TAJIKISTAN: ENVIRONMENTAL-ECONOMIC ASPECTS OF INTENSIFYING FOREIGN TRADE

Haiot ODINAEV
Saiid PIROV


Haiot Odinaev, Ph.D. (Econ.), assistant professor, doctoral candidate, Moscow State University (Moscow, Russian Federation)

Saiid Pirov, Ph.D. (Econ.), deputy director, Institute of Economics, Academy of Sciences of Tajikistan (Dushanbe, Tajikistan)


One of the main conditions of sustainable development and greater economic independence as the republic seeks to become part of the world economic system is more intensive foreign trade and integration into the appropriate international framework on the basis of equitable and mutually beneficial relations with foreign partners and international institutions. This is particularly important in a period of transition, when the countrys economic growth is closely connected with efforts to raise its investment appeal and with other attributes of a modern market economy.

In recent years, the role of foreign economic relations in Tajikistans economy has markedly increased. This is evident, in particular, from the sharp rise in the foreign trade turnover (from $131.1m in 1991 to $1,459.3m in 2000), the growing share of exports in GDP (from 2.7% to 78.6%), and the substantial increase in the trade surplus (from $4.7m to $109.3m, respectively). One must say, however, that over the past decade the balance of trade was in surplus only half of the time.

Today the republic has virtually no opportunity to produce the required amounts of new export goods. This is due, first and foremost, to the absence of a well-functioning system of government support for export-oriented and import-substituting lines of production; another reason is that the current foreign trade strategy does not meet the needs or interests of economic restructuring in the country.1 That is why one of the main prerequisites for stepping up foreign economic activities is a policy designed to stimulate and support industries and enterprises producing competitive export goods so as to ensure a radical change in the commodity composition of exports.

The dynamics of the republics foreign trade turnover in 1991-2000 are shown in Table 1.

Table 1

Foreign Trade Turnover in 1991-2000 ($m)

 

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Turnover, total

131.1

353.2

881.9

1,038.9

1,558.5

1,438.2

1,496.0

1,307.6

1,351.8

1,459.4

CIS countries

105.3

205.9

378.6

325.6

729.6

713.5

755.2

649.0

839.7

933.5

% of total

80.3

58.3

42.69

31.3

46.8

49.6

50.5

49.6

61.4

61.0

Other countries

25.8

147.3

503.3

713.3

828.9

724.7

740.8

658.6

522.1

525.8

% of total

19.7

41.7

57.1

68.7

53.2

50.4

49.5

50.4

38.6

36.0

Exports, total

67.9

192.5

349.8

491.9

348.6

770.1

745.7

596.6

688.7

784.3

CIS countries

53.5

84.1

122.8

92.5

251.6

331.0

273.0

202.8

315.0

373.8

% of total

78.8

43.7

35.1

18.8

33.6

43.0

36.6

34.0

45.7

47.7

Other countries

14.4

108.4

227.0

399.4

497.0

439.1

472.7

393.8

373.7

410.5

% of total

21.2

56.3

64.9

81.2

66.4

57.0

63.4

66.0

54.3

52.3

Imports, total

63.2

160.7

532.1

547.0

809.9

668.1

750.3

711.0

663.1

675.0

CIS countries

51.8

121.8

255.8

233.1

478.0

382.5

482.2

446.2

514.7

559.7

% of total

82.0

75.0

48.1

42.6

59.0

57.3

64.3

62.8

77.6

82.9

Other countries

11.4

38.9

276.3

313.9

331.9

285.6

268.1

264.8

148.4

115.3

% of total

18.0

24.2

51.9

57.4

41.0

42.7

35.7

37.2

22.4

17.1

Source: Statisticheskiy ezhegodnik Respubliki Tadzhikistan (official publication), Dushanbe, 2001, p. 240.

As the table shows, the total absolute volume of foreign trade in that period multiplied several times. In geographical terms, all countries are divided into two groups: CIS members and all the rest.

