Saturday, 16 July 2011

Turkmenistan dispute underlines limits of Turkish economic lobbying

A group of Turkish companies are preparing to seek legal action against Turkmenistan in a bid to recover what they say is more than $1 billion in unpaid bills for construction work in the Central Asian country, the group's spokesman said Wednesday.
The legal claim indicates that a low-key visit by Turkish President Abdullah Gul to Turkmenistan in May, intended to settle the matter, was unsuccessful. Subsequent talks between representatives of the Turkish companies and officials from the opaque Central Asian state achieved nothing: the Turkmen government "did not understand the seriousness of the situation".

The Businesweek story notes that there is no confirmation on why Ashgabat has failed to pay the companies - which were contributing to Turkmenistan's grandiose building spree - on time. Although the country's revenues slumped during 2009 after a gas dispute with Russia, it seems unlikely that there was insufficient cash to pay up even then, let alone now when a flurry of gas deals has bolstered Turkmenistan's financial position. Indeed, President Berdymukhamedov claimed in June - after Gul's visit - that there were no problems in payment and that Turkmenistan had always paid its Turkish business partners on time.

Clearly something doesn't quite add up. Most likely the problem is not representative of some financial machinations by the Turkmen government but simply indicates the country's murky business climate and the weakness of its regulatory systems. One Turkish investor claimed in May that businessmen from Turkey were being jailed or forced to remain in Turkmenistan just for seeking to uphold their contracts.

There are two takeaways from this. Firstly, it is worth watching whether - and how swiftly - the International Center for Settlement of Investments Disputes can secure compliance from the Turkmen government, if it finds in favour of the Turkish investors. If Ashgabat simply ignores the ruling or drags its feet, Turkish investors, which have been among the most proactive of all foreign companies doing business in Turkmenistan, may start pulling out or thinking twice about further investments. Tolerance for risk has its limits, even for adventurous and well-connected Turkish firms.

Secondly, and more broadly, the dispute underlines the limits of Turkey's strategy of economic lobbying. When even an urgent visit by the Turkish President cannot settle a $1 billion bill or free innocent Turkish businessmen from prison, it raises serious questions about the effectiveness of Ankara's approach to opaque and authoritarian states.

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