By Michael Jacobs

While the situation in Ukraine and its effect on the Russian and European economies have been the subject of countless news stories and op-eds for several months, the implications for the former soviet countries in Central Asia have largely been ignored. One of these countries in particular, Tajikistan, may face the most severe and direct consequences of a Russian economic slow-down.  This outcome looks increasingly likely as falling oil prices amplify the negative impact of economic sanctions in energy-dependent Russia.

Tajikistan, however much it may depend on the Russian economy now, isn’t waiting around to find out what would happen if the Russian economy falters. Tajikistan recently accepted an offer of $6 billion in new investments from China over the next 3 years, which is part of a larger Chinese push into Central Asia. China may use this investment to build oil refineries and has already built numerous cement factories in Tajikistan in recent years as Chinese workers have contributed to a construction boom in Tajikistan’s capital, Dushanbe. These cement factories have also led to some speculation that in the future China may look to fund the completion of the controversial Rogun Dam, which began construction in 1976 and saw work suspended in 2012. The graphs below illustrate Tajikistan’s dependence on Russia as well as the magnitude of China’s recent investments. As a note, comparisons with China’s investment assume $2 billion are invested each year ($6 billion total investment divided evenly over 3 years).

1.  Tajikistan is the Most Remittance-Dependent Country in the World

In Tajikistan, 47.5% of GDP comes from remittances. For comparison, another Central Asian former Soviet Republic, Kyrgyzstan, is the second most remittance-dependent country in the world, with 30.8% of GDP from remittances, making Tajikistan the remittance leader by a large margin when measured as a percent of GDP. Almost all of the remittances in Tajikistan come from Russia, since 90% of Tajik migrant workers are in Russia. Taken together, this means that Tajikistan is in the unique position that nearly half of its GDP is directly dependent Russian economic activity.

2.  China’s investment won’t replace Russian remittances, but it softens the blow

Tajikistan received $4.1 billion of remittances in 2013. If we treat China’s proposed investment as an investment of $2 billion per year over 3 years, this investment is equivalent to just under half of Tajikistan’s substantial annual remittance flows. China’s investment, then, should provide a fairly substantial cushion against a drop in remittance flows due to possible economic difficulty in Russia. That being said, remittances are generally funneled to different sources than large-scale FDI. While overall economic activity is supported by Chinese investment, it remains to be seen how individual household incomes will be affected by this change.

3.  Tajikistan is failing to attract international investment beyond China

Tajikistan attracts FDI at an anemic rate.  When compared with Tajikistan’s total FDI inflows in 2013, China’s new investment there looks massive. Again, China’s $6 billion investment divided evenly over 3 years gives us an annual investment of $2 billion, equivalent to about 19 times annual FDI, which was $108 million in 2013. With FDI inflows making up just 1.3% of GDP in 2013, Tajikistan ranks 139^th in the world for FDI as a percentage of GDP.  While the Chinese investment may help prevent short term economic crisis in Tajikistan, clearly the country needs to address deeper issues affecting its ability to attract investment and drive domestic growth.

Conclusion

China is using its massive resources to help keep the Tajik economy on its feet at a critical juncture.  One million Tajiks work abroad in Russia, equivalent to an eighth of the country’s total population (8.2 million people) and comprising half of all working age males. Given the magnitude of the Tajik migrant worker demographic, there are valid fears about what might happen should a slow-down in the Russian economy occur and a large chunk of unemployed migrants return home. That being said, a “youth bulge” can also be an economic blessing, if put to work. The Government of Tajikistan is trying to avoid any such destabilizing effect, and China is willing to help in achieving this goal while simultaneously buying significant sway in the Central Asian region- to the detriment of Russia’s influence there.

Michael Jacobs is a researcher for the Project on U.S. Leadership in Development at CSIS.