ECONOMY OF TURKMENISTAN: THE EVOLUTION

This essay, written by Ansh Bharadwaj, is a country study of Turkmenistan. He gives a comprehensive narrative on Turkmenistan’s economic trajectory in the wake of the socialist regime that took over after the country became independent of foreign control. The essay also throws light on the reforms introduced in the country and the challenges ahead.

Ansh Bharadwaj is pursuing his BBA LLB from Jindal Global Law School, Haryana


As the world is coming closer and closer to preparing a roadmap for conserving the depleting environment, the most recent development being in Paris, the Central Asian countries could reap nothing but benefits, regardless of outcomes of the Paris Accord. The singular most reason for the Central Asian economies to be elated with the developments in Paris is their possession of the all-important substitute to Petroleum, Natural Gas. And to put it straight away without even a little exaggeration, the future of what the world does with the Paris Agreement, is dependent on how the Central Asian Economies act.

One such all-important economy is Turkmenistan, the possessor of world’s 5th largest Natural Gas reserves.[i] Turkmenistan had for long been a typically Soviet styled state with its internal functioning being stringently secretive and open to speculation. The country, like many others, gained its independence on the backdrop of the dissolution of Soviet Union in 1991. Since then, Turkmenistan inherited the legacy left behind by the Soviets, and continued to remain a strictly closed economy.

Turkmenistan

Development, in the modern world, and as subscribed by the likes of World Bank and International Monitory Fund, is directly related to how much a country has opened up to the rest of the world in terms of its economy. Development they say, isn’t possible under a completely closed and state controlled economy. What the case of Turkmenistan does is, it simply proves them right. The curious case of Turkmenistan, justifies their stance.

The economic story of Turkmenistan co-relates with that of China. Even though China is a much older country and Turkmenistan just 24 years old, the beginning of both the countries as of their economic policies was extremely similar while the transition looks almost identical. Both the countries initially adopted a stringent State controlled Soviet methodology in running the country’s economy. And both of them are gradually opening up to the open market system, while room for improvement remains for both. The other similarity between both the countries is their political stability. A single party has ruled their respective countries ever since they came into existence

Turkmenistan is situated in Central Asia bordering Kazakhstan, Uzbekistan, Iran, Afghanistan, and the Caspian Sea. Home to the 5th largest Natural Gas reserves, the country is amongst the top 10 producers of cotton, and also has significant amount of Oil Reserves.[ii] Despite the rich natural reserves and agricultural bandwidth to its disposal, the country hasn’t been able to capitalize on the advantage it holds and thus hasn’t been able to develop as much as it should have.

To understand how the economy of Turkmenistan has evolved over the years, it is advisable to first look at the ideological and social preferences of its leadership. Proper understanding of the ideological leanings of the leader of that time draws us to logical conclusions from any questions pertaining to the economy.

The history of Turkmenistan is dominated by Russian rule with the former Soviet Union ruling the country for as late as 1991.[iii] The Tsar Monarchy rule coupled with the Soviet rule made sure that Turkmenistan remained heavily influenced by the ‘idea’ of a closed economy. The Communist Party of Turkmenistan SSR that became the Democratic Party of Turkmenistan upon the independence of the country established a single party rule under the leadership of Saparmurat Niyazov, Turkmenistan’s president for life.[iv] When a country gains its independence, it is expected to initially close its economy with nationalistic and socialistic emotions at their peak. The country feels hard done by the ‘loot’ which their former rulers caused and in the atmosphere of ‘nationalistic pride’, the newly formed government brings in ‘welfare’ policies under which everything is state controlled. This, with a clichéd thinking of the Government being a ‘self-sufficient’ welfare government, will take utmost care of its citizens without looting them. The story of Turkmenistan is nothing but a replica of the above stated theory. This was the case with India, Pakistan, and a majority of African countries.

Niyazov, the first president of Turkmenistan, grasped on a newly independent Turkmenistan’s nationalistic conscience by establishing a total communist and authoritarian regime.[v] This also suited the former Communist Party of USSR member’s ideological leanings. The Niyazov regime lasted for 15 years of uninterrupted rule. During his rule, Niyazov made sure that the country is maintained by a one party system, much like the Communist Party of China has done in China. There was not even an iota of opposition. This changed a little after Niyazov’s death. His successor in the Democratic Party of Turkmenistan, Gurbanguly Berdimuhamedow took over the reins of the country. Berdimuhamedow is seen as a game changer for the country of Turkmenistan and the Central Asian region as a whole.

Turkmenistan is a country which is so communist in its style of functioning that even basic necessities such as water, electricity, housing, and food are provided absolutely free by the state. The country has complete control over its economy with the law on budgeting system prevailing. As like a typically socialist economy, it has extremely low level of fiscal deficit and is self-sufficient in its functioning. Due to its ideological leanings, the trading partners of Turkmenistan are its ‘natural’ allies, i.e. Russia and China. China accounts for a whopping 69% of the total exports that Turkmenistan carries out.[vi]

Turkmenistan is an economy worth $82.29 billion (PPP) of GDP.[vii] The GDP per capita is $15,500 and is ranked 82nd in world as per the PPP analysis. The Industry sector, which includes Natural Gas, Oil and Cotton Industries accounts for 49.4% of the total contribution to the Turk economy.[viii] Services sector is gradually growing and amounts for 37.4% and the agricultural sector which provides employment to nearly half of the Turkmenistan population, contributes a lowly 13.2% to the GDP.[ix] The exact figures for the Turk economy are unavailable because majority of the expenditure of the government is non-budgetary in nature, i.e. there is a lot of spending out of the ambit of the pre-decided budget.

