation in 
December 2007 which may allow parties to use property as collateral. 
 In practice land use continues as before, however, because no legal 
mechanisms and procedures were developed to implement these new 
laws. 
 
¶31. 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, since ownership 
is often unclear.  A system to record, protect and facilitate 
acquisition and disposition of property exists but would benefit 
from improvement.  Most banks have temporarily halted much of their 
lending as a result of the financial crisis; in the past mortgage 
rates have been very high.  Finally, the legal system is not adept 
at quickly and efficiently settling disputes. 
 
DUSHANBE 00000064  005 OF 010 
 
 
 
¶32. Tajikistan affords few protections for patents, copyrights, 
trademarks and other intellectual property.  However, with United 
States government assistance, legislation addressing intellectual 
property rights is being revised.  In addition, Tajikistan has taken 
significant recent steps 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 parliamentary agreement to join the Rome Convention for the 
protection of intellectual property. 
 
Transparency of the Regulatory System 
 
¶33. 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 -- i.e., Presidential decrees, laws, Government orders, 
instructions, ministerial memos, and regulations -- are frequently 
inaccessible, leaving businesses and investors in the dark about the 
rules by which they should be abiding.  Furthermore, each Ministry 
has its own set of normative acts which are not published and may be 
contradictory to law and normative acts of other ministries. 
 
¶34. Tajikistan's tax code provides for 18 different types of taxes 
and numerous ways to calculate them.  In addition to the complexity 
of the regulations, economic development is further undermined by 
inconsistent application that impedes development of small and 
medium enterprises.  The tax code came into effect January 2005, and 
is compliant with WTO standards.  Last year the Government of 
Tajikistan declared a two-year moratorium on tax inspections, which 
government officials had routinely used to extort bribes from 
business owners. 
 
¶35. An inspections law signed in 2006 and promoted extensively by 
the International Finance Corporation has begun to reduce the 
practice of other government agencies shaking down enterprises for 
money, but reports of such incidents are still widespread. 
Tajikistan is also working towards international accounting norms; 
however, these have yet to be implemented. 
 
¶36. Tajikstandart is the government agency responsible for 
certifying goods and services, calibrating and accrediting testing 
laboratories, and supervising compliance with state standards. 
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.  Suggestions have been mooted to create 
"one-stop shops" for certifying businesses in various categories, 
but so far no concrete steps have been taken. 
 
¶37. 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.  As long as government 
Qemployees who interact with businesses daily.  As long as government 
inspectors continue to treat their positions as a license for 
rent-seeking -- and as long as the government tolerates such 
corruption -- Tajikistan will remain a difficult place for investors 
looking for clear rules and practices. 
 
Efficient Capital Markets and Portfolio Investment 
 
¶38. Tajikistan's nascent banking sector faces numerous challenges: 
insufficient capital, limited banking services, mistrust as a result 
of banking system crisis in early 1990s, and, more recently, fallout 
from the global financial crisis.  The banking structure in 
Tajikistan is two-tiered: the National Bank of Tajikistan performs 
central bank functions, while commercial banks represent the second 
level.  The national currency, the somoni, was introduced in 1999. 
 
¶39. The total value of regulatory capital of all commercial banks in 
Tajikistan as of October 2008 is $271 million (735,016,513 somoni), 
representing a 57% increase since 2007. 
 
¶40. Estimated net worth of the top three commercial banks is as 
 
DUSHANBE 00000064  006 OF 010 
 
 
follows: 
 
 - Orion Bank: 203 million somoni ($59.7 million) 
 - TojikSodirot Bank: 131 million somoni ($38.5 million) 
 - AgroInvest Bank: 111 million somoni ($32.6 million) 
 
¶41. There are 12 second tier banks in Tajikistan.  (The sole 
first-tier bank is the National Bank of Tajikistan.)  Five banks are 
public, open joint stock companies, while five are closed joint 
stock companies.  The remaining two banks, Tijorat Bank of Iran and 
Amonat Bank, are state-owned.  Three of the banks are foreign, 
including Tijorat, Kazcommercebank of Kazakhstan and First Micro 
Finance Bank of Tajikistan, partly owned by the Aga Khan Fund for 
Economic Development and the International Finance Corporation. 
 
