Enhancing Investment Promotion in Tajikistan

Recommendation 2. Strengthen the institutional setting and strategy of investment promotion

Challenge: The institutional setting behind investment promotion is complex

Actors with overlapping and numerous mandates undertake investment promotion in Tajikistan

Tajikistan has one main body involved in investment promotion, and several other government bodies that also have roles to play in this field. Investment promotion is primarily in the hands of the SCISPM, which is responsible for the design and implementation of investment policy, and Tajinvest, a state unitary enterprise supervised by the SCISPM. At the same time, it is the Ministry of Economic Development and Trade that designs policies related to free economic zones (FEZ), which are part of the investment promotion system. It is also the same Ministry that conducts FEZ-specific investment promotion activities, such as organising events and roundtables with investors to which it invites the SCISPM and Tajinvest. Similarly, the Ministry of Finance and the Ministry of Industry and Innovative Technologies, alongside business associations, organise investment promotion events that seek to attract investment in their sectors. Like FEZs, regional investment promotion bodies occasionally help organise promotion events and assist investors in their dedicated regions. To conduct policy advocacy and support public-private dialogue on investment, the government has also put in place the Consultative Council on Improvement of Investment Climate, which the SCISPM chairs.

The SCISPM currently has 12 mandates, which is more than the average number of mandates of agencies in charge of investment promotion in Eurasia (6.5) and the OECD (5.7) (OECD, 2020[27]). Besides foreign investment promotion, the SCISPM is responsible for managing state enterprises, privatisation, supporting SMEs and entrepreneurship, and, since 2018, hosting a business incubator. Tajinvest is charged more narrowly with investment promotion, but in practice currently primarily provides business development services (BDS) to domestic companies (Tajinvest, 2021; OECD interviews, 2021).

The SCISPM is the parent agency, and it has significantly greater statutory powers. According to its government-approved charter, it plays a leading role in designing investment policy, independently negotiates agreements with investors, provides all necessary documents and permissions for investors through a single-window system, defends the legal interests of investors, proactively attracts investments, and co-ordinates investments with other government agencies (Government of the Republic of Tajikistan, 2006[55]).Tajinvest is only able to advise investors (on legal aspects, tax legislation, operational and business issues) and implement policies adopted by the SCISPM. Investors are under the impression that the SCISPM is responsible for public investment, whereas Tajinvest handles private investment, but this distinction is not enshrined in law and indeed contradicts the SCISPM’s mandate to attract and assist all investors (OECD interviews, 2021).

Organisational reforms may have contributed to this confusion about mandates and tasks. While the allocation of roles and responsibilities may be clear to officials in the relevant bodies, investors report being unsure about, for example, whom to contact in legislative matters related to their investments. The SCISPM, established in 2006, has gone through five reorganisations in the past ten years. These have involved additional mandates, particularly the mandate to be a single-window as of 2017. While it is critical that investment promotion institutions adapt to a changing policy environment, a measure of institutional stability is essential to reducing confusion among investors and effective long-term planning. Responses to the OECD IPA survey show that organisational reforms are rather common in Eurasia, reflecting changes in government and the need to adapt to new economic realities. It is thus no surprise that IPAs in Eurasia see “the instability or inadequacy of their mandates” as their number one challenge (OECD, 2020[27]).

While the SCISPM’s many mandates, from privatisation to SME development, may bear synergies with investment promotion, it is important to ensure that the resources allocated to the SCISPM match its diverse and broad responsibilities. Tajinvest has increasingly shifted its focus towards supporting domestic business development (trainings, advisory services), activities that are financially more promising but still generate insufficient income to ensure the capacity to reach out to investors and promote the country effectively (UNCTAD, 2016[26]).

