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WEEKLY NEWSLETTER
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Turkmenistan
Index
In the early 1990s, Turkmenistan's foreign trade remained completely
under the control of the central government. During that period, the most
important trading partners remained the former republics of the Soviet
Union, with which the great majority of trade had been conducted during
the Soviet era. Natural gas is the most profitable item available for
foreign sale.
Trade Structure
In controlling Turkmenistan's trade sector, the main goal of government
policy is to maintain and expand foreign markets for gas, fuel products,
electricity, and cotton. Just prior to independence, trade with other
Soviet republics accounted for 93 percent of Turkmenistan's exports and 81
percent of its imports. In the mid-1990s, the country's main trading
partners (as they were in 1990) were Russia, Kazakstan, and Uzbekistan in
the CIS and Germany and countries in Eastern Europe outside the CIS (see
table 20, Appendix). In 1990 nearly 27 percent of exports were mineral
products, 6 percent were chemical industry products, 46 percent were some
form of cotton fiber, and 17 percent were processed food products.
In 1991 the largest components of Turkmenistan's imports were food (17
percent of the total), chemical products (6 percent), light industry
products including textiles (22 percent), and machinery (30 percent).
Among Western countries, Turkmenistan imported the most goods from
Finland, France, and Italy in 1992.
In 1990, the overall trade deficit was US$500 million, which declined
to $US300 million in 1991. In 1991 the trade deficit constituted some 13.9
percent of the net material product (NMP--see Glossary). In 1992 the
deficit with Russia, Turkmenistan's main trading partner, was about US$38
million. That year the value of exports to Russia was 52.7 percent of the
value of imports from Russia, the highest percentage among Russia's CIS
trading partners. However, because it exports fuel, in the mid-1990s
Turkmenistan maintained a positive trade balance at world prices with the
CIS as a whole, making it the only republic besides Russia to do so.
In 1993 Turkmenistan's main CIS import partners were (in order of
import volume) Russia, Azerbaijan, Uzbekistan, Ukraine, and Tajikistan.
The main CIS customers were (in order of export volume) Ukraine, Russia,
Uzbekistan, Kazakstan, and Georgia. In 1992 Turkmenistan had bilateral
trade surpluses with Ukraine, Tajikistan, Uzbekistan, and Georgia.
Russia continues to trade with Turkmenistan in much the same way as in
the Soviet era, although by 1992 trade with the other republics was
curtailed by difficulties in collecting payments and other factors.
Central Asian republics traditionally traded more with Russia than with
each other; the conditions of the 1990s promote even less regional trade
because several of the republics specialize in similar products. For
example, cotton and gas are the chief export products of both Turkmenistan
and Uzbekistan.
Because of its specialization in cotton and natural gas, Turkmenistan
imports a large percentage of the food it consumes. In 1991 the republic
imported 65 percent of its grain consumption, 45 percent of its milk and
dairy products, 70 percent of its potatoes, and 100 percent of its
sugar--a profile typical of the Central Asian republics. In 1991 the trade
deficit was 684 million rubles in food goods, compared with a deficit of
1.25 billion rubles in non-food goods.
Turkmenistan's cotton exports follow the pattern of other Central Asian
republics. Governments of these countries have raised the price of cotton
for trade with their Central Asian neighbors nearly to world market levels
while discounting their cotton on the world market because of its
relatively poor quality and less reliable delivery. Since 1991, Central
Asian countries have more than doubled their exports of cotton to
countries outside the CIS, accounting for 70 percent of West European
cotton imports. Exports to the Far East and Mexico also have increased. In
1992 Turkmenistan cut its cotton export prices by 30 percent to stimulate
sales. In response, the National Cotton Council of America refused to make
subsidized shipments of cotton to Russia, where around 350 textile mills
were threatened with closure because of insufficient imports, unless
Central Asian republics reversed their aggressive stance in the world
cotton market.
