ECONOMY OF TAJIKISTAN

ECONOMY OF TAJIKISTAN

Tajikistan is the second poorest country in Central Asia after Afghanistan and one of the poorest nations in the world.. Some 50 percent of the population lives in poverty. Almost half of the nation's GDP is earned by more than one million Tajik migrants working abroad, especially in Russia. Tajikistan's economic situation remains fragile due to uneven implementation of structural reforms, corruption, weak governance, seasonal power shortages, and its large external debt burden. [Source: CIA World Factbook, BBC, November 7, 2013]

Tajikistan was the poorest republic in the Soviet Union. In the early 2000s, about 80 percent of the population lived below the poverty line of $17 a month. The total government budget in 2002 was $175 million, the cost of a major Hollywood film, and 40 percent of that was devoted to military spending. Heroin and opium smuggling accounted for a third of GNP.

Tajikistan’s economy was severely disrupted by the collapse of the Soviet Union in 1991 and the civil war of 1992–97. With independence, Tajikistan lost the nearly 50 percent of its state revenue that had come as transfers from Moscow, as well as barter arrangements that brought food from other republics in exchange for cotton and aluminum. The civil war disrupted both agricultural and industrial production. [Source: Library of Congress, January 2007 **]

Particularly hard-hit was the cotton industry, a key economic element in the Soviet era. The output of aluminum, Tajikistan’s most important industrial product, has not approached the pre- independence level in the early 2000s. Economic reform has been uneven, privatization has occurred mainly in the services sector, and the overall economy remains a command-and-control system. Because many enterprises ceased to function or reduced production drastically after privatization, output and investment in the industrial sector have remained very low. In 2005 the economy remained fundamentally agricultural and highly dependent on the export of aluminum and cotton, although significant growth occurred in light industries and services. Soghd Province in the north accounts for the majority of industrial and agricultural output. Clan leaders control some legal enterprises and most of Tajikistan’s extensive criminal economy. The black market, heroin smuggling, and informal transactions account for a significant part of the economy. **

Tajikistan Economy in the 1990s

Tajikistan possesses many elements that will be needed to diversify its national economy after decades of specialization within the Soviet system. Significant deposits of gold, iron, lead, mercury, and tin exist, and some coal is present. Some regions have ample water for irrigation, and the country's rivers are a largely untapped source of hydroelectric power generation. The labor supply is sufficient, provided Tajikistan can retain qualified workers in critical fields. The civil war of 1992-93, the collapse of the integrated Soviet economic system, and the lack of significant economic reform by the post-civil war government all have severely impeded economic performance, however. [Source: Library of Congress, March 1996 *]

Economic problems that had developed in Tajikistan during the Soviet era persisted into the first decade of independence. These included overreliance on production of cotton and raw materials in general, a high level of unemployment, and a low standard of living. Although the old Soviet economic system ceased to exist officially, several aspects of it survived after 1991. The transition to a market economy progressed slowly, and Russia and other former Soviet republics continued to play an important role in Tajikistan's economy. Yet Tajikistan also took the first steps toward developing economic relations with a wide assortment of other countries. Quite apart from the deliberate changes implemented by policy makers, the economy of Tajikistan was profoundly affected in the early stages of its independence by the political turmoil that accompanied the transition. *

Agriculture: Largest sector of economy, dominated by cotton, grain, vegetables; food production insufficient for domestic consumption. Nearly all agricultural labor unmechanized, and output declined sharply in mid-1990s. Commitment to cotton as primary crop continues in post-Soviet era, although production has decreased. *

Industry and Mining: Advancement and diversification slow in 1990s after specialized roles in Soviet period emphasized aluminum processing and chemicals. Contributed about 30 percent of net material product (NMP) in 1991. Productivity of nearly all industries declined in mid-1990s. Several minerals, including gold, mined on a small scale. *

Energy: Hydroelectric power only major source, providing 75 percent of electricity; must import petroleum fuels and coal, only minor exploitation of domestic deposits. Power imports from neighboring countries problematic in 1990s because of insufficient funds. *

