Turkmenistan: ECONOMY

Overview: As in the Soviet era, central planning and state control pervade the system, and the Niyazov government has consistently rejected market reform programs. The state subsidizes a wide variety of commodities and services. Economic planning is done in long-term programs, the latest of which is the Strategy for Turkmenistan’s Economic, Political, and Cultural Development for the Period to 2020. Privatization has been minimal, particularly in larger enterprises. Corruption is common, and the business and legal systems are poorly developed. Based on Turkmenistan’s oil and gas deposits, industry is the dominant sector. Because official economic statistics are unreliable and a dual exchange rate is used, the most accurate figures are estimates by international organizations.

Gross Domestic Product (GDP): In the early 2000s, Turkmenistan’s GDP has risen annually. At current prices, the GDP for the years 2001–4 has been estimated at US$3.2 billion, US$3.7 billion, US$4.5 billion, and US$5.3 billion, respectively. In 2004 per capita GDP was US$1,090. The Asian Development Bank projected a GDP increase of 10 percent in 2005. In 2004 the industrial sector contributed 42.7 percent of GDP, services 28.8 percent, and agriculture 28.5 percent. By comparison, for 2003 the respective shares were 46.2 percent for industry, 28.9 percent for services, and 24.8 percent for agriculture. The private sector’s share of GDP was estimated at 25 percent in 2004.

GOVERNMENT Budget: Budget statistics are unreliable because the government spends large amounts of extra-budgetary funds. In 2004 official expenditures totaled US$3.05 billion, and revenues totaled US$3.05 billion, creating a balanced budget. In an effort to increase revenues, the tax code was streamlined in 2004.

Inflation: In 2004 Turkmenistan’s inflation rate was estimated at 5 percent.

Agriculture: In the early 2000s, the contribution of Turkmenistan’s state-run agriculture sector to gross domestic product (GDP) has increased under close state supervision. As during the Soviet era, cotton is the dominant agricultural commodity because it is an export staple. However, in recent years state policy makers have increased the range of crops with the aim of making Turkmenistan self-sufficient in food. In the post-Soviet era, the area planted to grains (mainly wheat) has nearly tripled. However, most agricultural land is of poor quality and requires irrigation. Turkmenistan’s irrigation infrastructure and water-use policies have not responded efficiently to this need. Irrigation now depends mainly on the decrepit Garagum Canal, which carries water across Turkmenistan from the Amu Darya. A new dam planned at Serakhs on the Iranian border would increase available irrigation water and improve efficiency. Private farmers grow most of Turkmenistan’s fruits and vegetables (chiefly tomatoes, watermelons, grapes, and onions), but all production phases of the main cash crops—grain and cotton—remain under state control. In 2004 the output of wheat met the state target, but the cotton crop fell far short.

Forestry and Fishing: Turkmenistan has negligible forested land. The only industrial fish crop is Azov Sea sprat, of which 12,400 tons were caught in 2002.

Mining and Minerals: Aside from the oil and gas industries, the only mineral substances extracted are bentonite, salt, and gypsum.

Industry and Manufacturing: In the post-Soviet era, Turkmenistan’s industrial sector has been dominated increasingly by the fuel and cotton processing industries to the detriment of light industry. Between 1991 and 2004, some 14 new cotton-processing plants were opened, sharply increasing the capability of processing domestically produced cotton. In the early 2000s, the government subsidy program also has targeted food processing, machine building, and metallurgical industries in order to expand the range of products in which Turkmenistan is self-sufficient. Completion of a Turkish-funded steel mill has increased output of crude steel. The construction industry depends mainly on government building projects because construction of private housing is a low priority.

Energy: Turkmenistan is self-sufficient in oil and natural gas, although a decaying infrastructure and state subsidies hinder efficient distribution and discourage conservation. In the early 2000s, gas output has increased sharply because of export agreements with Russia, Ukraine, and Uzbekistan. In that same period, Russia and Ukraine have made substantial investments in Turkmenistan’s fuel industries. In 2001 natural gas output was estimated at 48.2 billion cubic meters, and oil output was estimated at 162,000 barrels per day. In 2003 gas output increased by 8 percent and oil refinery output by 19 percent compared with 2002. Turkmenistan also is a net exporter of electric power, exporting 980 million kilowatt-hours in 2001. Natural gas generates most of Turkmenistan’s electric power. An excess of generating capacity supports the export of electricity and has stimulated refurbishing of the power generation and distribution systems in the early 2000s.

