TURKMENISTAN’S ECONOMY TODAY
Sergei Kamenev, Ph.D. (Econ.), leading research associate, Institute of Oriental Studies, Russian Academy of Sciences. In 1999-2001, first secretary of the Embassy of the Russian Federation in Turkmenistan
According to official data provided by the Turkmenmillihasabat (National Institute of State Statistics and Information), Turkmenistan’s socioeconomic position in recent years has been gradually improving. Thus, GDP growth in 2001 was over 20%1 (including 27% in industry and 23% in agriculture).2 Let us note by way of comparison that according to official statistics the rate of economic growth in 1998 did not exceed 7%, in 1999 the figure was 16%, and in 2000, 17.6%.3 There is no doubt that the principal, if not the only factor of overall economic growth is gas supply to Ukraine, Russia and Iran, with generally stable payment for gas by these importers and, accordingly, an influx of foreign exchange leading to faster development of the national economy. Under the plan for 2002, GDP growth is to amount to 18%.4
With due regard for average annual rates of increase in the size of the population (almost 4%), GDP per capita has also been growing. In absolute terms, proceeding from the official bank exchange rate (5,200 manats per dollar), GDP per capita has gone up to around $1,100. But if one starts from the market exchange rate (22,000 manats per dollar at the end of 2001), per capita income will barely reach $250.5 Such an approach is more justified from the standpoint of a realistic assessment of the state of Turkmenistan’s economy, since the Central Bank’s exchange rate is frozen and does not in the least reflect either the positive or the negative changes in the country’s economy, especially those connected with foreign economic ties. In the view of Khudaiberdy Orazov, former deputy prime minister and chairman of Turkmenistan’s Bank for Foreign Economic Affairs and later of its Central Bank, real income per capita “does not exceed $100 a year.”6
So, there are serious doubts about the validity of the macroeconomic information provided by the country’s official statistical agencies. First, it is unclear how they calculate GDP, even if only at the stage of production (let alone at the stages of use and especially distribution). Such statistical records are kept even in the less developed African states and are openly made available to the statistics division of the U.N. and to other international organizations. As one finds from the EBRD report on economic transition in the CIS countries in 2000, much more detailed statistical data were provided by Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, whereas most table cells for Turkmenistan were simply left unfilled.
Second, there is no information at all on any changes in the sectoral structure of the economy in terms of constant prices, just as there are no data on the deflator or price fluctuations as would make it possible to assess, however crudely, the validity of the computations of GDP growth rates or income per capita. But the statement made by Turkmenistan’s president in an interview with the Interfax News Agency that “in the days of the U.S.S.R. the average per capita income in Turkmenia was $300-400, and in 2001 it was $4,800”7 is clearly incorrect.
Such amazing figures are evidently the result of computations of per capita income by purchasing power parity (PPP) of the manat (a fact not even mentioned in S. Niyazov’s speeches), and so they are naturally more advantageous than simply data on GDP per capita. Indeed, plans “to increase the country’s aggregate income (GDP) per capita to U.S.$7.8 thousand by 2005 and U.S.$14.8 thousand by 2010”8 sound most impressive. But for Turkmenistan such computations are so far hardly acceptable, since it has not had any representative sample surveys of household budgets, which, together with mandatory consideration of real rates of inflation, wages by categories of employees and changes in the cost of the consumer goods basket, serve as the basis for computations of this kind. But even so there are doubts as to the validity of the presented data ($4,800) in light of international comparisons. Formally speaking, it appears that Turkmenistan has left far behind such a medium-developed Asian country as India (income per capita by PPP—$2,390), is ahead of the Philippines ($4,220), is catching up with Iran in giant strides ($5,900), has overtaken Ukraine ($3,710), Tajikistan ($1,060), Kyrgyzstan ($2,590), and so on.9 In addition, Turkmenistan does not follow the recommendations of the U.N. statistics division on the need to supplement information on this parameter calculated by purchasing power parity with traditional data on income per capita based on GDP and the size of the country’s population.
