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FY 1999: Turkmenistan |
CHAPTER IV: MARKETING U.S. PRODUCTS AND SERVICESDoing business in Turkmenistan requires patience, persistence and personal contact. The GOTX encourages foreign investment and business, but current structures do not conform to inter- national business norms. The commercial code is not yet adopted; most local officials are unfamiliar with western business practices and internationally accepted norms; and business is often a matter of personal influence and politics.
Many marketing methods employed in the West do not work well here. Successful companies in Turkmenistan have established personal contact with GOTX officials through either representative offices or repeated visits. Smaller or lesser-known companies must establish their bona fides before being accepted at the highest levels. Large-scale contracts are signed at the presidential level and usually require the travel to Ashgabat of the company's president or CEO to close the deal. Follow-up visits are also critical. Communication through fax and telephone enhances but is no substitute for personal contact. There are locally-based distributors representing U.S. companies, but most are foreign companies themselves (usually Turkish) which have established offices in Ashgabat since independence. A list of potential distributors is available from the Commercial Section at the Embassy. Turkmenistan is not familiar with the concept of franchising, therefore, it is not yet used here. Almost all companies investing in Turkmenistan form joint ventures. Since there is limited privatization, joint ventures generally include government partners. There is no standard form for a joint venture agreement (except in the oil and gas sector); each agreement is negotiated individually, approved by the Cabinet of Ministers, and finalized by presidential decree.
Distribution and Sales Channels
Turkmenistan inherited a Soviet-style distribution system with a centralized distribution network, state orders, and state controlled prices. Gradually, the GOTX has liberalized prices for consumer goods, continuing to make only flour available at fixed, rationed, subsidized prices through state stores. In August 1994, the State Commodity and Raw Materials Exchange (SCRME) was established to regulate foreign and domestic trading and partially insulate the internal market from foreign competition during the country's gradual transition to a free market.
For this purpose, the presidential decree establishing the SCRME required that foreign trade transactions made on the basis of clearing agreements, trade credits, barter contracts, joint venture capital import/export, charitable activity, and other transactions be registered by the SCRME. The SCRME charges 0.2% of the transaction cost for this service with the exception of charitable contracts. Barter contracts require Cabinet of Ministers' approval.
Besides registering contracts, the SCRME conducts auctions for both consumer goods and raw materials. The SCRME also has the authority to auction securities although a true securities market does not yet exist in Turkmenistan.
The SCRME itself does not function as a trader or an intermediary at auctions. It plays no role in the distribution of consumer goods that are produced locally for domestic consumption. These goods are distributed through a state wholesale network or direct transactions.
The Trade and Resources Ministry determines and the SCRME announces restrictions on export from Turkmenistan. Usually, restrictions apply to goods that are in short supply in Turkmenistan. Use of Agents and Distributors, Finding a Partner Turkish, Iranian, Kuwaiti and some European distributors have established wholesale and retail enterprises in Turkmenistan (especially in Ashgabat), introducing to the local market a wider range of goods that were not previously available to consumers. However, given the limited number of these distributors, prices are relatively high. Very few U.S. consumer goods are currently available on the local market. The low buying power of the population and an import substitution policy in agriculture pursued by the government serve to limit the number of foreign distributors in Turkmenistan. To promote U.S. exports to Turkmenistan, U.S. companies should be prepared to take a "hands on" approach to locating potential distributors and training them in effective sales techniques.
The Commercial Section of the U.S. Embassy in Ashgabat provides a number of useful programs to help develop contacts. They include:
-- Gold Key Service where meetings are arranged for a U.S. company representative's visit to Turkmenistan; -- BISNIS "Search for Partners" which provides contact information on Turkmen companies looking for a U.S. partner; and -- BISNIS "Trade Opportunities" that helps establish contacts with Turkmen companies seeking to buy U.S. products.
In all transactions, U.S, companies must be careful to investigate potential local partners fully and exercise due diligence when doing business with local firms.
Franchising
So far, no franchises have been sold in Turkmenistan. However, since many Turkmen small- and medium-size enterprises do not have sufficient capital to establish solid businesses, the fran- chising concept in such areas as fast food, dry cleaning/laundry services, and hotels and motels might be accepted.
Joint Ventures and Licensing
The GOTX encourages formation of a joint venture with Turkmen state and private companies when a long-term foreign investment project or commercial transaction is negotiated. There have been about 270 joint ventures registered in Turkmenistan, most of which (around 170) are located in Ashgabat. Usually, joint ventures are organized into a limited liability partnership, complete or mixed company, or joint stock company.