Up to the mid-1990s, the share of other countries in the overall volume of foreign trade kept rising very rapidly, from 19.7% in 1991 to 53.2% in 1995 (68.7% in 1994), and in the second half of the decade it steadily declined, to 36% in 2000. As regards the CIS countries, their initially high share (80.3% in 1991) sharply decreased in the mid-1990s (46.8% in 1995), with a subsequent gradual increase to 64% in 2000. Still, that was nearly 20% less than in 1991, whereas the share of other countries in that period had nearly doubled, from 19.7% in 1991 to 36% in 2000, although in the mid-1990s, as we saw above, they accounted for over one-half of the countrys foreign trade.

As regards imports, the increase in absolute figures was virtually the same for both groups of countries (just over 10 times). But whereas imports from the CIS countries kept rising, with occasional downturns, throughout the entire period, the picture for other countries was totally different. Having reached a maximum in 1995 ($331.9m, or 41% of the total volume), imports from non-CIS countries began to decline, going down steadily to $115.3m in 2000 (17.5% of the total volume), or just over one-third of the 1995 figure. This shows a gradual restoration of old and arrangement of new economic ties with the former Union republics that are now CIS countries. The process has in large part been promoted by the establishment of a Customs Union between a number of Commonwealth states, including Tajikistan, with a resultant expansion of the republics trade and economic links with other CIS countries based on bilateral and multilateral agreements. The task today is to stimulate and adjust (from environmental and other angles) the existing trends in the foreign economic sector and to optimize the structure of export-import operations.

In 1991-2000, this structure changed considerably. In 1991, the main export items were textiles and textile products (52.4%), aluminum (25.8%), food products and tobacco (6.6%), and machinery and equipment (7% in 1992). These added up to around 90% of total exports (see Table 2). During the decade, the share of virtually all commodity groups (except mineral products and base metals) declined. High rates of growth were recorded in the aluminum industry, the share of whose products in the total volume of exports multiplied during that period 2.2 times to 55.7%, primarily as a result of growing demand for aluminum on the external market. At the same time, the absolute volume of aluminum exports in 2000 was almost 25 times higher than in 1991, reaching $436.6m. That was the highest indicator for the past 10 years, from the time of liberalization of foreign trade, with the result that the trade surplus in 2000 was the highest for the given period (around $110m).

Such an increase was achieved even though changes in the prices of aluminum on the world market often led to dips in aluminum exports. The share of other commodity groups tended to decline, although in absolute terms their contribution also increased several times over. Thus, exports of food products and tobacco rose 2.6 times, from $4.5m in 1991 to $11.6m in 2000, although their share in the total volume of exports fell in that period 3.7 times, from 6.6% to 1.8%. The absolute volume of exports of textiles and textile products rose 3.6 times (in 1995, 6.1 times, and in 1996, 5.2 times), while their share fell from 52.4% to 16.6% (almost 3.2 times). A distinctive feature of exports in the second half of the 1990s was a surge in the group of mineral products. In 1995, these brought in $126.1m (16.8% of total exports), or 37 (24) times more than in 1994. Having reached a peak in 1996 ($184.3m, or 24.3%), mineral product exports began to decline, going down to one-half by 2000 (to $93.8m, or 11.9%).

Table 2

Structure of Exports in 1991-2000

 

1991

1992

1994

1996

1998

2000

Commodity groups

I

II

I

II

I

II

I

II

I

II

I

II

Plant products

1.8

2.6

2.0

1.0

0.8

0.2

25.3

4.2

19.2

2.4

Food products and tobacco

4.5

6.6

10.3

5.3

10.8

2.1

104.6

13.6

9.5

1.6

11.6

1.5

Mineral products

0.5

0.7

2.1

1.1

3.4

0.7

187.5

24.3

117.8

19.8

93.8

11.9

Chemicals

1.6

2.4

2.7

1.4

2.9

0.6

3.8

0.5

11.2

1.9

9.5

1.2

Textiles and textile products

35.6

52.4

32.1

16.7

171.4

34.8

184.2

23.9

148.3

24.8

130.2

16.6

Precious metals, pearls, etc.

