Tajikistan: Promoting Export Diversification and Growth
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TAJIKISTAN PROMOTING EXPORT DIVERSIFICATION AND GROWTH COUNTRY DIAGNOSTIC STUDY ASIAN DEVELOPMENT BANK TAJIKISTAN PROMOTING EXPORT DIVERSIFICATION AND GROWTH COUNTRY DIAGNOSTIC STUDY ASIAN DEVELOPMENT BANK Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2016 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2016. Printed in the Philippines. ISBN 978-92-9257-537-3 (Print), 978-92-9257-538-0 (e-ISBN) Publication Stock No. RPT168298-2 Cataloging-In-Publication Data Asian Development Bank. Tajikistan: Promoting Export Diversification and Growth Mandaluyong City, Philippines: Asian Development Bank, 2016. 1. Economic development. 2. Tajikistan. I. Asian Development Bank. 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Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda ADB recognizes “China” as the People’s Republic of China, “Kyrgyzstan” as the Kyrgyz Republic, and “Korea” as the Republic of Korea. Contents Boxes, Figures, and Tables iv Abbreviations vii Foreword ix Preface x Acknowledgments xi Executive Summary xii 1. Development Performance 1 1.1 Two Distinct Episodes of Growth 3 1.2 Supply-Side Contributors 5 1.3 Demand-Side Contributors 6 1.4 Macroeconomic Management 9 1.5 Export Competitiveness in Tajikistan 13 1.6 Economic Growth and Remittance Inflows 15 1.7 Poverty and Inequality 19 2. Critical Constraints to Growth 23 2.1 Cost of Finance 25 2.2 Social Returns to Investment 34 2.3 Low Appropriability of Returns on Investment 49 2.4 Conclusion 54 3. Critical Constraints to Inclusive Growth 55 3.1 Productive Employment Opportunities 55 3.2 Human Capabilities 61 3.3 Access to Infrastructure 70 3.4 Social Protection 74 3.5 Conclusion 77 Appendix 3.1 Social Protection Programs in Tajikistan 78 4. Structural Transformation and Export Diversification 81 4.1 Labor Productivity and Structural Transformation 82 4.2 Export Sophistication and Growth 86 4.3 Product Space Analysis 88 4.4 Diversifying and Upgrading the Export Basket 95 4.5 High-Potential Export Products 98 4.6 Policy Implications for Tajikistan 103 4.7 Modern Industrial Policy in Practice 105 4.8 Tajikistan and the Principles of Modern Industrial Policy 110 4.9 Conclusion 112 Appendix 4.1 Technical Notes on Product Space 114 Appendix 4.2 Unexploited Export Products for Tajikistan by Trade Category, 2010–2014 116 5. Summary and Policy Recommendations 118 5.1 Critical Constraints to Inclusive Growth 118 5.2 Policy Recommendations 119 5.3 The Way Forward 130 References 131 iii Boxes, Figures, and Tables Boxes 1.1 Tajikistan’s Postwar National Development Plans and Strategies 2 1.2 Export and Import Demand Elasticities 15 1.3 Balance-of-Payments–Constrained Growth Model 16 2.1 Growth Diagnostic Framework 23 2.2 Power Sector Reforms in Georgia 37 2.3 Tajikistan’s Education System 47 4.1 Labor Productivity Decomposition and Shift–Share Analysis 84 4.2 Product Space Analysis 90 4.3 Unleashing Transformation in the Agrifood Industry 101 4.4 The Growth of the Bangladesh Garments Industry 102 4.5 Comparison of Industrial Policies in the Republic of Korea and India 107 4.6 Ten Principles of Modern Industrial Policy 111 Figures 1.1 Real GDP Growth, 1991–2015 (%) 3 1.2 Cotton and Aluminum Prices and GDP Growth: 1997–2015 4 1.3 Workers’ Remittances 4 1.4 GDP per Capita, 1991–2014 (constant 2005 $) 5 1.5 Share of Service Subsectors (% of total services) 6 1.6 Industrial Output by Subsector, 1996–2010 (% share in industrial value added) 6 1.7 Expenditure Components (% share of GDP) 7 1.8 Gross Fixed Capital Formation, 2000–2013 (% of GDP) 7 1.9 Public and Private Fixed Investment (% of GDP) 8 1.10 Trends in Fiscal Balance (% of GDP) 9 1.11 Government Expenditure by Category (%) 10 1.12 Inflation Trends in Tajikistan (%) 10 1.13 Tajikistan’s Major Exports (% of toal) 11 1.14 Tajikistan’s Major Imports (% of total) 12 1.15 Tajikistan’s Output Shares in GDP (%) 12 1.16 Tajikistan’s Employment Shares (%) 13 1.17 Number of Products with Comparative Advantage (Revealed Comparative Advantage >1) 14 1.18 Tajikistan’s Nominal and Real Effective Exchange Rates 14 1.19 Growth and Poverty Reduction 19 1.20 Poverty and Extreme Poverty Incidence, 2003–2014 20 1.21 Poverty Incidence by Region, 2014 21 1.22 Expenditure Share by Quintiles, 2009 and 2007 (%) 22 2.1 Real Lending Rates, Selected Countries 2001–2014 (%) 25 2.2 Main Reasons Cited for Not Applying for Loans (%) 25 iv Boxes, Figures, and Tables 2.3 Most Problematic Factors for Doing Business in Tajikistan, 2015 26 2.4 Cost to Firms of Obtaining a Loan, 2013 (%) 26 2.5 Domestic Credit to Private Sector by Banks (% of GDP) 27 2.6 Gross Domestic Savings, 1996–2014 (%) 28 2.7 Liquid Reserves-to-Assets Ratio (%) 29 2.8 Foreign Direct Investment Stocks, 2014 ($ billion) 29 2.9 Net Foreign Direct Investment Inflows, 1997–2014 (% of GDP) 29 2.10 Foreign Direct Investment Inflows to Tajikistan by Source Countries (% in FDI) 30 2.11 Private Non-Guaranteed Debt, 2005–2014 30 2.12 Average Interest Rate Spreads, 1997–2014 (%) 31 2.13 Market Share of Top Banks (%) 31 2.14 Risk Premium on Lending (%) 32 2.15 Tajikistan Financial Deepening, % (M2/GDP ratio) 32 2.16 Banking Performance Indicators 33 2.17 Cost to Import, Selected Economies, 2014 (% of total) 34 2.18 Deposits and Loans in Foreign Currency (%) 34 2.19 Social Return to Investment (ranking among 140 countries) 35 2.20 Electricity Indicators (terawatt-hour) 35 2.21 Share of Electricity Consumption by Sector (%) 36 2.22 Electricity Network Losses (% of total supply) 36 2.23 Rankings in Quality of Electricity and Ease of Getting Electricity 40 2.24 Transport Infrastructure of Tajikistan 42 2.25 Quality of Road Infrastructure (Rankings among 140 Countries) 43 2.26 Quality of Railway Infrastructure (Rankings among 140 Countries) 43 2.27 Railway Freight (million tons-km) 44 2.28 Quality of Air Transportation (Rankings among 140 Countries) 44 2.29 Tajikistan Logistics Score Card, 2014 (scale 1–5) 45 2.30 Information and Communication Technology Indicators, 2014 46 2.31 Students and Graduates from Technical Education Institutions 47 2.32 Educational Attainment of Labor Force and Migrant Workers (% distribution) 48 2.33 Expenditure on Education (% of GDP) 48 2.34 Gross Enrollment by Education Level, 2014 (%) 48 2.35 Tajikistan Gross Enrollment Ratio (%), 1999–2014 49 2.36 Depth and Incidence of Bribery, 2014 (%) 50 2.37 Governance Indicators, 2014 (percentile rankings) 51 2.38 Tajikistan’s Governance Indicators, 1996–2014 (percentile rankings) 51 2.39 Total Tax Collection, 2015 (% of commercial profits) 52 2.40 Number of Tax Payments per Year, 2015 52 2.41 Share of Industry in GDP by Country, 1996–2014 (% of GDP) 54 3.1 Diagnostics Framework