International Conference

«Conflicts in the Caucasus: History, the Present and Prospects for Resolution»

Baku (Azerbaijan) 22-23 October, 2012 and Tbilisi (Georgia) 25-26 October, 2012

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ECONOMY

Igor PROKLOV

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Igor Proklov, Researcher, Near and Middle East Department, Institute of Oriental Studies, Russian Academy of Sciences (Moscow, Russian Federation)

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In 2005, the country’s authorities continued to implement their economic development plans under a national program known as the Strategy of Economic, Political and Cultural Development of Turkmenistan for the Period Until 2020, adopted in 2003. The Strategy formulates three priority tasks in the development of the national economy: achievement of the level of the developed countries while maintaining the republic’s economic independence and security through rapid economic growth, implementation of new technologies and lines of production, and an increase in labor productivity; steady growth of the gross domestic product per capita; and high investment activity with emphasis on production facilities.

In assessing the results of the year at an annual meeting of Khalk Maslakhaty, President Saparmurat Niyazov said, in particular, that the rate of economic growth had reached at least 20%, and income per capita, $7,500. Gross output in 2005 increased by almost 21% compared to 2004, amounting to 120.509 trillion manats (TMM).¹ Production growth was recorded in virtually all sectors of the economy, with the highest growth rate in agriculture (20%), industry (about 20%), transport and communications (19.4%), construction (17.5%), trade (26%) and the service sector (23%).

As of 1 January, 2006, according to official data, the country’s population was 6,746.5 thousand (an annual increase of 3%). Population growth was recorded both in the cities and in rural areas. The year was marked by a significant event in the life of Ashghabat, the country’s capital: the birth of its 900 thousandth inhabitant.

Industry

Total industrial production exceeded TMM 44.6 trillion, up almost 20% from 2004. In heavy industry, the growth rate was 22%. Rapid growth was achieved in oil refining (25%), gas production (29%), wool processing (45%), the confectionery industry (47%), production of nonalcoholic drinks (80%), and other industries. The highest growth rate was recorded in the cement industry (3.3 times), which was due to the commissioning of new production facilities in the settlement of Kelyata at the beginning of 2005.

The growing scale of construction calls for a sharp increase in the manufacture of building materials. Apart from cement, industry in 2005 increased the production of nonmetallic building materials (by 22%), kaolin (by 10%), flat glass (by 5%), etc.

High rates of development were observed in light industry, including textiles: the production of washed wool increased by 8%, cotton yarn by 14%, cotton fabrics by 7%, knitwear by 3%, sewn garments by 4%, leather goods by 34%, and footwear by 5%. This was largely due to the startup of such new enterprises as the textile mill in the Vekilbazar Etrap (District) and a cotton spinning mill in the Khalach Etrap. The construction of a plant for producing medical cotton and cosmetic cotton products was started in the city of Turkmenabat. Its projected annual capacity is 4,200 tons of high-quality medical cotton, 7.6 million boxes of cotton buds, 1.9 million sets of cotton pads, and 2.1 million packages of cosmetic cotton.

In the food industry, there was rapid growth in the production of such foodstuffs as canned meat (by 11%), flour (by 7%), etc.

Oil and Gas Complex

In 2005, Turkmenistan produced 63 billion cubic meters (Bcm) of gas and exported 45.2 Bcm. The annual rate of increase in gas production and exports was 8%. The country also produced 9.52 million tons of oil (somewhat less than in 2004), of which almost 6.9 million tons (2% more than in 2004) was refined, with an increase in the production of motor gasoline by 0.3%, diesel fuel by 2%, lubricating oils by 1%, and liquefied hydrocarbon gases by 10%. In view of the rise in world oil and oil product prices, the rate of increase in marketable output in the oil refining complex was high (25%). Power generation totaled 12,819.1 million kWh, or 7% more than in 2004.

Owing to its sizeable energy resources, Turkmenistan together with Russia remains a key player in the regional energy market. Given the rapid rise in world energy prices, the Ashghabat authorities sought to make the most of the situation, and its main counterparties, primarily Kiev and Moscow, were obliged to resign themselves to this.

