VZCZCXRO6435
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #0104/01 0250625
ZNR UUUUU ZZH
R 250625Z JAN 10
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 1163
INFO RUCPDOC/USDOC WASHINGTON DC
RUCPCIM/CIMS NTDB WASHDC
RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0231
RUEHBUL/AMEMBASSY KABUL 0397
RUEHBJ/AMEMBASSY BEIJING 0146
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHDBU/AMEMBASSY DUSHANBE 2558

UNCLAS SECTION 01 OF 10 DUSHANBE 000104 
 
SIPDIS 
 
DEPARTMENT FOR EB/IFD/OIA 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR TI
SUBJECT: TAJIKISTAN: 2010 INVESTMENT CLIMATE STATEMENT 
 
REF: 09 STATE 124006 
 
DUSHANBE 00000104  001.2 OF 010 
 
 
Tajikistan presents selected opportunities for investors who are 
willing to put significant research and effort into market 
development.  The poorest of the former Soviet republics, 
Tajikistan lags economically behind most of its neighbors.  The 
Tajik government relies largely on foreign state-led investment 
and loans from China, Russia, Kazakhstan and Iran, as well as 
assistance from international financial institutions, for major 
infrastructure projects.  The Government has shown interest in 
seeing broader foreign investment, but has a poor record 
implementing the reforms necessary to attract investors from 
abroad.  There have been some positive steps over the past year, 
for instance the creation of a single window for business 
registrations and simplification of the regulatory environment. 
At the same time, however, Tajikistan's tax code remains 
byzantine, its legislation is confusing, and, more than anything 
else, its officials remained steeped in a culture of corruption. 
 Even where the legal structure is designed to attract 
investment, the actual practice of the authorities discourages 
investors.  Until Tajikistan successfully changes such 
behaviors, it will not attract or support significant growth in 
foreign direct investment. 
 
OPENNESS TO FOREIGN INVESTMENT 
 
Tajikistan mostly courts state-led investment from the country's 
perceived geopolitical friends rather than making conditions 
favorable to private investors from abroad.  The government 
burdens the private sector with unnecessary costs and creates 
substantial uncertainty and risk through non-transparent 
practices and barriers to competition.  Accordingly, the 
principal investors in recent years have been governments with 
geopolitical interests in the area, especially Russia, China, 
and Iran.  As a result of the world financial crisis, however, 
non-state foreign direct investment (FDI) from these three 
countries amounted to only $22.4 million in the first 9 months 
of 2009, compared to over $300 million during the equivalent 
period in 2008.  Foreign direct investment from other countries 
totaled $48.3 million during the same period, a third of the 
2008 figure. 
 
President Rahmon has made numerous public and private statements 
calling for increased foreign investment, particularly in 
hydropower.  But the government's recent promise to finance its 
largest hydro project, Roghun using only domestic financing has 
disoriented potential investors. 
 
If recent efforts to improve the business climate are 
implemented and sustained, the picture may slowly change. 
Provided conditions are right, opportunities for investment 
exist in hydropower, construction, food processing, textile, and 
consumer goods, as well as natural resource extraction. 
 
According to the 2007 Investment 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. 
 
The judicial system recognizes sanctity of contracts in 
principal; however contract enforcement is poor, due in part to 
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. 
 
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 00000104  002.2 OF 010 
 
 
 
In July 2009 a "single-window" business registration system took 
effect, which applies to both foreign and domestic applicants. 
The old system required applicants to register with multiple 
government agencies with a series of confusing requirements, 
virtually guaranteeing that extra payments would have to be made 
to streamline the often lengthy process.  Under the new system, 
applicants pay a fixed fee at the Tax Committee and receive 
permission within five working days.  While some glitches 
remain, including officials loath to give up their power, by 
most accounts the system is a great improvement over previous 
practice.  This and several other reforms targeted at opening, 
maintaining, and closing a business were designed to improve 
Tajikistan's position on the World Bank's "Doing Business" 
rankings.  On the strength of its initial reforms, Tajikistan 
moved up 12 places in the most recent rankings. 
 
In other areas, however, improvements have yet to emerge. 
Tajikistan's State Committee on Investments and State Property, 
created in 2006 to assist investors, so far has done little to 
fulfill its mission.  Plans to create a website for foreign 
investors seeking information on opportunities in Tajikistan 
have not gotten off the ground.  There are no established 
criteria for screening investment proposals, and potential 
investors go through a lengthy screening process by all 
(potentially) concerned government agencies, rather than working 
with a single investment promotion agency. 
 
