Tajikistan Trade Diagnostic Study
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Report No. 32603-TJ Tajikistan Public Disclosure Authorized Trade Diagnostic Study December 13, 2005 Poverty Reduction and Economic Management Unit Europe and Central Asia Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank CURRENCY AND EQUIVALENT UNITS (as of November 2, 2005) Currency Unit = Tajikistan Somoni (TJS) US$1 = TJS 3.1876 1 TJS = US$0.3137 WEIGHTS AND MEASURES Metric System ABBREVIATIONS ADB Asian Development Bank MoE Ministry of Economy BEEPS Business Environment and Enterprise MIT Ministry of Industry and Trade Performance Survey MW Megawatt CIS Commonwealth of Indipendent States OECD Organization for Economic Cooperation DAAD German Academic Exchange Service and Development EBRD European Bank for Reconstruction and PPII Post-privatization Investment Initiative Development PRSP Poverty Reduction Strategy Paper EU European Union p Electricity price EURASEC Eurasian Economic Community p.a. per annum FDI Foreign Direct Investment r Rail transport cost FIAS Foreign Investment Advisory Service RRS Rayons of Republican Subordination GBAO Gorno Badakhshan SAC2 Structural Adjustment Credit 2 GDP Gross Domestic Product SECO Swiss State Secretariat for Economic GTZ Association for Technological Affairs Cooperation (German) SME Small and Medium Enterprises HIPC Heavily Indebted Poor Countries SPC State Privatization Committee IAS Intgernational Accounting Standards TBT WTO Agreement on Technical Barriers ICA Investment Climate Assessment to Trade IFC International Finance Corporation TWh TetrawWatt-Hours IFI International financial organizations TADAZ Tajik Aluminum Plant ISO International Standardization TRIPS Trade Related Aspects of Intellectual Organization Property Rights ITC International Trade Center TSA Tajikistan State Airlines IT Information Technology UCGS Universal Cotton Grade Standards KR Kyrgyz Republic USAID United Stated Agency for International kWh Kilowatt-Hours Development LDC Least Developed Country UNITAR United Nations Institute for Training and LTD Limited Research MFA Multi-fiber Agreement VAT Value Added Tax MIGA Multilateral Investment Guarantee WPS Working Paper Series Agency WTO World Trade Organization Vice President : Shigeo Katsu Country Director : Dennis de Tray Sector Director : Cheryl W. Gray Sector Manager : Samuel Otoo Task Leader : Jakob von Weizsacker ACKNOWLEDGEMENTS This Trade Diagnostic Study for Tajikistan is part of a series of Trade Diagnostic Studies that have been prepared for the countries of the ECA region. It is based on the findings of several missions that visited Tajikistan between March 2004 and November 2004 and background papers prepared by a number of consultants. Many elements of the study have already entered the policy dialogue between the Bank and the Government of Tajikistan. This report is intended to facilitate further progress in this dialogue and to allow broader dissemination within the country and donor community. The principal authors of the report are Jakob von Weizsaecker (Team Leader), Jariya Hoffman, Andriy Storozhuk and Utkir Umarov. Background papers were prepared by Lauri Ojala, Alexander Kitain (Transport and Logistics), Bernard Touboul, Gerard McLinden (Customs), Charles Schlumberger (Air Transport), Evgeny Polyakov (Trade Regime), Matthias Lücke (WTO), Utkir Umarov (Aluminium, Cotton, Migrant Workers), Wolf Iro, Sudhee Sen Gupta, and Bruce Courtney (FDI and Growth Prospects). The report was proofed and produced by Marinette Guevara. The team wishes to thank the Government of Tajikistan for very constructive discussions during and after the various missions, as well as comments provided on the final draft of the report. The team is particularly grateful for the inputs provided by Faizullo Kholboboev, State Adviser to the President on Economic Policy, Nematjon Buriev, Head of Department for Economic Reforms and Investment (Presidential Administration), Hakim Soliev, Minister of Economy and Trade, Maruf Saifiev, Deputy Minister of Economy and Trade, Isroil Makhmudov, Deputy Minister of Economy and Trade, Gulomjon Boboev, Minister of State Revenues and Duties, Sirojiddin Aslov, First Deputy Minister of Foreign Affairs, Tohir Akhmedov, Head of Consular Department (Ministry of Foreign Affairs), Abdurahim Kahharov, First Deputy Minister of the Interior, Tohir Normatov, Head of Operations, Ministry of Interior Headquarters, Zokir Vazirov, Minister of Labour and Social Protection of Population, Anvar Boboev, Head of State Migration Service (Ministry of Labour and Social Protection of Population), Jurabek Nurmakhmadov, Minister of Energy, Abdurahim Ashurov, First Deputy Minister of Transport, Opokhon Kataev, Deputy Chairman of Consumers’ Union, Sharif Saidov, Chairman of Chamber of Commerce and