Major sectors of the Turkmenistan economy according to its External Affairs Ministry website are as follows: Oil and Gas complex, power engineering, agriculture, construction, transport and communication. Chemicals, Textiles, Building Materials industries, telecommunications, and other industries are being ‘developed’ by the Government according to the External Affairs Ministry of Turkmenistan. This is very similar to the approach adopted by China where in it has literally developed sectors such as TVE’s.[x]

The Industrial Sector consisting of the all-important Natural Gas and Oil is tightly controlled by the government. The plants excreting the resources are also controlled by the government. The country however, is gradually moving towards a state capitalist type of model. The new leadership under Berdimuhamedow, broke away from the traditional Niyazov approach when it announced in 2011 that it had decided that a number of gas and oil exerting companies owned by the state will be privatized under a new budgetary scheme which is currently in effect from 2013-2016[xi], a step that China took in the mid-nineties in its bid to bring the heavy industries sector back on track after decades of loss making business. This was due to growing red-tapism and corruption which resulted in extremely poor financial showings of the Industrial companies. The government however does not plan to privatize any of its Oil or Gas reserves. The government however has decided to reduce the State sponsored Gasoline subsidy which amounted for huge amounts of fiscal burden to the country, to nearly half.[xii] These couple of decisions also part ways with the communist ideology.

Berdimuhamedow created ripples across the socialist regime of Turkmenistan when he ordered an independent audit into the country’s natural resources with allegations of rampant corruption mounting. The Turkmenistan Government also ordered the formation of the Foreign Investment Oversight Agency to look into various avenues to attract more foreign investment.[xiii]

The overhaul of Natural Gas and Oil Companies initiated by Berdimuhamedow is expected to boost the Turkmenistan economy through leaps and bounds. At a time when the world is gradually opting for alternatives to the traditional petroleum fuel in the form of natural gas, it was extremely important for Turkmenistan to make tactical changes in the Natural Gas industry to make it more efficient. The new government has also swiftly moved in to enter into agreements with countries high in demand of Natural Gas. In addition to the traditional pipelines to Ukraine and Russia, and China, Berdimuhamedow has repaired the broken down talks with India, Pakistan and Afghanistan for setting up a Trans-Afghanistan Pipeline also known as the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline.[xiv] The pipeline’s foundation stone was laid just 2 days ago and is expected to be functional by 2019.[xv] The country is also weighing up treaties to deliver natural gas to Europe. The dynamics of power in the natural fuel industry are gradually shifting and OPEC is no more in monopoly, Turkmenistan is an alternative.

tapi-pipeline-pashtun-tribal-area_0

The government’s timely interference and changes in this particular sector has done only good for Turkmenistan. The industrial production growth amounted to a decent 7.3% in the year 2014 after the first phase of changes in terms of privatization that took place in 2013.[xvi]

Agricultural Sector has for long been tightly controlled by the State. The government imposes stringent price controlling measures. Cotton being the most important crop for export is given special emphasis by the government. Strict State control means that the state should be responsible for providing the correct infrastructure for agriculture to bloom. However, it hasn’t happened until now. The geographical location that Turkmenistan is situated in, demands for proper irrigation policies to supply sufficient water to farmers in the overwhelmingly dry land. But the policy measures by the previous leadership did not yield many results.

Berdimuhamedow has come in and decided to implement the pending policy measure of privatizing a select agricultural farming options, ironically subscribed by none other than Niyazov himself.[xvii] The government has gone for a different type of dual approach then implemented by China. It ensures that on one hand the country becomes self-sufficient in terms of basic necessities, i.e. wheat, select vegetables, etc. through complete state control in farming of these crops while on the other hand some other vegetables and crops have been allowed to be farmed privately.[xviii] Cotton being grown in abundance, the government runs around 20 huge cotton processing plants which have until now run efficiently and provided for the lion’s share of the total agricultural output of the country. Most of the cotton is grown for exports.[xix] State intervention in this scenario has brought in mixed bag of highs and lows for the country. With Berdimuhamedow at the helms, it wouldn’t be a surprise seeing him bring in market oriented control over the agricultural sector.