¶42. Tajikistan's ratio of migrant labor remittances to GDP, standing 
at 50%, is the highest in the world.  Over the course of 2008, as 
many as a million Tajiks working abroad, primarily in Russia, sent 
$2.69 billion back to Tajikistan.  Although an ever greater share of 
remittances flow through the banking system, banks have limited 
success luring consumers to deposit their funds into savings 
accounts that could be used for economic investment.  Intractable 
agricultural debts over $500 million hurt the overall confidence in 
the banking sector.  Last year's scandal in which the National Bank 
misreported loans it had underwritten to cotton investors has not 
helped, although the International Monetary Fund reports that the 
Bank, which has been meeting its scheduled repayments to the IMF, 
has dramatically improved its accounting and cooperation.  An 
increase in deposits over 2007 may be offset by withdrawals in the 
face of the financial crisis (see above, under the first heading). 
Falling labor remittances may also hurt banks, which rely 
significantly on commissions from money transfers. 
 
¶43. Prior to the global financial crisis that indirectly hit Tajik 
banks in November 2008, with inflation running about 14%, local 
commercial banks were issuing 12-month loans worth more than 
$100,000 at 24% APR, prohibitively expensive for most local 
customers to develop a new business.  Interest on smaller, shorter 
term loans reached 36% APR. In addition, banking officials were 
known to ask for kickbacks in amounts up to 10% of the loan they 
approved.  Due to such high interest rates and low capital, few 
investors secure business or personal loans through banks; there are 
currently reports that many banks have stopped lending entirely due 
to fears of default as a result of the financial crisis.  Checking 
accounts do exist but are not widely used due to strict requirements 
on cash withdrawal procedures. 
 
¶44. 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. 
 
¶45. There is no securities market in Tajikistan; although formally 
Q45. There is no securities market in Tajikistan; although formally 
there is a department at the Ministry of Finance responsible for 
develop this market, it has little capacity to do so.  No regulatory 
system exists to encourage and to facilitate portfolio investment. 
 
¶46. There are no known cross-shareholding or stable shareholder 
arrangements.  Hostile takeovers are rare, although there are no 
written protections against them.  State authorities are known to 
selectively apply laws and regulations to take over or completely 
shut down companies. 
 
¶47. 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 established a Central Share Registry (CSR) 
within the Ministry of Finance.  The Registry records, monitors, and 
facilitates share purchase and 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 
 
¶48. Political violence in Tajikistan is minimal.  The security 
situation has stabilized significantly since the Civil War ended in 
 
DUSHANBE 00000064  007 OF 010 
 
 
¶1997.  All factions signed a peace agreement, and the government 
incorporated members of the opposition into a multi-party system -- 
although President Rahmon has since steadily removed opposition 
figures to consolidate his power.  The Tajik government has worked 
to minimize the impact of political discord on foreign investors. 
With the civil war in recent memory, the people of Tajikistan are 
keen to maintain peace, a factor sometimes adduced to explain the 
population's acceptance of the government's more egregious 
corruption. 
 
¶49. Tajikistan sometimes serves as a transit country for extremist 
terrorist groups.  Terrorists may use Tajikistan's uncontrolled 
mountainous regions as a safe haven, but evidence suggests they are 
no longer politically active in Tajikistan.  Narcotics trafficking 
from Afghanistan is significant. 
 
Corruption 
 
¶50. As in previous years, the 2008 Transparency International 
Corruption Perceptions Index ranked Tajikistan as very corrupt, 
placing it at 151st place on a list of 180 countries surveyed. 
Anemic anti-corruption efforts from the Tajik government have proven 
ineffective -- indeed, some anti-corruption units are ironically 
known to be particularly corrupt.  Extremely low official salaries 
do not help the situation, since they force many official employees 
to look for other means to make ends meet.  Buying a government 
position is the 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. 
 
¶51. As noted throughout this report, 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 OECD 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.  In 2007, 
President Rahmon created a new Agency to Fight Corruption and 
Economic Crimes, reporting directly to the Presidential 
Administration, to monitor fiscal activity of individuals, banks, 
and corporations.  This agency has still done little to fight 
corruption within government ranks, focusing instead on individual 
and corporate malfeasance. 
 
Bilateral Investment Agreements and Double Tax Treaties 
 
¶52. Agreements on avoiding double taxation exist between Tajikistan 
and Russia, Belarus, Ukraine, Azerbaijan, Turkey, and some other 
countries, but not between Tajikistan and the United States. 
Tajikistan is a member of the Eurasec trade organization, which 
provides loose regulation of trade among, Russia, Belarus, 
Kazakhstan, Kyrgyzstan, and Tajikistan. 
 
