Turc Yimpaş commercial center, photograph by Flickr user cercamon (CC-usage).

Most of us have probably heard the magic marketing formula, “turn challenges into opportunities” or, in economic lingo “turn a minus into a plus”.  Well, this is what comes to my mind when I wonder about how Turkmenistan was actually affected by the global financial and economic crisis.

The story goes like this: Turkmenistan’s leadership has been insisting that the country was not adversely affected by the global financial.  Wow, sounds miraculous.  How could this be?

Prestige ≠ Progress

Ironically, maybe precisely because Turkmenistan is so isolated, un-integrated into the global economy, and government-regulated, especially the banking sector.  Maybe also because Turkmenistan benefits from being an energy exporter, not to mention its small population of five million — a sharp drop in exports notwithstanding.  Along these lines, on 16 January the Turkmen Embassy to China remarked,

…despite the world financial crisis, the GDP growth rates in Turkmenistan made up 106.1%, with the growth rate in industry 123.7% and in construction 131.3%. The volume of capital investments in various industries doubled and foreign trade turnover significantly increased as compared to 2008. Wages rose by 11%t [and] salaries, pensions, state benefits and scholarships increased by 10% in the new 2010 year.

With a bright smile on their faces, Turkmen officials now proudly proclaim that they can continue lavish spending on construction projects, even increase the spending. A few weeks ago Berdmuhamedov announced an ambitious two-year $23.6 billion capital construction program, leaving many to guess about the source of the funds. The projects are slated to finish by October 2011, the 20th anniversary of Turkmenistan’s independence.  Here’s the official statement:

The Turkmen leader said that in conditions of the world financial and economic crisis, Turkmenistan did not cut down financing to the programmes [which are] aimed at improving the social and living conditions of the population.  In the past year, construction of industrial, social and cultural facilities worth 6.5 billion manat, which increased in number as high as 1.7 times as compared to 2008, were financed out of their own funding sources.

Well, it seems if Berdimuhamedov has anything in common with his predecessor Niyazov, it’s a passion for construction.  Indeed, the construction boom has now reached provincial towns.

However, although Turkmen officials explain the boom as a “rapid development that makes the needs of the country change,” in the past over-building damaged the economy.  For example, prestige projects of the sort of “ yes, we can” variety have resulted in a row of five-star hotels in Ashgabad that today stand mostly empty.  Such projects have also failed to attract hoped-for large scale foreign investment.

Feeling gassy

Some foreign companies involved in the construction projects are beginning to feel the pinch of deficit spending.  Recently, the Chronicles of Turkmenistan reported that work on several construction sites across the country has been suspended due to problems related to financing.  This includes Turkey’s Erku International Ltd., who is now in court, accused by its Turkmen contractor for a breach of agreement.  Meanwhile, another Turkish company, Kilic Insaat, has taken issue against the Turkmen Ministry of Agriculture over a project valued at $38 million; the World Bank is now arbitrating.  Yet, interestingly, according to the report, companies that are immediate partners with the president continue to be fully financed.

What’s really going on economically?  Turkmenistan’s main export commodity is gas, the revenues if which actually dropped $7 and $10 billion in 2009 when gas sales to Russia were halted that April.  The gas exports have resumed this year, much to the authorities’ relief.

Meanwhile, a major gas pipeline to China went online in December, but experts say it will take two to three years before full capacity is reached and profits begin.  Even then, the Turkmen economy would remain vulnerable to swings in world energy prices, bottlenecks in export routes, and other delivery-related delays.  And rumor has it that the government has been financing gas and oil projects on loans.  If true, that’s a recipe for serious economic indigestion.