Fiscal Policy: Highly centralized government system, with little regional authority. Initial price decontrol in 1992 caused extensive hardship, led to retrenchment and resumption of strong government control of prices and wages. In 1993, major sources of national income value-added tax (30 percent), enterprise profits tax (26 percent), and excise tax (13 percent). *

Economic Statistics in Tajikistan

GDP (purchasing power parity): $22.22 billion (2014 est.), $20.96 billion (2013 est.), $19.52 billion (2012 est.)m country comparison to the world: 140. GDP (official exchange rate): $9.156 billion (2014 est.). GDP was $14.6 billion in 2010, 138the in the world. Gross National Product (GNP) in 1993 was estimated at US$2.7 billion, or US$470 per capita. [Source: CIA World Factbook =, CBS News ^^ Library of Congress, March 1996 *]

Growth: GDP - real growth rate: 6 percent (2014 est.), 7.4 percent (2013 est.), 7.5 percent (2012 est.), country comparison to the world: 35. Public debt: 6.5 percent of GDP (2013 est.), country comparison to the world: 160. In 2005 Tajikistan’s GDP grew by 6.7 percent, to about US$1.89 billion, and growth for 2006 was about 8 percent, marking the fifth consecutive year of annual growth exceeding 6 percent. Average growth rate 1985-92 was -7.8 percent per year. Beginning 1992, economic growth in all sectors crippled by transformation from Soviet system and by effects of civil war. Growth was 3.7 percent in 1999. [Source: = * Library of Congress, January, 2007 **]

GDP - per capita (PPP): $2,700 (2014 est.), $2,600 (2013 est.), $2,500 (2012 est.), country comparison to the world: 193. Per capita GDP in 2010 was $2,000, 188th in the world. Per capita GDP in 2005 was US$258, lowest among the 15 countries of the former Soviet Union. = ^^ **

Gross national saving: 8 percent of GDP (2014 est.), 13.7 percent of GDP (2013 est.), 16.4 percent of GDP (2012 est.), country comparison to the world: 156. =

GDP - composition, by sector of origin: agriculture: 27.2 percent; industry: 21.6 percent; services: 51.2 percent (2014 est.). In 2005 services contributed 48 percent, agriculture 23.4 percent, and industry 28.6 percent to GDP. GDP - composition, by end use: household consumption: 107.3 percent; government consumption: 12 percent; investment in fixed capital: 12.8 percent; investment in inventories: 9.4 percent; exports of goods and services: 15.1 percent; imports of goods and services: -56.6 percent (2014 est.). = **

Inflation rate (consumer prices): 6.3 percent (2014 est.), 5.4 percent (2013 est.) Throughout the post-Soviet era, inflation has been a serious obstacle to economic growth and improvement of the standard of living. For the years 2001–3, Tajikistan’s inflation rates were 33 percent, 12.2 percent, and 16.3 percent, respectively, but in 2004 the rate fell to 6.8 percent, and the rate for 2005 was 7.1 percent. In late 2006, inflation approached the 10 percent level. The consumer price index rose 416 percent 1993-94, 120 percent 1994-95; controlled in 1995 by antiinflationary gov-ernment program. [Source: Library of Congress, March 1996 *]

Unemployment rate: 2.5 percent (2013 est.), 2.5 percent (2012 est.), country comparison to the world: 18. The unemployment rate in 2010 was 2.2 percent, 17th in the world. These are official rates; actual unemployment is much higher. = ^^

Fiscal Year: Calendar year.