There are licensing requirements for a number of activities in Turkmenistan:
-- oil and gas exploration and production are licensed by the Competent Body on Hydrocarbon Resources Development; -- gambling and slot machine and tourist businesses are licensed by the State Tourist Corporation, "Turkmensiyakhat;" -- culture and art businesses are licensed by the Ministry of Culture; -- cinema and video-cassette distribution is licensed by the State Movie and Video Company; -- printing is licensed by the State Company "Metbugat" with Cabinet of Ministers and the Interior Ministry approval; -- wholesale and retail trade is licensed by the Ministry of Trade; -- production and processing of meat and dairy products, animal fat and butter, beer and beverages and confectionery products are licensed by the State Association of Food Production; -- seed production is licensed by the Ministry of Agriculture; -- sheep, goat, camel and astrakhan wool and leather production and processing are licensed by the State Turkmen- mallary Association of Cattlebreeding Joint Stock Partnerships; -- sale of medical and pharmaceutical products and services is licensed by the Ministry of Health Care and Medical Industry; -- fish farming is licensed by the Administration of Fish Preservation of the State Fish Committee.
Steps to Establishing an Office
A foreign company, seeking to establish an office in Ashgabat, may rent space:
-- in business centers or hotels, or -- in a building that belongs to a ministry, state organization or state/private enterprise.
Current rules prohibit renting space in privatize apartments, state-owned apartments and houses, and unfinished construction sites. After a company has chosen an office space, it must submit an application to the Khakimlik of Ashgabat (mayor's office) for approval for the legal address of the representative office. The application must be accompanied by the following documents:
-- short description of the company's activity and the goals for opening a representative office in Turkmenistan; -- a lease (rental lease or letter of guarantee); -- proof of power of attorney for the head of the representative office; and -- short background information about the head of the office (a photograph must be attached).
A fee of 360,000 manats for registration is charged by the Khakimlik. For more information, contact:
Mrs. Svetlana Chekryzhova, Head (speaks Russian) Department of Foreign Economic Relations Khakimlik of Ashgabat 22 Neutral Turkmenistan Street, Ashgabat, Turkmenistan 744000 Tel: [9](9312) 39-04-24, Fax: [9](9312) 35-67-00
As well as the Khakimlik, a foreign company opening a represent- ative office must also register with the Registration Department under the State Agency for Foreign Investment (SAFI), to be licensed for any commercial activity in Turkmenistan. The following documents are required for registration of a foreign company representative office:
1. An application with the description of the goal of the company's activity in Turkmenistan, background information about the firm, and a short survey of its latest activity. 2. Written confirmation about the availability of a legal address (lease or other document). 3. Statement about the representative office approved by a company's CEO (2 copies in Russian and Turkmen languages). 4. Power of attorney document. 5. Background information about the head of the representative office in Turkmenistan with a photograph (3x4 size). 6. A copy of the charter of the foreign firm, certified by the consulate of Turkmenistan abroad or the Foreign Ministry of Turkmenistan. 7. Official registration document of the foreign investor from the investor's residence (an original). This document must be notarized. 8. A document from a bank in the country where the foreign investor resides (an original) giving the financial status of the foreign investor.
All documents must be originals that are stamped and sealed, translated into Russian and Turkmen, and submitted in the language of the country where the foreign investor resides. (No faxes are accepted.) Copies of translations must be certified by the agency that makes the translation. When submitting the documents to the Registration Department, copies of all the documents must be certified. The foreign investor pays $3,000 for registration of its representative office in Turkmenistan.
All the above mentioned documents are required for registration of a foreign company branch office with the Registration Department. The only exception is submission of a business plan for enterprises that will be involved in production, processing and/or construction activities. For more information, contact:
Mr. Kerim Akmamedov, Head (speaks Russian and Turkmen) Registration Department under the State Agency for Foreign Investment 53 Azadi Street, Ashgabat, Turkmenistan 744000 Tel: [9](9312) 39-62-07, Fax: [9](9312) 35-04-11, 12
Foreign investors interested in investing in Turkmenistan by establishing a joint venture (which to this point is the method used by most foreign companies), must also register their particular investment projects with the SAFI. To evaluate a foreign investment project, the SAFI requires the following information:
-- General information about the project; -- A marketing analysis; -- Raw materials supply analysis; -- Location of the facility and the environmental effect; -- Technology to be used; -- Management plan; -- Labor resources to be used; -- Project implementation schedule; and -- Financial analysis and investment appraisal.