The third (and possibly the most important) point is that one cannot discount a serious subjective factor either: the patently incorrect computation of basic macroeconomic indicators inevitably calls into question the authenticity of other economic data, especially in case of any doubts or different readings, however insignificant. It is also obvious that the utterly unwarranted attempts to “classify” conventional statistical data (whereas all other countries of the world are, on the contrary, interested in providing to the maximum possible extent such information as goes on the records of the U.N. statistics division)10 have been doing a lot of damage to Turkmenistan’s international prestige and could impede both the influx of foreign capital and the development of external economic ties as a whole.11
Positive changes are underway in the sectoral structure of the social product: the share of agriculture in GDP is going down, while that of industry and the service sector is increasing. True, this process is unsteady, since it is directly connected with the production and export of gas and with the respective impact of these processes on the GDP structure. This is evident, in particular, from the tangible growth over a fairly short period (January-October 2001) of industry as a share of produced GDP: from 31% to 35% (in 1995, industry’s contribution to GDP was 53%, which was largely due to higher levels of hydrocarbon production in the country than today). The shares of agriculture (26%) and construction (10-11%) have remained virtually the same.12 An ever more significant contribution to the development of the national economy is being made by private-sector enterprises. Despite the obviously slow pace of privatization, in 2001 they produced 42% of GDP. Naturally, the share of this sector is largest in trade, agriculture, construction and transport. According to official data, the rate of growth of the private sector was 18%.13
The resumption of gas exports in late 1999 and the subsequent increase in export deliveries (this year, exports are to amount to 57 billion cubic meters) have led both to a further growth of the share of industrial production in creating the social product as a whole and to a rapid increase in the role of the fuel and energy complex (FEC) in the industrial sphere. Although the country’s leadership tends to politicize the development of the FEC, the sizeable reserves of gas, its production and export should primarily be viewed from an economic angle, notably in the context of the markedly increased influx of foreign currency and the positive impact of these processes on accelerating the republic’s socioeconomic development. Although even here it is hard to explain the sharp increase (without reference to large-scale geological exploration works) in gas reserves from the earlier declared 23 trillion cubic meters (Tcm) to 42-44 Tcm.14
The share of the oil and gas producing industry in this sector has reached two-thirds (the share of the gas industry is 43%, oil production—17%, oil refining—4%, and electric power generation—3%). Whereas in 2001 gas production came to 51.3 billion cubic meters (Bcm), this year it is expected to reach 71 Bcm. Of these, 40 Bcm are to be purchased by Ukraine, 10 Bcm by Russia, and 7 Bcm by Iran.15 Thus far Ukraine has been purchasing gas at $42 per 1,000 cubic meters, with 50% payable in hard currency and 50% in goods.
Such a rate of increase in gas production could possibly have enabled Turkmenistan to come close to the 2005 target of 85 Bcm (including 70 Bcm for export) and to the 2010 target of 120 Bcm (including 100 Bcm for export),16 were it not for such an objective constraint as the existing pipelines. The throughput capacity of pipelines (Central Asia-Center to Russia, and Korpezhe-Kurt Kui to Iran), even with maximum pipeline capacity utilization, will make it possible to export no more than two-thirds of that volume, above all in view of the run-down state of the northern pipeline, especially considering that under the agreement with Ukraine signed in May 2001 Ashghabad undertook to supply Ukraine in 2002-2006 with a total of 250 Bcm of gas.17 True, during a meeting with Russia’s Foreign Minister Igor Ivanov the Turkmenbashi noted that the “northern” route could be used to pipe 75 Bcm of gas, but emphasized that this was the maximum.18
In addition, the building of the planned trans-Caspian, trans-Iranian and trans-Asian pipelines is a very distant prospect (because of a lack of funds), so that in the final count any substantial increase in gas production is senseless. Even the active search started in early 2002 for practical ways of building a trans-Afghan pipeline from Turkmenistan to Pakistan (and then possibly to India) cannot be expected to yield the desired results in the foreseeable future. There are two main limiting factors in these attempts: lack of investors prepared to invest around $2.5bn in such a pipeline and political instability in Afghanistan connected both with guerilla activity on the part of the remaining Taliban fighters and with the contradictions (or rather squabbles) in the interim administration of Khamid Karzai. Moreover, the Californian company UNOCAL, which used to press for the rapid construction of a trans-Afghan gas pipeline, withdrew from the project after the events of 11 September in the U.S.A. And although in February 2002 it resumed (most cautiously) its negotiations with potential investors in this pipeline project, they have so far gone no further than mere talk.19
According to preliminary official data, in 2001 the country’s oilmen produced 8.19m tons of oil,20 edging up to the target of 10m tons earlier projected for the year 2000 (actual production in 2000 was only around 7m tons); in 2002, it is planned to produce up to 11m tons. Most of the oil is consumed inside the country, being processed at two refineries (in Turkmenbashi and, in small quantities, in Seidi), with an insignificant share—around 1.5m tons—supplied for export. One should note Turkmenistan’s successes in the rapid modernization of the leading oil refinery in Turkmenbashi, where a catalytic cracker, a continuous regeneration catalytic reformer and an electric desalting unit were put into operation in 1999-2001, making it possible to bring the depth of oil refining up to world standards.21 By now, Turkmenian gasoline filling stations have virtually completely switched from AI-93 grade gasoline to AI-95. A point to emphasize is that in the course of modernization, carried out with the help of companies from Japan, FRG, France, Austria, Ireland, Israel, Iran and other countries, the most advanced technologies have been introduced at the Turkmenbashi Refinery, so that by 2010 its capacity may be expected to go up to the projected 9m tons.22
The Caspian shelf holds much promise from the standpoint of oil production, although the cost of oil here is higher than in the development of onshore fields. This is evident from the results of oil prospecting and production works in the Turkmen sector of the Caspian Sea being conducted by the Anglo-Arab Dragon Oil company over the past eight years. But these works are being impeded by two urgent problems: the unresolved status of the Caspian Sea and the tense relations between Turkmenistan and Azerbaijan caused by serious differences over the ownership of several offshore oil fields. The Turkmen leadership believes that Russia, by using its authority in the post-Soviet space, “could play a consolidating role in the matter of determining the new status of the Caspian.”23
The second most important sphere of industrial production in the country is the light industry, especially textiles, which is due to the growing production of lint cotton and by rising demand for cotton goods in the world market. According to preliminary data, the republic produced around 60 thousand tons of cotton yarn, 70m sq m of cotton fabrics, and 25m units of knitted products. Textiles are among the few kinds of products that are in demand both inside the country and, most importantly, abroad. Denim cloth and denim products are willingly purchased by Western companies and sell very well in Europe in view of the relatively high quality of textile goods and the fairly low cost of their production. Foreign capital is eager to invest in Turkmenistan’s textile industry, where modern plants are being built with the use of state-of-the-art technology, including robots. The steady development of Turkmen-Turkish economic ties is particularly indicative in this respect: Turkish businessmen now control over 90% of the country’s textile industry.