OPIC and Other Investment Insurance Programs 
 
¶53. Tajikistan is open to insurance and financing programs of the 
Overseas Private Investments Corporation (OPIC).  Thus far, OPIC's 
involvement in investments in Tajikistan has been limited to a 
beverage bottling project.  Assuming the financial crisis does not 
Qbeverage bottling project.  Assuming the financial crisis does not 
cause lasting damage to the nascent financial sector, Tajikistan's 
relative macroeconomic stability and a growing economy provide for a 
number of opportunities for OPIC insurance and financing. 
 
¶54. The Export-Import Bank of the U.S. considers projects on a 
case-by-case basis, although Tajikistan generally does not qualify 
for its programs.  Opportunities exist in infrastructure projects, 
aircraft export financing, agricultural machinery, and food 
processing. 
 
Labor 
 
¶55. Due to a crumbling and corrupt education system, Tajikistan's 
labor force is becoming increasingly less educated and trained, and 
is ill-equipped to provide Western standards of customer service and 
business.  International businesses and NGOs lament the small pool 
of qualified office staff for their organizations.  Some have 
brought in Chinese or Indian laborers for construction projects. 
 
DUSHANBE 00000064  008 OF 010 
 
 
Corruption in secondary schools and universities means degrees do 
not reflect real professional training or competency.  Although 
education is compulsory, many students must work in order to support 
their families.  Unemployment among younger Tajiks exceeds 60% in 
some rural areas. 
 
¶56. The official unemployment rate in Tajikistan is under two 
percent, but the actual rate may be as high as 40% nationwide, with 
some areas reaching 60%.  These high rates are offset by the 
approximately one million labor migrants who work overseas, mainly 
in Russia, although the financial crisis may force many of these 
workers to return home.  The average salary in Tajikistan has risen 
to $78.20 per month, but wages have not kept pace with inflation. 
According to the World Bank, 53% of the population lives below the 
poverty line and an additional 17% are considered "desperately 
poor."  Labor emigration leads to shortages in some skills.  The 
$2.69 billion in official migrant remittances pays for a high 
percentage of Tajikistan's growing appetite for imports, 
particularly foreign vehicles, construction materials, and food and 
consumer goods. 
 
¶57. Tajikistan's high birth rate means that 50% of the population is 
less than 25 years old; if the trend continues, unemployment will 
increase. 
 
¶58. Nepotism and corruption play a large role in the labor market. 
Many of the higher prestige or more lucrative jobs require a 
"buy-in," as well as continuing payments to supervisors, leading the 
job-holder to look for ways to pay back that sum by demand bribes or 
engaging in other corrupt activity. 
 
¶59. 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 will or know-how to effectively 
advocate for workers' rights.  Unions are tightly controlled by the 
government. 
 
¶60. Tajikistan is a party to 44 international labor conventions.  In 
June 2005, Tajikistan signed the Worst Forms of Child Labor 
Convention, dedicated to eliminating child labor and protecting 
children and young people.  Despite this there are frequent reports 
that children and university students are forced to pick cotton, 
providing one of the country's main sources of income, and that 
local officials are complicit in this practice.  The International 
Labor Organization notes that Tajikistan has not submitted reports 
required by the Convention. 
 
Foreign Trade Zones/Free Ports 
 
¶61. Tajikistan is a landlocked country whose neighbors demonstrate 
varying abilities and interest in trade.  Most of Tajikistan's rail 
and road links flow through Uzbekistan, which, as a result of 
increasingly sour political relations between Dushanbe and Tashkent, 
has made transit of goods through Uzbek territory difficult.  For 
example, in October 2007 Uzbekistan decreed that traders must pay 
the full value of excise goods passing through its territory as a 
customs deposit -- a fee that is then difficult to get back.  There 
are no commercial flights between Uzbekistan and Tajikistan.  In 
order to overcome its dependence on its neighbor, Tajikistan has 
sought to open alternative transit routes to the north, via 
Kyrgyzstan and Kazakhstan; the south, via Afghanistan, Pakistan, and 
QKyrgyzstan and Kazakhstan; the south, via Afghanistan, Pakistan, and 
Iran; and the east, via China. 
 