Trading has by far been the most controversial subject of all. To begin with, Turkmenistan has for long argued that it is a pro-market based economy and has an ‘open door’ trade policy.[xx] The government has also claimed, well aware of the need to strengthen foreign trading relations, it has loosened the regulations on its trading policies. The facts on the contrary, speak a different story. The government has gradually took control of a once ‘open door’ trading sector in the times of the Soviet. The state regulations on trading policies have only strengthened. The fact that, at one time, there was no taker of Turkmenistan’s natural gas reserves after the trading ties with Russia and Ukraine broke down due to non-payment in the mid-nineties, speaks volumes of the licensing regime in trading sector under Niyazov.[xxi] However, Berdimuhamedow has come in with policies like State sponsored insurance cover for traders in order to encourage more cross country trade.[xxii] In addition the new president has brought in a singular exchange rate for the whole country for the very first time, reducing the barrier to trade that various exchange rates caused.[xxiii]

With the TAPI deal going through and many more countries lined up to utilize the prized asset that the Natural Gas is, of Turkmenistan, it is only logical to expect a gradual release of the Trading sector from the jaws of governmental control.

The services sector is also a sector which is gradually growing through state intervention. The government is trying extremely hard to set up a genuine internet communications system throughout the country in order to meet the demands of globalization. The new regime has also announced the development of the Awaza Special Tourism Zone on the shores of the Caspian Sea.[xxiv] This is done in order to develop a virtually dead tourism industry. The visa approval process, one of the strictest in the world, is expected to be relaxed in order to attract tourists with the development of the Awaza Special Tourism Zone.

The Banking Sector in Turkmenistan, one of the most crucial institutions for any economy, has however been left untouched by Berdimuhamedow’s reform plans. This particular sector is controlled fully by the State with 12 National Banks working under the Central Bank of Turkmenistan. Landing Operations and Household Savings are discouraged as around 95% loan goes to State Enterprises.

In the midst of all the reforms being carried out by the current pro-market looking regime under the leadership of Gurbanguly Berdimuhamedow, there however remains serious room for introspection as to the functioning of the country. The rule of law is not at all in place and nor does the judiciary function independently.[xxv] The electoral process is questioned every single time there are elections. Despite Berdimuhamedow allowing the formation of opposition parties, there is virtually no existence of an opposition in the parliament. There are no property rights and the State owns all of the land. The bureaucratic setup is aging and needs overhaul. The Banking Sector too needs a reshuffle.

Having said this, the Gurbanguly Berdimuhamedow Government has hit the right notes after coming to power in 2006, after the death of Turkmenistan’s President for life, Saparmurat Niyazov. The World Bank reports that Turkmenistan today is amongst the world’s fastest growing economies with an annual growth rate in double digits for the last few years.

Drifting away from the traditionally socialist approach in a traditionally socialist country with a communist party in power isn’t an easy task to do. China has been able to do it. A stable regime at his disposal like that of China, Gurbanguly Berdimuhamedow is up for a mammoth task to complete the overhaul he has begun. But Turkmenistan today is certainly in better hands and the country is finally set to begin its journey towards social and economic upliftment.


 

[i] International Energy Statistics, https://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=3&pid=3&aid=6 (last visited Dec. 14, 2015)

[ii] Economy: The Ministry of Foreign Affairs of Turkmenistan, http://www.mfa.gov.tm/en/tukrmenistan/economy (last visited Dec. 14, 2015)

[iii] The World Fact Book, https://www.cia.gov/library/publications/the-world-factbook/geos/tx.html (last visited Dec. 13, 2015)

[iv] Id.

[v] Id.

[vi] Id.

[vii] Id.

[viii] The World Fact Book, https://www.cia.gov/library/publications/the-world-factbook/geos/tx.html (last visited Dec. 13, 2015)

[ix] Id.

[x] Economy: The Ministry of Foreign Affairs of Turkmenistan, http://www.mfa.gov.tm/en/tukrmenistan/economy (last visited Dec. 14, 2015)

[xi] Turkmenistan – Economy, http://www.globalsecurity.org/military/world/centralasia/turkmen-econ.htm (last visited Dec. 14, 2015)

[xii] Id.

[xiii] Id.

[xiv] PTI, Turkmenistan starts work on gas link to India, Pak, Afghanistan, http://www.hindustantimes.com/india/turkmenistan-starts-work-on-gas-link-to-india-pak-afghanistan/story-9pGGKKs76oHHlKBXE5MpVJ.html (last visited Dec. 14, 2015)

[xv] Id.

[xvi] Overview, http://www.worldbank.org/en/country/turkmenistan/overview (last visited Dec. 15, 2015)

[xvii] Turkmenistan plans sell-offs, but not in oil and gas, http://www.reuters.com/article/turkmenistan-privatisation-idUSL6N0AH0IH20130112 (last visited Dec. 14, 2015)

[xviii] “Institutional Changes in Turkmenistan’s Agriculture: Impact on Productivity and Rural Incomes, http://bellwether.metapress.com/content/b43526168j3622l2/?p=b17b19a361ed4c39a3ec04ecd4ab6506&pi=13 (last visited Dec. 10, 2015)

[xix] Id.

[xx] Economy: The Ministry of Foreign Affairs of Turkmenistan, http://www.mfa.gov.tm/en/tukrmenistan/economy (last visited Dec. 14, 2015)

[xxi] Turkmenistan – Economy, http://www.globalsecurity.org/military/world/centralasia/turkmen-econ.htm (last visited Dec. 14, 2015)

[xxii] Id.

[xxiii] Id.

[xxiv] Id.

[xxv] Id.

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