TAJIKISTAN - NORTHERN REGION'S ISOLATION WILL END, SOMEDAY

UNCLAS SECTION 01 OF 02 DUSHANBE 001154

SIPDIS
SENSITIVE

DEPARTMENT FOR SCA/CEN

E.O. 12958: N/A
TAGS: ECON PGOV TI
SUBJECT: TAJIKISTAN - NORTHERN REGION'S ISOLATION WILL END, SOMEDAY


1. (U) This message is sensitive but unclassified. Please protect
accordingly.


2. (SBU) Summary: The isolation of Tajikistan's second city and
historic leading economic center will continue to retard the
country's economic development. Khujand suffers from chronic
electricity shortages and is often inaccessible by road from other
parts of Tajikistan. Efforts to connect Khujand to southern
Tajikistan are progressing, but will not make much difference for at
least the next year. End Summary.

GETTING TO KHUJAND


3. (SBU) In late July Emboff drove to Khujand for economic
consultations. The trip north showed the difficulties in
communication between Dushanbe and Khujand, Tajikistan's second
largest city and center of the historically most economically
advanced part of the country. Khujand is effectively cut off from
the rest of Tajikistan by high mountains and poor roads, and because
of bad relations between Tajikistan and Uzbekistan; it is difficult
for Tajiks to obtain Uzbek visas, so driving through Uzbekistan to
Khujand is not a practical option for most. Khujand is also cut off
from the south's electricity grid; it depends on Uzbek power
stations, and the power is cut off for most of the day in winter
because of Tajikistan's unpaid debts to Uzbekistan.


4. (SBU) The drive from Dushanbe to Khujand took 18 hours, much of
it spent waiting at roadblocks while Chinese road construction crews
worked on the road. When the Chinese finish the road improvement
project, due to happen in summer 2009, the trip may take only five
or six hours [there is also a Chinese-financed power transmission
project to connect Khujand with the southern grid, due to complete
in 2009]. Long term maintenance of the road will be a problem; it
passes over steep and crumbling mountainsides, and emboff
encountered numerous small rock falls onto the new pavement. The
road has a serious weak link - the Iran-funded tunnel under Anzob
pass. The five- kilometer tunnel is unfinished, dark, choked with
exhaust fumes and blocked by piles of construction materials. So
much water leaks into it that a small river runs out the downhill
end, and pools form at several places deep enough to stop smaller
cars. Going through the Anzob tunnel is one of Tajikistan's more
memorable experiences.


5. (SBU) Until the road work is finished, thousands of Tajik
travelers must endure hours of delay. Hundreds of vehicles line up
on the road north from Dushanbe in the evening, waiting for the road
to open at nightfall. The Government allowed the Chinese road
construction company to close the road during daylight hours, and
the contract apparently has no public relations clause. There are
no interpreters at the Chinese road blocks, and the road workers
ignore Tajik police and citizens who wish to pass, regardless of the
reason. Emboff watched at one roadblock as a family tried to take
an ill woman to hospital on the far side of the construction zone.
The Chinese foreman brusquely waived them away, until the waiting
crowd of Tajiks resolved the problem by gathering around him in a
menacing manner; he got the hint (and broke into a profuse sweat),
and let the ill woman's car pass.

IN KHUJAND SOME IDEAS, DEVELOPMENTS, AND LIMITATIONS


6. (SBU) Emboff met with Anvar Yakubov, head of the State
Investments and State Property Department of Sughd Oblast. Yakubov
showed off the north's reputation for a modern outlook and new
ideas, emphasizing the private sector and specifically small
Qideas, emphasizing the private sector and specifically small
businesses as central to regional economic growth. He talked up the
oblast's efforts to improve the agricultural sector, including new
agricultural financing schemes, and claimed that the oblast was
trying to reduce the share of land devoted to cotton. Of 275,000
hectares of irrigated land in Sughd Oblast, only 63,000 hectares was
used for cotton growth, and the oblast was rapidly increasing its
production and exports of fruits and vegetables. He described
fruits and vegetables as the engine of agricultural growth in Sughd
Oblast.


