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Tajikistan - ECONOMY
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.
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.
<>Economic Conditions in the Early 1990s
<>Transition to a Market Economy
<>Foreign Economic Relations
In the early 1990s, Tajikistan remained primarily an agricultural state. In 1990 agriculture contributed 38 percent of the country's net material product (NMP--see Glossary). Despite development of an extensive irrigation network in the Soviet era, water supply problems combined with Tajikistan's mountainous topography to limit agriculture to 8 percent of the republic's land in 1990. Some 800,000 hectares were under cultivation in 1990, of which about 560,000 hectares were irrigated. The irrigated land was used mostly to grow cotton; potatoes, vegetables, and grains also were cultivated (see table 16, Appendix). In 1994 the republic produced about 490,000 tons of vegetables and about 254,000 tons of cereals. The dominance of cotton combined with the rapidly growing population to render Tajikistan unable to meet domestic consumption requirements for some basic foodstuffs, especially meat and dairy products, in the last years of the Soviet era, even though the republic produced a surplus of fruits, vegetables, and eggs. In the early 1990s, about 98 percent of agricultural labor remained almost entirely unmechanized.
Through the mid-1990s, agricultural output continued to decline precipitously as a consequence of the civil war and the awkward transition to a post-Soviet economy. By 1995 overall production was estimated at about half the 1990 level, and shortages continued in urban areas. Besides the civil war, low prices for agricultural products and a shortage of animal feed contributed to the decline. Hardly any privatization of collective farms had occurred by the mid-1990s.
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.
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.
Industrial development in Tajikistan has proceeded slowly and inefficiently, both in the Soviet era and afterward. The civil war and ensuing political turmoil kept production levels low in the mid-1990s.
Tajikistan's industrial development began in earnest in the late 1930s. The early emphasis was on processing cotton and manufacturing construction materials. World War II was a major stimulus to industrial expansion. The output of existing factories was increased to meet wartime demands, and some factories were moved to the republic from the European part of the Soviet Union to safeguard them from the advancing German army.
Skilled workers who relocated to Tajikistan from points west received preferential treatment, including substantially higher wages than those paid to Tajiks; this practice continued long after the war. Such migrants provided the bulk of the labor force in many of the republic's industries through the end of the Soviet era. Cotton textile mills and metallurgy, machine construction, the aluminum smelting plant, and the chemical industry all had disproportionately small percentages of Tajik workers, or none at all.
The Vakhsh River valley in southern Tajikistan became a center of extensive industrial development (see Topography and Drainage, this ch.). The river was dammed at several points to provide water for agriculture and cheap hydroelectric power, which stimulated construction of factories in the area. Many of the plants in the valley process agricultural products or provide agricultural materials such as fertilizer. A large chemical plant also uses power from the Vakhsh.
In the early 1990s, the configuration of industry continued to reflect the specialized roles assigned to Tajikistan within the Soviet system, hindering advancement of enterprises that utilized the republic's natural resources most effectively. The civil war also made industrial reorganization problematic.
In 1991 industry and construction contributed 43.5 percent of the country's NMP, of which industry's share was 30.6 percent--but those sectors employed only 20.4 percent of the work force. Tajikistan's only heavy manufacturing industries are aluminum and chemical production and a very small machinery and metalworking industry. The most important light industries are food processing and fabric and carpet weaving. After declining an estimated 40 percent between 1990 and 1993, industrial production dropped another 31 percent in 1994. Declines in the Dushanbe and Khujand regions exceeded that figure. The output of only five industrial products increased in 1994: high-voltage electrical equipment, textile equipment, winding machines, processed cereals, and salt. The most serious declines were in chemicals, engineering, metal processing, building materials, light industry, and food processing. According to government reports, production declines generally were greater in privately owned industries than in state enterprises.
Tajikistan's overall industrial production capacity was underutilized in the first half of the 1990s. The steadily rising cost of raw materials, fuel, and energy combined with the obsolescence of production equipment and the lack of qualified industrial workers to place Tajikistani industrial products, which never had been of especially high quality, at a great disadvantage in foreign markets.
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.
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.
