Commercial Overview of Turkmenistan: Part 3 - Foreign Investment Environment andRegulations

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**June 1998**
**Foreign Investment Environment:**  The government is anxious to attract foreigninvestments to meet the country's vast needs for capital and technology.  The Ministry of ForeignEconomic Relations has identified "priority areas" for attracting foreign investment and finance,including: gas, communications, telecommunications/ transportation, industry, irrigation,agricultural investments, textiles, and health.  In November 1995, the government listed 93 keyinvestment projects in these sectors.  Additionally, two investment funds were established to makehard currency available for development in the oil and gas and agriculture sectors, the mainsources of foreign exchange earnings in the country.  
Turkmenistan is now announcing international tenders for competitive bids on governmentprojects.  This departs from past behavior, where politics--rather than economics--largelydetermined which companies received contracts.  While Turkmenistan is broadly pursingeconomic reform, competition may remain a new concept for some government officials. Companies report experiencing a significant amount of "red tape," and remind investors that thePresident still makes the final decision in awarding a contracts.  Complaints of corrupt and ineptpractices have marred the foreign investment environment to some extent.
Large-scale contracts are signed at the presidential level and usually require a company's CEO totravel to Ashgabat to close the deal.  Almost all companies investing in Turkmenistan form a jointventure with a local company.  Practically all joint ventures include a government partner.
Laws on foreign investment, banking, property ownership, and intellectual property rightsprotection passed in 1992 were intended to attract investors.  Turkmenistan, however, continuesto lack sufficient tax, labor, and health and safety laws.  This could create frustrations for foreignbusiness ventures.  The Government intends to draw up a new law to replace a tax schemeoriginally planned to be in effect only until November 1, 1994, under which a varying proportionof foreign exchange proceeds from the export of certain goods is surrendered to support thegovernment's foreign exchange fund.  In place of this implicit tax on exports will be an explicitlevy on foreign exchange earnings from exports.
**Foreign Investment Regulations:**  The May 19, 1992 law on foreign investmentis the principal regulating statute. The major obligations of foreign investors are to comply withapplicable domestic law, obtain required licenses, and maintain proper books which are subjectto government review.  Regulations prevailing at the time of investment are locked in for threeyears and changes do not apply.  Every foreign investor must be registered at the Ministry ofForeign Economic Relations and must report quarterly to the Ministry on their activities inTurkmenistan.
All import and export operations, excluding those for cotton, oil and any other governmentprocurement imports, must be conducted via the State Commodities and Raw Materials Exchange(CRME) in Ashgabat.  Foreign trading companies and joint ventures must register theirtransactions with the CRME at a .2% commission.  Additionally, they must receive a license fromthe State Agency for Foreign Investment to export products manufactured in Turkmenistan andto import products need for production.  By decree, only the CRME has authority to issueexport/import licenses for commercial transactions.  These licenses are awarded by the Exchangethrough auction.  According to foreign companies, connections with someone holding a seat onthe Exchange facilitates registration is helpful.  The "Consignator" firm which works within theExchange offers its services on arranging purchase and sale of goods in Turkmenistan on aconsignment terms.  The Exchange accepts and works with facsimiles contracts.
Certain goods and services may be subject to restrictions or licensing requirements.  For example,listed "special foods (services) export/import" are licensed by the Cabinet of Ministers, andconsumer goods imported into Turkmenistan must be certified by the State Standards Committeewhich issues a release document.  Also, special customs duties apply to Turkmen carpets. Documentation of a carpet's age is required, because carpets over 20 years old are not allowedto leave the country.  Contact the State Customs Office in Ashgabat for specificinformation.
The newly created State Agency for Foreign Investment monitors all foreign investment.  Itreviews investment proposals and foreign currency credits proposed by government ministries. All ministries and agencies must receive Investment Agency approval before committing toforeignprocurement or investment projects.  Once the board approves the project, the President will issuea presidential decree authorizing it.  The Investment Agency tends to give preference togovernment "priority" projects.  
The Investment Agency operates within the Turkmen State Bank for Foreign Economic Affairs(Vnesheconombank).  Vnesheconombank is the key institution for foreign businessmen andinvestors, as well as exporters.  It is a fiscal agent for the Turkmen government. Vnesheconombank, along with the Central Bank, are the only banks which issues sovereignguarantees required for U.S. Export-Import Bank funding.  All state guarantees must beregisteredwith the Foreign Investment Agency.  Vnesheconombank has corespondent relations with anumber of U.S. banks (refer to the end of the document). 
**Procedures for Registering a Company in Turkmenistan**
Note: This information is current as of June 1, 1997, per the Foreign Commercial Service at theU.S. Embassy in Ashgabat.  Contact the State Agency for Foreign Investment directly forclarification and consult legal counsel before acting on the following. 
Foreign investors, interested in investing their capital into Turkmenistan either by opening arepresentative office or branch, or establishing an enterprise or joint venture, should apply to theState Agency for Foreign Investment.  
**Application Procedure**