Industry, Davlatali Hotamov, Director of Tajik State Standard Agency, Makhmadzoir Sohibov, Chairman of the Commodity Exchange, Firuz Khamroev, Head of Department of Civil Aviation, Amonullo Hukumov, Chairman of Tajik Railways, Sadriddin Sharipov, Director of TADAZ, Mirzo Anvarov, Director General of State Unitary Aviation Enterprise, and their staff. The generous financial support for this study by the Swiss State Secretariat for Economic Affairs (seco) is gratefully acknowledged. The team is also grateful for helpful comments and guidance from the peer reviewers, Elena Ianchovichina, Faezeh Foroutan, Philip Schuler, Harry Broadman, and Clinton Shiells (IMF); Dennis de Tray, Cevdet Denizer and Lilia Burunciuc; Jean-Francois Arvis, Raghuveer Sharma, and T.V. Sampath. Finally, the report benefited enormously from the active participation and advice of Samuel Otoo. TABLE OF CONTENTS EXECUTIVE SUMMARY..................................................................................................i KEY RECOMMENDATIONS OF THE TRADE DIAGNOSTIC STUDY...................... v 1. SETTING THE STAGE.............................................................................................. 1 Introduction ............................................................................................................. 1 Macroeconomic Developments............................................................................... 4 Sources of Growth................................................................................................... 6 Growth and Poverty ................................................................................................ 7 External Vulnerability........................................................................................... 10 Trade Policy, Regional Trade Agreements, and Trade Integration....................... 11 Other Formal Trade Barriers................................................................................. 11 Regional Trade Agreements.................................................................................. 12 WTO Accession .................................................................................................... 14 2. DOMESTIC AND EXTERNAL TRADE FACILITATION AND TRANSPORT . 17 A. DOMESTIC TRADE REGIME AND TRANSPORT........................................ 17 Domestic Market Fragmentation........................................................................... 17 Addressing Domestic Road Transport Costs ........................................................ 18 Developing Domestic Road Network ................................................................... 21 Improving the Business Climate ........................................................................... 22 Liberalizing the Internal Visa Regime .................................................................. 24 B. EXTERNAL TRADE REGIME AND TRANSPORT ....................................... 25 Reducing Border-Related Trade Costs.................................................................. 26 Reducing International Transport Costs................................................................ 32 3. KEY SOURCES OF FOREIGN EXCHANGE EARNINGS: ELECTRICITY, ALUMINUM, COTTON FIBER AND MIGRANT WORKERS.................................... 41 A. ELECTRICITY AND ALUMINUM .................................................................. 41 Enhancing Efficient Use of Existing Electricity Generation Capacity ................. 41 Developing New Hydropower Projects................................................................. 45 Optimizing the Electricity-Aluminum Nexus ....................................................... 48 B. COTTON FIBER................................................................................................. 50 Barriers to Growth and Efficiency in the Cotton Sector ....................................... 51 Strengthening the Government’s Cotton Sector Reform Strategy........................ 55 Modeling the Alternative Development Scenarios of the Cotton Sector.............. 56 C. MIGRANT WORKERS AND REMITTANCES ............................................... 58 Profile of Labor Migration from Tajikistan .......................................................... 58 Reducing Costs of Labor Migration...................................................................... 60 Enhancing the Role of the Financial Sector in Facilitating Labor Migration ....... 62 4. OPPORTUNITIES FOR FDI-DRIVEN GROWTH................................................. 65 A. INCENTIVE FRAMEWORK FOR ATTRACTING FOREIGN DIRECT INVESTMENT ......................................................................................................... 65 B. TEXTILES: A CASE STUDY...........................................................................