Tajikistan's domestic energy supply situation is dominated by hydroelectric power. The nation is an importer of petroleum-based fuels, of which only small domestic deposits are being exploited. Insufficient access to imported oil and natural gas, a persistent problem under the Soviet system, became more acute after 1991.
The Soviet central government, which determined energy policy for Tajikistan, saw the republic's rivers as prime locations for hydroelectric dams. However, Tajikistanis raised serious objections to the resettlement of villages, the potential for flooding if an earthquake damaged a dam, and the prospect of pollution from the factories that would be attracted by cheap electrical power. Although damming the rivers would increase the supply of water for irrigation, the central government targeted much of the water for neighboring Uzbekistan and Turkmenistan rather than for domestic use. Resistance was especially strong in the case of the Roghun Dam on the Vakhsh River, initiated in 1976 as the largest dam of its kind in Central Asia. By 1992 some 75 percent of the country's electricity came from hydroelectric plants, and in the mid-1990s Russia provided aid for the construction of a new Roghun hydroelectric station.
Deposits of coal, petroleum, and natural gas are known to exist but by the mid-1990s had yet to be developed. In the Soviet era, the unreliability of fuel sources in other republics resulted in frequent power shortages. Fuel supply problems mounted during the transition to a post-Soviet economy, as oil-exporting former Soviet republics often chose not to abide by the delivery agreements upon which Tajikistan had depended. Furthermore, beginning in 1993, independent Tajikistan's mounting economic problems left it unable to pay more than a small fraction of the cost of importing energy. Energy providers, especially Uzbekistan, responded with periodic interruptions of deliveries. Irregular delivery disrupted industrial production, crop harvests, and the flow of electricity to residential consumers.
In 1991 some 1.95 million people were regularly employed outside the home in Tajikistan. However, about 2.4 million Tajikistanis were classified as being of working age. Of those who worked outside the home, 22 percent were employed in industry; 43 percent in agriculture; 18 percent in health care and social services; 6 percent in commerce, food services, state procurement, and "material-technical supply and sales"; 5 percent in transportation; 2 percent in the government bureaucracy; and 4 percent in miscellaneous services.
In the 1980s, light industry continued to employ the largest proportion of industrial workers, 38.6 percent. The processing of food and livestock feed employed an additional 11.7 percent. Machine building and metal-working employed 19.7 percent. Three of Tajikistan's main areas of heavy industrial development employed rather small proportions of the industrial work force: chemicals and petrochemicals, 7.4 percent; nonferrous metallurgy, 5.4 percent; and electric power, 2.4 percent.
One of the most serious economic problems in the late 1980s and early 1990s was unemployment. Unemployment and underemployment remained extensive after the civil war, and the republic's high birth rate led observers to predict that the number of unemployed people would continue to grow through 2000. Tajikistan's designation in the Soviet economy as primarily a producer of raw materials meant that until 1992 agriculture was expected to provide the bulk of employment opportunities for the population. However, the limited amount of arable land and the fast growth of the rural population made further absorption of labor impossible by the 1990s (see Agriculture, this ch.). Although Tajikistan had the resources to increase its production of consumer goods, Soviet economic planning did not develop as much light industry in the republic as the human and material resources could have supported. Two of Tajikistan's largest industrial complexes, which produced chemicals and aluminum, were capital-intensive and provided relatively few jobs.
Unemployment is a particular problem for the republic's young people. Roughly three-quarters of the graduates of general education middle schools (which most students attend) do not go on to further education (see Education, this ch.). Upon entering the job market with such basic qualifications, many cannot find employment. A disproportionate number of young Tajikistanis enter low-paying manual jobs; in 1989 about 40 percent of the agricultural labor force was below age thirty. By the end of the Soviet era, however, a growing number of Tajikistan's young people could not find employment even in agriculture. The paucity and low quality of schools at the vocational level and higher schools prevented those institutions from improving the employment prospects of large numbers of potential workers. In the 1980s, a Soviet campaign to shift labor into "labor deficit" regions in the European republics or in Siberia met with vocal opposition.
