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Has Turkmenistan’s Transition to a Market Economy Been a Success?

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Has Turkmenistan’s Transition to a Market Economy Been a Success?

Not so much. Ashgabat has a long way to go to achieve a functioning and competitive market economy. 

Has Turkmenistan’s Transition to a Market Economy Been a Success?

Farmers Market “Russkii” in Ashgabat in October 2014.

Credit: Depositphotos

Turkmenistan, within the Soviet Union from 1925 to 1991, existed under a system in which everything related to the economy was controlled and planned by the government. What to produce, how to produce, and who to produce it for were determined by the government bureaucracy. Prices of goods and services, as well as employee salaries, were also set by the state. In the aftermath of the Soviet Union’s collapse in 1991, many post-Soviet republics rushed to transition their economies from Soviet-style planned economies to market economies by giving more power and responsibilities to the private sector in deciding production-related activities.

Did Turkmenistan Ever Start Transitioning to a Market Economy?

Turkmenistan was the last and slowest among the post-Soviet republics to undergo a transition to a market economy. The first president of the country, Saparmyrat Niyazov, did not want to rush into such a transition and he didn’t feel the need for it due to the large reserves of natural gas in the country, which generated a stable revenue for the budget. He repeatedly stated that “We don’t need a revolution; we’re for evolution,” suggesting slow and modest reforms. With independence, private businesses were allowed to operate, and large bazaars started to emerge run by small and medium-sized enterprises. Retail, restaurants, bakeries, beauty salons, and other service-related private businesses emerged. However, when it came to large factories and industries, most of them were still dominated by state-owned enterprises in the first decades following independence.

When it comes to the agricultural sector, the Turkmen government still owns and controls all the land in the country. The government rents land to private farmers and intervenes in what crops can be produced. The state also has a monopoly over wheat and cotton production. The state hires private farmers to grow wheat or cotton and buys the crops produced at a government-set price. Private farmers must sell all harvested wheat and cotton to the government; they cannot take the crops to an open market on their own. Ultimately, this system reduces incentives for farmers to grow more wheat and cotton given that they don’t have the liberty to sell harvested crops at a market price. The last several years have been especially difficult for the country as food prices rose significantly in light of soaring black-market exchange rates along with low agricultural outputs. Although external factors, such as drought, can certainly affect agricultural production, government interventions in the food sector play a larger role in disappointing outputs. 

Turkmenistan’s judicial system does not work to defend the rights of private companies in the country. For instance, Yimpash, a privately owned Turkish shopping mall in Turkmenistan, was closed down by the government in 2016 despite a long-term agreement in place between the Ashgabat municipal administration and Yimpash’s owners, supposed to run through 2030. Yimpash was the most famous shopping mall in the country at the time and it was reportedly closed down so people would go to the newly-opened Berkarar Mall, which was 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 to current Turkmen President Serdar Berdimuhamedov. The Russian mobile operator MTS met a similar fate when it was kicked out of the Turkmen market in 2017. Such actions scare away foreign investors and reduce development opportunities that come along with FDI inflows.

Monopolies Remain

The government has complete monopolies in the following sectors: telecommunication, agriculture (land, wheat, and cotton), textile factories, alcohol factories, hotels, airlines, airports, railways, chemical raw materials (polypropylene, carbamide, 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 get involved in those industries, resulting in lost opportunities and growth. Some of these listed industries do have private ownership (such as pharmaceuticals), but they are largely controlled by the president’s relatives and close friends, blurring the distinction between state and private. Raw materials produced by state companies (fertilizers, carbamide, polypropylene, etc.) are hard to buy for private companies. Those who know the nephews, or other presidential relatives, and bribe them, can buy raw materials as they are the de facto owners of many state-owned companies producing industrial chemicals. 

The telecommunication sector is completely dominated by state-owned companies now. The Russian mobile phone operating company MTS was the largest provider of mobile services before the Turkmen government suspended their license in 2010. The Russian operator returned to the Turkmen market in 2012 only to be kicked out again in 2017, which led to MTS filing a lawsuit against the government of Turkmenistan. Currently, no foreign or domestic private companies are allowed into the market providing telecommunication services. The state charges astronomical prices for internet connections relative to average salaries in the country. The country has the fourth slowest fixed broadband internet in the world ahead of only Yemen, Cuba, and Afghanistan. This monopoly over telecommunication also allows the government to easily censor and restrict thousands of websites and social media apps such as Instagram, Twitter, Facebook, and others. The local mobile network operator Altyn Asyr has a monopoly over the mobile network and it is reportedly owned by another of the president’s relatives, Shikhmurat Shakharliev. 

Monetary Policy Through the Exchange Rate

Free exchange rates are another marker of a functioning market economy. The exchange rate in Turkmenistan has been pegged against the U.S. dollar at a fixed rate since 1991. However, the government severely restricts the free exchange of foreign currencies, 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 currencies at higher rates. While the official U.S. dollar exchange rate is still set at 3.5 manats, the black-market rate is 19.5 manat as of writing.     

The Heritage Foundation’s “Economic Freedom” index measures the impact of liberty and free markets around the globe. Turkmenistan ranks in 165th place in the index out of the total 177 countries. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please and governments allow labor, capital, and goods to move freely. Corruption is a great obstacle to a competitive market economy as government bureaucrats grant licenses to operate large manufacturing businesses to certain people, which undermines competition. Certain businesses also have the privilege of buying foreign currencies through the official exchange rate, which is nearly six times cheaper than the black-market rate. According to Transparency International’s “Corruption Perceptions Index,” Turkmenistan ranks 169th out of 180 countries. 

Ultimately, Turkmenistan has yet to successfully transition completely away from a Soviet-style planned economy to a modern competitive market economy. Modern Turkmenistan lacks the basic characteristics of a market economy. The biggest industries are still dominated by either state-owned enterprises or people connected to the president and his relatives, which results in monopolists charging high prices for low-quality products and little to no competition to offer alternatives. The private sector is visible in service industries (restaurants, the beauty sector, and more), construction companies, and in retail, in which small and medium-sized businesses import products from abroad and resell them in the domestic market. These enterprises still occasionally suffer from government intervention, as in the case of the Turkish mall mentioned above. The exchange rate in Turkmenistan is heavily restricted and this harms industries. The country has a long way to go to achieve a functioning and competitive market economy.