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 �00A;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 DUSHANBE 00001154 002 OF 002 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.