In addition, Tajikistan could benefit greatly from improvements in the skills and experience of IPA employees, especially private-sector experience. Staff with a public sector background comprise 87% of SCISPM and Tajinvest (Figure 6), which may affect the Committee’s capabilities in areas where private-sector experience is an advantage (UNCTAD, 2016[26]; OECD, 2020[27]). Level of experience and length of tenure also matter. Interviews indicated that staff turnover is high, affecting the ease with which staff can build relationships with investors and ensure continuity of the activities. The interviews also suggest that salary levels may contribute to high turnover and make recruitment from the private sector harder. Tajik government stakeholders rank inadequate staff as a major challenge (OECD, 2020[27]). Recruitment mechanisms may also need to be considered; it may be useful to advertise opportunities in non-governmental job forums.

Figure 6. Staff profiles across Eurasia’s IPAs

Source: (OECD, 2020[27])

Tajikistan needs an integrated, broad-based investment promotion strategy

At present, Tajikistan does not have an updated investment promotion strategy. The most recent government strategy for investment is the 2012 Concept of Government Policy for Attraction and Protection of Investments. Despite its name, it is not an investment promotion strategy per se, since it does not outline and co-ordinate activities of the IPAs. Instead, it is a broader statement of issues with and plans to improve the investment climate. The Concept identifies issues such as poor infrastructure, small internal market, large bureaucracy, and emigration of qualified workers. It commits Tajikistan to continuing a path of improving the investment climate and attracting more FDI, including clear “rules of the game”, greater transparency, less government interference in the private sector through minimised bureaucratic hurdles, reduced corruption, consolidating and harmonising the legal environment, instituting a mechanism for resolving disputes with investors, and protecting their rights through a stronger judicial system (OECD, 2021[2]).

The SCISPM does not have the mandate to assign roles to other institutions in charge of promoting investment. It prepares only annual plans for its own work, which cannot provide needed co-ordination among relevant agencies (Government of the Republic of Tajikistan, 2006[55]).

Recommendation 2A: Clarify institutional responsibilities, accountability, and resources to avoid confusion and inefficiencies

Tajikistan should clarify the roles and mandates of institutions active in investment promotion

Tajikistan’s laws related to investment promotion and the charters of its IPAs require harmonisation, to take account of recent changes. Government-approved amendments to the SCISPM’s charters could better align its powers with the specifics of current legislation and distinguish the agencies’ tasks more clearly. For this process, Tajikistan should prepare a checklist of licences, permissions, incentives and permits required to invest and operate a foreign-owned business, and decide which powers to grant to the IPA (OECD, 2015[36]). The key is to ensure that IPAs are not another bureaucratic hurdle for investors but rather ease bureaucratic requirements by making the responsibilities of each agency clear. Most Eurasia IPAs have single windows for investor services, so more direct service provision would bring Tajikistan in line with regional peers (OECD, 2020[27]).

Reforms to the legal and institutional environment for investment promotion should be considered carefully to ensure stability and avoid such contradictions in the future. Continuous institutional change can create confusion for investors, who do not know with whom they should interact (OECD, 2020[27]). This, in turn, damages long-term relationships, which are the key to successful FDI attraction. Therefore, it is recommended that Tajikistan make changes with a medium-term vision and develop plans clearly to communicate changes to investors.

SCISPM needs sufficient independence and resources to carry out their mandates

When strategic decision-making and reporting are necessary, they should be done at the highest level. Interactions with many other government agencies, while sometimes helpful in synergising work and adopting a whole-of-government approach, can also divert scarce resources from core IPA functions (OECD, 2020[27]). This is common in Eurasia. Minimising reporting requirements to intermediaries, while establishing strong communication channels with the country’s top decision makers – especially since IPA-government linkages are strong throughout Eurasia and specifically in Tajikistan – will allow for efficient operation and needed political visibility (OECD, 2020[27]; OECD, 2015[36]). In this connection, the fact that the SCISPM chair is a presidential appointee could well be seen as an advantage for Tajikistan.

International experience shows that agencies with operational autonomy, including the freedom to set objectives and allocate their budgets, tend to be more effective. Public funding frees IPAs from the burden of self-financing, but annual requests for funding mean that their work is subject to short-term political and economic circumstances, undermining the capacity to implement long-term plans. One solution would be to allocate funding for multiple years within the country’s medium-term expenditure framework, allowing agencies to make long-term plans for their own budgets and delineate expenses in accordance with their mandates, as is the case of Invest in Georgia (Box 4). It should be noted that such budgetary independence would require revisiting the legal status of the SCISPM, as the level of autonomy described would be difficult to reconcile with its status as a budgetary organisation. Tajikistan would have to consider many factors in reaching any such decision, but the critical priority should be to ensure adequate, stable and predictable resourcing for investment promotion.