Thus, the beginning of the year was marked by renewed tensions between the major consumers of Turkmen gas and the republic’s authorities over gas prices. At the end of 2004, Turkmenistan decided to raise the price of gas for Russia and Ukraine from $44 to $60. And when the parties failed to reach a compromise, Ashghabat shut off the gas valve (on 31 December) on the plea of repair work. Ukraine, which risked being left with a huge deficit in its gas balance in winter, capitulated on 3 January, 2005. During a visit to Ashghabat, the head of Ukraine’s Naftogaz company, Yuri Boiko, signed a contract for the purchase of 31.5 Bcm of gas at $58 per 1,000 cubic meters. As for Russia’s Gazprom, whose contract with Turkmenneftegaz does not provide for an annual price review, insisted on compliance with this contract. From January to April, gas relations between Moscow and Ashghabat were stalemated: Gazprom tried to prove that the contract price of $44 per 1,000 cubic meters was not subject to review, while S. Niyazov refused to supply gas. The compromise finally achieved in the course of intensive talks was that the old price would be in effect until 31 December, 2006, but all payments for gas supplies would be made in “hard cash” (in the past, 50% of the gas was bartered for goods). Given that the price written into the contract of April 2003 was $44, with half of the total amount payable in cash and the other half in the products of Russian enterprises, it is evident that Russia has made certain concessions.

Although Ukraine was able to negotiate a return to the old price ($44) from 1 July, 2005, it was obliged to repay its $500 million debt to Turkmenistan and, like Russia, to switch to full payment in cash (prior to 1 July, 50% was paid in goods).

At the same time, the Turkmen authorities continue to look for alternative gas transportation routes (for the time being, the country pipes gas through virtually the only existing main pipeline, which runs north). In 2006, the government has authorized two consulting firms, DeGolyer & MacNaughton (USA) and Gaffney, Cline & Associates Ltd (Britain), to audit the country’s oil and gas reserves, with the exception of its southeastern regions, where such an audit has already been carried out. The findings of these independent companies will decide the future of the $3.3 billion project for a trans-Afghan pipeline from Turkmenistan to Pakistan. Turkmenistan maintains that its Dauletabad field holds 1.7 trillion cubic meters of natural gas, which makes it the fourth largest deposit in the world, whereas Pakistan and other potential project participants (Afghanistan and India) question these data.

In 2005, the Asian Development Bank issued a final feasibility report on the construction of the Turkmenistan-Afghanistan-Pakistan pipeline. The feasibility study, prepared by the British company Penspen, was presented to the ministers of the oil and gas industry and mineral resources of Turkmenistan, Afghanistan, Pakistan and India under an intergovernmental agreement signed in 2002 by the countries involved in this large-scale project. As noted in the press release issued by the Turkmen government, “this document is proof of the project’s economic feasibility, determining the basic technical parameters and markets for gas supply.” The government believes that the completion of this report will speed up the start of the project for the construction of a 1,680 km gas pipeline from the gas field to the village of Fazilika (India) on the border between Pakistan and India, with possible subsequent supplies to the Indian market. Under this project, the pipeline (pipe diameter—1,420 millimeters, operating pressure—100 atmospheres) is to carry up to 33 Bcm of gas per year. The project also provides for the construction of six compressor stations. Its total cost is estimated at $3.3 billion.

Transport and Communications

In the opinion of the authorities, the development and quality of transport ensured stable operation of enterprises in all sectors of the economy. Overall growth in the transport sector was largely due to an increase in domestic road and rail traffic. Total freight transportation by all kinds of transport increased by 4% to 558.1 million tons, and passenger transportation, by 5% to 937.1 million people. About 86% of cargoes and 99% of passengers were carried by road transport. The recorded increase in rail transportation was due to an increase in local traffic. Overall, the country’s railways in 2005 carried 19,800 thousand tons of cargo and 4,940 thousand passengers (an increase of 9% and 11%, respectively).

Air freight increased by 5% to 11.5 thousand tons owing to the development of international traffic. The country’s airlines carried a total of 1,828 thousand passengers (an increase of 13%); international passenger traffic increased by 1.5%, and local traffic (75% of the total number of passengers), by 17%.

The leading place in oil and gas supplies belongs to pipeline transport. In 2005, the amount of oil and gas supplied to consumers through main pipelines increased by 5%. Special note here should be taken of the fact that S. Niyazov has long nurtured the idea of diversifying gas supplies by building new pipelines so as not to be dependent solely on the Central Asia-Center (CAC) pipeline running to Russia. We have already mentioned the projected trans-Afghan gas pipeline to be routed through the territory of Afghanistan to Pakistan and then on to India. In 2005, Ashghabat finally managed to reach an agreement with Islamabad and Delhi on cooperation in building this pipeline. However, despite the readiness of the Asian Development Bank to consider the question of project funding from a practical angle, the unstable political situation in Afghanistan, especially the military activities of the local warlords, remains a serious obstacle to its construction. The so-called trans-Asian gas pipeline (to China and Japan) with an estimated cost of about $10 million can hardly be regarded as a realistic prospect even for the distant future. In this context, there is every reason to believe that exports through the CAC pipeline will continue to be virtually the only source of foreign exchange earnings from gas. Another gas pipeline in operation runs from Korpezhe to Kurt Kui (Iran), with a maximum capacity of 13 Bcm of gas per year.

