For almost two decades, Turkmenistan took steps to seal itself off from outside influences and tightened the state’s grip over all aspects of the economy. But now, Turkmen leader Gurbanguly Berdymukhamedov, the country’s self-proclaimed protector, is signalling a desire to open up his country’s Soviet-style command economy.
Given Berdymukhamedov’s poor track record on making good on his liberalization promises, few are taking him at his word. Since assuming power in 2006, Berdymukhamedov’s many reform initiatives, such as efforts to expand educational opportunities [6], broaden access to the Internet [7] and create a competitive political system [8] -- have all gone unfulfilled.
But past performance hasn’t stopped Berdymukhamedov from making grand assertions about future results. In early January, he announced that his government would start selling off select state-owned assets. A week later, on January 19, Berdymukhamedov ordered the establishment of a governmental commission to start membership talks with the World Trade Organization (WTO).
It is unclear what is up for grabs, and if foreign firms can participate, but one official told Reuters the sell-off would not extend to the lucrative oil and gas sector -- the cash cow of Turkmenistan’s economy. The sectors eyed for privatization, the official indicated, would include transport, construction and communications.
Observers say it will be hard for Turkmenistan – which has no experience with large-scale privatization, has an anaemic private sector, and is listed in global rankings as one of the world's most corrupt [9] and repressive countries – to attract investment [10] outside its oil and gas industries.
The privatization drive and WTO membership “are promising on paper, but in reality are simply red-herrings and are unlikely to be realized successfully under the current Turkmen administration," said Kate Mallinson, a senior political risk analyst at the London-based GPW think-tank, noting that Berdymukhamedov also promised in 2011 to introduce international accounting standards and a national stock exchange. Little has been said since about those projects.
Mallinson believes that the small circle of corrupt elites running most of Turkmenistan’s economy has no incentive to change. "The Soviet-style command economy is currently tightly controlled by a few elite members close to the president and the government, which is continuing its monthly carousel rotation of ministers and neo-patrimonial power mechanisms,” she said. This group “is under-qualified to undertake such a significant transition to a market economy."
Turkmenistan ranked 170th [9] out of 176 countries on Transparency International's Corruption Perception Index in 2012, while the World Bank does not even include Turkmenistan in its annual Doing Business report.
It will be vital for any investors venturing into Turkmenistan's opaque economy to schmooze with top members of the regime, says Alice Mummery, a Central Asia analyst at the London-based Economist Intelligence Unit. "The state apparatus is secretive and close relationships with political insiders are essential for conducting business. Only the most risk-inclined investors will be prepared to enter the country," Mummery told EurasiaNet.org.
Dmitry Alexandrov, head of research at Moscow-based Univer Capital, says he views the promised reforms with caution, but believes that should Berdymukhamedov manage to create a clear "ladder of responsibility and a [road]map" for investors, the government’s privatization drive might attract some interest. Privatization is a good starting point, Alexandrov said, because it makes it possible to "tune and check the mechanism of counteraction and collaboration between investors and government." Future membership in the WTO would hinge on a successful privatization campaign, Alexandrov added.
Even if the Turkmen government manages to carry out its privatization plan for 2013-2016, drafted in November and endorsed by Berdymukhamedov this month, the country would still struggle to liberalize the economy, Mummery said.
"It is highly unlikely that privatization in some areas of the non-oil economy will lead to any substantial opening up of the Turkmen economy. The authorities will remain overwhelmingly dependent on revenue from the energy sector, which limits their incentive to pursue market-friendly reforms," Mummery said.
Turkmenistan also must improve the regulatory environment, Mallinson at GPW believes, easing the Byzantine tax regime and introducing a transparent judiciary to attract foreign companies outside the energy sector. "The only foreign companies queuing up outside the Turkmen governments’ doors are international oil and gas companies eager to access Turkmenistan’s vast gas reserves,” she told EurasiaNet.org. Turkmenistan is believed to have the world’s fourth-largest gas reserves.
“Turkmenistan’s isolation from Western markets also thwarts anything but the largest players from entering the market,” Mallinson added. “Consequently, the main winners of the forthcoming privatization are likely to be Russian, Turkish and Chinese companies." China is already the leading destination for Turkmenistan’s gas.
When it comes to WTO membership, the experience of neighboring countries with far more open economies has shown accession to be a lengthy process. Before joining in 2012, Russia negotiated for 19 years; Kazakhstan, which opened membership talks in 1996, is still negotiating. Turkmenistan’s WTO aspirations are hampered by the "leadership's commitment to 'permanent neutrality,' which tends to guide policy in the closely related areas of foreign relations and diversification of gas export routes," Mummery said. Moreover, she added, the openness required of WTO membership could destroy “the economic mechanisms by which the rule of the competing cliques around the president are […] maintained."
Whether economic liberalization could possibly lead to wider democratic reforms may hinge on Turkmenistan's choice of foreign partners. "Human rights reform is unlikely to accompany any kind of economic liberalization, particularly with the exponential growth of Chinese influence on the Turkmen economy," Mallinson cautioned.