Thirteen textile complexes built in the years of independence are fitted out (virtually completely) with imported computer-controlled equipment mostly purchased in Japan, Germany and Italy.24 Wages at these enterprises are 4-6 times as high as the national average, with well-functioning systems of social benefits and employee training, so that staff turnover is virtually down to zero. Hence the sufficiently high quality of output.
Other industries play a subordinate role in the country’s economy. Considering the fairly high rate of construction, a relatively significant place belongs to the production of building materials. According to preliminary data, production is this sphere increased in 2001 by 6%. One should bear in mind, however, that many new architectural projects have a distinctly pompous character and no production purpose whatsoever. Curiously, whereas the increase in production in the leading branches of industry in 2001 was relatively modest (5% in gas production, 9% in oil refining, and 16% in oil production), the increase in machine building and metalworking was huge (67%), in the food industry it was 24%, and in the light industry, 19%, while electric power generation came to 10.5bn kWh.25 Let me emphasize that these data are taken from official statistics and it is unclear how these impressive results were achieved, since any detailed breakdown is lacking as usual.
The country’s agriculture, which employs a sizeable segment of the economically active population, continues to be pivoted on the production of cotton and wheat. Other food and technical crops, as well as livestock farming, play a secondary role in national economic growth and are mostly meant to meet the needs of the domestic market. In the first case, the situation is monitored by S. Niyazov himself in view of the great political importance attached to these two crops, and any failure to achieve the plan targets inevitably leads to ruthless personnel reshuffles.
Wheat output has been growing steadily, and the figures given by Turkmenian statisticians appear to be fairly reliable: according to preliminary data, the 2001 harvest was around 2m tons (in 1999 the figure was 1.5m tons, and in 2000, 1.7m tons; the plan for 2002 is 2.3m tons, with a further increase to 3m tons by 2005).26 Wheat yields, according to official data, are around 28-30 centners per hectare. At the same time, despite a fairly steady annual increase in output (15% on average), official statistical sources do not mention that a sizeable share of the harvested wheat is feed wheat and cannot be used to bake bread. According to the estimates of EBRD experts, its share is close to one-quarter of the total wheat harvest. Nevertheless, the results obtained in recent years have enabled the country to sustain the earlier-achieved self-sufficiency in food.
In cotton (the second most important export product), the situation is far from stable: in 2000, instead of the planned 1.3m tons, the country’s cotton growers harvested just over 1m tons (less than in 1992), causing S. Niyazov’s extreme displeasure. According to preliminary official data, the plan for 2001—2m tons—was not fulfilled: at best, the figure was 1.8m tons. It will be possible to assess the validity of these results only in the second half of 2002, but even today, in the view of World Bank experts, the claimed increase in cotton output by 80% compared with 2000 raises considerable doubts. And this, for its part, is bound to slow down the growth of exports of other cotton goods: yarn, fabrics and finished products.
One should note that private producers of strategic goods (cotton and food grain) receive preferential credits, they are exempt from taxes, and 50% of their expenses on seeds, chemicals, mineral fertilizers and all kinds of technical services are met by the government.
The country’s authorities have for several years now been speaking of the need for rapid diversification of the economy, primarily for a departure from monocultural farming (with an accent on cotton growing). In 2001, S. Niyazov announced, among other things, that rice and beet were to be regarded as “strategically important food crops” alongside cotton and wheat. Mandatory instructions urging the need to pay more attention to these crops were issued to the Ministry of Agriculture. It appears, however, that in the foreseeable future any noticeable diversification of agriculture is hardly possible, chiefly because cotton provides a sizeable share of foreign exchange earnings.
Climatic conditions in Turkmenistan make it possible to grow diverse fruits and vegetables (in 2000, 390 thousand tons of fruits and 440 thousand tons of vegetables were produced in the country). But insufficient use of modern farming methods in fruit and vegetable growing, the virtual lack of an agricultural processing industry (canning plants),27 and inadequate attention to the need to preserve the harvested crop result not only in less than full use of the available opportunities for growing fruits and vegetables, but also in a loss of up to 25% of the produce, especially during storage and transportation.
