Three decades of economic and social transformations demonstrated that the processes of forming a market economy have not yet been completed in Tajikistan. Among the reasons are the low quality of institutions and human capital, as well as poor initial conditions formed long before 1991, a participant of the CABAR.asia School of Analytics Aziz Timurov believes.
Photo: CABAR.asia
Speaking about the modest achievements of the Tajik economy, the officials and representatives of the academic community often argue that the civil war of 1992-1997 halted the process of transition from a planned to a market economy and subsequent development. The economic growth of the country was halted at a time when neighbouring countries developed their economies after gaining independence. This statement is not so unambiguous, despite its popularity and apparentness at a first glance.
Indeed, the downturn in the transformational transition from a planned to a market economy was sharp: the decline in business activity, production, and income levels was compounded by political instability, increased violence, and a deterioration in the quality of human capital. However, the civil conflict was not the true cause of the low economic performance and falling living standards during the post-war period.
Even absent the armed confrontation, Tajikistan would not have been able to avoid the negative consequences typical for the transition to a new system of economic relations. A fall in industrial production, a rise in unemployment, prices, and poverty would certainly take place, as well as fixed assets obsolescence and the lack of investment in the first decade of independence.
Even if there were no war, unemployment and declining incomes would stimulate the growth of social mobility of the population: there would be a slow outflow of skilled workers; internal and external labour migration would become a part of the households’ financial strategy. In this case only, the dynamics of migration processes from the republic would have been smooth and would have increased only in the 2000s due to the economic growth in Russia and the demand for foreign labour in the Russian labour market.
There are opinions suggesting that without the civil conflict, the decline in gross domestic product during the transition period in Tajikistan would roughly match the rates of decline in GDP of Kazakhstan, Kyrgyzstan, and Uzbekistan.[1]
Dynamics of GDP of Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, % of the base year (1991). Note: In the neighbouring countries, the economic downturn caused by the transformation of the economic system and the transition to the market economy bottomed out in 1995, and then the indicator went up. Meanwhile, in Tajikistan, the GDP continued to fall.
We can develop this idea and draw an analogy with the Kyrgyz Republic. This neighbouring country is most similar to Tajikistan in size, resources, economic potential, and dynamics of development; at the same time, it had no experience of military conflict during the formation of a market economy. Both republics are experiencing energy shortages and are not rich in oil nor gas resources.
Chart 2. Dynamics of GDP growth in the Kyrgyz Republic and the Republic of Tajikistan (1986-2020)
The economic indicators of Kyrgyzstan during thirty years of independence look a little better, but the difference is not so significant and the figures are quite comparable. Adjusted for demography (6.6 million people live in Kyrgyzstan, while 9.3 million live in Tajikistan), the difference in GDP per capita becomes completely insignificant.
Chart 3. GDP per capita in the Kyrgyz Republic and the Republic of Tajikistan, in current US dollars (1990-2020)
The example of Kyrgyzstan demonstrates that if Tajikistan had managed to avoid a civil war, its economy would have had similar economic growth dynamics. In this case only, the curve of transformational decline would be more gradual and there would be no collective traumatic memories that later laid the foundation for political and ideological discourse.The reasons for the slow market transformation of the economy and the low quality of people’s life should be sought in the times before the conflict; it is necessary to look at the initial conditions and economic potential of an independent republic, that is, the last years of Soviet Tajikistan.
On the Weak Initial Conditions of the Economy of Independent Tajikistan
In the mid-80s, the signs of a crisis appeared in the economy of the Tajik SSR, as well as in all other Soviet republics. This reflected in economic decline, falling living standards, and decline in indicators of the economic efficiency of social production.[2]
Chart 4. Dynamics of the average annual production rates of the Tajik SSR for the three five-year plans (1976-1990)
Compared to other Soviet republics, the level of the economic well-being of the population of Tajikistan was one of the lowest. In 1989, the national income produced per capita amounted to 916.6 rubles, or 33.1% of the national average.[3] However, under Soviet rule, there was a steady trend of increasing income levels and improving the quality of life of the population of the Tajik SSR. High natural population growth indirectly proves this. In 1988, it was 35.2 per 1,000 population, almost 4 times higher than the average in the Soviet Union.[4]
More than a quarter of the population of Tajikistan (26.3%) was employed in collective farming. On average, in the USSR, this figure was almost two times less (14.9%).[5] The work on collective farms and state farms was based on an extensive method of land use, belonged to the category of unskilled and manual labour, and did not require qualifications and specialisation.
A resident employed in agriculture earned 1.83 rubles per day. [6] This is an indicator of a relatively low standard of living. Although Soviet statistics avoided using the words ‘poverty’ or ‘unemployment’, these social phenomena were widespread, especially in the rural regions of the republic. By the end of the 1980s, every third village resident had no job. In some districts, every second resident did not participate in social production[7]. The problem of labour surplus in rural regions of Tajikistan remains unresolved even now.
