1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Tajik government is consistent in its calls for greater U.S. investment. Despite this, Tajikistan has traditionally courted state-led investment and external loans from larger regional neighbors, including China, Russia, and, to a lesser extent, Iran. In 2019, Chinese foreign investment rose six percent to USD 62.3 million, accounting for almost 76 percent of the USD 346 million of 2019 foreign direct investment (FDI). Russia (USD 33.1 million) was the second largest source of FDI last year, followed by the United Kingdom (USD 13.9 million), and Turkey (USD 13.5 million). Following increased outreach to Gulf States, Qatar has invested USD 384.5 million in a high-rise luxury apartment complex and the region’s largest mosque and is investigating opportunities in banking and infrastructure.
Tajikistan’s Investment Law (Article 7) guarantees equal rights for both local and foreign investors. According to this law, foreigners can invest by jointly owning shares in existing companies with other Tajik companies or Tajik citizens; by creating fully foreign-owned companies; or by concluding agreements with legal entities or citizens of Tajikistan that provide for other forms of foreign investment activity. Foreign firms may acquire assets, including shares and other securities, as well as land leasing and mineral usage rights. Foreign firms may also exercise all property rights to which they are entitled, either independently or shared with other Tajik companies and citizens of Tajikistan. Most of Tajikistan’s current international agreements provide most-favored-nation status.
Tajikistan’s legal code does not discriminate against foreign investors by prohibiting, limiting, or conditioning foreign investment. To receive permission and licenses for operation, however, a foreign investor must navigate a complicated, cumbersome, and often corrupt bureaucratic system.
Several Tajik government agencies are responsible for investment promotion, but they frequently have competing interests. The Committee on Investments and State Property Management (https://www.investcom.tj/ ) facilitates FDI. In addition, state-owned enterprise Tajinvest under the Committee on Investments and State Property Management is responsible for attracting investment into Tajikistan https://www.tajinvest.tj .
Tajikistan has established several formal mechanisms to maintain open channels of communication with existing and potential investors. With donor support, the government established a Consultative Council on the Improvement of the Investment Climate in 2007. This annual council provides a formal venue for dialogue with donors, international financial institutions, and members of the private sector (http://investmentcouncil.tj/en ). In January 2015, the government established a National Entrepreneurship Day, annually celebrated in October. Nevertheless, investors continue to claim that many of their complaints to the government go unheeded.
Limits on Foreign Control and Right to Private Ownership and Establishment
Tajikistan’s legislation provides a right for all forms of foreign and domestic ownership to establish business enterprises and engage in remunerative activity. There are no limits on foreign ownership or control of firms and no sector-specific restrictions that discriminate against market access. Local law considers all land and subsoil resources to belong exclusively to the state, although initial efforts to establish a private land market are underway.
Tajikistan’s legislation allows for 100 percent foreign ownership of local companies. In the context of jointly-owned companies, local partners generally seek to possess a controlling share (51 percent or more) at the initial stage of business development and in some cases may seek to increase their stake over time.
All sectors of Tajikistan’s economy are open to foreign participation with the exception of aviation, defense, security, and law enforcement, which require special government permission for the operation of such types of businesses or services. Tajikistan does not restrict foreign investment; it does not mandate local stakeholder equity positions or local partnership. In some cases, the government requires specific licenses. There are no mandatory IP/technology transfer requirements.
Tajikistan’s government maintains an investment screening mechanism for inbound foreign investments involving government interests, including investments into Free Economic Zones, issuing approval or rejection statements in particular for investments requiring government financial support or state guarantees. The Committee on Investments and State Property Management is responsible for filing and coordinating foreign investment project proposals as they pass through the review pipeline. The government takes particular interest in determining whether the proposed project may impact the county’s national security and/or economic performance.
Investors must submit their proposals for screening to all relevant government agencies. This process can be lengthy and cumbersome. The Committee on Investments and State Property Management circulates the investor’s proposal among the relevant government offices and ministries with instructions to review and then provide a formal opinion. If a ministry objects to the proposed investment activity, it submits an official note to the Committee on Investments and State Property Management.
Screening proposals often involve background checks on the company, the person(s) representing the company, and identification of a financial source to comply with anti-money laundering regulations. U.S. businesses have not identified screening mechanisms as a barrier to investment.
The purpose of the investment screening process is to ensure that a proposed project does not violate Tajik laws. The review process could reject the proposal and the Tajik government may flag it as “incomplete.” Applicants may appeal the government’s decision by submitting a claim to the Tajik Economic Court.
Other Investment Policy Reviews
The United Nations Conference on Trade and Development (UNCTAD) presented a draft Investment Policy Review of Tajikistan in November 2015 to stakeholders from the government, local and international private sector, and civil society and development partners. The final report was published on August 10, 2016 (http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1596 )
Tajikistan has not conducted a WTO Trade Policy Review, and a WTO Trade Policy Review scheduled for 2020 has yet to take place.