Another serious problem is the state of irrigation systems: pollution of the Karakum River, supply ditches and water collectors, and also the gradual salinization and waterlogging of irrigated lands. The authorities have always been short of funds for a major ditch cleaning operation, despite their declarations on the need for a radical upgrading of irrigation systems (incidentally, Russia offered to supply the necessary equipment at low prices, but its proposal was turned down) and for large-scale land improvement. By way of addressing this problem, S. Niyazov has come out with the idea of building a lake in the Karakum sands in order to irrigate large tracts of land and utilize drainage waters. But since the cost of the project is over $4.5bn, there is every reason to doubt the possibility of its implementation. Here is how EBRD experts have assessed this and other similar plans: “President Niyazov has earned a reputation in the region for his prestige construction projects, mostly in the form of public buildings in the capital Ashghabad. Among recent examples in infrastructure is the plan … to build a U.S.$4.5 billion water reservoir in the Karashor depression of the Northern Karakum desert.”28 Another problem here is that neither the economic nor the environmental aspects of the project have been duly studied, and it is quite probable that the allocated money may literally sink into the sand.
The country’s authorities have been trying to switch farming from extensive to intensive methods, and these efforts have brought some positive results. Thus, the farm equipment fleet is being modernized, in particular, through the purchase of large numbers of farm machines supplied by U.S. and Japanese companies, primarily Case, John Deere and Komatsu, which have performed very well in the hot climate of the country. The reverse side of this process is a substantial reduction in the purchase of Russian farm equipment and spare parts.
As regards the development of external economic ties, since the early days of independence S. Niyazov’s policy in this field has been aimed to distance Turkmenistan from the “elder brother” to the utmost possible extent, as the republic’s ruling circles have openly admitted, and to rid it of the tag of “younger brother.” Such an attitude is characteristic of the president’s foreign policy as well, which is quite natural for any state rising to sovereignty and should not be seen as something negative. That is why it is not surprising that Turkmenistan has concentrated its main attention on regional cooperation, especially on links with Turkey and Iran, and also to some extent with the former fraternal republics of Central Asia; contacts with Western countries, primarily with the United States, have also been gradually widening.
In 2001, the country’s foreign trade turnover was $4,969m, or 16% higher than in 2000, with exports amounting to $2,620m (5% higher than in 2000), and imports, to $2,349m (a rise of 32%). In other words, the trade surplus reached $271m. The main factor behind the improvements in this area is the growing supply of natural gas to Ukraine. According to the National Institute of State Statistics and Information, in 2001 trade with the CIS countries rose by 16%, and with other countries of the world, by 15%.29
Just as in industry and agriculture, the authorities keep urging the need for an intensive diversification of the structure of foreign trade, especially exports. But for objective reasons little has been done to match words with deeds: the commodity structure of the country’s exports remains skewed in favor of hydrocarbons and cotton goods (which add up to 92% of total exports). These include gas (57%), oil (12%), oil products (14%), lint cotton (8%) and cotton products (3%).30 In value terms, exports of gas in 2001 rose (compared with 2000) by 11%, crude oil by 40%, and oil products by 8%. Exports of electric power increased by a further 20%, those of cotton fabrics by 15%, knitted garments 1.3 times, carpets and carpet goods 1.5 times, rawhides 1.4 times, carbon black 1.5 times, and vegetables 1.4 times. The republic exported its products to 57 countries of the world. The largest export operations were conducted with Ukraine (46% of total exports), Italy (18%), Iran (11%), Russia (6%), Turkey (5%) and Tajikistan (2%).31
In analyzing the commodity pattern of exports and justly pointing to its distinct “hydrocarbon bias,” it would not be right to regard the obvious preponderance of the aforesaid commodities as a negative phenomenon. The republic is perfectly justified in staking on its huge reserves of natural gas, since it brings in substantial foreign exchange earnings compared with the immeasurably lower costs of its production, compression and piping to the border with its neighbors for subsequent transportation along the northern and southern routes. It is precisely the export of gas, and not some other way that will enable Turkmenistan to pull the economy out of the slump and eventually to get down to its real diversification.
Imports in 2001 exceeded $2.3bn, going up by 32% compared with the preceding year. Their commodity structure mirrors the weakness of the country’s industrial base, which makes it necessary to purchase large quantities of foreign machinery and industrial equipment: last year such imports amounted to 72% of the total import volume. The share of raw materials was around 20%, and that of surface transport vehicles, 10%. At the same time, the share of consumer goods—just over 20% of total imports—remained on the level of 2000, which is due to a gradual expansion of the range of goods and growing production of such goods (especially food) inside the country.
Imports come from more than 80 countries of the world, primarily from Russia (17% of total imports), Ukraine (11%), USA (9%), Germany (8%), Japan (7%), Turkey (7%), United Arab Emirates (6%) and Iran (5%).
The present state of Russian-Turkmen trade and economic relations is marked by obvious ambiguity. On the one hand, with the resumption of gas supplies Russia has become one of the republic’s main trading partners. Moreover, in his regular telephone conversations with Vladimir Putin President Niyazov laid special emphasis on “the immense potential of mutually advantageous economic partnership.” So, it was only natural that in the fall and winter of 2001 the two sides held active bilateral negotiations aimed at signing a long-term agreement on purchases of Turkmenian gas. On the other hand, the development of bilateral economic cooperation obviously tends to stall.