Box 4. Invest in Georgia

Invest in Georgia is part of a broader government economic development agency – Enterprise Georgia. The agency operates under the Ministry of Economy and Sustainable Development of Georgia and beyond FDI attraction, it is also responsible for SME development and export promotion. The aim of Invest in Georgia division is to attract, promote and develop foreign direct investments in Georgia. It serves as a “one-stop-shop” for investors, to support companies before, during and after the investment process (this legal mandate is reflected in the corresponding law). The division plays the role of a facilitator between foreign investors and the Government of Georgia, ensuring that the investor receives relevant updated information and can communicate with the different Government bodies.

In order to undertake these responsibilities, the Invest in Georgia division (as well as Enterprise Georgia) receives a pre-approved annual budget, based on a pre-developed action plan. Accordingly, the agency executes the activities and utilizes the budget without further need of approval on behalf of the Ministry or other parties. With this, the agency has developed a two-year FDI promotion strategy and action plan (alongside specific KPIs), which was approved by the Ministry of Economy and Sustainable Development (first approved in 2020 and updated in 2021) and the agency is correspondingly responsible for its implementation.

For policy-making purposes in terms of FDI, the Ministry of Economy and Sustainable Development of Georgia also operates a special department – the Investment Policy and Support Department. The Invest in Georgia division, also works closely with the Department to promote/lobby for certain policy level adjustments or changes, when such are required.

Source: Enterprise Georgia

International experience suggests that strong private-sector participation in an IPA can enable a better understanding of private-sector needs and facilitate public-private dialogue (OECD, 2015[36]). In addition to recruiting staff with private-sector experience, this can include bringing private-sector representatives into the supervisory board. More flexibility and autonomy in salary-setting, which is an aspect of institutional independence, could make it easier to recruit the needed staff, particularly for specific roles where high-demand qualifications are required (OECD, 2020[27]). Recruitment mechanisms may also need to be reconsidered; it may be useful to advertise opportunities in non-governmental job forums.

Box 5. Kazakh Invest Legal Authority and Mandate

Kazakh Invest was established with a strong legal foundation, a government resolution adopted on 1 March 2017. The government approves the IPA’s overarching strategy, but the agency also has an independent supervisory board, which oversees planning and budgeting. Kazakh Invest has the clear authority and mandate to attract investment and provide full range of services to investors from an initial idea to implementation as well as during post-investment period. In its own words, it is:

• a unified negotiator on behalf of the Government of the Republic of Kazakhstan in discussing the prospects and conditions for the implementation of investment projects; and

• a “single window” to the system of public services for investors, including the provision of measures of state support to investors in the form of investment preferences and incentives, and, assistance in obtaining various permits and approvals required for the implementation and further operation of investment projects.

* Resolution of the Government of the Republic of Kazakhstan No. 100, “On the renaming of the National Export and Investment Agency KAZNEX INVEST Joint-Stock Company in order to promote sustainable socio-economic development of the Republic of Kazakhstan by attracting foreign investment in priority sectors of the economy and comprehensive support of investment projects”, 1 March 2017.

Source: (Kazakh Invest, 2021[56]).

Recommendation 2B: Create a strategic framework with well-defined, actionable objectives and methods to co-ordinate the work of IPAs

Tajikistan needs an updated and more detailed investment promotion strategy

Investment promotion in Tajikistan requires clear and co-ordinated objectives and administrative procedures to achieve results and value for money. This is why Tajikistan should adopt an investment promotion strategy that identifies its objectives and available financial and human resources. Given limited resources for IPAs’ activities, a clear and specific strategy can help ensure their efficient use (OECD, 2020[27]). Such a strategy, if underpinned by concrete actions plans for individual agencies and an adequate monitoring and evaluation framework, could help ensure that investment promotion activities are well-co-ordinated and achieve intended results.