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, while the process 
continues for larger concerns.  Although there are no limits 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, will remain 
government-owned for the foreseeable future. 
 
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 incentives, including a waiver on taxation on initial 
investment and VAT-free importation of some industrial 
equipment.  Companies may have a difficult time realizing these 
benefits, however, due to poor implementation of tax regulations 
and/or corrupt tax authorities.  The onus of proving that an 
investment qualifies for the benefits is on the investor, and 
Tajik authorities are often skeptical.  The government also 
attempts to increase revenue by taxing profitable companies more 
aggressively.  The fact that the tax burden is placed on 
companies that have a greater degree of compliance with 
regulations results in distorted competition.  To avoid 
predatory behavior by the ruling elite, some foreign investors 
find it easier -- some say necessary -- to establish joint 
ventures with well-connected officials, including the 
President's family. 
 
Legally, foreign companies 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.  There are no laws 
or regulations authorizing private firms to limit or prohibit 
foreign investment, participation, or control. 
 
According to some sources, even well-meaning companies are 
forced to violate some tax legislation, since internal 
contradictions and draconian rules make it impossible to abide 
by all existing rules.  Beginning in December 2009 the 
government began forcing individuals and enterprises across the 
country to make sizable "voluntary" contributions to the Roghun 
hydroelectric dam construction project.  Those refusing to pay 
have received threats of varying severity. 
 
Although the Tajik economy began growing rapidly at 8-10% per 
year in 2000, many economic indicators remain below the 
benchmarks of 1991, when Tajikistan became independent. 
Tajikistan's gross domestic product (GDP) grew 7.9% in 2008, but 
slowed to an estimated 2% in 2009, or $4.58 billion, due to the 
world financial crisis.  Some earlier crisis-fueled nervousness 
among depositors has calmed, and bank deposits (legal entities 
 
DUSHANBE 00000104  003.2 OF 010 
 
 
and personal) began increasing in late 2009 after falling off 
over 2008.  The informal 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.  Tajikistan's banking 
sector is relatively undeveloped, and businesses tend to raise 
capital through other means, including selling off assets and 
borrowing from other companies or individuals. 
 
The government does not impose geographic restrictions on 
business operations, but topography (93% of the country is 
mountainous), poor infrastructure, and lack of adequate energy 
pose their own restrictions.  Roads in Dushanbe and Khujand are 
poor even by Central Asian standards, and roads outside of major 
towns are often unpaved and poorly maintained.  A few major 
routes, such as those between Dushanbe and Khujand, Dushanbe and 
Gharm, and Dushanbe and the Afghan border, are being renovated 
with foreign financing.  Weather also impacts commerce; overland 
travel to parts of the country (e.g., the Gorno-Badakhshan 
Autonomous Oblast) is difficult if not impossible in the winter 
and spring.  Electricity 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 receive a few 
hours of power each day.  Overland import/export requires 
patience and ingenuity as customs agents at borders and internal 
checkpoints frequently seek bribes to allow passage. 
 
Tajikistan's rankings on a few selected indices are as follows: 
 
INDEX                         SCORE      RANKING     YEAR 
                              (max)      (out of) 
--------------------------------------------- ------------ 
Transparency International 
Corruption Perceptions Index  2.0 (10)    158 (180)  2009 
 
Heritage Foundation Index 
of Economic Freedom           53.0 (100)  128 (179)  2010 
 
World Bank Doing 
Business Ranking              n/a         152 (183)  2010 
 
 
Tajikistan's rankings on selected Millennium Challenge 
Corporation (MCC) Indices for fiscal year 2010 are as follows: 
 
MCC INDEX                   SCORE     PERCENTILE 
--------------------------------------------- --- 
Government Effectiveness    -0.09     39% 
Rule of Law                 -0.22     29% 
Control of Corruption       -0.21     32% 
Fiscal Policy               -3.6      19% 
Trade Policy                82.5      95% 
Regulatory Quality          -0.34     32% 
Business Start-Up            0.958    78% 
Land Rights and Access       0.559    33% 
Natural Resource Management  70.88    72% 
 
 
CONVERSION AND TRANSFER POLICIES 
 
Tajikistan does not restrict conversion or transfer of funds up 
to $100,000; higher amounts are subject to approval by the 
National Bank of Tajikistan.  However, an 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.  The 
minimum regulatory capital for commercials banks is $5 million. 
All banking institutions (13 commercial banks, including three 
branches of foreign banks) meet this requirement. 
 