During the summit to mark the 10th anniversary of the CIS in late November 2001, S. Niyazov was the only leader of a former Soviet republic who did not have any bilateral talks with the Russian president, but only a short conversation. His subsequent working visit to Moscow in January 2002, whose accent was broader economic cooperation, demonstrated the far from simple character of bilateral relations. The main document that was due to be signed—an agreement on long-term deliveries of Turkmenian gas—was not signed after all. The parties failed to agree on the price of gas (Ashghabad wanted at least $42 per 1,000 cubic meters, while Moscow insisted on $36), and also on the schedule and volume of future gas purchases by Russia’s Gazprom (with a buildup from 2 Bcm to 10 Bcm in the first five years so as to reach the 80 Bcm mark only by 2012).
It goes without saying that in discussing these matters one should never allow such incorrect remarks as when the former head of Gazprom Rem Viakhirev said that “the client is not yet ripe,” which, moreover, is not even true. On the other hand, Russia is by no means obliged (as some experts believe) to act in accordance with formal logic, namely: if Ukraine pays $42, Russia should pay no less.32 In this matter one should not confuse different categories: Ukraine is Ukraine, and Russia is Russia, and it is quite in order that the two states should take different approaches to the purchase of Turkmenian gas, notably in framing their price policy. And this is connected not so much with the interests of the country’s national security as with the economic interests of the Russian state.
In the final count, during S. Niyazov’s visit to Moscow the parties signed documents of relatively minor importance: a Joint Communiqué (standard in form and content), an Agreement on Tax Legislation, and an Agreement on the Establishment of a Turkmen-Russian School in Ashghabad. Despite the importance of the latter agreement for keeping the Russian language in use in Turkmenistan, it obviously ranks below presidential level.
Naturally, in the course of the talks the heads of state paid due tribute to future economic cooperation, emphasizing the need to invigorate the work of the respective bilateral intergovernmental commission (which has been idle for more than three years now through the fault of both parties). Its first meeting was to have been held prior to April 2002, but did not take place after all. President Putin voiced a sound proposal on the establishment of a Eurasian alliance of gas producers (Kazakhstan, Russia, Turkmenistan and Uzbekistan), which could “inject a measure of stability into gas transportation over the long term.”33 But S. Niyazov showed no enthusiasm for that idea. Similarly, one can hardly expect an expansion of foreign economic ties through the development of cooperation with RF subjects. Over the past four years, Moscow has repeatedly made proposals to that effect, but Ashghabad has passed them over in complete silence. Thus, it has taken no notice of 11 agreements with RF subjects on truly mutually advantageous cooperation proposed by the Russian side and fully prepared for signature.
Today the only formal obstacle to the development of bilateral relations, primarily in the sphere of trade, is the unsettled question of the Russian debt, estimated by Turkmenistan at $91m and 20m Indian rupees. But although this problem has not yet been fully resolved, there has been some progress in trade relations: whereas in 1999 trade between Turkmenistan and Russia, according to official Turmenian data, was just over $210m, in 2000 it rose to over $1,283m. Moreover, both parties have clearly voiced their intention to go on expanding it in the future.34
Gas is the main item of Turkmenian exports to Russia. According to official statistics, over 20% of the republic’s total gas exports went to Russia (compared with 65% to Ukraine and 13% to Iran). Russia has also purchased Turkmenian lint cotton, cotton yarn, fabrics and garments (according to official data, Russia takes around 40% of the cotton fabrics and 74% of the textile garments produced in the republic), wool and inorganic chemicals. As for Russian exports to Turkmenistan, these mostly consist of diverse equipment, transport vehicles, metal and metal structures, fertilizers, insecticides and herbicides.
Russia has objective opportunities for building up bilateral trade and economic cooperation in sectors other than gas, because Turkmenian businessmen are willing to develop contacts with their Russian partners. In particular, they say that they are more accustomed to Russian producer goods, that these are often cheaper, easier to service, operate and repair, while the quality of Russian food products is usually higher than that of food imported from Far Abroad countries.
Turkmenistan has been gradually privatizing enterprises in a number of branches of production and especially in the service sector, whose denationalization was virtually completed in 2001. That has made it possible to markedly expand the scale of private enterprise. According to official statistics, the share of the private sector is largest in trade (70%), agriculture (60%) and transport (56%); in industry, the private sector produces over one-third of its total output.35 At the same time, S. Niyazov keeps emphasizing that the entire oil and gas sector will remain in the hands of the state.36
Repayment of the foreign debt remains a challenging problem for Turkmenistan’s economy. Its amount, just as many other statistical data, is regarded as classified information, but World Bank and EBRD experts estimate it at around $2.2bn.