Natural gas, Turkmenistan's main export for foreign currency, accounted
for an estimated 70 percent of its exports in 1993. Planners expected per
capita earnings from sales of gas in 1993 to approach US$1,300, but
Azerbaijan and Georgia failed to make payments. Turkmenistan, like Russia,
has introduced a policy of cutting off gas supplies in response to such
situations. In the case of Azerbaijan and Georgia, supply was curtailed
until the bills were paid. In the mid-1990s, the practice of shutting off
delivery was a thorny issue between Turkmenistan and Ukraine, which owns
the main pipeline to Europe but has failed to pay for gas deliveries on
many occasions (see Transportation and Telecommunications, this ch.).
CIS agreements on tariffs and customs have been worked out, but in
reality a "legal vacuum" exists with regard to interrepublic
economic ties. Technically, CIS members are not allowed to discriminate
against one another in trade, but trade wars began to break out
immediately upon independence. As a result, most republics have made a
series of bilateral accords. A month before the major CIS agreement was
worked out in 1992, Turkmenistan signed a customs union agreement with
Russia and the other Central Asian republics. Later, it renegotiated its
terms with Russia.
In a move toward trade liberalization in early 1993, Turkmenistan
abolished import duties on around 600 goods, including all CIS goods.
Imports from former Soviet republics outside the ruble zone (see Glossary)
were prohibited. Tariffs for goods exported for hard currency have
remained in place to increase government revenue and prevent capital
flight; thus, for natural gas the tariff is 80 percent; for oil, 20
percent; and for chemicals, 15 percent. The state can fix the volume,
price, and tariff of any export leaving Turkmenistan.
Beginning in November 1993, Turkmenistan stopped the Soviet-era
practice of accepting goods in exchange for natural gas, restricting
payments to hard currency, precious metals, and precious stones. However,
this policy may not be successful because Russia buys gas from
Turkmenistan and then redistributes it to CIS customers rather than to
Europe. Under these conditions, some customers may turn to Uzbekistan,
which sells its gas directly and at a much lower price. Turkmenistan found
it necessary to negotiate barter agreements with certain nonpaying
customers such as Azerbaijan and Georgia. Until the end of 1994, Kazakstan
was the only CIS customer to pay in cash.
In 1993 gas constituted 66.2 percent of Turkmenistan's exports to
non-CIS countries, cotton 26.1 percent, and other goods 7.7 percent.
Turkmenistan barters large quantities of cotton for textile-processing
equipment from Italy, Argentina, and Turkey. Almost half of cotton exports
(more than 20 percent of total exports) have been diverted to non-CIS
customers since 1992. An increase in barter trade with China and Iran
partially offsets the collapse of interrepublic supply. In 1994 Iran
bought 20,000 tons of cotton fiber, a volume expected to increase by five
times in 1995. Turkmenistan also will sell surplus electrical power via
Iran.
Despite payment problems, Turkmenistan's export position has improved
substantially since independence. Its consolidated current account surplus
rose from US$447 million to US$927 million between 1991 and 1992, so that
the increase in gas and cotton exports has offset the increase in imports.
By mid-1994, the United States Export-Import Bank extended US$75.7 million
to insure Turkmenistan's trade deals, and the United States Department of
Agriculture offered US$5 million in grain credits. Turkey's export-import
bank extended a credit line worth $US90 million to Turkmenistan to help
cover the growing volume of trade between these two countries. Japan's
Eximbank allocated $5 million in trade credits for machinery.
Investments from Abroad
In November 1991, Turkmenistan officially opened its system to foreign
economic activity by ratifying the laws "On Enterprises in
Turkmenistan" and "On Entrepreneur Activity in Turkmenistan."
Subsequent laws on foreign investment have covered protection against
nationalization, tax breaks on reinvestment of hard currency obtained for
profits, property ownership, and intellectual property rights protection
to attract foreign investment, and the important 1993 decree allowing
domestic enterprises to form joint ventures with foreign oil companies.
The Ten Years of Prosperity plan envisages "free economic zones,
joint enterprises, and a broadening of entrepreneurship."
