Foreign Investment and Economic Reform in Tajikistan

Achieving high rates of economic growth requires a constant flow of investment into the real sector of the economy. Under conditions of limited domestic savings, an additional source of capital is foreign investment, from foreign states, international financial institutions, and private companies. The transition from a planned, strictly regulated economy to a market-oriented economy is still in progress in Tajikistan. This is apparent in sectoral imbalances: the banking and service sectors are developing much faster than industry and agriculture. With regard to foreign investment, the state is gradually moving away from complete control over foreign investment toward the liberalization of investment relations. At the beginning of the 1990s, foreign investment was given a special status, which came with certain tax and customs privileges not granted to domestic investment as well as with superior legal protection. The concept of investment activity has now been rethought. Equal rights have been given to domestic and foreign investment and there are unified standards for taxation and for the conduct of external economic operations. Priority areas for attracting foreign investment have been determined, including the construction of hydroelectric plants, the building and repair of motor roads, agriculture, manufacturing, and mineral extraction. This study examines the main factors influencing the decisions of foreign investors in Tajikistan, the priority areas for attracting investment, and current investment projects. The course of economic reforms is also surveyed, the investment climate assessed, and recommendations are made for its improvement. The need to attract foreign investment in order to maintain a high level of economic development is explained. Reforms and policies are suggested that would provide integral support to all three basic sources of the growth of transitional economies: foreign investment, new domestically owned firms (oriented toward the domestic market), and the export of natural resources.