IV.

Economy

Turkmenistan was the poorest republic of the former USSR. The Soviet regime developed the republic to supply the raw materials of natural gas, oil, and cotton. The focus on raw materials left other sectors of the economy underdeveloped, as most of the materials were shipped to processing and manufacturing plants located in other Soviet republics. Because of the emphasis on raw material production, Turkmenistan did not experience a collapse of the industrial sector following the breakup of the USSR, unlike many other former Soviet republics. This initially cushioned Turkmenistan from severe economic disruption.

However, Turkmenistan remained highly dependent on imports of food and consumer goods, which were provided on a subsidized basis during the Soviet period. Due to price deregulation throughout the former USSR, prices for imported goods increased substantially. The country was therefore even more dependent on its export revenues, which were inconsistent from year to year due to sharp fluctuations in world prices, especially for natural gas. In addition, Turkmenistan’s largest purchasers of natural gas were often unable to make timely payments, leading to production cuts and decreased revenue.

The country’s gross domestic product (GDP), which measures the value of goods and services produced, declined through most of the 1990s. However, the country reported strong economic growth in 1999 and the early 2000s, mainly as a result of increased natural-gas exports. Exports of fossil fuels and cotton continue to form the foundation of the economy. In 2005 GDP was an estimated $8.1 billion.

The government of Turkmenistan has been slow to reform the economic structures it inherited from the Soviet system. Although some state-owned enterprises have been transferred to the private sector, progress has been limited and slow. The government continues to control the production and export of gas, oil, and cotton, as well as some other industries. It also dictates prices and production quotas for agricultural products such as wheat. The government justifies its control through large subsidies that provide gas, water, and bread to the population free of charge.

Pervasive government intervention has hampered the development of a free-market economy. The lack of reform has discouraged foreign investment, which the government has sought to help upgrade the country’s deteriorating infrastructure and diversify its industrial base. In addition, almost all international financial institutions, including the International Bank for Reconstruction and Development (World Bank) and the International Monetary Fund (IMF), have suspended relations with Turkmenistan, citing the country’s poor progress in instituting economic and political reforms.

A.

Agriculture

Turkmenistan’s economy is predominately agricultural, with more than 40 percent of the labor force employed in the sector. Cotton is the primary crop, and Turkmenistan is one of the world’s leading producers of the fiber. However, Turkmenistan’s hot, dry climate and scarcity of water resources make it ill-suited for cotton production. Great amounts of water must be diverted to cotton crops through outdated and inefficient irrigation canals, such as the Garagum Canal, which were built during the Soviet period.

Turkmenistan’s government has encouraged some shift away from cotton cultivation, with the goal of diversifying crops and achieving self-sufficiency in food production. Although the principal food crop is wheat, Turkmenistan must import large quantities of the grain. Other cereal grains, vegetables, and fruit are also grown in the country. Livestock raising is also important, especially of Karakul sheep, horses, and camels. Although the collective (state-run) farms of the Soviet period have been reorganized into farmer-operated associations, the government continues to intervene in the sector. For example, it imposes production targets for wheat and cotton harvests and requires farms to supply state orders for those crops at low prices.

B.

Mining and Manufacturing

The principal industry in Turkmenistan is the extraction of natural gas and oil. The country also produces important industrial minerals, including gypsum, iodine, bromine, sulfur, and salt. Energy products, primarily natural gas, are the largest export item. Turkmenistan is the second largest producer of natural gas among the former Soviet republics (after Russia). The gas deposits are located along the Caspian Sea coast and in the northern and eastern sections of the country. In the early 1990s the Turkmenistan government launched several large-scale ventures involving foreign partnerships to explore, develop, and export natural gas. Foreign investment was especially needed for the construction of new export pipelines, which the government sought as a way of achieving economic independence. In 1997 the first new pipeline opened, connecting gas fields in Turkmenistan with northern Iran. By the early 2000s, however, foreign interest in additional development had waned, mostly due to better prospects in Kazakhstan and Azerbaijan. Most of Turkmenistan’s gas and oil continued to be exported through pipelines controlled by Russia, which imposed transit fees and quantity limitations. Aside from the production of fuels, industry in Turkmenistan is limited mainly to food processing and textile production.

C.

Currency and Trade

Turkmenistan remains dependent on trade with former Soviet republics, most of which now belong to the Commonwealth of Independent States (CIS). The export of fossil fuels drives the country’s foreign trade, and Turkmenistan has secured long-term gas-export agreements with Russia, Ukraine, and Iran. Besides other members of the CIS, Turkmenistan’s important trading partners include Turkey, Italy, and the United States. Turkmenistan’s involvement in international trade has been limited by the country’s geographic isolation, as well as its limited range of products. Its landlocked location poses significant problems in transporting products to and from world ports. It gained a new route to international markets in 1996 by the opening of a new railroad connecting Turkmenistan with Iran, and thereby the Indian Ocean. Because the new railroad connects with the former Soviet railway grid, it also significantly reduces travel time by rail between Europe and Southeast Asia.

The currency of Turkmenistan is the manat, which was introduced in 1993 to replace the Russian ruble. The government maintains a fixed exchange rate on the manat, rather than allowing market forces to determine its value. The official rate of exchange in 2001 was 5,200 manats per U.S.$1.