Economic Activity in Tajikistan

According to Everyculture.com: “In the Soviet era, the government owned all businesses. After independence, the parliament adopted a privatization law, to transfer ownership of businesses to the public. However, no enterprise is privatized without the approval of a committee or ministry, and officials frequently refuse to cooperate. In 1997, the government created a Higher Economic Court, to handle economic disputes. Judges are subject to pressure from the executive branch, local warlords, and criminal syndicates. [Source: Everyculture.com /=\]

Commercial Activities. The dominance of cotton has limited the growth of food products. The country cannot meet basic domestic consumption requirements, especially for meat and dairy products. Although factories produce thread, most cotton is sent abroad for processing. There are small, obsolete factories for weaving and food processing. Drug traffickers control a large proportion of the economic activity. /=\

Major Industries. After the damming of the Vakhsh River in the 1930s, Tajikistan became the third largest producer of hydroelectric power in the world. The dams also enhanced agricultural production through irrigation and provided energy for industries. The aluminum-processing plant at Regar has the largest smelter in the world. Other industries include mining, chemicals, metal processing, and building materials. All industries are constrained by outmoded equipment, low world prices, emigration of the skilled labor force, and civil war. /=\

Trade. Exports to the United States include aluminum, textiles, machinery, and cereals. Imports from the United States include grain, dairy products, eggs, honey, machinery, and preserved foods. An Afghani company opened shops in Dushanbe to sell clothing, textiles, fruits, and nuts. In 1992, 36 percent of imports came from Russia and 21 percent of its exports went to that country. Fruits and vegetables, textiles, and paint were exported in return for automobiles, televisions, and other consumer goods. Tajikistan exports electricity to Uzbekistan in exchange for natural gas. Other trading partners include countries in Central Asia and Europe. /=\

Division of Labor. Jobs are assigned according to education and specialization or they are regionally determined. Political leaders and people in law enforcement usually come from the ruling clan, farmers come from the Garm area, and the Pamiris dominate the fine arts. Technical and professional jobs often go unfilled, but the most pressing economic problem is unemployment, particularly among young people. Approximately three-fourths of graduates of middle schools do not go on to receive higher education and cannot find employment. Wages are so low that even professionals take low-skill jobs to supplement their incomes. /=\

Economies of Central Asia

There are hopes that Central Asia could reemerge as the crossroads for a new Silk Road, providing transportation links for a variety of goods between Asia, the Middle East and Europe. Nations with oil and gas need pipelines to get them out. Those without oil and gas hope to profit by having pipelines cross their territory.

As a result of merely being cogs in the centrally-planned Soviet economy, all the Central Asian nations have economies that are too specialized and too dependent on Russia for markets and supplies to make a real go of it on their own without some serious changes.

Unemployment rates are very high in all five Central Asian countries but there are no reliable figures on exactly how high. Young people have difficulty getting jobs without connections. The streets are full of idle young men. There are concerns that these young men will be recruited by terrorists.

Regional economic cooperation, another type of unity that has received substantial lip service in the 1990s, has failed to materialize on a large scale. All five republics joined the Economic Cooperation Organization (ECO) shortly after independence, and Kazakstan, Kyrgyzstan, and Uzbekistan established a limited common market in 1994. But Uzbekistan vetoed the membership of unstable Tajikistan, and Turkmenistan refused to join. Existing arrangements within the free-trade zone have not significantly promoted large-scale commerce within the group of three. For all five republics, Russia remains the top trading partner because much of the emphasis in their agricultural and industrial infrastructures remains the same as when the republics had assigned roles in supplying Moscow. Those roles and dependence on Russian trade are changing slowly in the mid-1990s, however, as diversification occurs. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]

Several factors encourage economic rivalry rather than cooperation. Water, a crucial resource for agriculture and power generation, has been the object of bitter bilateral and multilateral disputes both before and after independence. In the 1990s, the republics at the headwaters of major rivers, Kyrgyzstan and Tajikistan, have chafed at apportionment of water consumption favoring downstream consumers Turkmenistan and Uzbekistan, and Turkmenistan has complained about excessive water consumption by the Uzbekistanis upstream. Kyrgyzstan and Uzbekistan have come close to conflict over water in the Fergana Valley, where vital agricultural reform and land privatization programs are endangered by unresolved water disputes.*

The republics still offer a similar range of commodities for trade. Their common emphasis on cotton, natural gas, and oil limits the potential for advantageous commerce within the group and fosters rivalry in trade with outside customers. Some of the commercial relationships that have developed--such as the sale of fuels to Kyrgyzstan and Tajikistan by the other three fuel-rich republics--have been one-sided and subject to shutdown in response to nonpayment or in attempts to gain economic and political leverage.*

