In recent years, migration from Tajikistan to Russia and the ensuing remittances have vastly grown and become accordingly significant in their economic impact. Currently, Tajikistan has one of the highest revenues worldwide from remittances, in relative terms: 20 to 50 percent of GDP, or approximately US$400 million to a billion. By and large, exporting labor at low prices has kept the country going – in the short term, such staggering remittances have predominantly positive effects on the country. But in the long term, the prospects are rather bleak: permanent migration and the dependency on other countries; and a failure to undertake the substantial private sector reform that Tajikistan badly needs – and thus unwitting forfeiting of foreign direct investment.

The size of the remittances determines their use, either for consumption or investment. According to a National Bank Survey, remittances of under US$1,000 per year are spent on consumption (primarily food, clothing, medical care), while remittances of US$1,000-5,000 finance durables (cars, furniture, home improvements). Large remittances, over US$5,000, are used for investing in large scale endeavors (house construction, purchasing apartments, businesses). For two reasons, most remittances are used for consumption: first, most migrants to Russia are employed in housing and industrial construction, in trade and services, catering and agriculture; and second, migration is predominantly seasonal or last no longer than 14 months. Moreover, there is little incentive or means to accrue private savings, thus nearly all remittances are used for subsistence, leading to increasing dependence on the part of families. This sort of problem crops up especially in agriculture, where dependence on migration congeals productivity improvement.

Remittances in Tajikistan are substantially responsible for poverty reduction: for 2007, Tajikistan proudly claims it managed to reduce poverty by 60 percent, as announced by UN Assistant Secretary General Kori Udovićki during a June 4 meeting with President Emomali Rahmon. They also help alleviate the stress caused by the lack of domestic job opportunities, as well as fuel consumption and economic growth. This creates the unfortunate illusion of growth and sustainable affluence, which, to quote an IMF working paper, Alexei Kireyev’s The Macroeconomics of Remittances: The Case of Tajikistan, often amounts to broken families, humiliating employment conditions abroad, and harassment associated with carrying cash.

The country cannot rely on remittances to such a large extent – for one, because working abroad is not safe, and a lot of Tajik people are killed in Russia due to the rise of Russians’ xenophobia. Moreover, Russia has already established quotas on how many Tajiks can legally work in Russia: Putin’s provisions basically do not allow Tajik people to work in retail trade in outdoor markets and kiosks – where the majority of migrants work. And generally, economic dependence on Russia is a vulnerability Tajikistan can hardly afford. Another reason can be that most Tajiks who go to Russia work in markets, construction, or similar jobs, not in their actual profession, leading to inefficient use of human resource capital. Further, stricter rules have lately been introduced in Russia, to push more employers to register migrant workers and provide basic health insurance and standard salary. This, in turn, may lead to further limits in employing migrants. Such reasons of insecurity, in turn, make it quite clear that Tajikistan should work hard to create more jobs at home.

There is thus an urgent need for real private sector development, that is to create favorable conditions for business – especially now that Tajikistan outlawed all huge family celebrations and, if one is optimistic about implementation of the law, people can be expected to have more money to invest. Nevertheless, there are currently approximately twenty-two different organizations that regulate and permit businesses in Tajikistan and, as a result, starting a business takes up to two months, as opposed to circa one week in most of the developed countries. If favorable investment conditions arise, this would lead not only to larger direct foreign investment, but also to more small enterprises operating locally. This promotion of external and internal capital inflows to the national economy can in the long run enhance the movement for creating new jobs and would, overall, help increase living standards – and what is more, it would be due to internal use of market forces rather than remittances.

Tajikistan has endorsed an open-door policy for foreign investment. It literally opened up the banking system to international competition – and foreign banks have started a number of branches in the country. Also recently, the Tajik government approved a number of projects on the privatization of five big enterprises, among which are Tajik Air and Tajik Telecom. Nevertheless, for these transformations to be successful, the initial steps have to be followed by certain legal, structural and institutional reforms, as well as adequate infrastructure development to serve the private sector.

Tajikistan’s GDP is undoubtedly growing, which indicates better economic performance and overall social stabilization; but a more attentive look at what the GDP comprises, remittances originating in migration constitute a large percentage. It is then important for the government to look at this money in the long-term, i.e. its direction: and thus seriously encourage private investment, for therein lies the country’s healthy stability.