¶62. The opening of the Chinese border at Kulma, in Murghab District, 
has helped facilitate increased trade with China, although the 
border is open only half the days of each month, and is closed 
completely for about half the year due to extreme cold weather. 
Passing over the some of the roughest and least developed territory 
in Asia, even when it is open, this route remains difficult and 
time-consuming, and without major infrastructural improvements, it 
will have limited impact on trade.  Several international financial 
institutions, along with the governments of China and Iran, are 
implementing projects to improve the road system.  The Central Asia 
Regional Economic Cooperation Program has created a road linkages 
plan for all the Central Asian countries with funding from the Asian 
Development Bank (ADB).  Projects underway include the renovation of 
the road north to Khujand with Chinese funding, Iranian-financed 
construction of the Anzob Tunnel which should allow for year-round 
transit on the route, and ADB-financed improvements on the road 
 
DUSHANBE 00000064  009 OF 010 
 
 
leading northeast from Dushanbe, through Kyrgyzstan, to China. 
There is also strong interest to improve links to the south.  The 
United States Government completed construction of a $39 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. 
 
¶63. Although the Law on Free Trade Zones was enacted in 2004, only 
in 2008 has the government made some progress on implementation, 
with the establishment -- at least on paper -- of the Soghd Free 
Economic Zone in the northern city of Khujand and the Pyanj Free 
Economic Zone near the U.S.-funded bridge across the Pyanj River on 
Tajik-Afghan border.  Two additional zones are under consideration. 
The zones are designed to attract foreign capital, investments, and 
technology, and to develop Tajikistan's economic potential by 
setting favorable conditions for foreign investors, including lower 
or no taxes, lower land leasing rates, lower duties on imports and 
exports, and special visa rules. 
 
¶64. WTO accession negotiations were launched in 2004 after intensive 
preparatory work conducted by the Tajik government with assistance 
from the U.S. and other donors.  The last negotiations on 
Tajikistan's accession were conducted in Geneva in October 2006.  In 
January 2008, a group of WTO experts met with President Rahmon in 
Dushanbe, who confirmed his intention to lead the country into the 
WTO.  Some Tajik experts believe that it will take at least five 
more years before that goal is realized. 
 
Foreign Direct Investment Statistics 
 
¶65. According to data from the State Statistical Committee, total 
foreign direct investment (FDI) in the first nine months of 2008 was 
$462 million.  Of this, $282.9 million came from the former Soviet 
states (mostly Russia, with investments of $240.8 million), while 
$179 million came from other countries.  In 2007, total FDI was 
$388.4 million.  Between 1997 and 2008, total FDI amounted to $1.421 
billion. 
 
¶66. In the first nine months of 2008, the FDI to GDP ratio equaled 
9%, down from 10% in 2007. 
 
¶67. According to Tajikistan's official state statistics, the largest 
foreign direct investors for the first nine months in 2008 were: 
 
 
Russia -- $240.8 million 
Cyprus -- $70.2 million 
United States -- $17.8 million 
Great Britain -- $3.7 million 
Switzerland -- $2.6 million 
Kazakhstan -- $31.5 million 
China -- $60.0 million 
UAE -- $1.9 million 
 
¶68. Foreign direct investment by sector over that period was as 
follows: 
 
Energy: $219 million 
Communications: $49.4 million 
Banking: $59.6 million 
Gold mining: $22.4 million 
Health: $1.1 million 
Oil and Gas: $4.4 million 
Agriculture: $0.3 million 
 
¶69. (The government's definition of investment for the purposes of 
these statistics is not always clear.  Several major foreign direct 
investors from Cyprus and the United States, for example, are 
Tajik-held companies registered offshore.) 
 
¶70. Major Russian investment in the Sangtuda-1 hydroelectric project 
is continuing during the first part of 2009, while Iran is 
developing the Sangtuda-2 project. 
 
¶71. In terms of Tajik foreign investment abroad, Tajikistan has 
Q71. In terms of Tajik foreign investment abroad, Tajikistan has 
signed an agreement with Iran to modernize the Iranian port in 
Bandar-Abbas in order to accelerate shipments of aluminum from and 
alumina to the Talco plant in Tursunzade, Tajikistan.  Due to the 
world financial crisis little has been done so far, however. 
 
DUSHANBE 00000064  010 OF 010 
 
 
 
JACOBSON