Hydropower development and poverty reduction: The case of foreign investments in Tajikistan

Mette Nielsen

Student thesis: Master thesis


This paper analyses the potential of the hydropower sector in Tajikistan for contributing to poverty reduction through foreign investments (FDI and donor finance). Tajikistan has been selected as a case, since it is one of the world s poorest countries and it was declared in a state of emergency in early 2008, due to electricity shortages and extreme weather conditions with temperatures falling below -20 degrees. The crisis signified that schools, factories and shops were closed down and, worse, that hospitals did not function, resulting in life-threatening situations for the population. In order to avoid such a crisis again, electricity supply must be increased. In this regard the Tajik hydropower sector holds large potential, since the country ranks third in the world in water resources per capita, and it is currently using around 6.5% of this potential. To exploit the potential of hydropower, investments in the sector are needed, since the country can not finance hydropower plants on its one. However, FDI is constrained by unrealistically low tariffs as well as an unstable investment climate. Accordingly, this paper identifies and analyses stakeholders and their power relations in order to establish what drives change in the sector. This allows for an analysis of the role of FDI and donor finance in relation to existing literature and theories. Moreover, the implications for poverty reduction are analysed by applying the Poverty Reduction Strategy Papers and the capability approach to the situation in Tajikistan and foreign investments in the hydropower sector. Since hydropower has been widely criticised, the analysis is concluded with a cost-benefit analysis of FDI and donor finance in relation to the accomplishment of the country goals, which are sustained economic growth and poverty reduction. From the analysis it is concluded that to exploit the large hydropower potential in Tajikistan, tariffs must be increased by more than the double of the current rate, the hydropower sector must be made more efficient, and a more reliable investment climate should be implemented. By conducting such reform, market- and asset-seeking FDI can be attracted to the sector, which is more favourable than resource-seeking FDI, since it will contribute more to sustainable development. To complete reforms it is important that a social protection scheme for the poorest is implemented, so the tariff increase will not lead to increased poverty.

EducationsMSc in Business, Language and Culture, (Graduate Programme) Final Thesis
Publication date2008
Number of pages121