On February 23, Tajikistan’s Ministry of Economic Development and Trade (MEDT) announced that a group of Iranian companies had agreed to build an industrial town in the country. According to the ministry, the massive project will entail the construction of about 50 industrial enterprises including aluminum, cotton, and fruit processing plants, in Rudaki district near the Tajik capital Dushanbe. Experts suggest that the remaining enterprises might include plants producing construction materials, solar panels, power transformers, electricity usage meters, and light bulbs. The authorities expect that Tajikistan’s first industrial town will increase the country’s exports, while also reducing imports and creating about 20,000 new jobs.

The announcement made during a three-day investment forum in Dushanbe was very short on details and, therefore, raised a number of questions. First, there is no indication of when the construction of the industrial town is expected to begin. According to the MEDT, Iranian experts still have to complete a feasibility assessment and the technical documentation. Once these are finalized, the construction phase is expected to take about three years.

Second, the authorities have not indicated where the resources required to implement the large-scale project will come from. Tajik experts estimate that the project will cost over US$ 2 billion. The government of Tajikistan which struggles to find resources to build the giant Rogun dam and has to rely on the international financial institutions (IFIs) in financing a large part of its social sector needs is unlikely to take on a major co-investor role. The government’s role will most probably be limited to enacting favorable legislation to improve the economic feasibility of the project and building part of the related infrastructure. Other major donors in the country, including Russia, China, and the IFIs, are also unlikely to co-sponsor an Iranian-led investment project. Therefore, if Iranian companies are serious about the project, they would effectively have to provide all of the funding.

It is unclear whether the Iranian companies would be able to fund the construction of an industrial town project on their own. The Iranian economy is increasingly strained by the latest sanctions imposed by the U.S. and European Union, which target Iran’s oil industry and financial system. Moreover, the possibility of an Israeli military strike on Iran’s nuclear enrichment facilities and the security dynamics of such a development is likely to raise further doubts about the ability of Iranian companies to invest in Tajikistan.

The rising economic hardships in Iran also raise questions about the prospects of its earlier investment pledges. Iran’s hitherto largest investment project in Tajikistan has been the construction of the US$ 180 million Sangtuda-2 hydropower plant on the Vakhsh River. The Iranian authorities have also pledged to build the Ayni hydropower plant on the Zarafshon River, expected to cost about US$ 150 million, once the Sangtuda-2 project is completed. Although the latter was commissioned in late 2011, Iran has not indicated whether it still intends to build another power plant in the country.

Another major investment pledge was signed in February 2011 when an Iranian company unveiled a plan to set up a large cement plant in Tajikistan’s southern Khatlon province. It was announced that the plant, once completed, will produce two million metric tons of cement annually. The cost of the plant and its related infrastructure was estimated at US$ 500 million. Although more than a year has passed since the signing of the agreement, the Iranian company has not commenced the construction. Iran’s recent plans to open a branch of the Islamic Azad University and build a tourism college and three specialized health clinics in Dushanbe have also remained unimplemented.

Experts suggest that excessive red tape and corruption prevent many Iranian investment projects in the country from materializing. More fundamentally, Iranian investors do not have the same level of protection and access to key decision-makers in Tajikistan as Russian and Chinese companies. Thus, an Iranian envoy in Tajikistan has repeatedly claimed that “some ministries and individuals” often obstruct the implementation of major bilateral initiatives. Iran’s President Mahmoud Ahmadinejad and his Tajik counterpart Emomali Rahmon will have a chance to discuss these issues and finalize the deals during their meeting in Dushanbe later in March. The Iranian leader will visit Tajikistan on March 20-21 to celebrate Nowruz with the presidents of Afghanistan and Tajikistan.