31.9*

4.3*

27.9

4.7

24.4

3.1

Base metals

17.5

25.8

125.1

65.0

272.9

55.5

284.3

36.9

240.2

40.3

436.6

55.7

Machinery and equipment

3.4

5.0

13.5

7.0

7.6

1.5

3.1

0.4

3.8

0.6

15.2

1.9

Land, air and water transportation facilities

0.9

1.3

3.0

1.6

2.8

0.6

1.4

0.2

10.1

1.7

42.0

5.4

Other

2.1

3.2

1.7

0.8

19.8

4.0

1.2

0.2

2.4

0.4

1.8

0.2

Total

67.9

100

192.5

100

491.9

100

770.1

100

596.6

100

784.3

100

Note: Iin $m; IIas % of total.

Source: Compiled from Statisticheskiy ezhegodnik Respubliki Tadzhikistan, p. 253.

* Data for 1997.

In the second half of the 1990s, yet another and basically promising commodity group was added to the export structure: precious metals, pearls, etc. In 1997 and 2000, their exports came, respectively, to $31.9m (4.3%) and 24.4m (3.1%), i.e., here as elsewhere we find a reduction in absolute and relative indicators.

The import pattern in that period was roughly similar (see Table 3).

Table 3

Structure of Imports in 1991-2000

Commodity groups

1991

1992

1994

1996

1998

2000

2000, times change from 1991

 

I

II

I

II

I

II

I

II

I

II

I

II

I

II

Products of plant origin

8.0

12.6

40.9

25.4

82.4

15.1

57.1

8.5

46.4

6.5

46.9

6.9

5.9

1.8

Food products and tobacco

5.9

9.3

2.0

1.2

7.8

1.4

89.2

13.4

18.2

3.9

14.9

2.2

2.5

4.2

Mineral products

5.1

8.1

39.0

24.3

303.6

55.5

360.1

53.9

398.3

56.0

254.0

37.6

49.8

4.6

Chemicals

3.4

5.4

12.4

7.7

15.0

2.7

27.2

4.1

49.5

7.0

237.3

35.2

69.8

6.5

Textiles and textile products

12.6

19.9

22.7

14.1

8.8

1.6

4.7

0.7

10.1

1.4

6.9

1.0

1.8

19.9

Base metals

3.4

5.4

17.6

10.9

10.3

1.9

18.8

2.8

20.9

2.9

10.3

1.5

3.0

3.6

Machinery, equipment, etc.

3.7

5.8

6.2

3.8

66.8

12.2

80.9

12.1

52.7

7.4

39.3

5.8

10.6

1.0

Transportation facilities

3.8

6.0

3.4

2.1

0.7

0.01

10.9

1.6

38.1

5.4

26.3

3.9

6.9

1.5

Other

17.3

27.5

16.5

10.5

51.6

9.6

19.2

2.9

66.8

9.5

39.1

5.9

2.3

4.7

Total

63.2

100.0

160.7

100.0

547.0

100.0

668.1

100.0

711.0

100.0

675.0

100.0

10.7

Note: Iin $m; IIas % of total.

Source: Compiled from Statisticheskiy ezhegodnik Respubliki Tadzhikistan, p. 254.

In seven of the eight basic commodity groups we find an increase in the absolute amount of imports, ranging from 2.5 times for food products and tobacco to nearly 70 times for chemicals. The only exception was the group of textiles and textile products, whose imports fell during the given period 1.8 times. However, such high growth for chemicals was recorded only in 2000. So, a firm lead here (both in absolute and relative terms) belongs to the group of mineral products. In 1993-1999, the share of this group was at an average of 54% and only in 2000 went down to 37.6%. Despite such a drop, the share of this commodity group within the import structure for 2000 was 4.6 times higher than in 1991. This is the only group (except chemicals, as mentioned above) whose share within the import structure increased over the given period. The highest pace of decline in this indicator is characteristic of food products and tobacco (4.2 times), and textiles and textile products (almost 20 times). In the group of machinery, equipment, etc., the absolute volume of imports multiplied more than 10 times, but their share in total imports for 2000 did not change compared with 1991 (5.8%), although in the mid-1990s it exceeded 12%.

Despite some improvements, the current structure of the countrys foreign trade needs to be changed on radical lines. Unless this is done, maintenance of the present resource-intensive type of production and the dominant position of cotton and aluminum within the export structure could make the national economy more vulnerable to the state of the world market (stable or otherwise). Thus, in 1998 export earnings from aluminum and lint cotton fell by $47.4m as the result of a drop in world prices for these products, which worsened the situation as regards state budget receipts. And in 1999 foreign exchange losses from a decline in world cotton prices amounted to another $25.5m. Hence the need to implement a set of measures aimed to change the republics export pattern with its bias toward raw materials and so to reduce the dependence of export earnings on changes in raw material prices on the foreign market.