As regards communication enterprises, they provided services for the amount of almost TMM 688 billion (up 34% from 2004). Sales of communication services to households increased by 48% to TMM 260.4 billion. The increase in revenue was mostly due to the wide use of electrical communications, whose contribution to total revenue in this sector amounted to 81.1% (an increase of 39.1%). Postal services also remained in demand, with a 13% increase in revenue. In addition, there was continued upgrading of telecommunications networks based on modern fiber-optic technologies and cellular communications.

Agriculture

The year was also marked by growth in agriculture. In particular, total agricultural production amounted to TMM 21.95 trillion (up 19.8% from 2004), and the development of the private sector led to an increase in its share of total production from 83% in 2004 to almost 86%.

According to the National Institute of State Statistics and Information (Turkmenmillihasabat), there was a record crop of grain: over 3,100 thousand tons of winter wheat (9% more than in 2004). However, official statistics regarding these and a number of other indicators should be taken with a grain of salt. Independent analysts note the critical situation with the 2005 wheat crop. In an interview with Rossiiskaia gazeta (26 October), S. Niyazov said that “with a crop of 3,200 thousand tons of grain, we have virtually ensured our food self-sufficiency.” In actual fact, analysts put the crop at just over 800 thousand tons, or only a quarter of the official figure. In the end, disagreements with the main suppliers of grain (Iran, Ukraine and Kazakhstan) led to a disruption in deliveries, with resultant bread shortages in the republic. Renewed supplies from Kazakhstan could not remedy the situation within a short time, which caused social tensions in some parts of the country.

The situation with the cotton crop was not much better. In summing up the results of the cotton harvest campaign, S. Niyazov admitted that the crop was smaller than in 2004: 500,000 tons, or only 25% of the target figure. As he put it, this would be enough to meet domestic demand, but not to ensure exports. One should note that the cotton harvest plan was not fulfilled for the third year running, largely because the farmers have no incentive to cultivate cotton in view of low procurement prices. Overall, according to official data, the production of raw cotton by all farms in the republic amounted to 737 thousand tons.

Returning to the question of the validity of government statistics, let us emphasize that many indicators, especially at macro level, are actually dictated by S. Niyazov himself. This applies to information on cotton and wheat production and on GDP growth rates, which have for several years now been sustained at a fantastic level (about 20%), and also on income per capita. Apart from elementary attempts to embellish the actual state of affairs in the economy, it should be pointed out that macroeconomic parameters are computed not with the use of traditional methods, but at purchasing power parity (a rarely mentioned fact). Given the relatively low cost of living in the country, this a priori has a positive effect on the statistics of the gross national income and its components. Incidentally, the World Bank applies this approach (i.e., computations at purchasing power parity) in combination with traditional computations in the system of national accounts, which make it possible to draw objective international comparisons based on a common denominator.

At the same time, agricultural producers, especially in the private sector, managed to increase the production of fruits and vegetables. According to Turkmenmillihasabat, in January-November they gathered over 558 thou tons of vegetables (up 13% from the same period of 2004), 127.5 thou tons of fruits and berries (up 21%), 315.2 thou tons of grapes (up 16%), 225.5 thou tons of potatoes (up 8%), almost 90 thou tons of rice, and 67 thou tons of sugar beet (an increase of 1.6 times).

Livestock farming was among the most dynamically developing sectors of the agroindustrial complex. An increase was recorded in livestock and poultry numbers and productivity, and also in livestock output. On 1 January, 2006, the country had 2,064.5 thou head of cattle (an increase of 2%), 16,598 thou sheep and goats (10%), 29.8 thou horses (2%), and 14,939 thou poultry (8%). The production of meat (live weight) by all the country’s farms reached 480.7 thou tons (an increase of 11%), milk—1,868.5 thou tons (11%), eggs—805.4 million (12%), wool—39.2 thou tons (9%), and honey—842.2 tons (2%). A point to note is that output has been growing faster than livestock and poultry numbers, which is due to rising productivity.

