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Turkmenistan existed within the Soviet Union from 1925 to 1991 under a system where everything related to the economy was controlled and planned by the government. What is produced, how it is produced, and for whom it is produced is determined by the government bureaucracy. The prices of goods and services, as well as the salaries of employees, were also set by the state. After the collapse of the Soviet Union in 1991, many post-Soviet republics rushed to convert their economies from Soviet-style command economies to market ones, giving the private sector more power and responsibility in deciding production-related activities.
Has Turkmenistan ever started the transition to a market economy?
Turkmenistan was the last and slowest under the post-Soviet republics went through the transition to a market economy. The country’s first president, Saparmyrat Niyazov, did not want to rush such a transition, nor did he see the need for it given the country’s large natural gas reserves, which generated stable revenues for the budget. He said again and again that “we don’t need a revolution; we are for evolution,” suggesting slow and modest reforms. With independence, private companies were allowed to operate, and large bazaars emerged, run by small and medium-sized businesses. Retail, restaurants, bakeries, beauty salons and other private service businesses sprung up. However, when it came to large factories and industries, most of them were still dominated by state-owned companies in the first decades after independence.
As for the agricultural sector, the Turkmen government still owns and controls all of the land in the country. The government leases land to private farmers and interferes with what crops can be produced. The state also has a monopoly on wheat and cotton production. The state hires private farmers to grow wheat or cotton and buys the crop that is produced at a price set by the government. Private farmers must sell all harvested wheat and cotton to the government; You cannot bring the harvest to an open market on your own. Ultimately, this system reduces farmers’ incentives to plant more wheat and cotton because they do not have the freedom to sell harvested crops at a market price. The last few years have been particularly difficult for the country as food prices have increased significantly amid soaring black market exchange rates and low agricultural production. Although external factors such as drought can certainly affect agricultural production, government intervention in the food sector plays a bigger role in disappointing results.
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Turkmenistan’s judicial system does not work to defend the rights of private companies in the country. For example, Yimpash, a privately owned Turkish shopping center in Turkmenistan closed by the government in 2016, despite a long-term agreement between Ashgabat municipality and Yimpash owners to run until 2030. Yimpash was then the most famous mall in the country and was reportedly closed so people could visit the newly opened Berkarar Mall, owned by “the nephews”. Among Turkmen, the euphemism “the nephews” generally refers to Shamyrat Rejepov and Hajymyrat Rejepov, two of the most influential nephews of former President Gurbanguly Berdimuhamedov and cousins of current Turkmen President Serdar Berdimuhamedov. A similar fate befell the Russian mobile communications provider MTS kicked out of the Turkmen market in 2017. Such actions deter foreign investors and reduce the development opportunities associated with FDI inflows.
remain monopolies
The government has complete monopolies in the following sectors: telecommunications, agriculture (land, wheat and cotton), textile mills, alcohol factories, hotels, airlines, airports, railways, chemical raw materials (polypropylene, urea, fertilizers, etc.), natural resources (natural gas and oil), gas stations and other industries. State monopolies mean that the government does not allow private entrepreneurs to engage in these industries, resulting in lost opportunity and growth. Some of these publicly traded industries, while privately owned (e.g. pharmaceuticals), are largely controlled by the president’s relatives and close friends, blurring the distinction between state and private. Raw materials (fertilizers, urea, polypropylene, etc.) produced by state-owned companies are difficult for private companies to buy. Those who know the President’s nephews or other relatives and bribe them can buy commodities as is De facto owner many state-owned companies that produce industrial chemicals.
The telecommunications sector is now completely dominated by state-owned companies. Russian cellular company MTS was the largest provider of cellular services before the Turkmen government suspended its license in 2010. The Russian operator returned to the Turkmen market in 2012 but was kicked out again in 2017, leading to MTS filing a lawsuit legal action against the government of Turkmenistan. No foreign or domestic private companies are currently permitted in the telecommunications services market. The state files charges astronomical prices for Internet connections in relation to average salaries in the country. The country has them fourth slowest Fixed broadband internet in the world ahead of only Yemen, Cuba and Afghanistan. This telecommunications monopoly also allows the government to easily censor and restrict thousands of websites and social media apps like Instagram, Twitter, Facebook, and others. Local cell phone operator Altyn Asyr has a monopoly on the cell phone network and is reportedly owned by another president relationshipShihmurat Shakharliev.
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Monetary policy through the exchange rate
Free exchange rates are another hallmark of a functioning market economy. The exchange rate in Turkmenistan has been pegged to the US dollar since 1991. However, the government severely restricts the free exchange of foreign currency, first under Niyazov between 1998-2006, then under Gurbanguly Berdimuhamedov from 2006 until his son, Serdar, took over the presidency earlier this year. The exchange rate is still restricted. Such restrictions naturally paved the way for the creation of a black market exchange to buy and sell foreign currency at higher rates. While the official US dollar exchange rate is still 3.5 manats, the black market rate is 19.5 manats at the time of writing.
The Heritage Foundation’s Economic Freedom Index measures the impact of freedom and free markets around the world. Turkmenistan is one of them 165th place in the index from a total of 177 countries. In an economically free society, individuals are free to work, produce, consume and invest as they please, and governments allow labour, capital and goods to move freely. Corruption is a major impediment to a competitive market economy, as government bureaucrats license certain individuals to operate large manufacturing companies, undermining competition. Certain companies also have the privilege of buying foreign currency at the official exchange rate, which is almost six times cheaper than the black market rate. According to Transparency International’s Corruption Perceptions Index, Turkmenistan ranks 169 from 180 countries.
Ultimately, Turkmenistan has yet to make the successful transition from a Soviet-style planned economy to a modern competitive market economy. Modern Turkmenistan lacks the basic features of a market economy. The largest industries are still dominated by either state-owned companies or individuals associated with the president and his relatives, resulting in monopolists charging high prices for inferior products and little to no competition to offer alternatives. The private sector is evident in service industries (restaurants, beauty industry, etc.), construction companies and retail trade, where small and medium-sized businesses import products from abroad and resell them on the domestic market. These companies still occasionally suffer from government interference, as in the case of the Turkish mall mentioned above. The exchange rate in Turkmenistan is severely restricted, which hurts the industry. The country is still a long way from a functioning and competitive market economy.
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