Investment project registration is made by the Investment Project Appraisal and Registration Department of the SAFI. For more information, contact:
Mrs. Svetlana Mamedova, Head (speaks Russian) Investment Project Appraisal and Registration Department State Agency for Foreign Investment 53, Azadi Street, Ashgabat, Turkmenistan 744000 Tel/Fax: [9](9312) 35-04-12, 35-02-31, 35-04-15
To register a joint venture, a foreign company must provide the following documents:
1. An application with the description of the goal of the company's activity in Turkmenistan, background information about the firm and a short survey of its latest activity. 2. Written confirmation about the availability of a legal address (lease or other document). 3. A charter of the newly created enterprise approved by the Board of Directors (two copies in the Russian and Turkmen languages). 4. Two copies of a foundation treaty approved by protocol of the Board of Directors. 5. Business plan approved by the Board of Directors for those enterprises that will be involved in production, processing and/or construction activities. 6. Power of attorney document. 7. Short background information about the head of the enterprise (two photographs must be attached). 8. A copy of a charter of the foreign firm notarized by a consulate of Turkmenistan abroad or the Ministry of Foreign Affairs of Turkmenistan. 9. Official registration document of the foreign investor from the investor's residence (an original). This document must be notarized by a consulate of Turkmenistan abroad or the Ministry of Foreign Affairs of Turkmenistan. 10. Original banking documents certifying the solvency of the firm.
All the documents are submitted in the language of the country of the foreign investor's residence. It must be originals stamped and sealed (no faxes are accepted), translated into the Turkmen and Russian languages and certified by an agency that is recognized as producing accurate translations (for example, the Turkmenistan Chamber of Commerce). The charge is usually $5 per page to translate and certify the translation is accurate.
The SAFI charges registration fees that vary depending on the type of activity. A company that produces raw materials, consumer goods, equipment and so on must pay $2,000. A company that is not engaged in production but in services and other activities must pay $3,000. To extend the term of registration, the fee is $1,500 (the original registration is valid for two years and then must be renewed).
Advertising and Trade Promotion
Commercial advertising in Turkmenistan is controlled by the GOTX. Mass media offers very few options for advertising: two or three newspapers and TV and radio broadcasting. The mayors (khakims) of the cities and towns issue permission for bill- boards, neon signs and other kinds of outdoor advertisements. The only restriction that applies to the various forms of advertising is a presidential decree that forbids any alcohol or cigarette advertisements. (Nevertheless, cigarette advertise- ments are visible on kiosks and billboards throughout the capital city of Ashgabat.) Bars and casinos are also not allowed to advertise. Foreign firms do not need permission from the GOTX to advertise except for companies involved in educational or medical activities; they require permission from the Ministry of Education or the Ministry of Health Care and Medical Industry.
Radio and Television Advertising. The National Television and Radio Company (NTRC) provides advertising services for both resident and non-resident companies doing business in Turkmenistan and accepts completed commercials as well as offering its own production facilities. There are two Turkmen channels, TMT and TMT-1, and one Russian channel, ORT, where commercials are placed.
The NTRC charges resident foreign companies airing TV commercials on TMT and TMT-1 channels 668,000 manats per minute plus a 20% value added tax and a 5% advertisement tax (the overall tax is 25%) and non-resident foreign companies 1,350,000 manats per minute plus a 25% tax. To air commercials on the ORT channel, NTRC charges resident foreign companies 750,400 manats per minute plus a 25% tax and non-resident foreign companies 1,500,800 manats per minute plus a 25% tax. (The June 1998 foreign exchange rate is 5,300 manats per one U.S. dollar.)
The charge for making TV commercials by the NTRC varies depending on the complexity of the production process and is different for resident and non-resident foreign companies. The prices may also be negotiated and discounts are provided.
The charge for airing radio advertisements is 107,000 manats per minute plus a 25% tax for foreign residents and 260,000 manats plus a 25% tax per minute for foreign non-residents. To produce a radio advertisement it costs 4,000 manats per word plus a 25% tax for both resident and non-resident foreign companies.
Advertisements can be placed from 9 a.m. till 6 p.m. (with a lunch break from 1 p.m. till 2 p.m.) Monday through Friday. To place an ad, contact:
Mr. Bayram Karajaev, Director (speaks Russian and Turkmen) TMT Reklama Enterprise 3, Molla Nepes Street, Ashgabat Turkmenistan 744000 Tel: [9](9312) 35-15-15, 39-46-94 or 39-86-62 Tel/Fax: [9](9312) 39-47-22
Print Advertising. The two newspapers with the highest circulation in the country are "Neutral Turkmenistan" in Russian and "Turkmenistan" in the Turkmen language. Each of them distribute around 40,000 copies a day. The advertising office "Turkmenpress- service" places ads in both newspapers. The newspapers sell advertising space in manats.
U.S. companies resident in Turkmenistan may place their ads in these newspapers at the following prices: 1,800,000 manats for one-half of a page, 1,180,000 manats for one-fourth of a page, 600,000 manats for one-eighth of a page, and 360,000 manats for one-sixteenth of a page.
Non-resident U.S. companies will pay $2 per one square centi- meter of advertisement space plus a value added tax of 20%.