With skilled workers leaving the country in the mid-1990s, industrial and professional jobs, most notably in engineering, often go unfilled. Shortages have been especially acute in light industry, construction, health care, transportation, engineering, and education. The exodus of qualified workers intensified in the early 1990s. In 1992 and 1993, an estimated 123,000 specialists with higher education, mostly Russians, left Tajikistan.
At the close of the Soviet phase of Tajikistan's history, the economy deteriorated rapidly, and the level of economic activity declined sharply in the early 1990s. In 1992 the gross domestic product (GDP--see Glossary) was approximately half of what it had been in 1990. In the first half of 1991, agricultural and industrial output dropped substantially, and construction, a chronic weak point of the economy, was especially sluggish. The state's revenues for the same period were half as large as its expenses. According to Soviet statistics, the generation of national income in Tajikistan had already declined 7.8 percent from 1988 to 1989 and 8.9 percent from 1989 to 1990. In 1990, the per capita generation of national income was the lowest by far among Soviet republics, and 17 percent below the 1985 level. These figures reflect not only Tajikistan's poverty but also the low prices that were assigned to agricultural products and raw materials, Tajikistan's main products, in the state-run economy. Although Tajikistan was primarily an agricultural republic, in 1989 it imported more agricultural products, including foodstuffs, than it exported.
Political turmoil and the civil war of 1992-93 did enormous damage to Tajikistan's economy. According to an official estimate, that damage extended to 80 percent of the republic's industries. The conflict spurred the departure of large numbers of Russians and Germans who had been key technical personnel in Tajikistan's industries (see Population, this ch.). After independence, the government was very slow to develop an institutional framework to promote movement toward a market economy. Through the mid-1990s, virtually no privatization of industry or agriculture occurred.
The scarcity of reliable statistics makes quantification of Tajikistan's economic situation difficult. In 1994 the total economic loss from the civil war was estimated at 15 trillion rubles (see Glossary for value of ruble)--about US$12 billion at the January 1, 1994, exchange rate. According to Western estimates, by 1994 production in industry had dropped 60 percent, in agriculture 33 percent, and in the transportation enterprises several hundred percent--all in comparison with 1990 levels. The GDP fell an estimated 28 percent in 1993, 12 percent in 1994, and 14 percent in 1995. Inflation soared at a rate of 1,157 percent in 1992; 2,195 percent in 1993; 341 percent in 1994; and 120 percent in 1995. The relatively lower rate in 1995 reflected the government's new anti-inflationary policies launched in the second half of the year.
In the last years of the Soviet system, Tajikistan followed the rest of the union in beginning a transition from the conventional Soviet centralized command system to a market economy. Early in 1991, the Dushanbe government legalized the leasing and privatization of state enterprises (excluding industries deemed critical for national security). However, the transition met firm resistance from individuals who still held positions that gave them access to economic power and technological know-how; political figures with ideological objections to market reforms also voiced opposition. Such influential people insisted that the previous system could be made efficient if Tajikistanis were urged to work harder. This view was made popular by the sharp price increases that followed price decontrol in the initial reform stage. Citizens' hardships, fear, and anger resulting from the initial economic shock greatly slowed the transition to a market economy. For instance, in the first year of independence, only four private farms were established.
The regime of Imomali Rahmonov, who came to power in December 1992, showed little interest in continuing the limited market reforms of 1991 and 1992. At the same time, the new regime declared its support for private enterprise on a small or moderate scale, expressing the hope that foreign investment would help revive the country's shattered economy. By the mid-1990s, about half of all small businesses, especially those in the service sector, were privately owned. In November 1995, the legislature approved a reform plan for the period 1995-2000, but the plan included no specific steps toward the general goals of privatization and the fostering of foreign and domestic investment.