Economic Problems in Central Asia

The five republics have several major problems in common. All remain in the economic, military, and political shadow of their giant neighbor to the north. In the mid-1990s, Russian policy makers, encouraged by a very vocal nationalist faction in the federation, speak openly of recapturing influence in the "near abroad"; Central Asia usually is the first region cited as an example. In the first two years of independence, the five republics remained in the ruble zone , their monetary activities restricted by the nonconvertibility of the old Soviet ruble that remained the currency of that grouping. In 1993 all but Tajikistan introduced new currencies with limited convertibility. Russia had attempted to keep Kazakstan and Uzbekistan in a new Russian ruble zone, but ruble distribution problems and harsh conversion conditions forced those republics to follow the independent course of Kyrgyzstan and Turkmenistan. The Tajikistani ruble (for value of the Tajikistani ruble) introduced in 1995 remained closely connected with its Russian counterpart. In 1996 Kazakstan and Kyrgyzstan established a new customs union and other economic ties with Russia and Belarus, hoping to gain selected advantages while avoiding large-scale concessions that would increase Russian influence. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]

The Soviet legacy includes an economic infrastructure in which all republics depend heavily on other republics for vital inputs. A complex Soviet-designed system of pipelines and electric cables connects the five republics. Pending completion of Turkmenistan's new line to Iran, only one railroad line leading out of Central Asia connects the region with a destination other than Russia (the one line goes only to the Xinjiang Uygur Autonomous Region in China). Heavy industry in all five republics also has depended heavily on local Russian skilled labor.*

The Central Asian republics also suffer common geographic disadvantages. All are landlocked and located far from potential markets outside the Commonwealth of Independent States (CIS) and the Middle East. Nations such as Azerbaijan and Afghanistan, through which goods must travel overland to reach Western markets, still are quite unstable, and others such as China and Russia are powerful neighbors with a history of taking advantage of weaker nations that need commercial favors. Kazakstan and Turkmenistan, both in need of a route to move oil and gas to Western customers, have been especially frustrated by Russia's failure to support new pipelines. The landlocked position also presents a national security obstacle.*

Although the region is blessed with ample arable land, most of that land becomes useful only when irrigated. Large-scale irrigation, in turn, has taken a huge toll on the hydrological systems of the region--in the most obvious case, the system that feeds the fast-disappearing Aral Sea. Regional cooperation on the Aral Sea problem, recognized as one of the most serious environmental crises in the world, received much lip service and little action in the first half of the 1990s. By 1995 an estimated 36,000 square kilometers of the sea's bed had been exposed, and an estimated 3 million inhabitants of nearby Turkmenistan, Uzbekistan, and Kazakstan had developed chronic health problems associated with that process. In October 1995, a United Nations (UN)-sponsored regional conference produced the Nukus Declaration, which resulted in the promise of intensified joint efforts to stabilize the sea and a pledge of US$200 million from the UN and the World Bank for regional development and aid. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]

Economic Conditions of Central Asia

The traditional place of business has been open air markets and bazaars. Central Asians are used to the market style of commerce and being choosy shoppers rather than the Soviet style of waiting in lines and buying stuff from shops with limited choice. The market buildings today are not like bazaars from the Silk Road era. Many are housed in Soviet-era concrete structures supported by exposed girders.

Among other Central Asia, Uzbeks have a reputation of being traders and businessmen. They were merchants on Silk Road and shopkeepers in the Soviet era.

The possessions of many people consist primarily of carpets. Wealth has traditionally been kept in the form of carpets jewelry and gold, which has been regarded as a hedge against inflation. The pickings at the local stores are pretty slim. Canned goods are sometimes more than a year old and the best goods are kept under the counter for customers who are friends of the store manager or who are willing to pay extra.

“Immediate face-to-face relationships are the determining factors for most action among all Central Asian cultures, and rules take a backseat to subjective obligations. Most are very polychromic...and mostly re highly risk adverse.”

