Experts call investments the most important factor for the development of both an individual business and the economy of the country as a whole. Investments in the legislation of Tajikistan are supposed to be investments in the form of tangible and intangible assets.
The most important investments are considered to be fixed assets (capital investments), which, according to economists, are the basis for the growth of any economy.
Investments in fixed assets are investments in the construction and reconstruction of buildings, structures and infrastructure, equipment and technologies, and intellectual property.
In 2023, Tajikistan demonstrated steady growth in attracting capital investments. However, the analysis shows that the country has opportunities to increase investment, given the positive examples of its neighbors. For example, the example of Uzbekistan, where there is also an active development of the investment climate.
Economists note the importance of the share of capital investments in GDP as an indicator of large-scale investment programs. In Tajikistan, this figure is 15.1%, which opens up prospects for its further increase.
Although the volume of capital investments per capita in Tajikistan is lower than in other countries of the region, this also indicates a significant potential for economic activity growth.
It is important to note that a significant proportion of capital investments in our country are financed from the state budget (39.9%), which indicates the Government's determination to support economic development.
This is especially important, given the need for effective allocation of budgetary funds to ensure social protection of the population. In a market economy, the private sector plays a key role in doing business and making investments, and there are opportunities for its more active participation in Tajikistan.
Tajikistan demonstrates significant potential for attracting foreign investment, especially in areas supported by international financial institutions.
About 30% of all investments in the country's economy come from external sources, which indicates the high interest of the world community in the development of Tajikistan. This opens up huge opportunities for further growth and integration of the country into the global economy.
At the same time, although Tajik enterprises' own funds still account for just over 20% of the total investment, this only underlines the potential for active development of local businesses and their further mobilization into investment projects. Tajikistan has a unique chance to take advantage of international support and activate domestic resources for accelerated economic growth.
Conclusions
Data on capital investments in the countries of the region show a significant diversity in economic structures and sources of financing. Kazakhstan and Uzbekistan show higher indicators reflecting their leading positions in the region.
Countries with less investment face challenges in attracting capital and are more dependent on budgetary funds and external sources of financing.
The future economic development of the countries of the region will depend on their ability to diversify sources of financing, improve the business climate and attract investments both domestic and external.
In this regard, an important conclusion and observation regarding Tajikistan is that, unfortunately, the share of capital investments in fixed assets by the private sector remains low.
Why is the population not an investor?
The main reason for the low interest of the Tajik population in investing in the country's economy was called by “Asia-Plus” respondents on social networks “a high risk of losing savings” (47% of respondents on Facebook and 40% on Telegram).
Facebook has a relatively large number of people who voted for “lack of knowledge and experience” (17% on Facebook and 16% on Telegram) and “financial and economic uncertainty” (14% on Facebook and 16% on Telegram).
Telegram users who participated in the survey also consider “lack of money” to be the main barriers to investment – 21%, although the share of such respondents on Facebook is only 4%.
In general, the survey results show that in order to increase interest in investments in Tajikistan, several problems must be solved at once: from improving financial literacy, developing the capital and securities market, to creating a more stable and transparent economic and investment environment.
It is also important to note that in order to increase investment by the private sector and other investors in the economy and the financial sector, a more stable and predictable business environment is needed and a decrease in the share of the informal economy, which, according to international financial institutions, is estimated at about 40% of the entire economy.
Accordingly, a large financial flow, including investments, occurs in the informal field, which hinders the development of the economy and the strengthening of the budget.
Meanwhile, foreign investors who operate in the Tajik market are talking about the following difficulties.
– instability of legislation: frequent changes in tax and investment legislation create uncertainty and increase risks for investors.
– weak infrastructure: insufficiently developed infrastructure, including transport and energy networks, which complicates logistics and increases operating costs for investors.
– market opacity: the lack of sufficient information about companies and markets makes it difficult to conduct due diligence and risk assessment.
– bureaucracy: complex and lengthy administrative procedures can make it difficult to obtain the necessary permits and licenses to conduct business.
– legal risks: insufficient protection of property rights and complex dispute resolution procedures may create additional risks for foreign investors.
– socio-economic instability: possible political and social risks, including labor conflicts and economic crises, which may negatively affect business investments.
There is enough money, but there is no trust, knowledge and experience
Financial analyst Abbos Nazaraliev told “Asia Plus” that Tajikistan's investment market has its own characteristics. The analyst noted that the main investors are the state and local institutional investors (banks, large corporations, funds, insurance companies, etc.).
“We have three main categories of investors: the state, foreign investors and local institutional/individual investors (including corporations). Investment facilities in the country are mainly focused on construction, as well as partially in industry and mining,” – he explained.
According to him, private companies in Tajikistan, except for the construction of housing and commercial buildings, do not participate in large infrastructure projects, and the state is forced to do this in a consortium with international financial development institutions.
