Heavy administrative burdens on firms, such as frequent and lengthy inspections, bribe extortions, and excessive involvement of the political elite in business, also tend to weaken property rights, threaten profits, and reduce a country’s attractiveness to domestic and foreign investors. In countries with weak institutions like Tajikistan, overcoming these kinds of constraints may take a long time. If leading cities could improve their business environment, this could initiate transformation of the private sector. But firms in Tajikistan’s two leading cities (Dushanbe and Khujand) face obstacles in both their internal and external operating environments.

The latest BEEPS surveys raise major concerns about the internal business environment for firms operating in Tajikistan. Just 17 percent of firms in Tajikistan reported having an internationally recognized quality certificate; this compares with 43 percent in Chad, one of the world’s poorest countries. Only 24 percent of the interviewees in Tajikistan reported using technologies licensed from foreign companies, compared with 36 percent in Mozambique; and only 21 percent of interviewees in Tajikistan reported having their own Web sites, compared with 63 percent in Armenia. Of firm employees interviewed, only 22 percent in Tajikistan were offered some kind of formal training, compared with 63 percent in Kenya. The BEEPS indicators provide a broad look at the external environment in which firms in leading Central Asian cities are operating. The most challenging issues appear to be permits and licensing, regulation and tax issues, and corruption (Table 3).

Another constraint to industrial expansion, particularly in the food and textile industries, appears to be fragmentation of the production chain into small-scale, poorly equipped operators. Such fragmentation leads to low quality and low quantity of raw materials for the food industry, and therefore to safety and quality issues. Fragmentation has also blocked development of a shadow textiles sector, whose production and market knowledge cannot be harnessed to scale up the sector.

While Tajik food products have so far enjoyed easy access to CIS markets, the increasing share of supermarkets in Russia’s retail trade will soon make food safety and quality the main binding constraints facing exports to CIS markets. Almaty and Astana are following the Russian lead. CIS standards, which are the same standards employed in the former Soviet Union, have little modern relevance, given their poor oversight and safety mechanisms. More robust systems for managing microbiological risks are therefore needed (Wrathall and Haigh 2005). As many countries have adopted the hazard analysis critical control point (HACCP) system as their reference food safety systems, successful export diversification in Central Asia should include HACCP certification of all firms involved in the production chain to jump start and sustain expansion of the food industry.

Urban consumers’ tastes and quality perceptions are becoming a major factor in production of food and textiles. Wrathall and Haigh (2005, p. 12) define nonexportable products as “anonymous products, poorly labeled, in unfashionable, outdated packaging that are difficult to store and even more difficult to open, with indifferent, inconsistent quality, with sensory and physical characteristics impaired by insensitive over-processing, produced in indifferent surroundings that are unclean and unhygienic by untrained staff.” The need to address these kinds of issues sets the agenda for export diversification in Tajikistan. All the necessary upgrading processes are increasing returns to scale activities and could benefit from coordinated implementation involving leading cities and their hinterlands through publicprivate partnerships.

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