While the 2012 Concept includes some valuable goals, many of which are still relevant, Tajikistan’s post-pandemic circumstances make the development of an updated, more specific strategy critical. The changed global conditions after COVID-19 require a fresh assessment of goals, opportunities, and methods (OECD, 2020[27]). Developing a strategy is a perfect opportunity to analyse new economic conditions and make a plan to adapt.

Well-designed investment promotion strategies co-ordinate all investment promotion activity in a country. While the IPA is at the centre of investment promotion and therefore the centre of the strategic process, the strategy can and should extend to investment-related activities of other agencies, so that the government has a unified approach and can streamline activities and uses resources efficiently. In the Tajik context, this means that an investment strategy developed by the SCISPM should cover Tajinvest and the FDI-related activities of other agencies, such as the Ministry of Economic Development and Trade.

Strategies should articulate specific goals and objectives for the IPA as well as the methods and resources it will use to achieve them; goals, resources, and methods must align for the strategy to be effective (OECD, 2020[27]). The document answers four essential questions: why the country needs investment, who and what priority sectors to target for investment, and specifically how the IPA and other institutions will do this (OECD, 2015[36]; OECD, 2020[51]). It also covers the indicators that will be used to measure performance and evaluate impact. Strategies are based on considerations of both supply – what Tajikistan can offer investors – and demand – what investors want from Tajikistan (Loewendahl and Bryan, 2019[52]). They are clear, specific, distinct from other countries’ strategies, and internally consistent (OECD, 2015[36]).

International experience suggests that investment promotion strategies are successful when they are given due time and attention, which is why Tajikistan should not rush the process. Strategies must be adapted to the country’s situation, as demonstrated in the Mapping of Investment Promotion Agencies in OECD Countries, as the evidence suggests that different activities, approaches and strategies are suitable for different agencies, even in broadly similar economic contexts (OECD, 2018[20]). Setting objectives for target sectors and countries requires extensive market research. The research process should also include consultations with a wide range of stakeholders, especially representatives of the private sector. This is a time-consuming but critical endeavour (Caribbean Export Development Agency, 2014[53]). IPAs may also want to receive advice from international development organisations and companies (Millenium Cities Initiative, 2009[57]). There are a number of online resources that can be helpful as well, such as the World Bank and WAIPO websites. The first step in the process is therefore formulating a plan for development of the strategy: designating the manager, allocating staff, and creating a timeframe for the completion of strategy components (Caribbean Export Development Agency, 2014[53]).

Since policy level decisions and actions are relatively harder to implement and take significant time to be reviewed, there could be a case for developing two strategies at once: one focusing on the improvements needed on the policy level to smoothen the general investment climate and a second focused on promotion and hands-on activities of the investment promotion agencies. This approach could save time, and allow the investment agency to strategically and actively promote investment offers in parallel to policy level changes being undertaken though a separate more intensive and time consuming process.

Clear, evidence-based objectives and corresponding monitoring and evaluation mechanisms can help ensure the strategy achieves intended results

The next step is to articulate why Tajikistan needs FDI. A strategy should contain mission and vision statements that are short and connected to Tajikistan’s unique overall development goals (Loewendahl and Bryan, 2019[52]). For example, two overarching goals that frequently reoccur in Tajik legal and strategic documents are creating jobs and diversifying the economy, so the mission and vision statement should connect to these and other principles identified as top priority. While many outcomes may be desirable, such as regional development, increasing competition, and expanding, it is important to focus on the most important reasons why more FDI would be beneficial to Tajikistan. The mission and vision for the IPA allows the country to articulate specific goals and objectives for the agency. These are measurable and attached to a particular timeframe (Box 6) (Loewendahl and Bryan, 2019[52]). Moreover, articulating such goals clearly is likely to draw attention to other policies that may need to be adjusted in order for FDI, if attracted, to yield its full benefits, for example policies to support linkages with domestic firms, avoid FDI-financed enclave economies, and foster productivity and skills spill-overs from foreign to local firms.

