Clare Nuttall in Almaty -

In Garm, the administrative centre of Tajikistan's isolated Rakhsh Valley, snow is already creeping down the mountains by mid-October, but in the town's open air bazaar piles of summer fruits - grapes and apples - are still on sale. Next to the fruit stalls, women in long velvet dresses and men with gold teeth and embroidered hats sell pots of golden honey.

A portrait of President Emomali Rakhmonv dominates Garm's central square, but even today Dushanbe's control of the region is tenuous. The Rakhsh Valley was one of the last resorts of the anti-Soviet Basmachi rebels in the 1920s, and this small town was an opposition stronghold during the Tajik civil war.

One of the farmers in Garm for the market, and taking his lunch at the town's only hotel, is Mumujin Malayev. He owns 25 hectares of land at various sites along the valley, making him one of the largest farmers in this poverty stricken region.

Malayev makes TJS1.5 ($0.35) per kilo from his main crop, potatoes, in the market, but he has bigger ambitions for the future. He plans to set up a processing plant to make potato crisps, which will fetch TJS3 for a 50-gram bag, and other products such as powder to produce potato puree for large-scale catering.

Consultant Balajon Bobokhojaev, another Garm resident, is advising Malayev. "Commercial activity in the Rakhsh Valley is not high, and we need to change people's mentality," Bobokhojaev explains. "If this project is successful, it will show people that with professional help they can grow their business and increase their income. Processing facilities for all types of farm produce are needed. Beekeeping is very developed in this region, but the farmers have to sell their honey locally. If there was a packaging facility, they would be able to export it or sell to the supermarkets."

The European Bank for Reconstruction and Development (EBRD) will pay half of Bobokhojaev's fee under a programme to develop local business support services, which are in their infancy in Tajikistan. The concept has been successfully pioneered in urban areas, and is now being expanded to rural areas through cooperation with the Organization for Security and Cooperation in Europe (OSCE) field offices.

Rural development is highly important in Tajikistan - the majority of the population lives in rural areas. "The communist legacy, combined with the donor-driven approach encouraged by the recent involvement of the international community in rural development, created a rural world without basic understanding of a market economy," says OSCE economic officer Emmanuel Huntzinger.

"The Rakhsh Valley has almost zero industry," adds Tibor Lakati, head of the OSCE field office in Garm. "The main activity is agriculture - growing fruit, vegetables, wheat and potatoes, beekeeping and animal husbandry. There were factories here in the Soviet times, mainly for food processing, but when the Soviets left they took their money with them. The buildings were mostly destroyed in the civil war."

The Rakhsh Valley is among the poorest regions in Tajikistan, but the problems it faces are typical of the entire country. Like Garm, the outskirts of Dushanbe, Khujend and other major cities are also full of derelict factories. That's not to say there is no industry: the Tajikistan Aluminium Company, or Talco, is one of the world's largest aluminium plants. However, Talco, like the smaller manufacturing operations in the country, has suffered due to the international economic crisis. Industrial production fell 10% year on year during the first 10 months of 2009, according to the CIS Interstate Statistics Committee.

While the International Monetary Fund (IMF) forecasts that Tajikistan's economy will grow by 2% in 2009 (down from 7.9% last year), this is cancelled out in per capita terms by the 2% increase in population. Most of this year's economic growth was driven by the non-cotton agriculture sector, which benefitted from the unusually wet spring. "The financial crisis didn't affect Tajikistan, but the real economy crisis is," says Chiara Bronchi, head of the World Bank in Tajikistan. "Tajikistan is a small, open economy that is very dependent on commodities. Its primary exports are cotton and aluminium. It is a price-taker for both, so its economy is strongly affected by changes in price and demand."

"Tajikistan is also indirectly affected by international commodities markets, since more than 90% of remittances are from Russia, and the Russian economy is also based on commodities," she adds.

Tajikistan's official unemployment rate bears little resemblance to the real situation. In most regions more than half the population is effectively unemployed, and this is as high as 80% among young people. Outside the big cities, women have almost no employment options and, therefore, have to work in their home or on the family fields.

Meanwhile, men have left in their hundreds of thousands. From a population of 6.5m, Tajikistan has 2m economic migrants, the majority in Russia and Kazakhstan. Many returned to Tajikistan in 2008, but anecdotal evidence suggest they have started returning en masse.