In 1992 Tajikistan acquired its first commercial bank, the Tajikbankbusiness. Established primarily to invest in the republic's economy, the state-owned bank assumed the functions of the former Soviet State Bank (Gosbank); it also sought to develop links with the United States, Iran, China, Pakistan, Saudi Arabia, and Britain, among other countries. After the dissolution of the Soviet Union, Tajikistan continued to use the old Soviet ruble until Russia replaced that currency with the Russian ruble in 1994. At that time, Tajikistan joined the Russian ruble zone (see Glossary), a move that worked against Tajikistani interests. Russia did not send as many rubles as promised, and many of the new rubles that were sent quickly left Tajikistan as inhabitants bought commodities from other Soviet successor states, especially Uzbekistan and Russia. Thus handicapped, the cash economy often gave way to barter and promissory notes. As a result, the Dushanbe government decided to leave the ruble zone by introducing the Tajikistani ruble in 1995. At the time of its introduction, the new currency had an exchange rate of fifty per US$1, but its value slipped drastically through 1995, reaching 284 per US$1 in January 1996.
As the economic reforms of the Gorbachev regime relaxed restrictions on foreign business activity in the Soviet Union in the last years of the 1980s, Tajikistan began to make economic arrangements with foreign businesses. Despite some interest on the part of the Nabiyev regime in arranging joint ventures with foreign firms, only four such agreements were reached in 1991, and just six more were concluded by 1992. One of the joint-venture agreements of that period brought United States investment in the manufacture of fur and leather products in Tajikistan. Israeli businesses began irrigation projects in Tajikistan in 1992. A deal with two Austrian companies called for construction of a factory to produce prefabricated housing and other buildings to be financed by US$3.5 million raised from cotton export funds. A similar construction agreement was signed in 1992 with Czechoslovakia. In 1995 an Italian company began construction of a textile factory in Tajikistan. One of the most important foreign undertakings in the country was a joint venture with a Canadian firm, the Zarafshon Mining Project, to mine and process gold at three known sites in the Panjakent area of northwestern Tajikistan and to prospect in an area of 3,000 square kilometers for additional deposits. The agreement was concluded in 1994; production began in January 1996.
The post-civil war government has emphasized cultivation of economic relations with a variety of Western and Middle Eastern countries, China, and the other former Soviet republics (see table 17, Appendix). In 1991 an Afghan company opened shops in Dushanbe and the northern city of Uroteppa to sell clothing, textiles, fruits, and nuts that the company shipped into Tajikistan from Afghanistan and other countries. The company also planned to export textiles woven in Tajikistan. In 1992 fourteen people were sent from Tajikistan to Turkey to study banking procedures.
In the early 1990s, Iran pursued economic cooperation as a means of expanding its regional influence by assuming part of the Soviet Union's role as the major customer for Tajikistani exports. The first foreign firm registered in Tajikistan was Iranian. In 1992 pacts were signed for cooperation in the spheres of banking and commerce, transportation, and tourism; a joint company, Tajiran, was established to handle bilateral trade. In October 1992, Iran declared its intention to buy 1 million tons of cotton and 400,000 tons of aluminum (a figure that exceeded Tajikistan's entire aluminum production for 1992).
The two countries continued to make economic cooperation agreements into the mid-1990s. Iran loaned Tajikistan US$10 million to be used to stimulate exports and imports while offering assistance in dealing with the costs of imported energy. In 1994, the two countries established a commission to promote bilateral economic and technical relations. In 1995 Iran agreed to pay for Tajikistan's importation of natural gas from Turkmenistan; Tajikistan then was to reimburse Iran in cotton rather than currency.
Pakistan extended US$20 million in credits to Tajikistan in 1994 for the purchase of Pakistani goods. However, the most ambitious parts of the cooperation plans between the two countries, the completion of the Roghun hydroelectric dam and the highway between the two countries, fell through; the reasons included Pakistan's own economic problems, political opposition in Tajikistan to allocating state funds on such a large scale to a foreign country, and the continued turmoil in Afghanistan and Tajikistan.
In 1992 newly independent Tajikistan and the United States expressed an interest in developing trade relations. President Nabiyev made an urgent plea to a delegation from the United States Congress for development assistance, especially in the area of natural resource use. At about the same time, Tajikistan made a barter trade agreement with a United States company to exchange dried fruits from Tajikistan for bricks, greenhouse equipment, and consumer goods from the United States. In 1992 the United States offered Tajikistan credits to use for the purchase of food, and the United States Overseas Private Investment Corporation made an agreement to provide Tajikistan loans and other assistance to promote United States investment. In 1994 the United States established the Central Asian-American Enterprise Fund to provide loans and technical expertise that would promote the growth of the private sector in all the Central Asian states. Generally, however, the level of United States involvement in Tajikistan has remained very low. The first significant undertaking in Tajikistan by a United States firm was a US$40 million textile mill established in 1995.
