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EDB: Kyrgyzstan and Tajikistan have potential to develop labour-intensive industries

EDB: Kyrgyzstan and Tajikistan have potential to develop labour-intensive industries

15 June 2015

St. Petersburg, 15 June 2015. Low-income Central Asian countries such as Kyrgyzstan and Tajikistan need to transform their exports of labour into exports of value-added goods and services. The need for foreign investment and for the accumulation of labour migrants’ revenues in labour-intensive and export-orientated industries of these countries is growing. This is confirmed by Eurasian Development Bank’s (EDB) Centre for Integration Studies in its report Labour Migration and Labour-Intensive Sectors in Kyrgyzstan and Tajikistan: Opportunities for Human Development in Central Asia prepared in the framework of the United Nations Development Programme’s (UNDP) project Migration, Remittances and Human Development in Central Asian Countries.

The analysis of migration flows and labour markets suggests that Kyrgyzstan and Tajikistan cannot provide their citizens with sufficient jobs (and ensure their quality), which makes many employable people search for work abroad and migrate, primarily to Russia and Kazakhstan. Migrants’ remittances continue to play a significant part in the economies, which supply labour to other countries. In 2013 migrants’ remittances accounted for 48% and 31% of GDP in Tajikistan and Kyrgyzstan, respectively.

The governments of Tajikistan and Kyrgyzstan encourage labour exports as a means to support their economies, while both countries need to launch comprehensive measures to advance labour-intensive and export-orientated sectors. These could be agriculture, agro-industrial production, the textile sector, or mining (primarily in Kyrgyzstan).

The economies of Kyrgyzstan and Tajikistan can be attractive to investors because they offer low cost of labour and rather liberal labour laws. A weighted state policy to support these sectors as well as the attraction of investment from the EEU and other partner countries will help to create jobs, improve the population’s income, and ensure an inflow, or, at least, a lower outflow, of skilled labour.

In May 2015 Kyrgyzstan joined the Eurasian Economic Union (EEU). Tajikistan’s accession is under discussion. If this happens, remittances from Tajik citizens who work in Russia and Kazakhstan can ensure an increase in Tajikistan’s GDP by an additional one percentage point a year.

The extent, to which Kyrgyz and Tajik migrants’ remittances can be used for investments, will depend on the ability of the banking systems of these two countries to provide saving instruments, which will channel citizens’ money into the financial and credit system, and this will help to accumulate funds for investments. At the same time, financial literacy should be promoted among people who do not use financial services because they do not trust financial institutions.

The governments of Kyrgyzstan and Tajikistan are advised to develop an employment policy in coordination with an education policy, because professional development should meet the needs of the labour market in these two countries. Special attention should be paid to the training and employment of skilled workforce in the most promising export-orientated sectors such as agriculture and the textile industry, including the production of raw materials (in Tajikistan), and mining (in Kyrgyzstan). In addition, the countries need to implement governmental policies to develop and support small businesses, especially among young people.

Finally, the governments and the respective governmental authorities of Kyrgyzstan and Tajikistan (if it joins the EEU) should join the process of the formation of a single pension space in the framework of the EEU. At present, the EEU member countries devise a legislative framework, which will offset the pension rights (ensure pension mobility) of labour migrants between recipient and donor countries on the principles of proportional calculation.

Economic reforms, which will be brought by Kyrgyzstan’s actual joining and Tajikistan’s possible joining the EEU, such as the improvement of the investment climate, will help to expand investments of EDB and other development institutions operating in Central Asia. In this case both countries will be able to speed up the fulfilment of large investment projects, including trans-border and export-orientated initiatives, which will create more jobs and help to diversify their economies.

The full version of the report summary and additional research materials are available online.

Additional Information

Eurasian Development Bank is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth and the expansion of mutual trade and other economic ties in its member states. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.