Consultative Council
National Library, Dushanbe – 7 July 2021
Jan-Peter Olters
Chair, Development Coordination Council
The summer of 2021 is a balancing act on a fine line between unique opportunities and considerable risks. In just a few months, both have increased in significance, increasing the importance of taking the decisions that address the latter within the context of the former, that combine the strategic medium- to long-term objectives with swift emergency responses. The present situation, as challenging as it appears, contains the ingredients, with which Tajikistan would be able to place itself into a position, from which to strengthen its socio-economic development perspective and foundation for sustainable growth and employment generation. Against this very backdrop, the members of the Development Coordination Council (DCC) are particularly grateful to the State Committee on Investment and State Property Management and the Consultative Council for their foresight in organising this Round Table on Sustainable Entrepreneurship and Investment Development, with a view to defining adequate responses to the emerging risks (whether they relate to the deteriorating security situation along the Southern border, climate change mitigation requirements, or indications of the pandemic’s second wave) and reflecting on ways to absorb additional budgetary obligations in a sustainable manner.
The Round Table’s title already contains the keys to these policy challenges, amplifying those already in the focus of socio-economic policymaking. Many discussions had been had on the upward pressure of the Tajik somoni vis-à-vis the US dollar, the narrowness in the banking sector’s deposit base that leave interest rates at the currently elevated level, or the un(der)employment, generally low salaries, and constrained professional perspectives in, especially, the country’s rural and remote regions. Encouraging sustainable entrepreneurship and developing the confidence needed for investments in new and higher-productivity activities would help to address these challenges as well. This focus would yield levels of employment and the breadth of the tax base to help the Government to mobilise the resources necessary for effective, forward-looking policy responses, with the appropriate balance of investments and enabling institutional superstructure. The ultimate success in this policy approach hinges on indirect policy instruments, viz., on policies aimed at strengthening investors’ confidence and increasing the predictability of entrepreneurs’ tax and customs obligations to the State.
The DCC is recognising important, complementary reforms that are being implemented to allow the State to respond effectively to identified challenges and take advantage of existing opportunities. These include the national roll-out of the Targeted Social Assistance programme, with which the Government has—during the heights of the COVID-19 pandemic—protected the most vulnerable (and only the most vulnerable) households from the immediate socio-economic effects from the crisis. In this category fall the ongoing reforms in ensuring the public power utility’s financial recovery and its ultimate ability to ensure the reliable and affordable supply of clean energy to domestic consumers and those in neighbouring countries, thereby reinforcing the foundation of any successful economy. The central piece in these efforts has been the preparation of the draft tax code that—once approved, adopted, and implemented—signals the commitment to redefining those aspects in the relationship between the State and the private sector that have delayed the sufficiently dynamic co-contribution of sustainable entrepreneurship to the country’s ambitious socio-economic development objectives.
In fact, the expectation of a swift approval and adoption of the new tax code in its current form would allow for a substantive realignment of inherent incentive structures, encouraging enterprises and investors to wanting to be both successful in their activities and honest in their declarations of tax obligations. Embedded in the draft tax code are principles and processes that would shift the Tax Committee’s accountability towards the State from meeting tax collection targets, with all of its implications on the quality of tax collection and entrepreneurs’ perceptions of the attractiveness of Tajikistan’s business climate, to increasing taxpayers’ voluntary self-compliance. To achieve this objective, the principal goal of modern tax authorities worldwide, decisions on tax audits would need to be prioritised and underpinned by the tax authorities’ assessments of taxpayers’ risks, largely following analyses of consistencies of information provided in the various tax declarations. At the same time, the current draft tax code aims at ensuring that tax incentives offered over a pre-specified period of time would need to be backed by analyses, ex ante and ex post, that confirm that socio-economic development benefits (in terms of investments, innovation, employment generation, or regional development) exceed the State’s costs of foregone tax revenues.
In following through on these reforms, the country has good opportunities of sparking economic activities in regions and sectors that have, thus far, underperformed relative to potentials. Investments and entrepreneurship should contribute, in an effective manner, to the development of value chains in (i) agriculture–storage–food processing, joint with food security and certification; (ii) in cotton–textile manufacturing–fashion design; (iii) the development of sustainable tourism, from homestays, hotels, and restaurants to handy crafts; and (iv) the potential inherent in the economy’s digital transformation, with particular benefits not only for the increase in the quality of public service delivery but also, and especially, for new economic activities by the tech-savvy youth in rural and remote regions.
The fact that, at the moment, the country has a relatively narrow base of private-sector activities and products and services ‘made in Tajikistan’, largely compensated by remittance-financed imports of goods and services not produced domestically, including food, might end up being a relative advantage going forward. Rather than having to reform and modernise diversified sectors dominated by large, often uncompetitive state-owned enterprises with too large a workforce, Tajikistan’s focus would lie in—ultimately less costly and less complicated—measures aimed at strengthening the business climate. If successful, this would yield largely ‘greenfield’ investments—with new investments, new technologies, higher productivity, additional employment opportunities at relatively higher salaries, and a broader tax base.
Green energy, the focus on effective policy measures aimed at strengthening the resilience to risks of socio-economic fragility, and a generally constructive regional role in key sectors of development, including water, has increased the interest by capitals and headquarters of DCC members towards Tajikistan. The increased commitment by Government to address principal development constraints, including those discussed around previous tables of the Consultative Council, DCC members have been encouraged by steps taken to advance Tajikistan’s development perspective and are committed to continuing its close collaboration en route to stimulating investments and sustainable entrepreneurship, sharing the view that these represent the principal keys to unblocking the country’s considerable development potential and accelerating the dynamics towards green, resilient, and inclusive development.