Government help or hindrance

The Tajik government launched an anti-crisis programme in April in response to the problems the economy was facing. It has also started to reform the agricultural sector, and is restructuring the heavy debt burden on cotton farmers. "The government has done as much as possible to prevent the economy from going backwards," says Bronchi. "They are very committed to protecting social spending in the budget. Since public revenues are down, they had to revise the budget in order to maintain this. They are making a tremendous effort."

In addition to the government support, Tajiks claim that the years of hardship they have endured makes them better able to weather the crisis than the residents of more prosperous countries. "When we Tajiks go to Russia or Kazakhstan to work, the people there believe we have nothing. They think we travel around on donkeys. It's not true," complains Zohirjon, who manages an import-export business in Khujend. Still in his late 20s, he has all the toys of the modern Tajik businessman - a big car, a shell suit and some slim cigarettes.

"We don't have a crisis. There has been a crisis for the last 15 years, and things are no different now. The factories have been closed for 15 years. We are used to doing things for ourselves. In Russia or Kazakhstan, if one factory closes it's a disaster. Here, people manage," he says. Zohirjon's main criticism is reserved for the government, in particular the tax officials. "The government lives at the people's expense. We send our money to Dushanbe and nothing comes back. For businesses, it's 20% for this, another 10% for that."

Foreign investment in Tajikistan is at a low level, but has been slowly increasing. Russia's Gazprom and RusAl are active here, as is Toronto-listed Tethys Petroleum. The Quatari state investment company Diar recently announced plans for a luxury real estate project. "In general, the business climate is encouraging for investors," says Nazir Sharipov, chairman of the American Chamber of Commerce (Amcham) in Tajikistan. "To say it's perfect is not correct. However, what encourages foreign investors is the fact that we have seen strong signs of business climate improvement. Also the government shows strong desire to improve the fiscal regime by amending taxes, customs and laws."

Bumpy roads

The most serious challenge facing Tajikistan's businesses has been the situation with the country's transport and energy infrastructure.

The mountainous country is very difficult to negotiate. Crossing the high passes between Dushanbe and Tajikistan's second city Khujend is at best uncomfortable, at worst life-threatening. Getting from the capital to the east is even worse. Today, the Dushanbe-Khujend road has been almost completely rehabilitated, in a project funded by Beijing and carried out by mainly Chinese labourers. However, due to flooding, the tunnels under the Fan Mountains and Turkestan Mountains have not yet opened, and both passengers and cargo lorries have to take the old roads. These are potholed gravel tracks that hug the sides of the mountains, with a terrifying drop below and the constant threat of rockfalls from above. "When the new road is completed, it will make a huge difference to Tajikistan because it will halve the travel time between Dushanbe and Khujend, as well as making it safer," says Bronchi. "This will encourage more road transport, increasing the use of Tajikistan as a transit state, helping domestic trade and reducing poverty."

The north, traditionally the commercial heart of the country, is likely to benefit the most. It is cut off to the south by the mountains, and the main export route to the north - via Uzbekistan - is often closed by Uzbek officials, a cause of constant frustration to Tajik businesspeople. Tajiks also complain about Uzbek state-owned Uztransgas' habit of cutting off gas supplies to Tajikistan during the winter months over unpaid bills. Blackouts are frequent, and electricity supplies in the regions are rationed. The problem is at least partly an internal one; Tajikistan's state energy company Barki Tojik is slow to pay Uztransgas because it charges low prices for electricity, and many of its own customers don't pay their bills. However, Tajikistan has been working to improve this situation since the record cold of the 2007-08 winter.

Tajikistan is also working on a major hydropower plant construction programme. The Sangtuda 1 power plant was completed by August with Russian help. Tajikistan has already started building Sangtude 2, this time with financial support from Iran. Numerous mini hydropower plants are being built across the country as a stopgap while the big dams are completed. These are not commercially viable in the long term, since the cost to run them is higher than the cost of electricity, but they are an important coping mechanism.

Tajikistan is already exporting electricity to Afghanistan, and could also supply Iran and the cities of northern Pakistan and India. The Central Asia South Asia Electricity Transmission and Trade Project (CASA 1000) project, which would see surplus power from Kyrgyzstan and Tajikistan being exported to South Asia during the summer months, is still at the discussion stage, but if realised would be a major source of revenue for Central Asia's smaller economies. Optimists believe Tajikistan has a bright future as an energy exporter, and that this could transform the economy. For now, however, this is a long way off.