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.
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,
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
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,
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