In upgrading the export potential, special efforts should be made to change the existing export model; to make wide use of a policy of economic openness against a background of tighter government regulation (administrative constraints); to protect domestic producers against foreign competitors and ensure the countrys economic independence and security; to combine public economic interests with private interests; to encourage exporters (exports), and to take into account the environmental component of foreign economic activities.

An analysis of current trends in the national economy and, accordingly, in export policy shows that serious changes with long-term positive effects can hardly occur in the structure of the republics export potential in the immediate future. This means that aluminum and lint cotton will remain the key export items. It is no accident that over the past few years measures aimed at supporting, developing and enhancing the export orientation of these industries have obviously been stepped up at every level. Thus, the production of aluminum is to be brought up to design capacity, and that of raw cotton, to the level of the 1990s (820-850 thou tons). Given the euphoric mood of recent years, such intentions usually arise against the background of a rapid influx of substantial foreign exchange earnings from exports, but take no account of either current or long-term negative effects on the economy or the environment. The experience of a number of countries, primarily Russia, shows that an orientation toward the export of a limited range of goods (fuel and energy resources above all) worsens the one-sided dependence of the national economy on external factors and threatens the stability of the countrys socioeconomic development over the long term.

In selecting an export promotion policy under which aluminum and lint cotton would retain their dominant position, due account should be taken of a number of circumstances which could have a significant impact both on the initial parameters and on the effectiveness of such promotion as a whole.

First, this involves huge financial infusions into agriculture, especially into its cotton sector, which are necessary, in particular, for the protection and rational use of land and water resources, for the restoration, maintenance and upgrading of the irrigation infrastructure, etc. For the time being, the state has no such funds at its disposal. The attempts to reanimate the irrigation potential by market methods, that is, by introducing a mechanism of paid land and water use as a major source of revenue, are being thwarted by the extremely low level of financial stability among farming enterprises or even sheer inability to pay. And the hopes for larger foreign investments in the cotton sector and in the restoration of land improvement and irrigation networks have not been justified (probably because of inadequate institutional reforms). The episodic nature of foreign support in this area cannot produce any tangible results against the background of total degradation.

Second, the attainment of the level of the early 1990s (or even an approach to it) could sharply aggravate the already complicated environmental situation, especially in areas of irrigation farming, which is marked by a degradation of significant segments of irrigated land and by a serious or even critical worsening of the state of irrigation systems in terms of virtually all environmental-economic parameters. The loss of a part of the countrys lands, however small (especially irrigated areas), and a further worsening of the environmental situation cannot be justified even by substantial foreign exchange earnings from the export of lint cotton. Since land resources and their qualitative state are the main asset of any country, their degradation not only limits the opportunities for current economic development, but is also bound to have an adverse effect in the future. In our republic, this circumstance is of strategic importance, because our flatlands are almost entirely reclaimed, and further reclamation is possible, for the most part, in the foothills and in mountain areas. But, according to some assessments, the reclamation and due maintenance of one hectare of such lands would cost the republic at least $5,000, or 15-20 times more than the recultivation of old irrigated lands in its flatland areas.

So, the environmental-economic situation that has taken shape in the areas of irrigation farming, where cotton plantations occupy roughly 60% of all lands, the degradation of soils, the significant degree (up to 70%) of wear and tear of irrigation canals, collection and drainage networks and other irrigation facilities, the manifold increase in the prices of fertilizers and pest control chemicals, the shortage of electric power and irrigation water in the vegetation period, and various other problems causing a sharp drop in cotton yields cast doubt on the possibility of a rapid increase in the production and export of lint cotton in the immediate future. Moreover, the huge debts of cotton-growing farms, notably under futures contracts, the import of a substantial part of mineral fertilizers and toxic chemicals at world prices, inadequate incentives to more effective cotton growing and picking at farm level, etc., seriously hinder the development of the cotton sector and reduce its competitive capacity on the foreign market.