Yet another serious problem is a demographic one. S. Niyazov’s speeches and official publications of the National Institute of State Statistics and Information say that average annual population growth in recent years has been close to 4% (sic), so that whereas under the 1995 census the country had a population of 4,483 thousand, by the end of 2001 the figure was up to 5,640 thousand. Moreover, according to the estimates of the authors of the long-term program known as the Strategy of Socioeconomic Transformations in Turkmenistan for the Period Until 2010, by 2005 the country’s population is to go up to 6,936 thousand, and by 2010, to 8,630 thousand, which means an average annual increase of 4.2% and 4.5%, respectively.37 We have to take these census data and demographic projections on trust, because the facts unfortunately indicate that this sphere is in a state of confusion as well. Thus, as of 1 January, 2000, the National Institute of State Statistics and Information put the population of Ashghabad at 656 thousand.38 And in November of that year (that is, about 11 months later) S. Niyazov said at a meeting of the cabinet of ministers that the population of the capital was 637 thousand, a drop of nearly 3% which can hardly be explained even with due regard for migration processes and for a lower rate of natural population growth in the capital compared with the national average. At any rate, such a discrepancy needs to be convincingly explained. Regrettably, the partial (5%) population census in Turkmenistan planned for December 2000, which could have given answers to these and other similar questions, was called off.
The high average annual rate of population growth in the country is presented as a great achievement that will eventually make it possible, in S. Niyazov’s view, to develop and populate Turkmenistan’s desert areas. But there is no mention anywhere that the rapid increase in the size of the population without due social support leads both to a relative and to an absolute impoverishment of a sizeable segment of the country’s inhabitants, especially in rural areas (with 54% of the country’s inhabitants), to an increase in the economically active population (which comes to roughly 50% of the total population) without a corresponding increase in the number of jobs and, consequently, to rising unemployment. Today the gainfully employed population constitutes roughly one-half of the country’s total population, while unemployment, according to official data, is around 10%. In our estimate, unemployment is over 25%, reaching 50% in rural areas and clearly tending to increase, especially in view of S. Niyazov’s methodical policy aimed at reducing job opportunities for the non-Turkmen population. In the view of independent economists, unemployment among the young in some regions of the country is close to 70%.39
At the official level, much is being said about progress in the development of the social sphere, with an accent, in particular, on the doubling of wages in the public sector at the end of 1999 and on rising pensions and student grants. According to Turkmenian statistics, the average wage is now 600 thousand manats, or around $27 at the market exchange rate. It is never mentioned, however, that the wages of individual employees are subject to coefficients which tend to reduce their amount, length of service at the given enterprise of at least 10 years, existence or absence of dependents, skill standards, etc., to say nothing of such unspoken political factors as nationality, clan allegiances, etc.). In the final count, the average monthly wage of the bulk of the population is under $20. In addition, there is no clarity about the sources of the 1999 pay rise, since the budget for 2000 was drawn up without regard for such a rise, just as about the funding of yet another declared two-fold pay rise (from 1 March, 2001) in the public sector. There are reasons to think that this is being largely done through an excessive issue of currency, which is bound to lead to faster inflation. Finally, once again there is confusion over the amount of the average wage. If, according to the National Institute of State Statistics and Information, the average wage in the country after the 1999 wage increase was 600 thousand manats,40 under President Niyazov’s decree on a further two-fold increase from 1 March, 2001, the average wage should have gone up to 1.2m manats. But Clause 2 of the same decree says that “the wages of the citizens of Turkmenistan employed at enterprises and organizations of all forms of ownership should on average not be lower than 950 thousand manats a month.”41 In actual fact, as the newspaper Neitral’niy Turkmenistan notes with reference to the data of Turkmenmillihasabat, in August 2001 “the average wage was over 815 thousand manats, going up by 40% compared with August 2000, notably by 46.6% in the nonbudgetary sectors of the economy and by 34% in the budgetary sphere.”42
The decline in real wages is due to constantly growing prices for many staple foods, which not only most city dwellers but to a certain extent rural inhabitants as well are obliged to purchase in the markets.
One gets the impression that some of the aspirations of the Turkmen authorities (read: S. Niyazov) concerning the development of the social sphere either remain a mere declaration on paper and in the mass media or some positive shifts are blown up to such an extent as to invite the conclusion that the government’s more or less only concern is to improve the people’s living standards. Of course, that is not so. Here is how World Bank and EBRD representatives working in Turkmenistan described the state of the main areas of the social infrastructure: “Despite spending around fourth-fifths of the central budget on health and education, performance in these areas has been below that of the regional average. With life expectancy at 67.5 years for females and 61.2 for males in 1997, Turkmenistan lies below all other Central Asian countries and has failed to improve since 1989. … The falling number of primary schools is a graphic example of the considerable drop in educational standards. Turkmenistan needs to shift from staffing to enhancing quality of services, including preventative treatments in health sector and investments in modernizing the curriculum at all levels of education.”43 In the view of other foreign experts, life expectancy in Turkmenistan is 52 years (compared with 55.5 years in Russia, 50.8 years in Tajikistan, 52.6 years in Kyrgyzstan, 54.3 years in Kazakhstan and Uzbekistan, 60.8 years in Estonia, 67.2 years in the U.S.A., and 73.8 years in Japan).44 Meanwhile, Turkmenistan’s own economists are convinced that average life expectancy in the republic rose from 64.7 years in 1995 to 68.3 years in 2000.