Foreign investors have been attracted by the republic's calm and
receptive atmosphere. In 1993 parts of the country took on the appearance
of a huge construction site, with twenty-six foreign joint ventures
operating there. Turkish joint ventures alone were building sixty
factories for the processing of agricultural produce. Despite official
discouragement of economic activity on the grounds of human rights
violations in Turkmenistan, United States business people have been
attracted by the republic's stable conditions, and they have invested in a
number of significant projects. In the early 1990s, United States
companies paid particular attention to the oil and gas industry,
establishing investment agreements with the consultative aid of former
United States secretaries of state Alexander Haig and James Baker.
Economic Agreements Abroad
In the formative phase following independence, Turkmenistan concluded
several key agreements with trade partners. In December 1991, President
Niyazov became the first Central Asian leader to secure cooperation
agreements with Turkey on trade, rail and air links, communications,
education, and culture. Turkmenistan also secured Turkey's agreement on a
gas pipeline routed through its territory and assistance in the trading of
petroleum, electricity, and cotton. Also in 1991, Turkmenistan established
terms with Russia on cotton-for-oil trades, as well as for other
industrial goods such as automobiles. In 1992 agreements with Iran
established Iranian aid to Turkmenistan's gas and oil industry and its
livestock raising, grain, sugar beet, and fruit sectors, in return for aid
to Iran's cotton sector. At the same time, Iran pledged support for
Turkmenistan's pipeline project through Iran to Turkey.
Since its initial agreement, Turkmenistan has pursued its trade
relationship with Iran with great vigor. Agreements focus on the pipeline
project that will bring gas from Turkmenistan to Europe via Iran and
Turkey, transportation projects such as the Tejen-Saragt-Mashhad railroad
link, whose construction was undertaken in 1993, and development of the
oil and gas industries, including the establishment of a joint venture in
Turkmenistan for the transport of petroleum products and construction of a
plant to produce motor oil. Cooperation in mining and other fields also
has been discussed.
At the beginning of 1992, Turkmenistan, Iran, Azerbaijan, Russia and
Kazakstan formed the Caspian States Cooperation Organization to reach
regional agreements on fishing, shipping, environmental protection, and
cooperation among the member nations' oil and gas operations. Iran also
has sought to gain support for a project, discontinued in 1979, that would
replenish the sturgeon population of the Caspian Sea.
The participation of foreign companies in the development of
Turkmenistan's oil industry is expected to triple extraction by the year
2000. In February 1993, the United States firm Vivtex designed a
competition among oil companies to win contracts in Turkmenistan. The "winners"
for three of the seven blocks put up for bid were Larmag Energy of the
Netherlands, Noble Drilling of the United States, Eastpac of the United
Arab Emirates, and the Bridas firm of Argentina. Just for holding the
competition, Turkmenistan received an initial non-returnable "bonus"
payment of US$65 million. The total investment of competition winners was
to amount to US$160 million over the course of three years. Turkmenistan
would receive between 71 and 75 percent of the profits from these joint
enterprises.
In the mid-1990s, Turkmenistan has sought to establish a natural gas
pipeline that would pass through Afghanistan, Pakistan, and China to reach
Japan, as well as an interim rail line for liquefied gas through China
until the pipeline is finished. President Niyazov visited Beijing in
November 1992 for talks on the pipeline, at the same time securing credits
of 45 million Chinese yuan to be repaid after two years. Niyazov then held
talks with representatives of the Japanese firm Mitsubishi and the Chinese
Ministry of Oil in December 1992. A delegation of Japanese experts visited
Ashgabat in February 1993 to discuss prospects for aid. Declaring
Turkmenistan the "most solvent" of the Central Asian republics,
the delegation signed agreements for the development of oil deposits in
the Caspian shelf, communications, and water desalinization.
In the mid-1990s, the International Monetary Fund (IMF--see Glossary)
denied assistance to Turkmenistan on the grounds that Turkmenistan has not
taken the required human rights steps for economic cooperation. However,
in March 1993, the United States conferred most-favored-nation trading
status on Turkmenistan.
Data as of March 1996
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