EXPROPRIATION AND COMPENSATION 
 
The Law on 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. 
 
DUSHANBE 00000104  004.2 OF 010 
 
 
While the Law states that investors are to be reimbursed for 
expropriated property, actual compensation may be minimal. 
 
DISPUTE SETTLEMENT 
 
In official pronouncements, the Tajik government values 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. 
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.  Tajikistan's weak judiciary is ill-equipped 
to defend the interests of investors. 
 
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. 
 
Tajikistan has well-written commercial and bankruptcy laws.  The 
country's contract law is modeled on European legislation. 
These laws are regulated under the country's Civil Code; 
however, they are not always enforced in the courts. 
 
Tajikistan is 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. 
 
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 
 
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 a condition for establishing, maintaining, or 
expanding investment.  While there is no requirement to "buy 
locally," it is encouraged. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
The government wants to encourage business development but faces 
major obstacles, including its own poor management and corrupt 
practices.  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.  Government inspectors 
often operate on the principle 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. 
 
There are other unofficial barriers.  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. 
 
The government faces a daunting task to improve the operating 
environment.  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 
 
Undeveloped legal avenues for dispute resolution create a weak 
 
DUSHANBE 00000104  005.2 OF 010 
 
 
environment for property rights protection in Tajikistan. 
 
According to Tajik law all land belongs to the state, but 
foreign investors can acquire up to 50-year land-use rights. 
There are no legal limitations on foreign ownership or control 
of other property, but there are significant restrictions on 
using land-use rights as collateral.  A revised Land Code 
submitted to the government in 2008 providing for the sale of 
land-use rights, was changed at the last minute by an unknown 
official, leaving the issue confused.  Efforts are underway to 
introduce new, clearer legislation, but it remains a thorny 
issue.  The government 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. 
 
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 
needs improvement.  Most banks have reduced 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. 
 
Tajikistan affords few protections for patents, copyrights, 
trademarks and other intellectual property.  However, the United 
States is working with the government of Tajikistan to help 
revise intellectual property rights legislation.  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 
 
Cronyism, nepotism and corruption 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' operations.  Regulators and 
officials often apply laws arbitrarily, and are unable or 
unwilling to make decisions without a supervisor's permission, 
leading to lengthy delays.  Executive documents -- i.e., 
presidential decrees, laws, government orders, instructions, 
ministerial memos, and regulations -- are often inaccessible, 
leaving businesses and investors in the dark about the rules. 
Each ministry has its own set of normative acts that are not 
published and may contradict law or normative acts of other 
ministries. 
 
Tajikistan's legislation provides for 18 different types of 
taxes and numerous ways to calculate them.  Not only are the 
regulations complicated, but the inconsistency with which they 
are applied impedes the development of small and medium 
enterprises.  The tax code came into effect November 3, 2004, 
and was amended most recently on December 3, 2009.  In mid-2008 
the government of Tajikistan declared a two-year moratorium on 
tax inspections, which government officials had used routinely 
to extort money from business owners. 
 
An inspections law signed in 2006 and promoted extensively by 
the International Finance Corporation has reduced the practice 
of government agencies shaking down enterprises for bribes, but 
reports of such incidents are still widespread.  Tajikistan is 
working towards international accounting norms, but these are 
not yet implemented. 
 
Tajikstandart, the government agency responsible for certifying 
goods and services, calibrating and accrediting testing 
laboratories, and supervising compliance with state standards, 
does not publish its fees for licenses and certificates or its 
regulatory requirements.  As a result, businesses are vulnerable 
to individual inspectors' whims.  So far no concrete steps have 
been taken to create proposed "one-stop shops" for certifying 
businesses in various categories. 
 
Structural problems aside, the Tajik government needs to convey 
 
DUSHANBE 00000104  006.2 OF 010 
 
 
its goals and procedures to the inspectors and other government 
employees who interact with businesses daily.  As long as 
government inspectors treat their positions as a license for 
rent-seeking -- and as long as the government tolerates it -- 
Tajikistan will remain a difficult place for investors. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
Tajikistan's nascent banking sector faces numerous challenges: 
insufficient capital, limited banking services, mistrust and 
fallout from earlier banking system crises.  The national 
currency, the somoni, was introduced in October 2000. 
 
