Foreign direct investment takes place only to a limited extent. Outside the oil and gas industry and the textile sector, they are stagnating at a very low level. Accordingly, the Turkmenistan Chamber of Commerce is actively trying to attract international investors. One reason for the general lack of direct investment is the currency policy of the Turkmenistan government (see above). The agreement signed with the Soviet Union in 1983 to avoid double taxation was basically still in force until August 2016. Since it turned out that it was nevertheless essential for German investors to make the exclusion of double taxation part of the contract conclusion with Turkmenistan partners, the agreement was renewed on August 29, 2016 by the conclusion of an agreement with the Turkmenistan government and confirmed bilaterally. With regard to Turkmenistan, the 2016 agreement replaced the 1983 agreement.
According to clothingexpress, the Turkmenistan government’s inadequate contractual loyalty is particularly detrimental to the development of a trusting relationship with foreign investors. In this regard, numerous proceedings are currently pending before the International Center for the Settlement of Investment Disputes (an arbitration tribunal of the World Bank) between (plaintiff) international companies and the Turkmenistan state. Turkmenistan has already been asked several times by the court of arbitration to pay penalties and compensation payments for breach of contract and the proceedings have ended with an arbitration award in favor of the foreign plaintiffs. The companies are suing for repeated breaches of contract by the Turkmenistan government and outstanding payments totaling one billion euros. Some of the plaintiff companies got into financial difficulties as a result of the advance payments made in combination with the government unwilling to pay. Although Turkish partners are generally preferred to all other foreign investment partners (for example in the form of lower non-contractual payments or more favorable conditions for the conversion of profits made in Turkmenistan manats), these too have to struggle with considerable difficulties that have recently become much worse. Against the background of the current economic crisis, the payment behavior seems to be increasing the Turkmenistan government continues to deteriorate.
Accordingly, the US Embassy has warned in its regular reports since 2013 that: “the Government of Turkmenistan has a history of arbitrary expropriation of the property of local businesses and individuals”. In addition, the US government warns in a comprehensive report regarding the Turkmenistan investment climate, property disputes are always fought before the Turkmenistan courts regardless of the provisions stipulated in individual contracts. Turkmenistan has so far also shown no interest in the introduction and implementation of laws and regulations to respect intellectual property. The tone of voice has intensified since the first issue of arbitrary expropriations in the embassy reports in 2006.
In addition to the threat of expropriations at any time and the tendency towards inadequate contractual compliance on the part of the Turkmenistan government, foreign investments are also made more difficult by the Turkmenistan government’s expectation of direct participation in the profits of foreign companies. These expectations are also expressed in official announcements. Too little government participation in the profits of foreign companies is therefore sometimes used as a reason for their expropriation. The level of participation is determined by the government. If the foreign company does not cooperate or if the government considers the participation paid to be too low, the government also regularly reacts with expropriation measures without compensation. The action taken against the Turkmenistan subsidiary of the Russian mobile communications group MTS was sensational in this regard. Its expropriation was justified in the linked notification from the Turkmenistan Ministry of Foreign Affairs with the following: “MTS transferred only a very small portion of its huge profits to the Turkmenistan side. This situation was clearly abnormal”.
In addition, before concluding a contract, foreign companies must include the need for non-monetary supplementary services in their calculation. A practicable solution under President Niyazov as well as under President Berdimuhamedow (since it is non-financial and therefore not considered corruption in the home countries of foreign companies) is the offer to translate the President’s works into another language. Domestically, the government uses the presentation of such translations to demonstrate the international reputation of its president. Corresponding translations are carried out by sole proprietorships as well as by economic cooperation organizations. In the past, Daimler AG in particular had to accept fines for additionally paid financial incentives to initiate contracts. On the other hand, the Turkmenistan president is dissatisfied when the additional services provided do not meet his expectations. For example, he had expected a significantly larger yacht from the Tatar company ITERA in return for the possibility of onshore gas extraction than the one that was ultimately delivered to him, worth around US $ 60 million. Illustrations
that show Berdimuhamedow together with his yacht have meanwhile become comparatively widespread depictions of the personality cult around the president.
The German Chamber of Foreign Trade summarizes the fundamental problems relating to entrepreneurial engagement in Turkmenistan as follows:
- widespread corruption.
- an undeveloped education system.
- the abuse of oil and gas revenues.
- the reluctance of the government in Ashgabat to adopt market-oriented reforms.
Specifically, the greatest challenges named are “increasing the attractiveness for international investors despite strong regulation by the state (and diversifying the economy to reduce dependence on raw materials”).