At the very end of January, the European Bank for Reconstruction and Development (EBRD) signed an 18-year sovereign-guaranteed $150 million loan to finance the construction of a 44-kilometre stretch of the M41 road, the main transport corridor in the country linking Tajikistan with the Kyrgyzstan, Kazakhstan and China.
The investment is part of a $402 million project to rebuild the entire road and complements funding from the Asian Development Bank and the Asian Infrastructure Investment Bank.
What is significant about the EBRD’s investment that the loan explicitly targets economic benefits for local women.
Along the road, five trading areas will be established which the EBRD hopes could allow the involvement of up to 8,000 women entrepreneurs. Initially, at least 150 women will receive specialised training designed to improve their commercial skills.
“We are trying to be as realistic as possible and to do some hand-holding with this aspect of the project. We will start with very small micro-finance projects,” said Ayten Rustamova, head of the EBRD’s Tajikistan operations, in a telephone call from Dushanbe with FinanceAsia.
To make sure that there are tangible benefits from the loan (“We are a development bank, but we are still a bank,” said Rustamova), she says that the EBRD is working with UNICEF on this part of the project and there are hopes that some of the women who borrow initially will continue to become clients of the banks.
Come to Tajikistan!
Tourism is one of the great hopes for the country and expectations are that businesses that target tourists along the road will be set up, those involving, for example, handicrafts and organic food.
Funding to encourage micro-financing is clearly at the forefront of the minds of multilateral agencies.
Only last week (February 20), IFC, the private sector arm of the World Bank, announced a $2 million loan to microcredit deposit-taking organisation Humo in Tajikistan to help improve housing conditions and for micro and small businesses to access finance.
“Our financing will enable low-income families to build new homes and renovate existing dwellings,” said Georgina Baker, IFC vice president for Europe, Central Asia, Latin America, and the Caribbean, adding that expectations were that the loan would also help micro and small businesses “especially in Tajikistan’s rural areas”.
But Tajikistan remains a desperately poor country. It has a per capita GDP rate of only $822 and an economy based largely on remittances from Tajik workers in Russia, while its leadership has followed the Central Asian model of strong man dictatorship. It has been ruled by Emomali Rahmon since 1994 with his son Rustam Emomali expected to succeed him
Over the past decade, Tajikistan has made some progress in reducing poverty and growing its economy. Between 2000 and 2017, the rate of poverty dropped from 83% to 29.5% of the population, while the economy grew at an average rate of 7% per year, according to the World Bank.
Low capital investment
The trouble is that the outlook for the economy remains poor thanks to worsening economic conditions as well as lower capital investment in the power sector. Everyone believes that growth is going to slow down this year, it is just that they disagree by how much. Predictions stretch from the Eurasian Development Bank which believes that growth could hit 6.5%, to the World Bank at 5.5% and a very cautious IMF at 4.5%.
Private sector investment remains minimal and what little there is, is hugely dominated by Chinese mining companies. Over the past six months, China Machinery Engineering has signed a deal to modernise the aluminium plant in Talco; Kashgar Xinyu Dadi Mining has grabbed the development rights for the silver deposits in the Pamir region; and Xinjiang-based engineering and mining company TBEA has been given the concessions to develop the Upper Kumarg and Eastern Duoba gold mines in return for help constructing a power plant in the capital.
The biggest economic project in the country, however, remains the construction of the 3,600MW Rogun Hydropower Project on the Vakhsh River in the south of the country, which is usually billed as the tallest dam in the world. Hopes that it might be completed by 2025 seem optimistic and few have answers where the $1.5bn required for remaining construction might come from.
International help
It is unlikely that international markets are going to be much help.
Tajikistan has only visited the international markets once. In September 2017 it sold its debut $500 million 10-year Reg S/144a bond at 7.125%.
Thanks to an order book that hit $4 billion, Citigroup and Raiffeisen Bank International were able to knock 87.5 basis points of initial price thoughts to price the paper inside similarly rated peers like Ukraine.
The heady heights of 2017 seem a long way away. Last year, the Tajik bond had the dubious honour of being the worst-performing emerging market sovereign bond. In December it traded at 77.5 cents in the dollar and with a yield of 10.7%. Although it has come off those lows and is now at 86.1 cents, this does not bode well for any future bond.
Gintaras Shlizhyus, analyst at Raiffeisen Bank International in Vienna, says that any chance of Tajikistan bringing another bond to market is “problematic”.
“You have to look at it from the perspective of the government which has limited resources for developing the Rogun project. If they were to go to the market with another bond, there is still the question of how realistic is it that the government has enough resources to finalise this project. And whether this bond is going to solve their funding problems,” he said.
“I think that both answers are negative in that regard,” he added.
And even though Tajikistan is technically part of China's Belt and Road initiative, Beijing has shown little sign of putting its hand in its pockets.
As one analyst put it: "China is not a charity, if they don't see simple things where they can invest or enterprises where they can restructure, then you're not going to see much Chinese participation."
In a speech given in Dushanbe in early February, World Bank country manager Jan-Peter Olters pointed out that this year will be critical for the country.
“It will be the year, in which it becomes evident whether the economy can walk through the doors that have opened during 2019 – towards a more dynamic, private sector-driven, and increasingly export-oriented economy,” he said.
But it is questionable whether the will is there, let alone the ability to push that door open.
