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Tajikistan’s Catch-22: Foreign Investment and Sovereignty Risks

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Crossroads Asia | Economy | Central Asia

Tajikistan’s Catch-22: Foreign Investment and Sovereignty Risks

How ineffective foreign investment and corrupt state elites pose a threat to the sovereignty of Central Asia’s poorest nation.

Tajikistan’s Catch-22: Foreign Investment and Sovereignty Risks
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In 2011, China gained 1,158 square kilometers of disputed territory in Tajikistan. With Dushanbe unable to repay outstanding loans to Beijing, a deal was struck between the governments: The territory was offered as a form of alternative payment in exchange for the writing off of the Eurasian country’s mounting debt. Some analysts viewed it as a textbook example of “debt trap diplomacy,” and the episode has only served to reignite the debate on the salience of this practice in China’s investment and engagement activities abroad. 

The Debt Trap Debate

The term “debt trap diplomacy” was first coined by geostrategist Brahma Chellaney and is often used to scrutinize Chinese economic deals. Brad Glosserman, deputy director of the Tokyo-based Center for Rule-making Strategies, described the practice as the use of funds to “overwhelm recipient nations, drown them in debt and then seize collateral, often strategic assets… In short, it refers to the predatory use of loans for immaterial and material gains. The ceded Tajik land can be interpreted as such a strategic asset, which the Tajik government relinquished in order to pay its debts to China. 

However, there is a lively debate that surrounds the topic of debt trap diplomacy. This mainly revolves around the question as to whether it is an existing economic-diplomatic tool employed by China. In one Chatham House report, it was argued that China has not acted as a predatory entity; rather, the impetus has come from countries like Sri Lanka or Malaysia, which came to China first in need of serious economic assistance. Furthermore, Glosserman notes excessive national debt is a real problem that has left countries vulnerable to Chinese influence, but argues that this outcome was not the product of Chinese strategy. Instead, the blame should be passed to the “need and greed” among creditors and recipients, such as the Tajik state. 

The Tajik “debt trap” cannot only be ascribed to the predatory nature of Chinese interests, as Chinese-Tajik relations have grown closer during the last decades while European and U.S. investments have all but vanished. In a post-COVID environment, Tajikistan and the neighboring Central Asian states are likely to become more dependent on China and its investments, as other modes of income such as remittances – money sent to Tajikistan by its workers laboring abroad – have declined severely

According to experts, China is primed to become Tajikistan’s primary economic partner, driving away other potential investors through its unparalleled investments. While investments in Tajikistan have shown to be high risk, with a less than optimum probability of full loan repayment, what makes Chinese investors so eager to pursue economic goals in such a volatile region of Central Asia? 

Tajikistan’s Importance to China

Tajikistan is arguably of crucial strategic importance to the Chinese state, particularly to China’s planned developments for the Belt and Road Initiative (BRI), because of two key factors. First, Tajikistan is set to become a central passageway for China’s import of natural resources, most notably gas imports from Turkmenistan. Tom Miller, author of “China’s Asian Dream,” argues that while Tajikistan does not have its own gas supply, and shorter, easier routes for gas transport were available, Beijing offered Tajikistan this opportunity as a show of goodwill, carefully buying its political leverage.

Second, Tajikistan, as part of the Shanghai Cooperation Organization, is a vital geostrategic partner for China in combating the “three evils” of terrorism, separatism, and religious extremism. Since China has already established a military base in Tajikistan’s Badakhshan Autonomous Province – aiming to monitor the strategically important Afghan Wakhan Corridor – it is likely that Tajikistan is viewed as a crucial ally in China’s counterterrorism strategy; a point that is made more prescient due to Tajikistan’s geographical proximity to Xinjiang. Apart from China’s fears of separatist ideology and religious extremism in Xinjiang,  the region has been touted by some Chinese officials as a future transit hub for the BRI. In order to ensure the security of this new hub, the Chinese government has launched an extensive counterterrorism campaign resulting in the severe repression of Xinjiang’s Muslim populations, particularly the Uyghurs. Similarly, the establishment of a military base in Tajikistan, as well as foreign investments into Tajik development programs, are evidence of the Chinese conviction that a prominent incubator of terrorism is poverty, and that economic development is the best solution to this problem. 

