The Pipeline to Corruption: Turkmenistan’s Economy

Continuing the theme of Eurobloggers moving East this semester as I’m being joined by my Post-Soviet class this semester, we are going all the way to Central Asia for one student’s write-up of the basics of Turkmenistan’s economy.


turkmen-worldbank
Turkmenistan’s GDP growth (in red) is contrasted to the other developing economies of Europe and Central Asia.
Graph from the World Bank and available at http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries/TM-7E?display=graph

In 2011, the World Bank promoted Turkmenistan to an “upper middle income” economy after its 14.7% growth in GDP resulting in a GDP of $28.06 billion (USD). Despite the positive appearance of the economy on paper, the economy is plagued with widespread governmental corruption, which in turn creates drastic inequalities. On top of the domestic problems, Russian control and influence in the Turkmen economy paralyzes avenues of revenue.

The economic growth is almost completely attributed to natural gas and oil exports. Turkmenistan operates as a mercantilist economy, with the state directly controlling the resources and revenue. The President has unquestioned authority over all decisions, and thus has the ability to funnel out money to finance luxurious urban developments and grand personal lifestyles. To try and hide the corruption, the state does not publish reports on economic figures or the national budget. This attempt is unsuccessful as Transparency International rates Turkmenistan as the 170th most corrupt country out of 176 countries.

The widespread corruption and mercantilist economy leads to inequality in society because all of the wealth is concentrated at the top, in the hands of a few. Turkmenistan has fallen victim to the “oil curse” in which a their vast natural resources do not supply the country’s people with wealth but rather help to impoverish the citizens by allowing the elite to easily acquire money for themselves. Because states rich with natural resources do not have to tax their population to run the government, there is no check on power. The inequality leads to civilians in Turkmenistan suffering a great deal of poverty with 30% living below the poverty line and a 60% unemployment rate. Because of the poverty and unemployment, the population is unable to positively contribute to the country’s economic growth.

Economic growth is also troubled by Russian control of the natural gas and oil pipelines Turkmenistan uses to export. Russia opened two pipelines for Turkmenistan: Turkmenistan- China and Turkmenistan- Iran. However, after Ukraine initiated export negotiations with Turkmenistan in order to avoid buying Russia’s natural gas, Russia declared that Turkmenistan could not export to Ukraine, or anywhere in the West for that matter. Moscow believes it can mandate this because they own the pipeline. Turkmenistan has not submitted to Russia’s mandate, but if Russia is successful Turkmenistan’s economy is essentially shut off from the Western world, further crippling growth.

Moreover, Turkmenistan grew dependent on Russia importing Turkmen natural gas, and during a 2009 dispute Russia quit buying Turkmen natural gas, resulting in drastic decline in Turkmenistan’s GDP.

To overcome the obstacles of internal corruption and inequality and the external monopoly on their gas pipelines in order sustain economic growth, Turkmenistan would benefit greatly from increasing transparency in their government. Increasing transparency will decrease the corruption in turn making the economy a friendly environment for Western investors and may also decrease civilian poverty. The United States has expressed strong interests in investing in Turkmen gas and oil resources; however, that will never occur until Westerners can trust an uncorrupt environment. The West will also be hesitant to invest in Turkmenistan until Turkmen- Russian relations are normalized, and the West, especially the U.S. can invest in Turkmenistan without pushing Moscow’s buttons.

Moscow has controlled Turkmenistan’s economy long enough, the question is whether Turkmenistan can overcome the control and open its own pipelines to the West.

References

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