The vast majority of agricultural workers, both men and women, had only a basic school education.[8] The low level of education limited people’s opportunities to work in high-tech and highly paid sectors of the economy.
At the same time, there was an acute shortage of qualified workers among the local population in the Tajik SSR, while the regions were highly provided with labour resources. Only 21% of the total population (employed in the national economy) worked in industry and construction.[9] Considering the ethnic composition of the workers, ethnic Tajiks accounted for about half in this category. In Dushanbe, only 8% of working youth came from the rural areas, while 19% came from other Soviet republics, mainly from the Russian Soviet Federative Socialist Republic.[10] Most of the jobs created at industrial enterprises were taken by workers recruited from other regions, mainly from the European part of the USSR.
For example, in Dushanbe, the capital and largest industrial centre of the republic, by the end of the 1970s, the proportion of ethnic Tajiks was 31.6% of the total population of the city; more than half of the population were ethnic Russians, Ukrainians, Tatars, Jews and representatives of other ethnicities.[11]
Starting from the mid-1970s, there has been a slow outflow of the Russian-speaking population from the Central Asian region, including from Tajikistan; it peaked in 1992. At the end of the Soviet era, increased migration of rural youth to the cities, as well as a new generation of young people, brought educated and skilled workers and specialists from the local population into the labour market. However, this generation failed to make up for the shortage of personnel of the 1990s.
In the 2000s, the process of economic recovery began; this was a period of active market reforms. Tajik society and the new generation of political leaders, most of whom were politically socialised during the Soviet era, had to face changes they had only a vague idea of. It was obvious that a return to the previous planned model of economic management was impossible. However, the Soviet tradition of active intervention and state paternalism in economic and social policy still existed. Prevailing among the population welfare mentality and demand for social justice reinforced the new status quo from the public.
The absence of the traditions of capitalist (market), and sometimes, goods-money relations in most of the territory of Tajikistan in the past, the regulation and redistribution of resources, as well as control over access to them, determined the direction of Tajikistan’s economic development. The state – not the private sector or the civil society – became the engine of the economy.
Chapter 3. A Long Transformation to a Market Economy
The slow pace of market reforms and the low performance of institutions are other reasons for the low level of well-being of citizens in post-conflict Tajikistan.
Since the 2000s, foreign economic relations have intensified, somoni has been introduced, and the privatisation of state property has accelerated. However, large state assets were not sold. Taking advantage of government preferences, state assets are inefficient and absorb limited resources. By the beginning of 2021, their total debt increased to almost $8.5 billion, which is $500 million more than the country’s GDP for 2020. In general, the economy showed good growth rates caused by the low base effect; a slow increase in prosperity and a decrease in poverty were observed in the country.
During 2000-2010, the share of industry and agriculture was decreasing; the share of construction and service (telecommunications, transport, catering) was growing. In 2013, industrial production reached the level of the base year, 1991. Since this period, the economic recovery has been completed and the upturn phase has begun.
Chart 5. Industrial production in 2020 prices, million somoni
The sectors of agricultural processing - consumer goods and food industries – are dominant in the industry; they mainly produce consumer goods and elements of working capital.[12] As for the extractive industry, in addition to electricity, it is mainly represented by the production of concentrates for non-ferrous metallurgy.
Tajikistan’s economy differed from its neighbours’ economies in its growth drivers. For China and other emerging economies in Asia, exports have been the main driver of growth.
The export of labour became the driver of growth for the Tajik economy. Other sources were support programs of the development institutions and loans. Foreign direct investment is insignificant. Chinese government investment and the capital of companies affiliated with the Chinese government are dominant in the economy. About half of the investments were allocated to the energy sector; the other half was directed to infrastructure renewal, to industrial and telecommunications enterprises, hotels, and residential complexes.
The policy of making Tajikistan an industrial and agricultural country, ensuring energy security, and turning it into a transit hub makes the state the main actor of economic growth. The top-down development model pulls the resources of society generated by the private sector. Redistributing the funds, the government directs them to finance large and expensive infrastructure projects in an attempt to start new industrialisation.
Such a model creates a consumer attitude towards business – the proprietary class – as towards a donor. Not surprisingly, after twenty years, the quality of the institutional environment remains low: there is no incentive to create clear ‘rules of the game’. They are not necessary with the manual management of the economy because the rules limit and deprive such an economic policy of flexibility and mobility. Therefore, the protection of property rights, independent courts, the elimination of administrative barriers, and the fight against corruption – the measures that improve the investment and business climate – are often declarative.