“There may be many reasons for this, ranging from high risks of investments in other sectors, except housing construction, and ending with the lack of developed financial instruments of the securities market, the so-called “blue chips” of the national economy. That is, the primary and secondary securities market, where national institutional investors and the public could invest their savings in a safer way.
In other countries, private companies usually build, for example, large industrial and infrastructure facilities on the basis of public-private partnerships (PPPs) and manage them, receiving income at set tariffs. In such cases, the state provides two main things: a guarantee of certain tariffs and stable cooperation within the framework of PPP,” – he said.
The expert does not agree that the local population does not have sufficient income to invest some of the money in the country's economy. He noted that potential investments are placed in banks on savings accounts and term deposits.
“These funds could be invested in the economy. Why don't they invest their money, but prefer to keep it in a bank? Perhaps this is due to the fact that they do not believe in the long-term perspective of the business,” – he said.
The analyst also attributed insufficient financial literacy and awareness of the population to such reasons.
According to the National Bank of Tajikistan, at the beginning of the second half of this year, the total amount of deposit balances amounted to 21.1 billion somoni (about $2 billion), which is 24.1% more compared to the same period in 2023. The weighted average interest rate on term deposits in the national currency for this period was 13.10% per annum. Banks, as you know, direct most of this money to business loans. The weighted average interest rate on loans for this period was 22.38% per annum.
The expert believes that these funds, in part, could be directly directed to financing small and medium-sized businesses without the mediation of banks.
Thus, the population could receive the margin (the difference between deposit and loan rates) that banks currently receive. But, unfortunately, the tools of the local investment market are very limited.
“In general, the market for investments in Tajikistan, even if we do not take into account large companies and international turnover, is significant. But local companies may not have sufficient information and understanding about the possibilities of the local capital market,” – the analyst concluded.
Recommendations
To eliminate the existing barriers preventing the population of Tajikistan from actively participating in investment activities, “Asia-Plus” has prepared the following recommendations based on the proposals of independent experts:
Reducing investment risks
– creation of investment insurance mechanisms: the government or financial institutions can offer deposit and investment insurance programs that can help reduce fears about losing savings.
– transparency and investor protection: increasing the transparency of financial transactions and the creation of strict regulatory and investor protection mechanisms can increase confidence in investment instruments.
– creation and strengthening of a mechanism to protect investments from political and other risks.
Improving financial literacy
– conducting educational programs: organizing courses, seminars and trainings for the public on the basics of financial literacy, investing and risk management can help people better understand how investments work and how to minimize risks.
– development and dissemination of training materials: creation of accessible and understandable materials (for example, video tutorials, infographics) about the benefits and risks of various types of investments.
Stabilization of the economic environment
– development of a sustainable economic policy: the state should strive to create a stable macroeconomic environment that will allow the population to feel more confident in the future and reduce fears about economic uncertainty.
– encouraging long-term investments: creating conditions for more stable and attractive long-term investments, such as investments in infrastructure or government bonds.
Increasing confidence in financial institutions
– development of the Ombudsman institution: creation of an independent institution that will resolve disputes between investors and financial institutions.
– regular audits and publication of reports: ensuring regular monitoring and transparency of the work of financial institutions, which can strengthen public confidence.
Increasing investment returns
– subsidies and tax incentives for investors: providing tax incentives or subsidies for investors can make investments more attractive and compensate for low returns.
– development of new investment products: government and private companies can offer new, more profitable and reliable investment products.
Increasing the availability of capital
– development of microfinance and crowdfunding: support and development of microfinance institutions and crowdfunding platforms that can provide people with access to capital for investment.
– creation of special investment funds: the state can create funds that will co-finance investment projects of citizens, reducing their financial burden and risk.
Development of the securities market, both primary and especially secondary, for the placement of corporate and financial products:
– to provide large institutional investors with the opportunity to increase the size and volume of investments in the capital structure of local issuers listed on the Central Asian Stock Exchange (CASE).
– it is necessary to introduce into the current legislation such concepts as venture investments, venture investors, derivative securities (options, forwards, futures, etc.), private investment funds.
– create a single index, which will include shares of large and medium-sized companies.
– provide tax incentives for dividends to investors who purchase securities through CASE.
Communication and information support
– public campaigns to promote investments: conducting mass information campaigns aimed at raising awareness about the opportunities and benefits of investments.
– consulting services: organization of free consulting centers where citizens can receive assistance in choosing investment products and understanding the risks associated with them.
Experts believe that these measures can help eliminate the main barriers and encourage more people to participate in investment activities, which in turn will contribute to the economic development of the republic.
The article was prepared within the framework of the Regional Program “Improving the Business Environment in Central Asian Countries (IBECA)”, which is implemented by the Center for International Private Entrepreneurship (CIPE).
The program, which operates in Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, aims to improve the business environment, expand the private sector's access to finance, and promote the strengthening of regional expert networks and international relations in order to attract international investment.
In Tajikistan, the IBECA prioritizes the e-commerce sector, the local investment ecosystem, tourism and the strengthening of export infrastructure.