The total value of regulatory capital of all commercial banks in 
Tajikistan as of October 2009 is 939.8 million somoni 
(approximately $215 million).  Estimated net worth of the top 
three commercial banks is as follows: 
 
-- Orion Bank: 300 million somoni ($68.6 million) 
-- TojikSodirot Bank: 100 million somoni ($22.8 million) 
-- AgroInvest Bank: 185 million somoni ($42.3 million) 
 
As of October 1, 2009, there are 13 banks, 6 credit societies, 1 
non-banking financial organization and 114 micro finance 
organizations in Tajikistan, as well as the National Bank of 
Tajikistan.  Nine banks are joint stock companies, one is 
state-owned, and three are branches of foreign banks: Tijorat 
(Iran), KazCommerceBank (Kazakhstan) and First Micro Finance 
Bank of Tajikistan, owned jointly by the Aga Khan Fund for 
Economic Development and the International Finance Corporation. 
 
Tajikistan's ratio of migrant labor remittances to GDP, standing 
at 40% in 2009, was among the highest in the world.  Over the 
course of the year, as many as a million Tajiks working abroad, 
primarily in Russia, sent home $1.8 billion through the banking 
system.  This is a one-third decline over 2008, due to the 
effects of the global financial crisis on the Russian labor 
market.  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 investment.  The 2008 scandal in which the 
National Bank misreported loans it had underwritten to cotton 
investors did not help, although the International Monetary Fund 
reports that the Bank has improved its accounting and 
cooperation. 
 
The limited lending has been at very high interest rates. 
Before the financial crisis, with inflation running about 10%, 
local commercial banks were issuing 12-month loans worth more 
than $100,000 at 24% APR, prohibitively expensive for most 
customers to develop a new business.  Interest on smaller, 
shorter term loans was as high as 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.  In the wake of the financial crisis banks have 
reduced lending due to fears of default.  The government's plan 
to write off over $500 million in agricultural debts may ease 
some concerns, but the necessary recapitalization of the 
National Bank may add its own problems.  Despite the many 
difficulties, Tajik banks remain relatively well capitalized, 
with good asset-to-debt ratios. 
 
The private sector has access to micro-credit, commercial 
credit, and factoring instruments.  Some banks provide trade 
financing services.  To reduce barriers to competition, the 
government has paved the way for non-bank financial 
organizations and commercial microfinance.  The government 
recently took steps toward creating a credit bureau, though its 
realization remains several years off.  Much work is needed to 
strengthen creditor and shareholder rights.  Performance on 
micro-credit loans exceeds 90%; business loans also perform 
well.  Checking accounts exist but are not widely used due to 
strict cash withdrawal procedures. 
 
There are no known cross-shareholding or stable shareholder 
arrangements.  Hostile takeovers are rare, though there are no 
written protections against them.  State authorities selectively 
apply laws and regulations to take over or completely shut down 
companies.  A stock market in Tajikistan was founded in 1994, 
but foundered due to a lack of new financial instruments.  In 
 
DUSHANBE 00000104  007.2 OF 010 
 
 
2000, the government established a Central Share Registry (CSR) 
in the Ministry of Finance to record, monitor, and facilitate 
share purchases and sales for more than 400 stock companies. 
The government issues treasury bills to cover budget deficits, 
using local banks to cover the loans.  The government recently 
has begun selling shares in the Roghun hydroelectric project 
directly to the population.  Since by most accounts Tajiks are 
forced or intimidated into buying the shares, and little 
information about shareholder rights or maintenance of funds has 
been released, this represents a step backward rather than 
forward for the country's financial system. 
 
More information about the National Bank of Tajikistan is 
available on its website: http://www.nbt.tj. 
 
COMPETITION FROM STATE-OWNED ENTERPRISES 
 
While the government of Tajikistan has sold many formerly 
state-owned small and medium enterprises, several large 
enterprises remain under state control.  These include the 
national electrical grid operator (Barqi Tojik), the natural gas 
operator (Tojikgaz), and the Talco Aluminum Company, 
Tajikistan's largest enterprise.  As a general rule, private 
companies cannot hope to compete with State-Owned Enterprises 
(SOEs) unless they have good connections with the government. 
This has less to do with any explicit policy favoring SOEs than 
with the fact that Tajikistan's ruling elite often profit 
directly from the SOEs. 
 
SOEs are not run transparently.  Their budgets are not publicly 
known, although efforts are underway to make them more 
transparent. 
 
