IT'S ALL RELATIVE: THE TAJIK TEXTILE BIZ

UNCLAS SECTION 01 OF 02 DUSHANBE 001667 SIPDIS SIPDIS STATE FOR SCA/CEN E.O. 12958: N/A TAGS: ECON EFIN EINV EAID PGOV EAGR EIND TI SUBJECT: IT'S ALL RELATIVE: THE TAJIK TEXTILE BIZ DUSHANBE 00001667 001.2 OF 002 ¶1. (U) SUMMARY: Two major textile manufacturers in Tajikistan have taken two different roads to success. Tajik Textiles uses its familial and political networks to succeed, while Giovani Manufacturing features a glitzy, Western-style approach. Although President Rahmonov's development program calls for domestic processing of all Tajik cotton by 2015, foreign textile companies operating in Tajikistan face severe challenges. However, close contacts with local partners allow foreign investors to navigate local laws and regulations, and more importantly, provide access to the Tajik familial and political networks crucial to every aspect of business operations in Tajikistan. END SUMMARY. TAJIK TEXTILES-THE CITY IN A CITY ¶2. (U) The Soviet-built Tajik Textiles factory rests on 76 hectares in central Dushanbe, processes 6,000 tons of cotton each year, and employs 3,000 people. The largest textile company in Tajikistan, Tajik Textiles produces cloth fabric and limited finished goods for domestic and export markets. Finished goods include sheets and bedding, and also local military uniforms. In grand Soviet style, the company has its own water, energy, and sewage resources, allowing the factory to operate 24/7, every day of the year. Several in-house institutes provide specialized training for employees. ¶3. (SBU) General Director of Tajik Textiles Anvar Kurbanov uses his extensive political and family connections to smooth business operations for the privately-held company. During a meeting with EmbOffs, Kurbanov elaborated on his family connections in the government, with cotton ginners, bankers, and farmers. In addition, during the civil war, Kurbanov and his brothers fought actively on the side of pro-government forces. Kurbanov proudly pointed out that 1,500 members of the People's Democratic Party of Tajikistan work for Tajik Textiles. Kurbanov credits his relatives and government with supplying Tajik Textiles with "as much cotton as he needs." BUILT IN A DAY ¶4. (U) The Tajik-Polish Joint Venture "TajPolText" sprang from the ground in record time thanks to Kurbanov's extensive networks. Kurbanov first met with several Polish businesspeople in Moscow two years ago at a textile exhibition. At that time, the Polish Embassy told its citizens "security in Tajikistan is not so good and food is not so good and water is bad," causing the investors to delay their visit for 18 months. After Kurbanov traveled to Poland, they agreed that a group from Poland would come to Tajikistan to negotiate the terms and conditions for a joint venture. Kurbanov arranged the group's visas in a few hours. Upon arrival in Dushanbe, they prepared documents to register the venture at the Ministry of Justice in one day. In early 2006, the Polish company started importing and installing equipment, and began operations in May. ¶5. (U) In a resourceful example of joint venture cooperation, the Tajik and Polish companies each bring their comparative advantage to the table. TajPolText operates independently within the Tajik Textiles factory. The Polish side imports and operates the equipment, trains local employees on its use, buys the cotton, processes and packages the final product for export to Europe. Tajik Textiles supplies the factory space, energy and water inputs, deals with taxes and customs and pesky government regulators, and provides social benefits to the employees. Employees at Tajik Textiles earn on average $100/month - much higher than the local norm. ITALIAN STYLE IN TAJIKISTAN ¶6. (SBU) Kurbanov dished the dirt on the much-heralded U.S.-Tajik "Giavoni" joint venture in Khujand. According to Kurbanov, the Italian (now U.S.-owned) company cheated the government-owned partner when first starting up the joint venture in the mid-1990's. The Italian company inflated the reported price of their investment, stating that $1.5 million in equipment was worth $39 million. The Italian's "$39 million" investment bought the Italians' 50% share in the company. Giovani asserts the $39 million figure is accurate and notes the government has not contested it. (COMMENT: Using the same trick, Tajik partners have been known to inflate the value of land and equipment they bring to other joint ventures. END COMMENT.) The allegedly new equipment had already been used in DUSHANBE 00001667 002.2 OF 002 Southeast Asia. Giavoni recently sold some of its shares to a third party, and played another shell game. The third party thought he was buying shares in the entire company, not realizing he only bought shares in two of the five units of the company. ¶7. (U) Employing 1,700 workers in the major northern industrial center, Khujand-based Giavoni faces "normal" interference with its business operations. Giavoni produces Carrera brand jeans for European markets. However, Giavoni struggles with the VAT on importing and re-exporting zippers and buttons. The government delays repayment of the VAT to Giavoni often for months at a time. Giavoni has postponed its plans to open up a new factory until the government resolves this issue. Meanwhile, $3 million in imported equipment for the new factory waits in storage. ¶8. (U) COMMENT: Kurbanov did not allow EmbOffs to see any of the 56-acre Tajik Textiles factory. His dilapidated offices lack computers, and the company operates purely on personal relationships. The polished Giovani representatives enjoy showing off their Italian-built factory that processes raw cotton into fancy pants and corduroys for Western markets. While both companies are succeeding in the Tajik market, familial ties and personal relationships remain the preferred and most hassle-free method for foreign companies seeking safe passage through the Tajik straits. END COMMENT. JACOBSON HOAGLAND