How is the economy of Turkmenistan

After a phase of rapid growth of 6–8% per year, accompanied by official press reports, the Turkmen economy is now confronted with an economic crisis that is less publicly commented on. The country is still heavily dependent on oil and gas exports and has accordingly suffered from the global decline in prices since 2013/14. In addition, an ever larger part of the export income goes into the hands of "the family", as a clan-like group consisting of relatives of the president and businessmen close to him is called. The economic policy measures of the last few years have led to an increasing income for the "clan", while government spending and the effects of the economic crisis weigh on the Turkmen population.

Hardly any information

It is almost impossible to even estimate the size of the Turkmen household. The Ministry of Finance (since October 2017: Ministry of Finance and Economics) does not publish any figures except for total income and expenditure. According to official figures, the state budget was around $ 27.2 billion last year, which is equivalent to $ 11.2 billion at the black market rate at the time, and even less at the current black market rate. There is no information about the budgets of individual government organizations and companies. In addition, government payments are processed through a number of non-budget funds and organizations whose assets are top secret. Furthermore, basic economic data are either not publicly available or appear unreliable or unlikely. Given this situation, one can only speculate about the actual situation of the Turkmen economy. However, using a number of indirect indicators, the economic crisis and its consequences can be outlined.

Financial crisis

In the past three years, foreign exchange transactions have become increasingly restricted. Only the elite have access to foreign currency, for example to buy and sell US dollars or other currencies, and the transfer of money to and above all from Turkmenistan has been severely restricted. Thousands of students at educational institutions outside Turkmenistan (the most popular countries are Turkey with 10,000 and Belarus with around 8,000 Turkmen students), migrant workers outside Turkmenistan (most of them in Turkey) or cross-border traders and entrepreneurs have had increasing problems with abroad withdraw money from their cards issued in Turkmenistan. At the same time, pompous projects are being financed from the Turkmen budget, such as new magnificent buildings in Ashgabat, a new (and largely unused) airport or, a recent example, new buildings for the "Asian Indoor and Martial Arts Games" that will take place in September 2017 took place in Ashgabat and the cost of which almost reached the size of the Olympic Games. The funds for the construction projects were often at the expense of the state budget for the wider population.

Missing export income

These savings compensate for a lack of foreign exchange income from the export of natural gas. It is estimated (the exact numbers are secret) that around 80% of Turkmen’s export income comes from the export of natural gas. This extreme dependency exacerbated the economic crisis - not only because of falling world market prices for oil and gas, but also because Turkmenistan was unable to sell its gas abroad. Its former largest customers - Russia and Iran - have stopped importing gas from Turkmenistan for various reasons. Sometimes the Turkmen gas is no longer needed (in the case of Russia), sometimes there was a dispute between Turkmenistan and its Russian and Iranian partners about prices, alleged or actual payment arrears and technical delivery details.

This means that the only way for Turkmen gas abroad is currently to China. However, the Chinese companies are entitled to repayments for their large investments in Turkmenistan as well as for the construction of the gas pipeline system from Central Asia to China. In addition, Turkmenistan must repay the loans that Chinese banks have given to explore gas fields and start production. This gives Chinese companies a strong negotiating position with Turkmenistan. According to unofficial sources, the export price for China is far lower than that for deliveries to Russia and Iran.

In addition, it appears that only a part of the export income flows into the state budget. Control of the export of energy, and thus of the country's most important source of income, lay with the state agency responsible for the management and use of hydrocarbon resources, which was under the direct control of the president and was managed by his relatives until 2016. The state corporations "Turkmengaz" and "Turkmennebit" (TurkmenOil) are now responsible, but they are also controlled by relatives of the president.

The role of the family clan

The "family" is a major contributor to the economic crisis in Turkmenistan. Relatives of the president monopolize the import of goods, especially the most profitable ones, such as food and consumer goods, but also jewelry and luxury items. Unlike entrepreneurs who do not belong to the inner circle, the "family" does not suffer from limited access to currency exchange and their companies can bypass the otherwise complicated customs clearance and health checks - not to mention opaque tax payments.

In the course of monopolizing the local market, the "family" has also ousted various foreign companies from the Turkmen market. The closure of the popular Turkish shopping center “Yimpash” in Ashgabat (whose demolition is allegedly planned) and the replacement shopping center “Berkarar”, which is owned by the family, is one of the clearest cases. Some foreign and non-family businesses also have to contend with arrears from "family" businesses due to construction projects and other supplies and services. To sue them in court is almost impossible, since the judicial system works entirely in favor of the "family". The bribe just for access to the president is usually around 15% of the contract price (which is even above the level in other authoritarian regimes). Each project calculates up to 50% bribes for the president and his family. These practices have largely driven foreign investors out of Turkmenistan, so that the "family" was able to monopolize the local market in other areas.

outlook

Although the Turkmen President and his family control the most important areas of the Turkmen economy, they can only maintain their income and their predatory behavior in the future if further restrictive measures are taken against the population. At the same time, the diversification of the Turkmen economy proclaimed in official statements is hardly possible without foreign investment, because the family is unable to make large-scale investments in their own country. The general economic conditions for companies are tending to deteriorate, so that even long-term foreign investors are forced to leave the country. Gas prices on the world market are unstable and Turkmenistan is highly dependent on natural gas exports to China.

As a consequence, it can be assumed that the situation of the Turkmen economy will deteriorate further in the near future. This could even upset the otherwise calm, patient and intimidated Turkmen society (possibly provoked from the outside). In this case it can be assumed that the family will develop a strategy to move abroad - and that they will leave the country with few resources to survive.

Translated from the English by Sophie Hellgardt