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Turkmenistan - Economy

The result of lower gas prices and fewer customers has been an economic freefall in Turkmenistan. Never since the country became independent in late 1991 has the economic situation in Turkmenistan been as bad as it is right now. People wait in line for flour, bread, and other basic goods, all of which are rationed and often require personal-identification documents to purchase. Turkmenistan's economy is in a total free fall, as the food scarcities, unpaid wages, skyrocketing unemployment, lack of hard currency, and massive inflation show.

A 16 April 2020 report from the Hornika Turkmenistana website, which is run from Europe by Turkmen activists who fled Turkmenistan, noted that the Turkmen government had released the average yearly wage figure in Turkmenistan as $7,065. But the report also noted that this figure was based on the official exchange rate inside Turkmenistan, which is 3.5 manats to one dollar. At the black-market rate, which is closer to the real value of the manat, the average yearly wage is about $1,200.

By 2016 hard times had hit Turkmenistan, the sort of hard times the country had not seen since it became independent. Turkmenistan is heavily dependent on natural-gas exports for revenue. The recent sharp decrease in gas prices on world markets touched off a chain reaction in Turkmenistan. The cushion of large riches flowing into the country suddenly dried up, creating a great crisis of confidence. The Turkmen government announced cuts in 2015 in subsidies for gas, electricity, and water, which were all previously free. The reduction in revenues may also be leading to infighting in the government. There was a wave of dismissals in the government.

Turkmenistan retains a strongly centralized approach to managing its economy and made few reforms under Niyazov's 1991-2006 reign. Though the new president, Berdimuhamedow, has initiated some useful reforms, the economy remains inefficient, state-dominated, and uninviting. Turkmen law does not allow for privately owned land, except for the case of about a hundred farmers who were granted titles to land by former President Niyazov for exceptional cotton harvests. These farmers, however, are not allowed to sell this land, but they may bequeath it to their children. Soviet-style government control over the country's financial institutions and restrictive policies and attitudes toward commercial enterprises have stymied foreign investment.

According to unverifiable Government of Turkmenistan statistics, the country’s GDP in 2012 is estimated to be US$23.6billion, a 16 percent increase in growth from US$20.2 billion in 2011.In comparison, the 2011 World Bank’s data shows Turkmenistan’s GDP in current U.S. dollars at US$28 billion and the country’s gross national income converted to international dollars using purchasing power parity rates (GNI, PPP) at US$44.3 billion. Also, in July 2012, the World Bank elevated Turkmenistan from a ‘lower middle income’ country to an ‘upper middle income’ country, to reflect the country’s recent robust economic growth.

Turkmenistan regularly announces its desire to attract more foreign investment, but tight state control of the economy, the slow pace of economic reform, and a restrictive visa regime have hindered the creation of an attractive foreign investment climate. The planned 2013 creation of a new Government of Turkmenistan foreign investment oversight agency will bear watching for possible additional barriers it might create to international investment in Turkmenistan. Historically, the most promising areas for investment are in the oil and gas, agricultural, and construction sectors. The Turkmen government continues to seek foreign technology and investment in order to diversify its economy through the development of domestic chemical and petrochemical industry facilities. As a result of President Gurbanguly Berdimuhamedov’s policy of providing “Internet access to every home, school and kindergarten,” the visibility of Turkmenistan's communication sector has also risen.

In October 2012 the Chairman of the Central Bank reported that21 percent of investment in Turkmenistan came from foreign sources and that while the Government of Turkmenistan remained the largest domestic investor (40 percent), sizeable investment came from private enterprises (22 percent). According to government sources, in 2012 the majority of foreign investment was concentrated on the energy (57 percent), chemical (27 percent), and transportation (14 percent) sectors.

Only 4.5% of Turkmenistan's land is arable, with most of the rest being desert. As in neighboring Uzbekistan, the farmlands are heavily dependent upon irrigation and primarily produce cotton. Tensions between the two countries exist over water rights to the critical Amu Darya river, which forms part of their common border. Poor Soviet-era agricultural methods also destroyed much of Turkmenistan's good soil and led to desertification.