In their macroeconomic computations, Turkmenian economists take far from full account of inflation. But even according to official data (obviously understated), its rate in the first ten months of 2001 was 8%. The Ministry of Economics and Finance regards the relatively low rate of price rises as the government’s major achievement within the framework of the market-oriented reforms conducted by the country’s president. In our view, however, the official data on inflation are at odds with the truth: according to the experts of the World Bank, EBRD, IMF, U.N. and other international economic organizations, the rate of inflation in Turkmenistan was around 20% in 2000 and was expected to go up to 25% in 2001.45
The heaviest burden on household budgets is placed by expenditures on the purchase of manufactured consumer goods. Local manufactures, with the exception of some cotton and wool products, are of low quality and are not in particular demand. As a result, people buy most consumer goods at small wholesale markets, where so-called shuttle traders sell imported goods (of equally low quality) brought from the countries of Southeast Asia and China. Typically, a good everyday suit costs around $70-100 (these and subsequent price levels are based on prices and on the market exchange rate for March 2002: 21,500 manats per dollar), a light coat or a warm jacket, $50-90, and an everyday pair of shoes, $30-50. A national-style Sunday dress (velvet, embroidery, dressmaker’s services) will cost at least $50.
At the same time, when speaking of the relatively high level of consumer spending, one should also mention the fact that gas in the country is supplied to consumers free of charge and that households pay a very insignificant amount for electric power (for consumption over and above a certain limit), that sale of salt and flour is over 70% subsidized, and that public transport fares (bus, trolleybus) are as low as 0.2 cents per journey, while a plane ticket from Ashghabad to Turkmenbashi (formerly Krasnovodsk, a flight of just over one hour) costs $1.4, and one liter of AI-95 gasoline is sold at under 2 cents. Low prices have also been established for staple foods (as of March 2002): bread (4.7 cents), milk (19 cents), suzma curds, and many fruits and vegetables (especially in season), such as potatoes (26 cents per kg), tomatoes (90 cents), cucumbers (70 cents), grapes (75 cents), oranges (60 cents), tangerines (40 cents), apples (55 cents), etc. Special material support is given to participants in the Great Patriotic War of 1941-1945 and widows of those killed in that war: they are granted certain privileges in public utility services and in the purchase of some goods, and their pensions and state benefits are periodically raised. As a result, one may say that the cost of everyday living for most people in Turkmenistan is quite low, which explains the urge of the republic’s authorities to operate not with traditionally computed data on income per capita, but with those computed on the basis of purchasing power parity and, moreover, with the use of the official exchange rate between the manat and the dollar (as I emphasized earlier, such a practice is incorrect).
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In light of the above, the economic recovery in the country may be expected to continue in the years ahead. The main factors of economic growth will include foreign exchange earnings from exports of gas to Ukraine, Russia and Iran, and also from exports of oil, electric power and cotton goods, an increase in foreign investments in the fuel and energy sector, especially in the event of a settlement of the Caspian Sea problem, and a resultant increase in oil production on the Caspian shelf. A positive role in accelerating economic growth is being played and will continue to be played by market-oriented reforms, including privatization, although their progress is slower than required by the economy.
Among the factors that may hold back future economic development is the need for substantial outlays on the overhaul and modernization of run-down oil and gas equipment, including pipelines, and on agriculture (its intensification, land improvement and irrigation works), especially in case of adverse weather conditions, which are bound to reduce cotton and wheat yields. In addition, considerable expenditures will have to be made on the payment of the country’s foreign debt, and a sizeable part of the budget is being spent on grandiose architectural projects with no production purpose whatsoever. Naturally, a negative impact on the economy is being made by inflation processes, widespread corruption among government officials and barefaced embezzlement of public funds on a large scale, to which S. Niyazov often turns a blind eye where this involves Turkmen leaders loyal to him (although the president makes a point of recording such facts, and they may come to light as the need arises). Economic growth is also restrained by the inadequacies of the legislative framework, which cannot protect the producer against bureaucratic arbitrary rule.
In addition, Turkmenistan’s socioeconomic development and diversification of its national economy will be obstructed by a number of long-term obstacles. These include the lack of a realistic program for the development of the economy and the social sphere, the unbalanced nature (in some areas verging on sheer voluntarism) of the Strategy of Socioeconomic Transformations in Turkmenistan for the Period Until 2010 proposed by S. Niyazov, and unproductive use of foreign currency resources. A sizeable part of these resources goes into the so-called Presidential Fund, run by S. Niyazov himself. This money is mostly used to make presents and grant material benefits to persons who consistently implement the Turkmenbashi’s policy and help to enhance his prestige both at home and abroad.
Finally, a negative effect on the economy and on the development of foreign economic ties results and will continue to result from an unbalanced foreign policy. On the one hand, it is aimed to maintain the country’s neutral status and, on the other, it is connected with the objective impossibility of fully distancing oneself from real political processes underway in the region (military action in Afghanistan, complicated relations with a number of Central Asian states and at times with Russia as well). An adverse effect is also exerted by lack of stability in bilateral relations with Azerbaijan, the U.S.A., Iran and some European countries (which is due, as their leaders emphasize, to the clearly undemocratic nature of the Niyazov regime), with an inhibiting effect on the influx of foreign investment and growth of trade.
