As Russia re-orients its trade eastward it focuses not only on boosting commerce with the members of the Eurasian Economic Union (EAEU) to offset losses from the economic stalemate with the European Union (EU), but also other neighboring countries who are members of the Commonwealth of Independent States (CIS). One of them is Tajikistan.
Closely connected to Russia through security (Russian military base in Dushanbe) and various political multilateral arrangements, Tajikistan is set to benefit from changing trade patterns in Eurasia. However, though trade with Russia is growing, the volume of Russian investment into Tajikistan remains sluggish.
In 2022 the trade turnover between Russia and Tajikistan increased to US$1.4 billion, 18% higher than in 2021 and a record number for the past twenty years. Exports from Russia to Tajikistan grew by almost 20%, reaching US$1.3 billion mark, while imports from the Central Asian republic increased by 4%, to US$103.3 million. The increase has not been an isolated event, but rather a long-term development. In 2021, trade between Russia and Tajikistan increased by staggering 44.66% compared to the figures from 2020.
Given the high likelihood of the conflict in Ukraine continuing, the bilateral trade volumes are expected to grow further. Russian and Tajik officials think that in 2023 that commerce will reach US$2 billion mark, while in the next 2 years the trade turnover could quadruple the present numbers.
One of the major reasons behind the sharp increase in trade between Russia and Tajikistan in 2022 was the effects of the Western sanctions on Russia and its sourcing businesses looking for alternative suppliers and buyers across the CIS countries. There is a great potential in the interaction at the regional level between Tajikistan and Russia. For instance, more than 100 Russian commercial chambers have partnership agreements with the Tajik Chamber of Commerce and Industry. Just this past 18 months, delegations from 15 Russian regions have paid business visits to the Central Asian country via the Tajik Chamber.
The Ukraine conflict has significantly boosted the trade dynamic. In the first several months of 2023 the Tajikistan increased its exports of high-tech products to Russia by more than 50%. In the first quarter of 2023, Tajikistan exported to Russia goods worth about US$7.4 million, which include communication equipment, air-cleaning equipment, computer and block equipment, transistors, and electric batteries.
When it comes to imports from Tajikistan, Russia is interested in the supply of zinc ores, fruits, fats and oils of animal or vegetable origin, and clothing. Meanwhile, Russian exports include agricultural products, woodworking, ferrous metals, vehicles, chemical industry, mineral fuels, and wood. Moreover, Russia has already also significantly increased the export of sawn timber to Tajikistan. For instance, in the first 2 months of 2023, the supply of Russian timber to Tajikistan increased by 1.4 times and reached 67,000 cubic meters. Tajikistan is highly dependent on Russia in some of the key trade products important to the operation of various industries in the country: more than 50% of Tajikistan’s needs in fuels and lubricants, wood, oils, and various food products are supplied from Russia.
Another critical area of Russia-Tajikistan relations is the Tajik expatriate workers’ community in Russia. In 2022, Tajik nationals were the second (after Uzbeks) biggest foreign working group in Russia. The numbers are significant for the Tajik economy, in 2021 alone, 768,727 Tajik citizens obtained documents for labour activity in Russia, contributing approximately US$900 million to the Russian budget. Money transfers from Russia to Tajikistan amounted to US$1.795 billion, with 94% of this total transferred in rubles.
The trade ties therefore have not yet reached optimum levels, meaning there is room for growth. This likely explains Moscow’s push to bring Dushanbe over into EAEU and portray the grouping as a vehicle for closer trade and investment ties. This was discussed during the June visit by Russia’s Foreign Minister Sergey Lavrov to Dushanbe. Tajikistan, along with Turkmenistan, remain the only Central Asian country, which has no link to EAEU. Moscow’s expectation is that the potential boosting of ties could serve as a good opportunity for Tajikistan to enhance ties with the grouping and realize what Uzbekistan has enjoyed from 2020 – observer status of the EAEU.
The volume of accumulated investments from Russia to Tajikistan over the past 14 years has reached US$1.6 billion, from which direct investments have exceeded US$900 million. Russian investments account for more than 16% of Tajikistan’s total, and have historically been directed to construction, communications, geological exploration, financial intermediation, healthcare, trade, energy and tourism.
Yet, overall, the level of Russian investments into Tajikistan is quite low. For instance, Q1 this year, investments from Russia into Tajikistan amounted to just US$2 million. The overall inflow of foreign investments into the economy of Tajikistan in the period amounted to nearly US$170 million, which is about US$60 million more than registered in the same period from 2022.
Russia’s weak investment performance can be explained by several factors, including the issue that Russian capital is going into Russian industries to support the Special Military Operation in Ukraine.
But part of this is that several large projects, such as the Sangtuda Hydroelectric Power Station-1, the Sozidanie business complex, and the Hyatt Regency hotel construction have now been completed.
Another factor is that for Moscow, none of Tajikistan’s industrial sectors – except for raw materials – are appealing enough to invest resources. Moreover, faltering economic and trade ties between Russia and the CIS could also mean that Moscow now has lower potential to invest abroad, at least while the Ukraine situation continues to prevail.
Nevertheless, investment cooperation continues. In late 2022 Moscow and Dushanbe agreed to open a facility for electron accelerators, for use in phytosanitary treatment, fruit processing for pectin production and the establishment of a shoe manufacturing facility in Tajikistan. In 2022 a large multimodal Russian carrier, PEK, began its operations in Tajikistan. The company specializes in the delivery of cargoes by air and by road. This is expected to help pinpoint economic areas in Tajikistan for Russian businesses to invest.
Close links also exist between Russia’s Tatarstan and Tajikistan. For instance, Tatar companies are interested in the Tajik market. Among the biggest ones are Tatneft, KAMAZ, KMPO, Shipbuilding Corporation, Pozis, GMS-Group, Tatkhimfarmpreparaty and a number of other companies.
Overall, a relatively weak investment performance by Russia falls within the general trend observable in Russia’s investment volumes in the whole of Central Asia where in 2022 Russian direct investments in the economy of the region’s five countries amounted to more than US$3.6 billion.
However, this could be resolved later, as Russian trade with Tajikistan continues to develop. That could lead to capital injections as Russia’s Pivot East continues to redefine the very nature of Russian trade shifts on a global scale.
Source: Russia Briefing