7. (SBU) He also talked up the mining sector, noting northern
Tajikistan's huge mineral resources, and the increasing involvement
of Chinese companies in the sector. The most interesting mineral
resource for him was coal; Yakubov suggested the coal deposits at
Fon Yagnob [soon to be the object of a USTDA-funded feasibility
study] could become a key fuel source to power other industries in
Sughd. Lack of electrical power continued to be the great obstacle
to Sughd's development.

CHINA TRADE


8. (SBU) A later meeting with Zebonisso Solieva, Development
Director of Vavilon Transportation Company, highlighted imbalances

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in Tajikistan's foreign trade. Vavilon is the dominant rail
transport company in the oblast, bringing in cargoes from around
Asia and Europe. Solieva said China was the main trading partner
for the oblast, but it was almost all imports - virtually nothing
was exported to China. This was in contrast to the large exports of
aluminum and cotton from southern Tajikistan. She said several
years ago individual Tajiks would book single freight containers,
but this had evolved, and now it was individuals arranging shipments
of five containers per month full of "Chinese rubbish" - mainly
building materials, consumer goods of all kinds, cement, and barley
for beer production.


9. (SBU) Solieva said exports were becoming more difficult to
arrange because of delays in transit imposed by Uzbek authorities,
and this especially impacted shipments of fruits and vegetables.
She noted that there was a busy illegal trade in Chinese goods
brought to Tajikistan and then smuggled into Uzbekistan.

MICRO-FINANCE NO LONGER MICRO


10. (SBU) Emboff visited a successful microfinance bank, which was
graduating to larger loans and becoming a for-profit bank. Gulbahor
Mahkamova, deputy director of Imon International Microfinance Fund
(originally funded by U.S. NGO Mercy Corps),said 35% of Imon's
loans were to agriculture, farming and livestock entrepreneurs.
Imon International was not working with cotton production at all,
not out of principle but because of the complicated debt situation
for cotton farmers. 65% of Imon loans were to clients engaged in
trade, usually small shops. Imon had grown from $1 million in
capital when it was founded in 2000 to $25 million in its active
loan portfolio, 26,000 clients, and average loan size of $1000.
Imon started by loaning exclusively to women, but by 2008 women had
become a minority of its clients, 48%. She described Imon clients
in trade as increasingly hard pressed by import shipment problems
and the efficiency of larger retailers.

NAKED ENTHUSIASM


11. (SBU) In Kanibadam and Isfara Emboff met with small scale
entrepreneurs. Their mixed experiences were reflective of the
difficulties of small businesses which Imon described. One small
fruit processor was being run out of business by electricity
shortages and poor fruit harvests in the past two years. He said
his business survived on "naked enthusiasm." Another entrepreneur,
producing bottled water, also referred to the difficulty of
maintaining his business when electricity frequently failed. He
cited lack of access to finance as another obstacle to expanding his
successful business, and said it was impossible for him to stay in
business and still pay his legal tax bill. He estimated that 70% of
the labor force from Kanibadam had gone to Russia to work, and noted
increasing numbers of women and entire families leaving for Russia.
The Deputy Chairman of the Kanibadam Hukumat noted all of these
problems, but also noted that Tajiks who had done well in Russia
sometimes returned and invested in Tajikistan; one local returned
and built a $1.5 million brick factory in Kanibadam.

COMMENT: STILL AN ECONOMIC ISLAND


12. (SBU) Khujand is not the economic power house it once was.
Closed borders, lack of electricity, and bad roads have taken their
toll. The road and power infrastructure projects funded by China
will eventually help correct these problems, but for the next few
years it will continue to be a region critically short of
electricity, with a hinterland lacking sufficient agricultural
Qelectricity, with a hinterland lacking sufficient agricultural
financing, and a rural population eager to leave for work abroad.
End Comment.