In view of this situation, an improvement in the foreign trade turnover implies the need to carry out a set of measures affecting the very basis of the national economy and aimed to enhance its export potential and to encourage structural changes with due regard for the state of the world market. The main criterion here is an increase in the production of competitive goods going for export and enabling the republic to occupy a definite niche in the world market.

Let us take a look at some of these measures.

1. In order to optimize foreign economic activities, the republics government should concentrate its efforts on the resolution of a three-fold task: ensuring due protection of domestic production; promoting exports, primarily of finished (final) products, with emphasis on science-intensive goods and services; and continuing the course toward integration of the Tajik economy into the world economy in such a way as to steer this integration largely along production-investment lines. In this context, special importance attaches to entry into the WTO.

In the pursuit of foreign economic activities, use should be made of the following instruments: directive planning with regard to areas and facilities that are of particular importance from the standpoint of the countrys strategic and economic security, and market regulation (primarily foreign exchange and customs control).

Exchange control includes measures expressly designed to lower the exchange value of the national currency, which leads to higher prices for imported goods. Wide use should be made of the possibilities of trade regulation envisaging economic and noneconomic methods of barring imported goods from the domestic market (or restricting them) or measures aimed to make them noncompetitive in relation to locally produced goods. And control of foreign trade operations must include mandatory import licensing (quota allocation) and customs protectionism. As the experience of advanced countries shows, export-oriented production is stimulated with the use of tax, currency and credit instruments.

2. In the drive to improve the export structure and raise the countrys export potential, priority must be given to faster development of industries processing agricultural raw materials and to the food industry. The record of other CIS countries, primarily Russia (as well as our own, albeit episodic, practice), shows that these industries are particularly attractive to foreign investors. One should emphasize that this is due to quick returns on investment and considerable foreign exchange earnings.

Let us draw attention to a number of aspects connected with an increase in foreign investment and with a more pronounced export orientation of processing industries. The very fact of a more intensive inflow of funds and a rise in the investment appeal of the national economy means a rise in the countrys prestige and recognition of its status within the system of international relations, which is highly important in the conditions of globalization. In addition, an improvement in the work of the processing industries of the agroindustrial complex will help to resolve the food problem, to create new jobs and alleviate unemployment, especially in rural areas, and also to reduce the import of food, which now swallows up a significant share of foreign exchange earnings. One should also add that it is necessary to create conditions for guaranteed purchase by processing plants of a sizeable part of agricultural produce from farming enterprises, especially from individually-run private farms, and also from personal subsidiary farms, whose share in the total volume of agricultural production has been growing steadily. This will give all rural producers greater confidence that they can realize their produce with fewer problems than today. An orientation toward traditional (collective farm) markets cannot promote the effective development of national agriculture, primarily in view of the lower capacity of these markets and the populations low ability to pay, even though a substantial share of the family budget goes to buy food. Normally operating agricultural processing industries will be able to purchase more produce from individual private farmers and other producers under mutually beneficial bilateral agreements. And, finally, growing exports of domestic food products, to Russia and Kazakhstan above all, are bound to have a positive effect on the overall state of the national economy.

3. In the recent period (1997-2000), the annual import of mineral fertilizers (nitrogen and phosphate) was around $11.7m.2 To improve the situation in this area, it is necessary to renovate the Vakhsh Nitrogen Fertilizer Plant, which requires an estimated $1m. At the same time, some of the fertilizers being imported do not reach the fields in view of their high prices and the low paying capacity of agricultural enterprises, including private farms.

4. Apart from aluminum and lint cotton, it is necessary to boost the production and export of tobacco, fruits and vegetables, finished textile goods, wines and other products in which our republic has traditionally done very well and can occupy a fitting place even outside the CIS. At the same time, we must reduce the import of agricultural-origin products, replacing these with domestic products.

5. Export must be expanded and developed through an increase in the share of postnatural (non-natural) products made from local raw materials. Of course, such efforts could be obstructed by the noncompetitiveness of our products on the world market, but the state must stimulate and encourage the exporters striving to find their niche in the foreign market, in particular, by providing export industries and enterprises with preferential credits and by according them a tax treatment conducive to an expansion of production and higher product quality. On the one hand, this will serve to boost export earnings through an increase in the output of competitive goods and, on the other, will help to reduce the costs of servicing and, quite possibly, expanding imports. All of this will have a positive effect on the present raw material structure of the national economy, spur the development of export-oriented industries, and encourage measures to protect the environment. The latter, in particular, could reduce the anthropogenic load per unit of finished product.

