Tajikistan, the mountainous, landlocked country in central Asia, has a nominal GDP per capita of $820, which makes it the poorest of the former Soviet republics. But in 2011 the Tajik State Geology Committee announced the discovery of large gold deposits in the country. Further good news looks set to come in second half of this year, when a licence is expected to be issued to extract silver in Konimansuri Kalon in the north of the country, which is believed to contain the biggest silver deposits in the world.

Despite this potential commodity boom, mining experts remain cautious as to whether Tajikistan can attract as much interest from mining companies as Mongolia, which has undergone rapid development thanks to its newly discovered mineral riches. So far, where Tajikistan is concerned, it seems that investors are playing a waiting game.

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Cut-price deals

Almost a decade ago, Tajik authorities began selling the country’s metal ore mines, but the total capital invested in the mining sector over the past eight years is a mere $1.52bn, according to greenfield investment monitor fDi Markets.

“Tajikistan is a very interesting country in respect to mineral occurrences, but in order to comfort many investors, it still needs examples of large-scale developments with foreign capital involved,” says Karr McCurdy, president and CEO of Behre Dolbear Group, a mining advisory firm.

Mr McCurdy admits that ever since announcements about new gold and silver deposits hit the headlines, the clients of his company started to ask about mining in Tajikistan, but as he notes “inquiries do not translate into business yet”.

Joji Takeshi, the Asian Development Bank’s (ADB) country director for Afghanistan, who formerly had a similar role in the bank’s Tajikistan department, confirms the need for a successful flagship project that will encourage other entrepreneurs. “We are looking closely at the development of Konimansuri Kalon, and if the [licensing] deal goes smoothly, it will show that the country is ready to conduct such big ventures in co-operation with the private sector,” he says.

Potential pitfalls

So far, it is mostly public spending and a large stream of remittances coming mainly from Russia that have fuelled Tajikistan’s economy. A lack of interest in private investments made by either foreign or domestic businesses is highlighted in the ADB’s April report on Tajikistan as one of the major obstacles in the country’s economic development. Others noted are a lack of financial support caused by the imposition of costly business financing, limited financial intermediation and complicated tax administration. 

An e-mail obtained by fDi, which was sent by a high-ranking official of an international organisation operating in Tajikistan’s capital, Dushanbe, describes the business climate in the country as making "very little visible improvement”, while “corruption is getting worse”. The official also points to the situation in the rest of central Asia, including the diminishing US influence, as a possible source of instability in the country.

But given that when it comes to mining, any investment decisions are based more on the guarantees of returns from extracting deposits of metal and less on the murkiness of the country's business climate, Tajikistan could still experience an increase in foreign-led projects.

However, one potential hurdle to this is the lack of transparency with which its companies are run. In 2008, the International Monetary Fund (IMF) issued a report that posed questions regarding the running the Tajik Aluminium Company (Talco), one of the country's most profitable firms, which is run by Tajikistan's president, Emomali Rahmon. The IMF ordered an independent international auditor to check Talco's financial operations, which it described as "most worrisome" and "non-transparent". 

Relocation challenges

Attracting expats to work in Tajikistan is also proving to be difficult, due to the country’s instability and its poorly run public services. “It is neither Paris nor London, but the situation in Dushanbe has improved in the past three years,” says Mr Takeshi, who adds that from the perspective of Kabul, where he is currently based, Dushanbe compares favourably.

However, investors more often compare Tajikistan with other post-Soviet republics. In such comparisons, Tajikistan tends to fare badly. “Uzbekistan does not have a better record when it comes to corruption, but it simply has bigger reserves and, similar to Turkmenistan, it also has oil and gas,” says Alexander Ignatov, president of international marketing and consulting firm Ignatov & Co. In his view, companies in the oil and gas sectors have been forced to develop stringent risk management policies over the years, while gold and silver mining companies tend to be more cautious.

This does not seem to apply to investors from China, where the authorities pledged to participate in a $600m joint project with Talco to construct a cement plant near the border with Uzbekistan, and also continue its participation in Dushanbe’s power plant construction, which will cost about $200m.

Two Chinese companies, Sichuan Group and Ziti Mining, were also participating in a bid for Konimansuri Kalon. Although the co-operation between the two countries brings money to Tajikistan, experts are quick to point out the negatives: the risk of increased corruption among Tajik officials with so much money being involved, and an overdependence on China. Yet without much interest from investors elsewhere, Tajikistan has little choice but to seek investment from those who are willing to provide it.