DUSHANBE, July 2, 2014, Asia-Plus – A report by the U.S. Department of State Bureau of Economic and Business Affairs entitled “2014 Investment Climate Statement” notes that Tajikistan presents selected opportunities for investors who are willing to put significant research and effort into market development and who have local experience or contacts to help navigate the maze of bureaucracy and corruption.

According to the report, the Tajik government relies largely on foreign state-led investment and loans from China, Russia, and Iran, as well as assistance from international financial institutions, for major infrastructure projects. The government has reportedly expressed interest in more foreign investment, but has a poor record implementing the reforms necessary to attract investors from abroad.  Until Tajikistan successfully tackles such basic problems as corruption, weak rule of law, and unreliable electricity supplies, it will not attract significant growth in foreign direct investment (FDI), the report says.

The report notes that according to some sources, even well-meaning companies inevitably violate some tax legislation, since internal contradictions and draconian rules often make it impossible to abide by all existing requirements.  This plays into the hands of corrupt regulators, who can demand bribes to ignore evidence of violations. The government reinstated a moratorium on business inspections from October 1, 2011 to September 30, 2014, with the stated goal of increasing foreign investment into the manufacturing sector of economy.

All types of investments (including FDI, loans, and credits) from Tajikistan’s trading partners totaled $486 million in the first nine months of 2013. FDI in Tajikistan reached $209 million in the third quarter of 2013. China, Russia, Qatar, Great Britain, Turkey, and Iran were the leading foreign investor countries in Tajikistan in 2013 with FDI stock of $184 million.  China''s FDI stock in Tajikistan as of the third quarter of 2013 totaled $93 million, Russia''s $44 million, Qatar''s $18 million, Great Britain''s $17.6 million (this may reflect investment in off-shore operations of Tajik companies registered in the British Virgin Islands), Turkey''s $7 million, and Iran''s $4 million. All types of investments from other investor countries, including the United States, totaled $25 million during the same period, according to the Tajik Statistics Agency.

The National Bank of Tajikistan estimated FDI inflow in the second quarter of 2013 at $82.6 million or 3.7% of Tajikistan''s Gross Domestic Product (GDP). The Ministry of Economic Development and Trade expects that in 2014, 2015, and 2016 the FDI stocks will be maintained around $400 million a year.

The report says cronyism, nepotism, and corruption create a business environment that favors those with connections to government officials.  Tajikistan''s regulatory system lacks transparency and poses a serious impediment to business 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 to the public, leaving businesses and investors in the dark about rules.  Each ministry has its own set of unpublished normative acts that may contradict laws or the normative acts of other ministries.

Tajikistan’s nascent banking sector faces numerous challenges: insufficient capital, limited banking services, mistrust, and fallout from earlier banking system crises.

As in previous years, Tajikistan ranked very low on the 2013 Transparency International Corruption Perceptions Index. It scored 22 out of 100 on the index, placing it at 154 on a list of 177 countries. Anemic anti-corruption efforts from the Tajik government have proven ineffective – indeed, some anti-corruption units are ironically known to be particularly corrupt, and have been utilized in politically motivated actions against opposition figures. Low official salaries force many officials to look for alternative means to cover their expenses. 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 nepotistic practices on behalf of clan members, extended family, and superiors are commonplace.

Bribery is endemic. Many businesses view paying off predatory regulators and other officials as a necessary cost of doing business. Non-politically motivated prosecutions for corruption, including bribery, are rare. Ironically, since bribery is so widespread, it proves to be a reliable charge officials can use to silence potential critics or business rivals. Officials tend to face consequences for corruption only when their scheme competes with those of more powerful officials.