1 See: Internet newspaper Turkmenistan.ru, 15 January, 2002.
2 See: Novosti Turkmenistana, 14 January, 2002.
3 See: Turkmenistan.ru, 4 December, 2001.
4 See: Neitral’niy Turkmenistan, 17 January, 2002.
5 Calculated from data given in public speeches by Saparmurad Niyazov (see: Turkmenistan.ru, 8 and 18 February, 2002).
6 Internet site [www.gundogar.com], 18 February, 2002.
7 From S. Niyazov’s interview with a correspondent of the Interfax News Agency. Turkmenistan.ru, 25 February, 2002.
8 Strategia sotsial’no-ekonomicheskikh preobrazovanii v Turkmenistane na period do 2010 goda, Ashghabad, 1999, p. 208.
9 See: World Development Report 2002. Building Institutions for Markets, The World Bank, New York, 2002, pp. 232-233.
10 Here is a curious example to illustrate this point. When the author of this article applied to the embassy of Turkmenistan in Russia with a request for data on Turkmenistan’s trade turnover in 2001, the respective official sternly replied that although such data were on hand, they were strictly confidential. And a few days later detailed information on this subject was posted on the Turkmenistan.ru government-controlled website (see: Turkmenistan.ru, 18 February, 2002).
11 However, in the view of Kh. Orazov, one can hardly expect transparent national statistics in the near future. As he put it, “professional estimates, any mention of macroeconomic indicators, rates of inflation, unemployment or income per capita, and also real demographic characteristics—birth rates, death rates, life expectancy—infuriate S. Niyazov and are now seen in Turkmenistan as punishable criminal offenses” (see [www.gundogar.org], 18 February, 2002).
12 See: Novosti Turkmenistana, 14 January, 2002.
13 See: Neitral’niy Turkmenistan, 17 January, 2002.
14 From S. Niyazov’s answers to journalists’ questions in January 2002 (see: Turkmenistan.ru, 10 January, 2002).
15 See: Novosti Turkmenistana, 14 January, 2002.
16 See: Strategia sotsial’no-ekonomicheskikh preobrazovanii v Turkmenistane na period do 2010 goda, p. 211.
17 See: Turkmenistan.ru, 21 May, 2001.
18 See: Neitral’niy Turkmenistan, 10 January, 2002.
19 See: National Enquirer, 7 March, 2002.
20 See: Novosti Turkmenistana, 14 January, 2002.
21 See: Neftegazovaia vertikal’ (Russia), No. 17, 2001; Novosti Turkmenistana, 18 February, 2002.
22 In early 2002, S. Niyazov signed contracts with a number of foreign firms for the construction of diesel fuel hydrofining units worth a total of $120m.
23 According to the information of the RIA Novosti News Agency, 21 January, 2002.
24 See: Neitral’niy Turkmenistan, 26 February, 2002.
25 See: Novosti Turkmenistana, 14 January, 2002.
26 See: Neitral’niy Turkmenistan, 18 August, 2001; Turkmenistan.ru, 8 February, 2002; Novosti Turkmenistana, 12 November, 2001.
27 Despite an abundance of tomatoes in the country, tomato paste, which is in wide use among the Turkmen, is imported from Iran, and the reason here is not supply of goods in exchange for imports of Turkmenian gas.
28 Transition Report 2000. Economic Transition in Central and Eastern Europe, the Baltic States and the CIS, London, 2000, p. 219.
29 See: Turkmenistan.ru, 18 February, 2002.
30 See: Neitral’niy Turkmenistan, 13 February, 2002.
31 See: Turkmenistan.ru, 18 February, 2002.
32 See: Larisa Slavinskaia, “Gazovye strasti. Podpisanie soglashenia mezhdu RF i Turkmenistanom ne sostoialos’,” Neftegazovaia vertikal’, No. 3, 2002.
33 Quoted from: Interfax News Agency, 21 January, 2002.
34 See: Turkmenistan.ru, 10 January, 2002.
35 See: Turkmenistan.ru, 14 November, 2001.
36 See, for example, S. Niyazov’s speech before the staff of Turkmenistan’s embassy in Russia on 29 November, 2001, Neitral’niy Turkmenistan, 3 December, 2001.
37 Calculated from: Strategia sotsial’no-ekonomicheskikh preobrazovanii v Turkmenistane na period do 2010 goda, p. 203 (see: Turkmenistan.ru, 8 February, 2002).
38 See: Sotsial’no-ekonomicheskoie polozhenie Turkmenistana za 2000 god, National Institute of State Statistics and Information of Turkmenistan, Ashghabad, 2001, p. 5.
39 Internet site [www.gundogar.com], 18 February, 2002.
40 See: Sotsial’no-ekonomicheskoie polozhenie Turkmenistana za 2000 god, p. 6.
41 Quoted from: Neitral’niy Turkmenistan, 21 February, 2001.
42 Neitral’niy Turkmenistan, 11 January, 2002.
43 Transition Report 2000. Economic Transition in Central and Eastern Europe, the Baltic States and the CIS, p. 219.
44 Data of the RBK Russian News Agency published with reference to the Associated Press, Nezavisimaia gazeta, 10 October, 2001.
45 See: Transition Report 2000. Economic Transition in Central and Eastern Europe, the Baltic States and the CIS, pp. 77-78.