ALACO DISPATCHES: Tajik leader’s ‘grand designs’ fail to mask economic flaws

ALACO DISPATCHES:  Tajik leader’s ‘grand designs’ fail to mask economic flaws
For five years some 4,000 artists worked on decorating the Palace of Nowruz in Central Dushanbe.
By Renata Legierska of Alaco October 27, 2016

The Palace of Nowruz in Central Dushanbe is a mammoth edifice with 12 opulent reception halls.  Some are decorated with intricate woodcarvings, others made entirely of expensive marble and semi-precious stones, all adorned with traditional paintings and mosaics.  For five years some 4,000 artists worked on decorating the palace and the project is said to have cost $60mn. 

The palace is one of the recent additions to President Emomali Rahmon’s portfolio of extravagant projects, which include Central Asia’s tallest flagpole and largest library.  The president’s latest undertaking is the construction of the region’s largest theatre, which began last spring and is projected to cost $100mn. 

Critics see them as vanity projects and it is indeed hard to justify the millions of dollars spent on objects that have limited utility and offer even less return on investment.  But they appear to serve other functions: that of instilling a sense of national pride by reminding Tajiks of their rich cultural heritage; and of inserting President Rahmon, who features prominently in murals and mosaics, into the national consciousness as one of the country’s great heroes. 

Recently granted the title of the “Leader of the Nation”, the president is determinedly building an image and a legacy as the country’s protector and benefactor.  No one would deny that Tajikistan is in a better place now than it was 20 years ago, when the country was in the midst of a civil war, and the government is making sure people do not forget whom to thank for it. But while Rahmon can legitimately claim some credit for restoring peace in Tajikistan, he has brought little prosperity. 

Although Tajikistan has seen 7 per cent growth in GDP through the 2000s, it is largely due to the fact that it was starting from an extremely low base and managed to capitalise on the rising prices of aluminium and cotton, its two biggest export commodities.  The government has invested millions of dollars in public projects and initiated over 200 strategies for sectoral development programmes – most financed by international development organisations – but waste and corruption have left the country languishing as the poorest among the post-Soviet republics.

In Soviet times Rahmon headed a collective farm and the centralised top-down management style is evident in his approach to the economy.  Although many large enterprises and financial institutions are now privately owned, they are still subject to directives from the government and their owners know better than to resist calls to fulfil their “patriotic duty” by sponsoring various government initiatives, be it the construction of a new university or providing food for the poor during public holidays.  Since 2009 private companies contributed millions of dollars in funding to the government’s largest undertaking, the ambitious Rogun hydroelectric plant, although it is still not clear when the project might be realised.

Rahmon’s grand designs might be genuinely motivated by a desire to lift his countrymen out of poverty, but the irony is that because of his penchant for ostentatious grandeur, the president has sabotaged the opportunity for market forces to stimulate organic growth and diversification of the economy.  There is little incentive for entrepreneurs to grow their businesses because the bigger they get the more they have to pay for public works projects, not to mention having to fend off predatory business rivals. 

There is a a widespread belief among the Tajiks that the ruling elite cares little about their wellbeing, but many still prefer the flawed status quo to the uncertainty of regime change because the memory of the civil war remains alive in the national psyche. 

Instead of protesting against the regime, many Tajiks took matters in their own hands over the past decade and left to find jobs abroad, mostly in Russia.  By 2013 remittances accounted for 50% of Tajikistan’s GDP, making it more dependent on migrant labour than any other country in the world. 

Significant enrichment

While little by way of benefit from the government’s public works projects has so far trickled down to ordinary people, businesses controlled by members of the ruling clan have enriched themselves significantly.  Rahmon’s relatives have developed extensive interests across various sectors of the economy – including transportation, banking and retail – and stories of corruption among members of the ruling elite have become commonplace. 

Had it not been for the convergence of adverse political and economic factors in recent months, it is doubtful that Rahmon would have initiated any meaningful economic reforms.  But a fall in the prices and demand for Tajik export commodities, coupled with a recession in Russia and a newly-enacted law making it more difficult for Tajiks to work there, have unsettled the domestic economy and forced the government to take action.  According to figures published by the World Bank, in 2015 remittances fell by 33% and the Tajik somoni devalued by 31.7%, causing real income to decline by 10%. 

The vulnerability of Tajik businesses became evident in the sharp increase in debts. This had a knock-on effect on domestic banks, which saw the level of non-performing loans rise from 27.2% in December 2014 to 29.8% in December 2015.  The figure is now said to be close to 50%. 

To stop the economy’s downward spiral, the Tajik government turned for help to international development finance institutions.  Since February the government has been holding talks with the IMF over a possible bailout.  Last month Tajikistan and the ADB agreed on a new 5-year partnership strategy to promote more sustained and inclusive growth.  In early October the EU reaffirmed its commitment to continue development cooperation with Tajikistan, with funding of €251mn between 2014 and 2020.

Although the support of the international institution offers a financial lifeline for the fledgling Tajik economy, if Tajikistan’s growth prospects depend on a transformation of the way the government operates, there is little to signal a change.

In recent months Rahmon has significantly increased his hold on power by silencing opposition politicians and activists and appointing family members to key government positions.  Ostensibly in response to the threat of terrorism and an alleged coup attempt, in August 2015 the Supreme Court banned the Islamic Renaissance Party of Tajikistan, the only meaningful political opposition party. 

In May 2016 changes were introduced to the country’s constitution, removing the term limit on Rahmon’s presidency and lowering the minimum age for presidential candidates from 35 to 30, paving the way for Rahmon’s son Rustam to take over the reins when his father steps down. 

A wave of repression in recent months and harsh jail sentences for dissidents has discouraged many from voicing any criticism of the government. 

Even in the unlikely scenario that the president were forced out of office, his designation as "the founder of peace and national unity of Tajikistan", ratified by the Tajik parliament in December 2015, guarantees Rahmon and his family life-long immunity from prosecution.

If history is anything to go by, meaningful reforms by the Tajik government are a remote prospect.  But the international financial organisations and donor agencies could exercise their negotiating power to ensure that any forthcoming financial assistance is contingent on a strict adherence to mutually agreed objectives and a full commitment to transparency.  That would be a good place to start.

Renata Legierska is a Senior Associate at Alaco. Alaco Dispatches is the business intelligence consultancy’s take on events and developments shaping the CIS region.