Projects financed by the EDB
Construction of a Modern Textile Mill in Tajikistan
Cotton is more than an agricultural product in Tajikistan; there, people call it “white gold”. The cotton industry creates the largest number of agricultural jobs, and employs over two thirds of the country’s population. Cotton accounts for a significant proportion of Tajikistan’s GDP and cotton exports generate significant currency income. Farmers even use the stems of the cotton plants to heat their homes in the kishlaks (villages). So it is no accident that cotton, as one of the symbols of Tajikistan, is depicted on the country’s emblem.
This plant has been cultivated in the Sughd region for hundreds of years. The local microclimate provides ideal conditions for cotton cultivation. However, until recently, raw cotton was mainly exported.
The country’s government is trying to bring new life into the sector by modernizing it and making it more efficient. The government chose not to take the “traditional” path of increasing crop acreage, and made the difficult but ultimately correct decision to use tax and trade preferences to motivate local businesses to switch from a purely “raw-material” model to the production and export of cotton yarn and fabrics.
In pursuing this goal, the Tajik government sought a reliable partner in the form of the EDB.
Over the last ten years, the Bank’s member states, primarily Russia, have increased their demand for cotton yarn. Recently there has been strong demand for high-grade yarn from Russian textile producers. The traditional suppliers of yarn are CIS countries, (mainly Uzbekistan), Turkey and India. Tajikistan also strives to tap this large market.
In the autumn of 2009, just a few months after Tajikistan’s accession to EDB, the Bank financed the construction in Tajikistan of a 5,000 tonne per year, high-quality cotton yarn mill implemented by Olim-Textile CJSC. The total project cost was US $ 29.75 m and the EDB’s commitment was US $ 22.57 m.
The Bank arranged financing for the supply and commissioning of textile equipment from Germany, with insurance cover by the German export credit agency Euler Hermes.
The Bank has provided a further US $7 m to the factory for supplying the raw materials for new production.
In March 2011 the opening ceremony for the mill was held in the suburbs of Khujand marking the completion of the EDB’s first investment project in Tajikistan.
The new factory was launched by Emomali Rakhmon, President of Tajikistan.
The factory uses cutting-edge technology to manufacture yarn from medium and fine grade cotton. Olim-Textile’s development strategy is to promote the company’s yarns on the Russian market and to enable the partial substitution of other countries’ imports.
The project thus promotes mutual trade between the Bank’s member states: fine and medium-grade cotton yarn will be supplied to Russian textile companies for manufacturing high quality jersey, terry and hosiery.
The project’s main competitive advantage is the availability of high-quality domestic raw materials at low cost: Tajikistan is the CIS’s largest producer of fine-thread cotton. Raw material supplies to the mill are thus guaranteed, as the project contractor owns the raw material terminals. The new mill is equipped to international standards and uses state-of-the-art technology; equipment was supplied by Textima (Germany).
Other competitive advantages are the low cost of electricity and labour in Tajikistan compared to other cotton-exporting countries, and preferential tax regimes: by government resolution, the company is exempt from income tax, VAT and customs duties on imported equipment and spare parts, VAT on domestic sales of finished products, and VAT on exports for 12 years.
Olim-Textile’s project will have a significant positive effect on Tajikistan’s sustainable economic growth by supporting agriculture and the textile industry and by increasing employment and output in related industries.