In addition to weak institutions, the market has not yet reached the level of a stable market economy during the period of transformation. The market (capitalist) economy consists of agents (companies, banks, employees) who have strong incentives and participate in competition according to established rules. These conditions are not sufficiently met.
There could be a lot of arguments on what should become a growth driver, what concept or development model should be preferred – be it accelerated industrialisation, the transformation of the country into a transit hub, or an economy of knowledge based on telecommunications technologies and services. However, in the end, it is not so important which industries will be leading. It is impossible to develop a market economy only by demonstrating ambitious strategies; the degree of a favourable business environment is much more important for businessmen. If the government follows the path of reforms and market transformation, and the institutional environment develops, the sectors of the economy with competitive advantages will be determined automatically.
Findings
- Although the civil war complicated the transition from a planned to a market economy, it cannot be considered the true problem of the slow rates of recovery and growth of the economy and prosperity in the post-war period;
- If there were no war in Tajikistan, its economy and development dynamics would be similar to the economy of Kyrgyzstan, which had no experience of military conflict;
- During the Soviet period, Tajikistan had the lowest indicators of economic efficiency. There was concealed unemployment in the country. Most of the rural population of the Tajik SSR lived in poverty;
- In the 2000s, Tajikistan actively began to recover the economy and carry out market reforms. In 2013, the level of production reached the level of the base year (1991). From this point, the phase of economic recovery changes to a phase of upturn;
- The strategic goals of achieving energy security and overcoming communication deadlock, as well as the policy of accelerated industrialisation, prioritise large and expensive infrastructure projects over the development of institutions and norms to improve the investment and business environment in the country.
Recommendations
- The government should reconsider its attitude toward a small stratum of the progressive middle class and business owners as towards donors for their projects. Without their active participation, transformational and technological processes will not be successful;
- Protection of property rights, independent courts, elimination of administrative barriers, and fight against corruption will create new growth drivers for the economy. The government’s task is to engage in creating conditions for development, and not to try to become a growth driver itself.
[1] Rakhimov R.K., Dovgyallo Y.P., Sharipov B.M., Yusufbekov Y.R. Macroeconomic Proportions and Mechanisms of Economic Growth in the Republic of Tajikistan (Problems and Main Directions of Improvement) (P. 30). National Academy of Sciences of Tajikistan, Institute of Economics and Demography. Dushanbe: Donish, 2016.
[2] Rakhimov R.K., Dovgyallo Y.P., Sharipov B.M., Yusufbekov Y.R. Macroeconomic Proportions and Mechanisms of Economic Growth in the Republic of Tajikistan (Problems and Main Directions of Improvement) (P. 18). National Academy of Sciences of Tajikistan, Institute of Economics and Demography. Dushanbe: Donish, 2016.
[3] Selected Indicators of the Socio-Economic Development of the Central Asian Republics and Kazakhstan for 1989. (P.3) State Committee for Statistics of the Tajik SSR, Dushanbe, 1990.
[4] National Economy of the Tajik SSR in 1988: Statistical Yearbook. (P. 23). State Committee for Statistics of the Tajik SSR. Dushanbe: Irfon, 1990.
[5] The National Economy of the USSR in 1982: Statistical Yearbook. (P.7). Moscow: Finansy i statistika, 1983.
[6] National Economy of the Tajik SSR in 1988: Statistical Yearbook. (P. 54). State Committee for Statistics of the Tajik SSR. Dushanbe: Irfon, 1990.
[7] Rapid Growth Rates of Labour Resources and Their Effective Use // Tajikistan in the Unified National Economic Complex of the USSR. (Pp. 111-121). Dushanbe: Donish, 1988
[8] Kasymova S.R. Gender Aspects of Migration Processes in Tajikistan: Challenges and Choices. (P. 65). Dushanbe: Irfon, 2020.
[9] National Economy of the Tajik SSR in 1988: Statistical Yearbook. (P. 27). State Committee for Statistics of the Tajik SSR. Dushanbe: Irfon, 1990.
[10] Umarov Kh. Rural Labour Surplus: Problems and Solutions // Economic Issues. (No. 4, pp. 99-108). Dushanbe, 1986.
[11] Kasymova S.R. Gender Aspects of Migration Processes in Tajikistan: Challenges and Choices. (P. 38). Dushanbe: Irfon, 2020.
[12] Rakhimov R.K., Dovgyallo Y.P., Sharipov B.M., Yusufbekov Y.R. Macroeconomic Proportions and Mechanisms of Economic Growth in the Republic of Tajikistan (Problems and Main Directions of Improvement) (P. 135). National Academy of Sciences of Tajikistan, Institute of Economics and Demography. Dushanbe: Donish, 2016.