Some international and local consulting companies in the recent years produced ratings, guides and reports on investment and business in Tajikistan:
2019 Moodys Rating: https://www.moodys.com/credit-ratings/Tajikistan-Government-of-credit-rating-806356895
2017 RSM Guide to Doing Business: (https://www.rsm.global/tajikistan/insights/corporate-literature/guide-doing-business-tajikistan
2017 Tajik Chamber of Commerce: http://tpp.tj/business-guide2017/rus/content_rus.html
2016 Deloitte Investment and Tax Guide (https://www2.deloitte.com/kz/en/pages/tajikistan/articles/doing-business-tajikistan.html )
Although the Tajik government has simplified the business registration process by adopting a single-window registration system, that process still requires significant legal and human resources, government connections, and time. The Tax Committee is the primary agency responsible for business registration (www.andoz.tj ). In addition to obtaining the state registration through a single-window, a company must also register with the Social Protection Agency (www.nafaka.tj ); Statistics Agency under the President of Tajikistan (www.stat.tj ); Ministry of Labor, Migration, and Employment (www.mehnat.tj ); Sanitary-Epidemiological Service at the Ministry of Health (www.moh.tj ); as well as with local authorities, municipal services, and other agencies. According to the country’s regulations, registering a business should take less than five business days; in reality, it may take several days or even months due to the inappropriate or illegal actions of registering agencies. The Tajik government must notarize all businesses.
The Committee on Investments and State Property Management is the key agency that collects information and project proposals from investors. However, numerous other agencies are involved in the investment coordination process, making it cumbersome.
According to the Tajik Tax Code, there are three types of enterprises: 1. Small-scale businesses with turnover up to USD 100,000 during a 12 months period. 2. Medium-scale businesses with annual turnover from USD 100,000 to USD 2.5 million, and 3. Large-scale companies from USD 2.5 million annual turnover. The international donor community, in coordination with the government, funds a number of projects that stimulate development of small and medium enterprises in Tajikistan.
The Tajik government does not promote outward investments. Private companies from Tajikistan have invested in Kazakhstan, Uzbekistan, Kyrgyzstan, Turkey, Russia, the United Kingdom, the United States, and the UAE, primarily in trade, food processing, real estate, and business development. The Tajik government does not restrict domestic investors from investing abroad.
11. Labor Policies and Practices
As of November 2019, the official unemployment rate in Tajikistan was 2.1 percent, but this does not include the roughly one million citizens (12.5 percent of the population) that seasonally migrate in search of work in other countries – primarily to Russia.
According to information provided by the Ministry of Labor, Migration, and Employment, Tajikistan’s labor force is comprised of 5.2 million workers. Due to demographic growth, the World Bank estimates that demand for jobs exceeds job growth by a ratio of two to one.
Unskilled labor is widely available, but skilled labor is in short supply, since many Tajiks with marketable skills choose to emigrate due to limited domestic employment opportunities. Corruption in secondary schools and universities means degrees may not accurately reflect an applicant’s level of professional training or competency.
Due to its weak education system, Tajikistan’s domestic labor force is generally becoming less skilled, and is ill equipped to provide international standards of customer service and management. Foreign businesses and NGOs report difficulty recruiting qualified staff for their organizations in all specialties.
The Ministry of Labor, Migration and Employment announced a plan to expand its network of training centers at which Tajik workers can become more marketable. The curriculum at these centers is primarily focused on the migrant community, offering training in English, Russian, culture, and history. It also provides certification of a worker’s existing skills, and short-term vocational training as welders, electricians, tractor operators, textile workers, and confectioners.
Article 36 of Tajikistan’s labor code gives employers the right to change workers’ contracts (remuneration, hours, responsibilities, etc.) due to fluctuating market conditions. If the worker does not accept the amended contract, the employer may terminate the worker, but the worker can claim a severance payment equivalent to two months’ salary.
Tajikistan’s labor code does not include any provisions for waiving labor regulations to attract or retain investments, but the Tajik government has waived the 70 percent requirement for the employment of Tajik workers in some cases.
There are no special regulations regarding treatment of labor in Tajikistan’s four free economic zones.
The labor market favors employers. Although the majority of workers are technically unionized, most are not aware of their rights, and few unions effectively advocate for workers’ rights. The Tajik government controls unions. The national trade union federation has not had many disputes with the government. Tajikistan has no formal labor dispute resolution mechanisms. Although collective bargaining can occur, it is rare. During 2019, there were no significant labor strikes in Tajikistan.
Tajikistan’s labor code regulates employer-employee relations. The domestic labor code includes reference to international labor standards but employers may frequently violate or misinterpret procedures.