So far, we have established that Tajikistan is of geostrategic importance to China because of the development of the BRI, as well as its pivotal role as an ally in China’s fight against the “three evils,” especially due to its proximity to Xinjiang region. Simultaneously, the Tajik state has become increasingly dependent on Chinese loans, and in this regard, the BRI can be perceived as an economic lifeline. With continuous dependency on loans, and the possibility of removing debt through the surrender of territory, Tajik sovereignty may become more impinged in the near future. In this regard, not Chinese loans, but Tajikistan’s internal politics may be the largest direct threat to the preservation of Tajik territorial integrity. 

Assessing Tajikistan’s Internal Vulnerability

Ever since its independence in 1991, Tajikistan has struggled to stabilize its economy. For one, the Tajik economy, the poorest of the former Soviet states, was beleaguered by a devastating civil war following independence, leaving more than 20,000 dead and from 500,000 to 1.2 million displaced. During the war, one of the main objectives of the competing factions was to gain ownership and control over the Tajikistan Aluminium Company (Talco), one of the country’s largest exporters. During this period, president-to-be Emomali Rahmon was able to consolidate his position as representative of the “warlords of the South.” After the killing of rivals Faizali Saidov and Sangak Safarov, Rahmon was able to maneuver the fractured political landscape skillfully, becoming the “arbiter, overseer and ultimate repressor of warlord politics.”

During the rise of Rahmon, who remains president of Tajikistan, not only did he pass legislation that permitted the privatization of state enterprises, but he also brought warlord after warlord into his close circle, consolidating control over Talco. Eventually, as “president of the warlords,” Rahmon amended the constitution to allow himself to continue in office and is now essentially president for life. While international investors were interested in the potential sale of Talco, Rahmon and his inner circle kept the aluminum giant under their exclusive control.

Investigations into Talco have shown the central role that Rahmon plays in its administration and management. From a farm manager to brutal warlord to president for life, Rahmon has utilized Talco and other state assets for structural self-enrichment via offshore accounts and international connections. According to Alexander Cooley and John Heathershaw in their book “Dictators Without Borders”:

It is commonplace to think of Talco’s commercial and legal struggles as a microcosm of Tajik politics. But the reverse may be equally true: Tajik politics is a microcosm of the international and offshore battle to control the country’s biggest industry.

Indeed, Tajikistan’s politics is centered around the close relationship of Rahmon’s inner circle and the subsequent economic potential of state assets used for personal gain. Such crony capitalism lies at the core of the Tajik economy, affecting much of the state’s development. 

It no secret that the Tajik population is essentially financing the president’s inner circle by paying taxes to a state where corruption is a constant and most state assets are abused to contribute to Rahmon and other Tajik elites’ personal wallets. The country’s migrant workers have become Tajikistan’s single most important source of income and prime export product. This is true to such an extent that remittances amounted to the equivalent of nearly half of the country’s GDP in 2013. In late 2019, the share of migrants from Russia alone was calculated to amount to the equivalent of over 30 percent of Tajikistan’s GDP – around $2.5 billion in revenue. A great quantity of this revenue – in a crony-capitalist system like in Tajikistan – ends up funding the luxurious lifestyles of Rahmon and other Tajik elites in the president’s inner circle. 

Consequently, since Tajikistan is overly dependent on foreign investments because of its lack of development, it is more than likely that Rahmon and his cronies are lining their own pockets with BRI-related investments. Even with Chinese investments, Tajikistan’s sustained endemic corruption will severely undermine the economic outlook. 

The Catch-22 

In order to overcome damages and stimulate development, foreign direct investments (FDI) appears to be the only viable solution. However, any FDI made in Tajikistan will almost inevitably end up in the pockets of Rahmon and his inner circle. As such, the economic outlook of the nation is bleak at best, while its debts to China continue to rise.

When we understand the gloom surrounding these developments, the Tajik position resembles a catch-22: FDI is both a lifeline and a threat to Tajikistan’s sovereignty and its stability. Governments such as Rahmon’s may try for the easy way out and continue to request unpayable loans from China’s policy banks and state-owned enterprises. While it is assumed that the Chinese military base in Badakhshan is already part of some deal struck between Dushanbe and Beijing, it is not entirely unthinkable that the pattern of handing over territorial integrity to Chinese interests may continue to threaten Tajik sovereignty. If weak national sovereignty is followed by internal instability, one might only guess at China’s next move.