Advertisements can be placed during working hours from 10 a.m. till 5 p.m., Monday through Friday, and on Saturday from 11 a.m. till 2 p.m. To place an advertisement, contact:
Mr. Konstantin Zavistovski, Advertisement Manager (speaks Russian) Turkmenpressservice Office 2nd Floor, Room 234 20 Atabayev Street Ashgabat, Turkmenistan 744000 Tel: [9](9312) 35-40-10 Tel/Fax: [9](9312) 46-84-55
The Akasya Ltd. firm, a private company, also provides a range of advertising services in Turkmenistan. It publishes ads in its own "Biznes Reklama" newspaper in the Turkmen language, arranges TV advertising and produces billboards. The firm may be contacted at the following address:
Mr. Warol Bekdash, Director (speaks Turkish and English) Akasya Ltd. 54-A Makhtumkuli Street Ashgabat, Turkmenistan 744000 Tel/Fax:(993)(12)47-18-64
Pricing Products
The Turkmen market is small, and economic and natural factors affect the pricing of goods. First, transportation costs can double, even triple the price of goods imported. Also, the small population size (4.7 million people) with an average salary of $40 to $60 per month does not make large shipments of goods that might be sold at prices reasonably acceptable to the Turkmen market possible. Finally, excise taxes levied on some imported products and goods and a value added tax of 20% affect prices.
U.S, companies interested in selling goods in the Turkmen market should take into account that the domestic pricing policy is unpredictable and encompasses almost all products produced by state enterprises. Some products and services (petroleum products, natural gas, electricity, mineral fertilizers, such services rendered to population as rent, heat and water supply) are subject to price control by the GOTX. Industries producing staple food items and goods for children are also indirectly controlled.
Selling to the Government
Turkmenistan's economy remains largely government owned and controlled. In some sectors, such as oil and gas, electrical energy, and telecommunications, the GOTX plans to play a con- trolling role for the foreseeable future. As the privatization process advances, private companies will make up more of the market, but in the medium term, most procurement will be done by the GOTX.
So far, most U.S. business activity in Turkmenistan has centered on development of the energy sector and on the sale of U.S. goods to the GOTX. According to the State Institute of Statistics and Forecasting, in 1997, the export of Turkmen goods to the U.S. was valued at $767,800 and the import of U.S. goods into Turkmenistan at $88 million. The U.S. exports such goods as food products, agricultural equipment, iron products, vehicles, computers and spare parts, aircraft, heli- copters and spare parts, medicine and medical equipment, chemical products, furniture and other goods to Turkmenistan. So far, direct U.S. investment in the country has been limited. However, it is expected that U.S investment in the oil and gas sector will increase in the near future.
In April 1996, the State Agency for Foreign Investment (SAFI) was established to perform multiple functions related to foreign investment projects as well as large trade credit transactions. The SAFI determines the priority to be given to projects involving foreign traders and investors; evaluates business proposals; reports to the President about the basic aspects of projects under consideration to obtain his approval; arranges international tenders; registers foreign traders and investors; and monitors implementation of projects. In addition, four State Funds for Development in the oil and gas industry and mineral resources; agriculture; transportation and tele- communications; and health care and medical industry have also been created to allocate foreign exchange earned by these industries to priority investment projects. To ensure sufficient fund availability for a particular investment project, the SAFI and the funds cooperate in regulating financial commitments made by Turkmen partners involved in foreign investment projects.
Import and export transactions carried out within investment projects and trade credit contracts must be registered with the SAFI, the appropriate fund and, finally, the SCRME.
Protecting Your Product from IPR Infringement
The GOTX has recently adopted a Civil Code which regulates IPR ownership in the areas of science, literature, and arts, as well as audio- and video-record production and distribution. A patent law and a law on legal protection of algorithms, software, data bases, and topology of integrated microcircuits have been in effect since respectively 1993 and 1994. The Patent Agency under the Cabinet of Ministers oversees patent law enforcement only for industrial innovations. No separate state agency supervises IPR issues. Should a case arise, all inquires must be made to the Cabinet of Ministers.
Turkmenistan has not been a country where IPR infringement has caused significant losses to U.S. holders of intellectual property rights.
Need for a Local Attorney
There is a lack of skilled legal, consulting and auditing services in Turkmenistan. There is only one U.S. legal firm operating in the country. Lack of knowledge of western legal systems, absence of any experience in working with U.S. law firms, limited international law involvement, an undeveloped legal system, and other factors such as the absence of skilled English-speaking lawyers, exacerbate poor legal services avail- able in Turkmenistan.
The State Economic Court of Turkmenistan deals with various economic disputes occurring between Turkmen enterprises. Cases with foreign company participation are also in the competence of the Court. However, it is recommended that a U.S. company stipulate international arbitration in any contract when considering doing business in Turkmenistan.
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Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.