Economic and Business Customs in Tajikistan

Tajiks are regarded as some of the most astute merchants in Central Asia. However, today organized crime, warlords, corrupt bureaucrats and politicians and drug traffickers are major players in the Tajikistan economic. Warlord have been accused of commandeering businesses.

In dealings with government officials, a bribe usually is offered. The payer must be polite or the price may increase, and the size of the bribe is never discussed. A mediator usually conducts the transaction. [Source: “Tajikistan 2015 Crime and Safety Report,” Overseas Security Advisory Council (OSAC), Bureau of Diplomatic Security, U.S. Department of State *^*]

In the countryside money is scarce and trade is often conducted through barter. Even the government has resorted to barter. It has allowed Uzbekistan to operate trains on Tajikistan territory in exchange for gas.

Land Tenure and Property. In 1992, legislation was passed that protected personal property and gave citizens the right to own, lease, and inherit land. Agricultural land remains under state ownership but can be leased. Leases can be sold and inherited. [Source: Everyculture.com]

Economic Realities in Tajikistan

Domestic export products of the country are cotton and aluminum. Industry, especially mining, does not operate stably. Production is concentrated in a few sectors such as power generation, aluminum production, textile and food industries.

Droughts can deal a severe blow to the economy. Civil servants, including doctors and teachers, have been given plots of land to make up for the absence of wages. There is a black market for produce and manufactured goods smuggled in from Afghanistan.

According to Everyculture.com: Rural people depend almost entirely on what they produce themselves. Seventy-five percent of households grow food for their own use, and people in the cities plant gardens in vacant lots. Farmers have difficulty gaining access to land, and farm implements are in disrepair. Millions face hunger as grain production has plummeted. [Source: Everyculture.com /=\]

“Most people have no specialized skills; most specialists were from the Russian-speaking sector and left after independence. This resulted in the closing of most factories. The country depends on international assistance for its basic needs. However, the civil war and geographic isolation have hampered international trade. /=\

“The government encourages foreign investment, but registration procedures are unclear and the laws are contradictory. In the 1990s, firms from the United States, Israel, Austria, Italy, and Canada constructed factories and mining projects.” /=\

See Separate Article on WARLORDS IN TAJIKISTAN.

Cotton and the Tajikistan Economy

Domestic export products of the country are cotton and aluminum. In recent years, Tajikistan produced about 400,000 tons of cotton. Tajikistan's withdrawal of water for irrigation from the Syr Darya and tributaries of the Amu Darya, primarily for cotton, influences the quantity of water downstream in Uzbekistan and Turkmenistan. Therefore, Tajikistan’s water management policies are a regional concern.

Cotton is by far the most important crop in Tajikistan's agrarian economy. In parts of the republic, 85 percent of the land was planted to cotton by the late 1980s, a figure that even republic officials described as excessive. At the same time, the average cotton yield per hectare was about half that achieved in the United States. Cotton production declined in the early 1990s. In 1993 Tajikistan produced about 754,000 tons, a drop of 30 percent from the 1991 figure. [Source: Library of Congress, March 1996 *]

Although cotton is fundamental to Tajikistan's economy, the republic's rewards for cotton production in the Soviet system were disappointing. About 90 percent of the harvest was shipped elsewhere for processing. Tajikistani factories produced thread from some of the cotton harvest, but, by the end of the Soviet era, more than 90 percent of the cotton thread that was spun went elsewhere to be turned into finished goods. In 1990 the two southern provinces of Qurghonteppa and Kulob produced roughly two-thirds of the republic's cotton, but they processed only 1 percent of the crop locally. *

Despite widespread concern about overemphasis on cotton cultivation, the post-civil war government attempted to expand the production of the country's most important cash crop. For example, in 1995 it mandated an increase over the preceding year of 10,000 hectares in land assigned to cotton. However, the cotton output remained far below both the government quota and the production levels of the late Soviet era. Independent Tajikistan continued to send most of its cotton crop elsewhere--mainly to CIS countries--for processing. *

Aluminum and Mining and the Tajikistan Economy

Tajikistan produces about 300,000 thousand tons of aluminum. Tajikistan’s extensive aluminum processing industry was set up to take advantage of Tajikistan’s abundant hydropower sources but depends entirely on imported ore. The expansion of aluminum processing at Tursunzade, a key but long-delayed economic goal, would increase industrial pollution in the Dushanbe region.