6. An expansion of the export of raw material commodities is connected with so-called hidden export of primary (natural) resources, which results in a depletion of the republics natural potential. And countries with a transition economy are characterized by more intensive exploitation of such resources for the sake of short-term gain, which leads to their rapacious use and degradation. Cotton is a case in point, since export policy here acts as a factor destabilizing the ecosystem of the entire Aral region. According to researchers estimates, the annual hidden export of water accumulated in exported cotton amounts to 15 cu km, with Tajikistans share at around 3 cu km. After allowing for internal losses (another 3 cu km or so during water intake and transportation), we get a total loss of more than 6 cu km of water. Let us add by way of comparison that the volume of water in the Kairakkum Storage Reservoir is just over 4 cu km. And the increase in the water-intensive structure of exports tends to worsen the ecological situation still further, and not only in Tajikistan but throughout the entire Aral region. Given such massive loss of water (open and hidden), one may well ask whether it makes sense to go on increasing the production of raw cotton. After all, one cubic meter of water today costs 0.03 somonis (Tajikistans national currency; at the official exchange rate, $1 = around 2.9 somonis). So, direct losses of water come to around 180m somonis, which is virtually equal to the countrys average annual earnings from the export of raw cotton over the past three years. A decrease in the export of raw cotton with a corresponding increase in the export of finished goods would reduce the water intensity of production as a whole and water consumption per unit of export product.

7. One of the main lines in raising the republics export capability and enhancing product competitiveness is renovation and technical reequipment of enterprises, introduction of new technologies, and establishment and expansion of a network of joint ventures with foreign participation. Today the situation in the republic is complicated by the grave consequences of the transitional and especially of the postconflict period. This is largely connected with the difficulties of restoring the former volumes of production, especially of raw cotton, underutilization of capacity at the Tajik Aluminum Works, intermittent operation of many enterprises in the light and food industry, and also with the fact that many enterprises for the manufacture of chemical and mineral products are simply at a standstill. Moreover, goods produced at running enterprises are not always up to export standards. That is why implementation of the measures listed above is the only way to solve the problems of raising the countrys export potential and further expanding its trade and economic activities. So, the thing to do is to support any initiatives serving to enhance the export potential and to promote real integration with Far and Near Abroad countries.

8. We need to develop and pursue a reasonable policy of import substitution based on the domestic production of consumer goods, because saturation of the internal market under the present slump in production swallows up a substantial part of foreign exchange earnings from the export of strategic resources.

Many researchers say that in order to increase the production of import-substituting goods and saturate the internal market with such goods, the countrys foreign economic policy needs to be corrected.3 They take into account a number of circumstances: the availability of required capacity and raw material resources, the level of traditional production and sale of consumer goods attained in the Soviet period, and what could be described as a background of economic openness. All these factors make it possible to resolve, effectively and without much effort, the task of priority development of light and food industry through import substitution and supply of goods to meet the needs of the domestic market.

This will make it possible, among other things, to take further steps to orient (or reorient) various branches of the countrys industry toward the production of higher-quality consumer goods. Evidence of this is provided, in particular, by the record of developed countries, many of which acquired such a status once they were able to reorient their production toward the needs of the national market. In addition, implementation of the above-listed measures will make it possible to provide real commodity backing for the national currency, to help domestic producers gain a firm foothold on the domestic market (instead of being ousted from it), and to withhold financial support from foreign producers, which will eventually create a favorable climate for the republics foreign economic activities.


1 See: Ekonomika Tadzhikistana: strategia razvitia (Dushanbe), No. 1, 2000, p. 53.
2 See: Statisticheskiy ezhegodnik Respubliki Tadzhikistan, p. 260.
3 For more detail, see: R.K. Rakhimov, M. Gazibekova, Problemy promyshlennoi politiki Respubliki Tadzhikistan, Ekonomika Tadzhikistana: strategia razvitia, No. 3, 2000, pp. 46-63.

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