Post-Niyazov reforms

Since 2007, Turkmenistan president Berdimuhamedow has made some limited yet positive economic reforms such as simplifying the exchange rate, reducing state subsidies for gasoline, improving national Internet access, ordering an independent audit of the country's energy resources, and creating a special tourism zone on the Caspian, yet Turkmenistan still requires many years of major economic reforms.

Turkmenistan has taken a cautious approach to economic reform, hoping to use natural gas export revenues to sustain inefficiencies in its economy. The disruption of Turkmen gas exports to Russia in 2009 and a subsequent decrease in global natural gas demand demonstrated the heavy dependence of the Turkmen economy on gas exports. There are signs that Turkmenistan has a shortage of hard currency reserves. The country's foreign debt has been estimated at $5 billion. The private sector remains underdeveloped, with activity primarily in the food processing, consumer trade, and services sectors. In addition, Turkmenistan's statistics are closely held state secrets, and published GDP and other figures are subject to wide margins of error. Turkmenistan's goal of agricultural "self-sufficiency" artificially sustains the cultivation of inefficient crops, such as wheat and cotton. The 2006 UN Development Program (UNDP) Human Development Report placed Turkmenistan in the category of "medium human development" although unemployment and underemployment rates may be as high as 70%. Turkmenistan continues to cooperate with the international community to transport humanitarian aid to Afghanistan.

President Berdimuhamedov has expressed his intent to improve investment conditions, and since the beginning of 2008, the Government of Turkmenistan (GoTX) has adopted legal reforms on foreign investment and licensing. Nevertheless, the lack of established rule of law, inconsistent regulatory practices, and unfamiliarity with international business norms are major disincentives to foreign investment. Turkmenistan's economy depends heavily on production of natural gas, oil, petrochemicals and, to a lesser degree, cotton and textiles.

State-owned enterprises still dominate Turkmenistan’s economy and control the lion's share of the country’s industrial production, especially in such sectors as onshore hydrocarbon production, transportation, refining, electricity generation and distribution, chemical industry, railway and air transportation, and production of construction materials. Education, healthcare, and media enterprises are state-owned and tightly controlled. State-owned enterprises are also heavily involved in agriculture, food processing, textiles, communications, construction, trade, and services. Although state-owned enterprises are often not as efficient as private ones, the GoTX considers them strategically important. Although there are a growing number of small scale private enterprises in Turkmenistan, the GoTX continues to exert significant influence over these enterprises. There are no functioning mechanisms or measures to ensure transparency or accountability in the business decisions or operations of state-owned enterprises.

In May 2010, the GoTX adopted its National Program for Socio-Economic Development of Turkmenistan for 2011-2030. The program envisages diversification of the economy and increased competition, and recognizes the importance of further market and institutional reforms. The program also includes privatization of small and medium enterprises (SMEs). In October 2006, Turkmenistan adopted the Oil and Gas Development Plan for 2007-2030. Despite these initiatives, however, Turkmenistan’s investment climate remains generally closed. Decisions to allow foreign investment are politically driven; companies from “friendly” countries are often more successful in winning tenders and signing contracts.

The strength of Turkmenistan's currency is tied to revenues generated from the country's large oil and gas deposits, which also support economic activity such as large-scale, prestige-driven construction projects. Until exchange rates were unified by decree in May 2008, the country benefited from its dual exchange rate system by forcing companies to exchange currency at a rate five times lower than was available on the street at unofficial, but tolerated, currency exchange points. How this system worked and why it existed remain largely a mystery, but rumors swirled that the Central Bank -- or personnel within -- profited.

The unified exchange rate has harmed the standard of living, by raising the cost of both imported and local goods. This forced creativity on the part of businessmen, who save money by taking such measures as sharing a truck with other businessmen to take goods to the market. In the case of Yimpas, the Turkish department store, the buyers are much more careful about only stocking products that sell. But the increase in prices was not accompanied by an increase in salaries, and corruption rose as a result. Bribes for university entrance went up, as well as instances of drivers siphoning gas from government vehicles or farmers taking seeds for their personal use. People were still allowed to set up small businesses with three or less people without registering or having to pay taxes, but the cost of all inputs increased, making it much more difficult to make a profit.

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Page last modified: 31-10-2021 12:52:43 ZULU