Services: The financial system is under full state control. The banking system, which was reduced substantially after the 1998 financial crisis, includes 12 national banks. These institutions have the same basic division of responsibility as they had in the Soviet era, overseen by the Central Bank of Turkmenistan. Lending operations and household savings have not been important functions of this system. Turkmengosstrakh, the state insurance firm, has a complete monopoly of the very small insurance industry. The rest of Turkmenistan’s services sector has grown slowly because of the priority given to heavy industry. Retail sales have suffered from the low purchasing power and credit of potential consumers. Poor infrastructure and state hostility to foreign influences have crippled the tourist industry. However, in the early 2000s the construction of luxury hotels and the modernization of the Ashgabat airport signify an attempt to reverse this trend.

Labor: Recent statistics are not available on Turkmenistan’s labor force. In 1998 the labor force was estimated to include more than 1.8 million workers, of whom 48 percent worked in agriculture, 37 percent in services, and 15 percent in industry and construction. Unemployment statistics are not available because unemployment does not exist officially. It is believed that downsizing the government work force, which began in 2003, increased unemployment in 2004. The average monthly wage increased by 12 percent in 2004.

Foreign Economic Relations: Although Turkmenistan requires substantial foreign investment to capitalize on its natural gas reserves, it has made very selective concessions in that direction, especially toward the United States. In 2003 Turkmenistan reached an agreement with Russia for joint supply of natural gas to Afghanistan, to which increasing export of electric power also is planned. Some energy cooperation agreements have been reached with China, although a proposed natural gas pipeline to China and Japan has not been realized. As a member of the Economic Cooperation Organization (ECO), Turkmenistan has reached agreements with other Turkic-speaking members on the restoration of the “Silk Road” trading route from China across Central Asia to the West. Beginning in 1999, a series of export agreements with Russia, Ukraine, and Uzbekistan has stimulated increased natural gas production in Turkmenistan.

Imports and Exports: In the first 11 months of 2004, exports totaled US$3.4 billion, and imports were worth US$2.9 billion, yielding a trade surplus of about US$500 million. In 2003 Turkmenistan’s main imports were machinery and transport equipment, basic manufactures, chemicals, and foods. Its main exports were natural gas, oil, basic manufactures, and non-fuel crude materials. In 2004 finished goods contributed an increased percentage of export income. In 2003 the principal suppliers of its imports, in order of volume, were Russia, Ukraine, Turkey, the United Arab Emirates, and Germany. The principal customers for its exports, in order of volume, were Ukraine, Italy, Iran, Turkey, and the United Arab Emirates. In 2004 Ukraine, Italy, and Iran remained the largest buyers by volume. Although Ukraine retained its high position, in 2004 trade with countries outside the Commonwealth of Independent States increased. The dominance of crude products in Turkmenistan’s exports has limited the prospect of establishing non-regional markets. Significant expansion of fuel exports will require expansion of the pipeline system.

Trade Balance: Turkmenistan’s trade balance has fluctuated widely because it depends so heavily on the price and volume of fuels sold. After suffering deficits during the 1990s, Turkmenistan showed a substantial surplus in 2000 because of new natural gas agreements with Russia and Ukraine. Consistent surpluses have followed in the early 2000s because of high fuel prices and ongoing trade agreements. The figure for 2003 was US$1.12 billion, and in 2004 the surplus was US$550 million.

Balance of Payments: In 2004 Turkmenistan had an estimated current-account deficit of US$114 million, after having a surplus in 2003 of US$957 million.

External Debt: In the early 2000s, external debt has risen because of heavy borrowing by state enterprises. Because natural gas customers often fail to pay on time, Turkmenistan’s debt service has been inconsistent. In 2001 the external debt was estimated at between US$2.4 billion and US$5 billion.

Foreign Investment: Despite the attractiveness of Turkmenistan’s fuel industries, foreign direct investment has been discouraged by Turkmenistan’s location and its poor business environment. Turkish textile companies have established joint ventures with many of Turkmenistan’s textile industries. The Turkmenbashi oil refinery, largest in Turkmenistan, has been refurbished with investment from French, German, Iranian, Japanese, and Turkish companies. Canadian and German firms invested in the Naip natural gas refinery, which opened in 2004. French and German firms have been active in upgrading the national telecommunications system. The greatest foreign participation is in the construction industry, where French, Turkish, and Ukrainian firms have helped build government buildings and infrastructure projects. Two West European firms, Siemens of Germany and Alcatel of France, are upgrading the telephone system. The United Arab Emirates has proposed to construct an aluminum plant that would utilize Turkmenistan’s deposits of alunite ore.

Currency and Exchange Rate: The Turkmenistan manat has dual exchange rates. In December 2005, the official exchange rate was 5,200 manats per U.S. dollar. In 2005 the black-market exchange rate was more than 22,000 manats per U.S. dollar.

Fiscal Year: Turkmenistan’s fiscal year is the calendar year.

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