Turkmenistan Ripe for Capitalism

SOME are already calling it the new Kuwait. A country the size of France with a population less than that of Paris, Turkmenistan in former Soviet Central Asia is almost 85 percent desert. Road and rail links are minimal, telecommunications primitive.

But under its arid sand lie some of the largest reserves of natural gas and oil in the world. Along the desert fringes, cotton, dried fruits, and licorice are widespread. All it needs to boom, say the optimists, is a spot of Western technology.

Westerners came by the dozen in early June for an exhibition of high-tech expertise in the Turkmen capital of Ashkhabad, organized by ALPAX International, a Paris-based joint venture broker experienced in the Commonwealth of Independent States.

They could hardly have chosen a less suitable venue than Ashkhabad for an international exhibition. Only 20 miles from Iran at the outermost edge of the former Soviet empire, it has no direct telephone link to the West, a taxi fleet hostile to the idea of work, and an erratic water supply that left exhibitors dirty and dry for days.

Furthermore, political and economic development has been slow since the country became independent last October.

"Privatization and business initiative haven't really started in Turkmenistan," a Western diplomat says.

Most Turkmens are still waiting for change to seep down from the political leaders. "The main problem is breaking the people's mind-set," the diplomat says. "And the opposition groups haven't had time to organize. Everything is still up in the air."

But with most top jobs held by ex-communists, including President Saparmurad Niyazov, who was reelected unopposed June 21, such change could take time.

Some exhibitors left Ashkhabad immediately, but many who stayed were rewarded with contracts from Turkmen firms eager to do business overseas. The country is so new that it has few laws governing foreign trade or banking, but many foreign companies took a gamble and signed initial trade agreements.

Turkmenistan's major problem is lack of hard currency. It still channels most of its products to Commonwealth countries, getting paid in non-convertible rubles. Western companies hoping to expand into Turkmenistan must first find a way for the Turkmens to earn hard currency to pay for their products.

"We're doing their business for them," says Henri Matalon of Duotex, a Milan-based manufacturer of hospital products and one of the exhibitors. "We sell nothing unless we can find markets for their goods abroad."

Most foreign companies wanting to sell to Turkmenistan are not equipped to barter, especially if the Turkmen produce is in a field such as cotton or dried fruit. But by finding a buyer in the West for the Turkmen products, and linking the two trades, the foreign company is guaranteed hard currency for its own products.

The process is slow, but signs are emerging that Turkmenistan may not be stuck in the post-Soviet quagmire indefinitely. Turkmenbank, largest of the recently legalized commercial banks, began a nationwide checking service June 1.

"Private customers can hold both ruble and hard currency accounts," says Alty Valiev, head of Turkmenbank's international division. "They can even buy dividend-bearing stock in the bank itself."

In May, Italian fashion chain Benetton opened a hard-currency franchise in Ashkhabad, which is turning over $1,000-worth of business each week, the manager says. Earlier this month, Ashkhabad's mayor authorized the French advertising agency Optimal Conseil to construct citywide billboard advertising for foreign companies setting up shop in the republic.

The government is also beginning to invest in the country's moribund infrastructure. It is buying a new telephone system from the Belgian telecommunications firm Lenbell and is considering a proposal by the Israeli government to modernize the country's agriculture sector at a reported cost of $10 billion.

It will be some time before Turkmens are able to talk in billions, but getting access to world markets for their gas and cotton will take them part way. Officials say Turkmenistan receives only 875 rubles ($7.30) for 1,000 cubic meters of natural gas. With a world price far higher, Turkmenistan is pushing hard for a new pipeline to the West.

While Turkmenistan fights for hard currency, its soft currency account, at least, is healthy. The president of Turkmenbank, Khudaiberdy Orazov, who is responsible for calculating the country's GNP, says Turkmenistan made a soft currency surplus of 4.67 billion rubles ($38.92 million) in 1991.

But with rampant inflation gnawing at the ruble, and a disastrous rate against the dollar, 4 billion rubles is not what it used to be in the old days of the Soviet Union. Turkmenistan may have great potential, but it will take a lot more than rubles to turn this potential into a new Kuwait.