CORPORATE SOCIAL RESPONSIBILITY 
 
There is little awareness of corporate social responsibility in 
the western sense in Tajikistan.  Many, if not most, 
corporations have contributed to the Roghun campaign (see above, 
under Efficient Capital Markets), but many of these 
contributions were coerced.  Corporations do engage in voluntary 
community assistance, on an ad hoc basis. 
 
POLITICAL VIOLENCE 
 
Political violence in Tajikistan is minimal.  The security 
situation has stabilized significantly since the Civil War ended 
in 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 from government positions 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 
egregious corruption. 
 
Tajikistan sometimes serves as a transit country for extremist 
terrorist groups.  In mid-2009 there was some sporadic 
anti-regime activity in the central part of the country, but 
this activity appears to have ceased.  Narcotics trafficking 
from Afghanistan is significant. 
 
CORRUPTION 
 
As in previous years, Tajikistan ranked very low on the 2009 
Transparency International Corruption Perceptions Index.  It 
scored 2.0 out of 10, placing it 158 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, since 
they force many officials to look for means to make ends meet. 
Buying a government position is common, 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. 
 
As noted throughout this report, endemic corruption stifles 
business by local and international investors.  Officials at any 
 
DUSHANBE 00000104  008.2 OF 010 
 
 
number of agencies expect payoffs for opening and running a 
business.  Although a signatory to the OECD Convention on 
Combating Bribery and the United Nations Convention against 
Corruption, corrupt practices are deeply embedded in every 
aspect of commerce, 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 and 
especially on the financially vulnerable population, including 
teachers, doctors, and others with low salaries. 
 
BILATERAL INVESTMENT AGREEMENTS AND DOUBLE TAX TREATIES 
 
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. 
The Trade Investment Framework Agreement between the five 
Central Asian states and the United States is under development. 
 Tajikistan is a member of the EURASEC trade organization, which 
provides loose regulation of trade among Russia, Belarus, 
Kazakhstan, Kyrgyzstan, and Tajikistan.  Tajikistan is also a 
member of the Shanghai Cooperation Organization. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
Tajikistan is open to insurance and financing programs of the 
Overseas Private Investments Corporation (OPIC).  Thus far, 
however, OPIC's involvement in investments in Tajikistan has 
been limited to a beverage bottling project.  Tajikistan's 
relative macroeconomic stability and a growing economy provide 
for opportunities for OPIC insurance and financing. 
 
The Export-Import Bank of the U.S.  considers projects on a 
case-by-case basis, although Tajikistan hat not qualified for 
its programs.  Opportunities exist in infrastructure projects, 
aircraft export financing, agricultural machinery, and food 
processing. 
 
LABOR 
 
Due to a crumbling and corrupt education system, Tajikistan's 
labor force is becoming increasingly less well-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.  Corruption in secondary schools and universities 
means degrees do not reflect real professional training or 
competency.  Although education is compulsory, many students 
must work to support their families.  Brain drain is a problem 
for domestic employers, since many Tajiks with advanced skills 
emigrate to find better opportunities. 
 
The official unemployment rate in Tajikistan is 9.5%, but the 
actual rate may be up to 30% nationwide, with some areas much 
higher.  These rates are offset by the estimated one million 
labor migrants working abroad, almost all of them in Russia. 
While remittances from these migrants have dropped 33% compared 
to last year, most migrants appear to be staying abroad, hoping 
for better times.  It is not hard to see why: the average 
monthly salary in Tajikistan is 311.55 somoni ($71.20), and 
inflation outstrips wage growth.  According to the World Bank, 
53% of the population lives below the poverty line and an 
additional 17% are considered "desperately poor."  Experts say 
the drop in remittances is likely to increase these percentages 
significantly.  Remittances have a profound effect on economic 
stability in Tajikistan, paying for a high percentage of its 
growing appetite for imports, particularly foreign vehicles, 
construction materials, food, and consumer goods. 
 
Tajikistan's high birth rate means that 50% of the population is 
less than 25 years old; 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," as well as continuing payments to supervisors, leading 
the job-holder to look for ways to pay back that sum by seeking 
 
DUSHANBE 00000104  009.2 OF 010 
 
 
bribes or other corrupt activity. 
 
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. 
 
Tajikistan is a party to 44 international labor conventions.  In 
June 2005, it signed the Worst Forms of Child Labor Convention, 
dedicated to eliminating child labor and protecting children and 
young people.  Despite this, in past years schoolchildren and 
university students have frequently been forced by officials to 
pick cotton, providing one of the country's main sources of 
income.  According to most reports students were not sent into 
the fields during the 2009 harvest, although some government 
employees were furloughed to pick cotton.  The International 
Labor Organization notes that Tajikistan has not submitted 
reports required by the Convention. 
 
