Turkmenistan launches modest privatisation drive

By bne IntelliNews March 21, 2013

Clare Nuttall in Astana -

Turkmenistan launched a new privatisation drive in a modest way on March 9, selling off a handful of assets, none of which were valued at over $2m. Later rounds that are planned over the next five years as Turkmenistan's economy tentatively opens up could include companies in potentially lucrative sectors such as telecommunications, though Ashgabat seems determined not to relinquish control of the crucial oil and gas sector, which forms the backbone of the country's economy.

In the first round of auctions the most expensive asset on sale was the Veset shopping centre, which was valued at around $2m. Other items included the Kopetdag-Lada carpet factory, food progressing plants and a chain of car service shops. Turkmenistan's notoriously secretive authorities have not disclosed how much in total was raised in the auctions.

The privatisation programme for 2013-2015 was approved by the Turkmen government in November, with auctions open to international as well as domestic investors. Two further waves of privatisation are due to take place in 2014-2015 and 2016. There is speculation that larger companies could be sold off or partially sold at the later stages, although the government says it is drawing up a list of strategic assets that will remain in state hands. Lilit Gevorgyan, political analyst at IHS Global Insight, believes that the prospect of privatisation of companies in the energy sector within the next few years are "next to none".

Barriers to entry

Outside the oil and gas sector, the government has indicated that companies in the construction, transport and communications sectors may be sold off in future, potentially giving international investors access to Turkmenistan's fast-growing telecom sector. The UAE's Etisalat expressed an interest in the Turkmen telecom market back in 2011, thought it is not clear whether Etisalat will still be interested now that Russia's MTS has returned to the country. Construction is another burgeoning sector, given the government's ambitious infrastructure plans.

However, there are numerous obstacles to entering Turkmenistan; the country is ranked 170th out of 174 countries on Transparency International's 2012 Corruption Perceptions Index, and is not even included on the World Bank's "Doing Business" survey.

Given the challenges of entering the market, Gevorgyan forecasts that the privatisations will mainly be of interest to the handful of investors already active in Turkmenistan. "Foreign businesses - particularly Russian, Ukrainian, Chinese, Turkish and Kazakh which are already present in the Turkmen market - are well positioned to take advantage of the state asset sales. Being accustomed to difficult operational environments, they could benefit most from the new privatisation drive," she says. "However, for all investors, both domestic and foreign, corruption, very poor protection of investors' rights and ineffective state apparatus will remain key challenges."

The programme does, however, appear to be part of a series of tentative reforms announced in Ashagabat, the most isolated and tightly controlled of the former Soviet republics. At the time the programme was approved, Turkmen state media quoted President Gurbanguly Berdymukhamedov as saying that, "privatisation will contribute to further enhancement of the Turkmen economy's competitiveness, efficiency and profitability of industrial production, as well as the dynamic development of private entrepreneurship in the country."

As yet, the economy is almost totally state controlled and isolated from international markets, so even small-scale privatisations are a major step. While Turkmenistan's economy has consistently been among the fastest growing in the Eurasian region, achieving 8% growth in 2012, according to the International Monetary Fund, this growth is almost entirely driven by its vast oil and gas reserves.

Sebastien Peyrouse, research professor at the Institute for European, Russian and Eurasian Studies (IERES) at George Washington University's Elliott School of International Affairs, and author of "Turkmenistan. Strategies of Power, Dilemmas of Development", says that the privatisation progress is perhaps a good indication given the government has been extremely averse to such economic reforms since its independence. However, he warns that, "Berdymukhamedov has been announcing since 2007 so many reforms and changes which actually never materialise that I think we should remain extremely cautious." There is also the danger that the privatisation process could be used as a means to line the pockets of the Turkmen elite rather than as a genuine tool for reform.

It is, however, being accompanied by other reforms in the economic sphere. In March, the parliament unanimously backed a new housing code that will partially privatise the sector. Ashagabat has also promised to adopt international accounting standards in 2014, and set up a stock market by 2016.

In the political sphere, Berdymukhamedov has also initiated some reforms, most significantly changing the law to allow a multi-party political system; the Party of Industrialists and Entrepreneurs was created in August 2012, though there are no signs of a genuine opposition being allowed to exist. He has also gradually removed the most visible symbols of his predecessor Saparmurad Niyazov's personality cult. But not everything has changed. In February, Berdymukhamedov announced plans to plant 3m trees to transform his desert country into a "blooming garden" - a scheme as bizarre and grandiose as those initiated by Niyazov, the self-styled "leader of all the Turkmens".

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