Tajikistan's major industrial enterprise is the aluminum processing plant at Regar in the western part of the republic. When the plant opened in 1975, it included the world's largest aluminum smelter, with a capacity of 500,000 tons per year. But difficulties arose in the early 1990s because of the civil war and unreliable raw material supply. Aluminum production and quality began to decline in 1992 because Azerbaijan and Russia cut the supply of semiprocessed alumina upon which the plant depended. By 1995 the plant's management was predicting a yearly output of 240,000 tons, still less than half the maximum capacity. The prolonged decline was caused by outmoded equipment, low world prices for aluminum, the emigration of much of the plant's skilled labor force, difficulties in obtaining raw materials, and continued disruption resulting from the civil war. [Source: Library of Congress, March 1996 *]

In the Soviet period, several minerals, including antimony, mercury, molybdenum, and tungsten, were mined in Tajikistan; the Soviet system assigned Tajikistan to supply specific raw or partially processed goods to other parts of the Soviet Union. For example, nearly all of Tajikistan's gold went to Uzbekistan for processing. However, in the 1990s the presence in Tajikistan of a hitherto-secret uranium-mining and preliminary-processing operation became public for the first time. The operation, whose labor force included political prisoners and members of nationalities deported by Stalin from certain autonomous republics of the Russian Republic, may have accounted for almost one-third of total mining in the Soviet Union. According to official Tajikistani reports, the mines were exhausted by 1990. *

Standard of Living in Tajikistan in the 1990s

Beginning in the late 1980s, the troubled state of the Soviet economy in general led to shortages of consumer necessities in Tajikistan, including flour, meat, sugar, and soap. In every year from 1986 through 1989, the value of per capita consumption of goods and services was substantially lower there than in any other Soviet republic. The government in Dushanbe began rationing food early in 1991, but Tajikistan's consumption of meat and dairy products already had been the lowest in the Soviet Union for the previous six years. In 1990 annual per capita meat consumption was twenty-six kilograms in Tajikistan, compared with sixty-seven kilograms for the Soviet Union as a whole. In the same year, annual per capita milk consumption was 161 kilograms in Tajikistan, compared with 358 kilograms for the Soviet Union as a whole. [Source: Library of Congress, March 1996 *]

The national consumer price index went up about 6,000 percent in 1993 alone. In 1994 breadlines began forming at Dushanbe's single bakery at five in the morning, and the demand often exceeded the supply. Meanwhile, most state stores stood empty as bazaars offered food at prohibitively high prices. Such conditions worsened in the mid-1990s. Although at times bread (whose price was still government subsidized), meat, rice, soap, and other commodities were rationed, basic necessities often were difficult to obtain. In 1995 a 150 percent increase in bread prices, meant as a step toward price decontrol, had the side effect of compounding the difficulty of maintaining an adequate diet. Fuel deliveries in Dushanbe were irregular, and city apartments were cold in the winter.

By the end of the Soviet era, the great majority of Tajikistan's citizens had extremely low incomes even by Soviet standards. Industrial wages ranked second lowest among the republics in 1990. The income of peasants on collective farms was the lowest among all republics; for those on state farms, it was the second to lowest. The situation did not improve in the first post-Soviet years. At the end of 1994, the average monthly wage was 25,000 rubles, or US$7.30, and wages often went unpaid for several months. The maximum weekly wage was set at US$19.30 by a government policy that automatically deposited any payment above that level in the recipient's bank savings account.

By the 1980s, housing had become a serious problem, especially in Dushanbe. The "Housing-93" project of that period promised to provide accommodations by 1993 to families that were on the waiting lists in 1988, but construction fell far behind. By 1990, some 150,000 families were waiting to get an apartment in the capital, a situation that contributed to the outbreak of riots there in February of that year. The housing shortage in the northern province of Leninobod was similarly acute.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

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