Box 6. Goals and objectives of the IDA Ireland

The 2021-2024 FDI strategy of Ireland’s IPA, IDA Ireland, is an excellent example of agenda-setting.

IDA identified five overarching goals, which it calls pillars, that reflect the development priorities of Ireland in the post-pandemic context:

• Under the growth pillar, IDA will win investment to support job creation and economic activity.

• Under the transformation pillar, IDA will partner with clients for future growth in Ireland.

• Under the regions pillar, IDA will win investment to advance regional development.

• Under the sustainability pillar, IDA will embrace an inclusive and green recovery.

• Under the impact pillar, IDA will maximise FDI’s positive impact on local businesses and communities.

IDA set the specific, measurable objectives for 2021-2024 in line with its five pillars:

• Win 800 total investments to support job creation of 50,000 and economic activity;

• Partner with clients for future growth through 170 RD&I and 130 training investments;

• Win 400 investments to advance regional development;

• Embrace the opportunities of a green recovery with 60 sustainability investments; and

• Target a 20% increase in client expenditure in Ireland to maximize the impact of FDI.

Source: (IDA Ireland, 2021[58])

A strategy is a living document and needs consistent monitoring to ensure its continued effectiveness and relevance. As conditions and goals change over time, the strategy should change as well. The best strategies incorporate plans for monitoring performance, including mechanisms to solicit feedback from investors (such as through a customer relationship management system (CRM), detailed in Recommendation 1B and continuous dialogue, detailed in Recommendation 3) and the indicators that will be collected, from the outset (Loewendahl and Bryan, 2019[52]). It makes no sense to design monitoring and evaluation systems ex post. It is important that indicators be limited, such that they are manageable to collect given the IPA’s numerous responsibilities, and meaningful, meaning they focus on how well the IPA’s methods achieve its economic goals rather than inputs (OECD, 2020[27]). This data collection allows the IPA to serve as an advocate for investors, promoting policies that will improve the business climate (see Recommendation 3) and increase transparency about public spending, particularly important during crises when finances are constrained (OECD, 2020[27]). Using this monitoring and evaluation, the strategy should be reviewed and updated every 3 to 5 years (Caribbean Export Development Agency, 2014[53]).

An actionable strategy needs clarity about targets, methods, resources, and roles

Broad goals and objectives are a starting point for understanding in what areas the IPA aims to attract investment. However, extensive research is also necessary to ensure the strategy is realistic and determine whom to target for investment. The developers of the strategy should create a SWOT (Strengths, Weaknesses, Opportunities and Threats) chart for the country based on comparative advantages and disadvantages, benchmarking against neighbours and other countries with similar endowments (Loewendahl and Bryan, 2019[52]). The chart should be developed through intra-agency brainstorming, interviews with stakeholders like current investors, and quantifiable data (Caribbean Export Development Agency, 2014[53]). Strengths and opportunities are what the IPA can highlight to potential investors, and awareness of weaknesses and threats can allow the agency to develop risk mitigation plans and reassure investors. Combined with the country’s goals, the SWOT analysis helps the IPA to identify promising sectors and cross-sector business functions that match Tajikistan’s strengths (Millenium Cities Initiative, 2009[57]). Sector and business functions allow the strategy developers to identify who is likely to invest, in terms of both countries and individual companies (see Recommendation 1 for more detail on defining a value proposition and identifying target sectors and investors). In Georgia for instance, the investment agency undertook a sector scanning exercise, which took into consideration both global trends, as well as Georgia’s value propositions and unique selling points. This allowed for the selection of priority sectors in terms of two larger criteria: desirability – what does the Government want to get from FDI – and feasibility – which sectors have the realistic potential to develop in Georgia.

Finally, the strategy should clarify exactly how Tajikistan will conduct investment promotion and facilitation, including which agencies perform what roles, what methods will be employed, and how the strategy will be resourced over its lifespan. As noted above, provision for monitoring, evaluation and adjustment is also critical. Monitoring and evaluation exercises serve little purpose if they do not feed back into policy making to improve the overall investment climate, allowing for timely adjustment of plans and activities.