Investment

Based on the results of the first 11 months of the year, investment in the development of production and the sociocultural sector totaled TMM 17,289.7 billion (11% more than in the same period of 2004). The volume of construction, installation and other capital works and services performed in that period amounted to TMM 8,097 billion (an increase of 17.4%), including TMM 7,125.4 billion worth of contract works and services (88% of the total).

An important role in implementing the state’s investment program is played by foreign companies. On 1 December, 2005, 86 foreign companies from 25 countries were involved in implementing investment projects. Under contracts concluded with the republic’s ministries and agencies, they continued the construction of 254 facilities (compared to 223 facilities on 1 December, 2004) with a total value of over $5,224.5 million (almost 12% above the level of a year ago). Of these, 39 projects with a total contract value of $963 million were completed. The most active contractors were those of Turkey, Ukraine, France, the British Virgin Islands, Germany, Ireland, Austria and other countries.

In the sphere of currency regulation, there were no changes in 2005. The ban on free conversion of foreign currency remained in place, and tight foreign exchange controls inevitably resulted in a shadow foreign exchange market. In particular, the value of the dollar in the black market is four times higher than the official exchange rate (5,200 manats per dollar) and ranges from 22,000 to 25,000 manats. At the official exchange rate, it is only possible to sell foreign currency to the state, but not to purchase it.

Table

Basic Statistical Data for 2005

GDP	TMM 120.509 trillion
GDP growth compared to 2004	About 20%
Per capita income	$7,500
Population	6,746.5 thousand
Budget	TMM 76,249.1 billion
Total investment in production and the sociocultural sector	TMM 17,289.7 billion
Total industrial production	TMM 44.6 trillion
Gas production	63 billion cubic meters
Oil production	9,522.1 thousand tons
Gas exports	45.2 billion cubic meters
Power generation	12,819.1 million kWh
Total agricultural production	TMM 21.95 trillion
Cotton production	737 thousand tons
Wheat official data unofficial data	3,200 thousand tons 800 thousand tons
Potatoes	225.5 thousand tons
Rice	90 thousand tons
Cattle population	2,064.5 thousand head
Passenger traffic	937.1 million people
Freight traffic	558.1 million tons
Retail trade turnover	TMM 43.3 trillion
Foreign trade turnover (January-November)	$7,569.7 million
Exports (January-November)	$4,416.4 million
Imports (January-November)	$3,153.3 million

Domestic Trade

The retail turnover amounted to TMM 43.3 trillion, up 26.1% from 2004. The consumer market developed against the background of a rise in effective demand, as indicated by retail sales per capita: TMM 6.5 million (up 22% from 2004). At the same time, these data are naturally open to question, because even official statistics show an inflation rate of 8%, whereas in the view of experts from the EBRD office in Ashghabat the figure is over 15%. That is why it is probably too early to speak of an increase in effective demand.

Foreign Trade

In January-November, the foreign trade turnover amounted to $7,569.7 million, up almost 19% from the same period of 2004. The trade surplus increased from $545.6 million for the first 11 months of 2004 to $1,263.1 million. Trade with non-CIS countries grew by 17.6%, and with CIS countries, by 20.3%. Exports for that period totaled $4,416.4 million (an increase of almost 28%). In terms of commodity composition, exports were dominated by products of the fuel and energy complex: natural gas (45.4%), oil products (27.1%) and crude oil (10.5%). The republic supplied its products to 53 countries, with an increase in exports to Ukraine (1.3 times), Iran (by 10.4%), Italy (1.4 times) and Russia (by 9%).

Imports in the first 11 months of 2005 totaled $3,153.3 million, exceeding the level of the same period of 2004 by 8.1%. The largest share of Turkmenistan’s imports came from Russia (over 12.5%, $280.4 million), followed by the United States (about 12%, $265.5 million) and Ukraine (over 10.5%, $235 million). Overall, the republic imports goods from 83 countries. In 2005, Russia dislodged Germany and Ukraine from their positions in the supply of technological equipment (about 33% of total imports). The range of products supplied by Russia includes pumps, electrical installations, transformers and pipes for the oil and gas sector, for electric power stations and for the development of land resources.

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¹ The official exchange rate is 5,200 manats per U.S. dollar. At the “black market” exchange rate, 1 dollar equals 22,000 manats. This will be discussed in greater detail below. _{Back to text}