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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 STATE COMMODITY & RAW MATERIALS EXCHANGE OF TURKMENISTAN The exchange is one of the most important domestic economic institutions to date and acts as the main body for import and export operations in the country as well as a government regulator. HISTORY AND DEVELOPMENT The State Commodity and Raw Materials Exchange of Turkmenistan (SC&RME) was created by decree of the President of Turkmenistan, Saparmurat Turkmenbashi, in 29 July 1994. The Exchange is one of the most important domestic economic institutions to date and acts as the main body for import and export operations in the country as well as a governmental regulator. There are many indicators of activity regarding the Exchange. During 2004, 1,071 export contracts for the sum of US$ 677,577.3 thousand were registered. These figures are indicative of the favorable political and economic situation in Turkmenistan, its rich natural resources, and of utmost importance, the reliability and stability of state organizational structures to attract business from all over the world. SC&RME has relationships with more than 45 countries. Business people from Turkey, Russia, the USA, the UAE, Germany, Great Britain, buy oil products, liquefied gas, cotton fiber, cotton yarn, handmade Turkmen carpets, hides and knitwear from Turkmenistan. An information and analytical system was created for the SC&RME to enable direct operational control of contract execution as well as for information retrieval. The InfoBase database will be developed to allow the retrieval of world quotations on significant commodities in real time and to facilitate potential marketing outlets for domestic commodity production. FUTURE OUTLOOK The following plans are currently underway: • further development of external economic links with foreign trade companies; • streamlining the uses of PR companies and the services they provide in terms of mass media disclosure; • expansion of external contacts with international and regional organizations; • simplification of the contract registration procedure; and • increasing the level of skill and experience of Exchange staff through interactions between organizations. CONTACT INFORMATION Contact Name Mr. Murad Muradov E-mail muradovma@exchange.gov.tm Website www.turkmenbusiness.org PAGE 122
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 STATE COMMODITY & RAW MATERIALS EXCHANGE OF TURKMENISTAN ECONOMIC AND POLITICAL DEVELOPMENTS Politic and Economic Environment It is expected that the president, Saparmurad Niyazov, will remain in power in 2007-08. Prospects for the introduction of any kind of political pluralism are negligible. The political upheavals elsewhere in the former Soviet Union over the past few years will have reinforced Mr. Niyazov's belief that any attempt at reform risks undermining his position. He will continue to rely on the practices that have sustained his rule until now: guaranteeing basic welfare provision, minimizing political freedom, and maintaining an extensive patronage network to ensure the support of the political elite. Although Mr. Niyazov looks unchallengeable for the moment, the frequent reshuffles of officials on the grounds of corruption and incompetence suggest that tension is rising within the political system, and that the president's patronage network could be starting to unravel. The focus of Mr. Niyazov's foreign policy will be to ensure that the country's existing gas export deals are maintained on favorable economic terms, as well as to secure new gas export deals and further inward investment for the hydrocarbons sector. An agreement reached with China in April 2006 provides for the construction of a new gas pipeline linking the two countries, and appears to have given Turkmenistan some leverage in its export negotiations with Russia-in September 2006 the Turkmen authorities secured a 40% increase in the price of gas exports to Russia. We expect the government's economic policies to remain broadly unchanged, with the state maintaining the dominant role in all sectors of the economy. Subsidies, price controls and the free provision of utilities will continue to underpin these policies. The sustainability of this system will depend mainly on Turkmenistan's ability to earn hard currency from commodity exports. In view of the development of the domestic oil-refining sector, and the expectation of continued high world energy prices, we anticipate that export revenue will hold up sufficiently to preclude any need for the government to introduce economic reform. Turkmenistan will continue to benefit from strong demand in Russia and China for its energy resources, and has already taken advantage of the competition in the region for gas supplies by negotiating a higher price for its exports to Russia as of October 2006. Even if world energy prices fall by more than anticipated in the coming years, Turkmenistan will retain bargaining power in price negotiations. High world oil prices will also work in its favor. Revenue from cotton fibre exports will increase slightly, as rising global prices are expected to offset stagnating volumes. Global industrial raw materials prices are forecast to weaken from the record highs of recent years, thereby easing pressure on Turkmenistan's import costs. Economic Performance The hydrocarbons industry will remain the principal engine of growth throughout 2007- 08, with construction also continuing to make a substantial contribution to growth. Output of natural gas is expected to rise, driven by Turkmenistan's export contracts with Russia and Iran; oil production will also post moderate growth. Based on the expectations for output growth for Turkmenistan's main commodities–hydrocarbons, cotton and grain–real GDP growth of around 8% in both 2007 and 2008 is expected. Official statistics will continue to overstate output, probably reporting growth rates of around 20%. Recorded statistics for inflation mainly indicate price trends in urban centers, as Turkmenistan's rural areas are reported to be virtually demonetized. Moreover, even those official consumer price data that are rarely available fail to capture price trends on the black market, where most household goods are obtained. Rises in public-sector wages and benefits–funded in part by printing money–are likely to exert inflationary pressure, although the fact that these payment increases are often not received in full will diminish the impact. Consumer prices will rise by around 11% per year in 2007 and 2008. Large inflows of foreign currency from oil and gas exports and restrictions on access to foreign exchange will enable the Turkmen authorities to maintain the official exchange rate at Manat5,200:US$1. The black-market rate is also expected to remain comparatively stable-in part owing to a shortage of currency in circulationdepreciating only slightly in 2007-08 from its 2006 rate of around Manat25,500:US$1. As a result, the manat's "estimated market" rate (a weighted average of the official and black-market rates) will depreciate by around 3% over 2007-08. If the black-market rate were to weaken more sharply, the government would tighten monetary policy in order to reduce even further the amount of manat in circulation. * The Economic Intelligence Unit Ltd., October 2006 1999-ORIGINS OF GROSS DOMESTIC PRODUCT (%) Industry Agriculture & forestry Construction Services 26.0 32.0 11.0 31.0 PAGE 123
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