FOREIGN TRADE ZONES/FREE TRADE ZONES 
 
Tajikistan is a landlocked country whose neighbors demonstrate 
varying abilities and interest in trade.  Most of Tajikistan's 
rail and road links pass through Uzbekistan, whose relations 
have soured considerably with Tajikistan, making 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 
frequent reports of railway carriages bound for Tajikistan that 
are held up for weeks or months in Uzbek territory for no 
apparent reason.  There are no commercial flights between 
Uzbekistan and Tajikistan.  To overcome this dependence on 
Uzbekistan, Tajikistan has sought to open alternative transit 
routes to the north, via Kyrgyzstan and Kazakhstan; the south, 
via Afghanistan, Pakistan, and Iran; and the east, via China. 
 
The opening of the border crossing at Kulma, in eastern 
Tajikistan, has facilitated increased trade with China, although 
the 4,600-meter pass is open only intermittently due to extreme 
weather.  Passing over the some of the roughest and least 
developed territory in Asia, even when open, this route is 
difficult and time-consuming, and without major infrastructure 
improvements, it will have limited impact on trade.  Several 
international financial institutions, along with the governments 
of China and Iran, have projects to improve the road system. 
The Asian Development Bank (ADB) is working on the road from 
Dushanbe northeast to Osh, Kyrgyzstan, and ultimately to China. 
The Chinese government is funding the road from Dushanbe to 
Tajikistan's second-largest city, Khujand.  The Iranian 
government is helping to construct the Anzob tunnel to 
facilitate year-round travel on that route.  There is also 
strong interest to improve links to the south.  The United 
States government built a $39 million bridge linking Tajikistan 
and Afghanistan, connected to a new road financed by the 
Japanese. 
 
Though the Law on Free Trade Zones was enacted in 2004, only in 
2009 has the government made 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 in the east and 
south are under consideration.  The zones are designed to 
attract foreign capital, investment, and technology, and to 
develop Tajikistan's economic potential by establishing minimal 
taxes, low land leasing rates, low duties on imports and 
exports, and special visa rules.  So far, however, no companies, 
foreign or domestic, have located to the free economic zones 
(although the Sughd zone incorporates 37 enterprises that 
already existed on its territory). 
 
WTO accession negotiations were launched in 2004 by the Tajik 
government with assistance from the U.S.  and other donors.  In 
January 2008, a group of WTO experts met with President Rahmon 
in Dushanbe, who reconfirmed his intention to lead the country 
into the WTO.  Some Tajik experts believe it will take at least 
five more years before that goal is realized, however.  The last 
negotiations on Tajikistan's accession were conducted in Geneva 
in October 2009. 
 
DUSHANBE 00000104  010.2 OF 010 
 
 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
 
According to data from the State Statistical Committee, total 
foreign direct investment (FDI) in the first nine months of 2009 
was $70.7 million.  Of this, $43.4 million came from former 
Soviet states (mostly Kazakhstan, with investments of $26.1 
million).  Total FDI in the same period in 2008 was $462 
million, indicating the financial crisis took a heavy toll. 
Between 1997 and 2009, total FDI amounted to $1.3 billion. 
 
In the first nine months of 2009, the FDI to GDP ratio equaled 
0.5%, down from 9% in 2008. 
 
According to Tajikistan's official state statistics, the largest 
foreign direct investors for the first nine months of 2009 were: 
Russia -- $17.2 million 
Cyprus -- $0.14 million 
United States -- $0.08 million 
Great Britain -- $10 million 
Switzerland -- $0.16 million 
Kazakhstan -- $26.1 million 
China -- $3.3 million 
 
Foreign direct investment by sector over that period was as 
follows: 
Energy: $10 million 
Communications: $14.8 million 
Banking: $26.4 million 
Gold mining: $3.1 million 
Agriculture: $0.15 million 
 
(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.) 
 
These figures do not include state-led investment projects, such 
as the Chinese and Iranian roadwork noted above.  The Chinese 
have invested over $1 billion in Tajik infrastructure projects, 
most of it in the form of preferential loans.  Russia has 
invested nearly $200 million in the Sangtuda-1 hydroelectric 
project (completed in 2009), while Iran is developing the 
Sangtuda-2 project just downstream. 
 
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. 
GROSS