After Tajikistan achieved independence, it maintained extensive economic relations with other former Soviet republics individually and with the CIS. Relations with the CIS and the Russian Federation preserved some characteristics of Tajikistan's relationship with the Soviet central authorities. Until 1995 Tajikistan remained in the ruble zone rather than establishing its own national currency, as the other four Central Asian republics had done.
In the meantime, Russia retained the dominant position in the CIS and, hence, in commerce with Tajikistan that the Moscow government had enjoyed in the Soviet period. Russia and Tajikistan undertook to maintain their bilateral exchange of goods at existing levels as the republics made the transition to a market economy. In 1992 some 36 percent of Tajikistan's imports came from Russia, and 21 percent of its exports went to Russia; about 60 percent of total external trade was with CIS countries, and 45 percent of exports went to those countries. In 1992 a bilateral agreement called for Tajikistan to send Russia fruits and vegetables, vegetable oil, silk fabrics, and paint in return for automobiles, televisions, and other consumer and industrial goods.
Post-civil war Tajikistan was heavily dependent on Russia for fuel and other necessities. In 1993 Russia made another barter agreement, by which Tajikistan would send Russia agricultural products, machinery, and other goods in return for Russian oil. Despite the agreements, trade between the two countries encountered serious difficulties. In the 1990s, a sharp drop in independent Tajikistan's cotton production caused it to fall far short of the deliveries promised to Russia. This development impeded Tajikistan's ability to pay for vital fuel imports and disrupted Russia's textile industry. Nevertheless, private bilateral commercial activity expanded to some extent. By 1995 more than twenty Tajikistani businesses had made joint-venture agreements with Russian enterprises.
Membership in the ruble zone required Tajikistan to cede control over its money supply and interest rates to Russia and to comply with the regulations of Russia's central bank. After the civil war, Russia provided a majority of the funds for Tajikistan's budget and had considerable influence over budgetary policy. Russia also sent periodic infusions of cash to the Dushanbe government.
As the old interrepublic delivery system decayed at the end of the Soviet era, Tajikistan, like other republics, reduced sales of some commodities and consumer goods to other republics. At the same time, direct agreements were made with several republics to place commercial relations on a new footing. These pacts included statements of principle on economic cooperation and general promises to deliver products from one republic to the other and to set up joint ventures. In 1992 such agreements were made with Georgia, Armenia, and Belarus, and a separate trade agreement called for Turkmenistan to send Tajikistan natural gas and various other goods in exchange for aluminum, farm machinery, and consumer goods.
One of Tajikistan's most important trading partners among the Soviet successor states is Uzbekistan, the source of most of its natural gas since independence. In 1994 the two countries concluded a barter agreement, which the International Monetary Fund (IMF--see Glossary) subsequently criticized as disadvantageous to Tajikistan. According to the agreement, Uzbekistan was to send Tajikistan natural gas, fuel oil, and electricity. In return, Uzbekistan was to have mining rights to various metals in Tajikistan, which also would supply electricity to locations in southern Uzbekistan lacking generating capacity, as well as cotton, construction materials, various metals, and other goods. In 1995 Uzbekistan halted its natural gas deliveries several times, citing nonpayment by Tajikistan.
In the mid-1990s, the uncertain condition of Tajikistan's economy left the country in a weak position to conduct foreign trade. The balance of trade was consistently unfavorable; in 1994 imports exceeded exports by nearly US$116 million, and by 1995 Tajikistan's foreign debt exceeded US$731 million. Imports consisted mostly of food, energy, and medicines. The main exports were aluminum and cotton, with a large share of the production of both commodities earmarked for export. The income derived from cotton and aluminum sales went largely to pay for Tajikistan's energy imports, to repay foreign debts in general, and to cover government expenses.
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