By Ata Garlyev
The process of capital transfer from Turkmenistan was initiated in the early 90-s after the country had gained independence.The export of capital was considerably boosted in 2008 when the official dollar exchange rate came up to the “black market” rate, the local currency manat was denominated and currency conversion was allowed.
A writer of “Chronicles of Turkmenistan” Ata Garlyev tells how the Turkmen business community finds ways to export their savings.
Before free currency conversion was introduced after Gurbanguly Berdymukhammedov’s rise to power, foreign currency was transferred primarily through foreign construction (mainly, Turkish) and trading companies which were paid in foreign currency for their merchandise or services.
At that time local entrepreneurs kept a low profile of their activities and their relations with government agencies and acted through their overseas offices and offshore companies where they were beneficiary owners.
Thus, merchandise was imported to and services were rendered in Turkmenistan but the net margin was left abroad. All business transactions were carried out in foreign currency. In principle, a similar scheme is being currently used, which has become slightly more complicated due to restrictions on currency conversion.
After it had been allowed to convert currency, funds flowed overseas via the official exchange of manats into dollars.Many underground millionaires managed to legalize, or to be more precise, “launder” their capital exporting it outside the country.
Foreign currency was converted for various goods and groceries, ranging from hi-tech equipment to tomatoes, cucumbers and even garlic.
The underdeveloped banking system contributed to the embezzlement of currency reserves which had been accumulated since 1993 in less than six years.At that time, up to late 2014, on a regular basis Turkmenistan received cash for gas exports from Russia.
The authorities believed that this would continue forever but it has been three years since Russia halted its import of Turkmen natural gas.
Consequently, the authorities of Turkmenistan became hostage of their lack of thriftiness and poor long-term planning skills. Moreover, the global crisis made some adjustments to the economic situation.
The almost total lack of currency conversion and legal safeguards, volatile foreign currency exchange rates, the instable political and economic situation, the likelihood of being subjected to a hostile takeover by the family or its immediate circle, insecure future, overall exacerbated conditions for business operations, a drop in consumer demand and deteriorated standard of living urge entrepreneurs to take their capital overseas, $10.000 per person, and subsequently buy property and set up businesses there.
Residents make attempts to sell unprofitable businesses, primarily specializing in catering and consumer services, as well as pharmacies, small production facilities, construction companies and stores. It should be emphasized though that offers to sell businesses exceed the demand.
According to some sources, the owner of “Yunus” company (producer of sunflower seeds and nuts etc) sold his business and now runs a successful business in Turkey. I know several entrepreneurs who used to own car repair shops, pharmacies, shops, but now reside and work in Russia.
There are a lot of local entrepreneurs who have accumulated huge amounts of cash in manats.After restrictions on currency conversion had been imposed in 2015-2016, they invested in buying cottages in the residential complex of Choganly.
There are over 300 houses with a value of over $350.000 each, which were sold for manats at an exchange rate of 3.5 manats per $1.Pursuant to the terms and conditions of the agreement, the entire amounts had to be paid out within two years.
It appears that an ordinary worker or a civil servant without a substantial income could not afford it.However, despite unaffordable prices and rigid payment terms, houses sold out quickly.
Entrepreneurs bought houses for their fathers, mothers, siblings and spouses.According to one of them, if he had had this amount in foreign currency, he would have bought a villa in Turkey for the same value.
However, this is how wealthy entrepreneurs protected their income in local currency from inflation.However, it should be pointed out that they fear that sooner or later the law enforcement authorities will ask for explanations of the origin of the money and start “looking into” the business.
Now all financial tycoons are “guilty as sin” and the authorities can always find something entrepreneurs will be clamped down for.
By the way, the residential complex Choganly had been built initially by the construction company Çyzgy under “patronage” of Turkmenistan’s’ Union of industrialists and Entrepreneurs, which subsequently became the reason for the company’s curtailed operations. The construction works were completed by a company related to Dadayev and the President’s family.