TURKMENISTAN: NEW LAW FOR SMALL BUSINESSES

UNCLAS SECTION 01 OF 02 ASHGABAT 001083

SENSITIVE

SIPDIS

STATE FOR SCA/CEN; EEB

E.O. 12958: N/A
TAGS: EPET PGOV EINV TX
SUBJECT: TURKMENISTAN: NEW LAW FOR SMALL BUSINESSES


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: On August 22, the Government of Turkmenistan
officially published the Law on State Support for Small and
Medium-Sized Enterprises (SME) - the first law of this type adopted
in Turkmenistan. The purpose of the law is to establish a legal
basis for creating favorable conditions for small and medium
business development and to create an efficient mechanism for
providing state support to SMEs. The law provides a definition of
SME, specifies types of state regulation and state support, and
describes state guarantees of protection for SMEs. At face value,
the law keeps decision-making power over SMEs in government hands,
leaving the question of how it will be implemented unanswered. END
SUMMARY.


3. (SBU) According to the law, all SMEs are divided into the
following categories: micro-enterprises with the number of
employees not exceeding 10-15 persons (15 for industrial,
construction, natural gas distribution, and water supply
enterprises); small enterprises with the number of employees not
exceeding 25-50 persons; medium-sized enterprises with the number of
employees not exceeding 100-200; and individual entrepreneurs with
no more than five employees who are registered as individual
enterprises.


4. (SBU) The law stipulates that the Cabinet of Ministers, the
State Commission for Support of Small and Medium Businesses (State
Commission),welayat (provincial) authorities, self-government
bodies, and welayat commissions for the support of SMEs will
exercise state regulation at their respective levels. The Cabinet
of Ministers will mostly focus on the consideration and approval of
the State Commission's proposals. The State Commission, which will
include ministers, hakims (governors) of welayats, members of the
Union of Industrialists and Entrepreneurs, other public
associations, and business organizations, will also play key roles
in regulating SMEs.


5. (SBU) According to the law, state support for SMEs will be
provided in the following areas: creating favorable conditions,
including provision of financial, material and technical resources;
providing access to legal, economic, technical and other types of
information; stimulating SMEs to invest in projects creating new
jobs and increasing community revenue; purchasing goods and services
from SMEs on a competitive basis; implementing special programs for
financing SMEs; assisting SMEs in training their personnel;
assisting SMEs in developing foreign economic activities and
regional cooperation, while, enhancing their export potential.


6. (SBU) The law stipulates that state inspection and law
enforcement bodies can conduct inspections of financial and economic
activities of small and medium businesses not more than once every
three years. The law also protects SMEs from unjustified
interference in their activities on the part of government
authorities and law enforcement agencies.


7. (SBU) According to two local businessmen who run a small shop
and a sewing workshop, the provisions in the above paragraph sound
good, but they may prove difficult to enforce. There are so many
governmental agencies authorized to inspect private businesses that
if all of them come once in three years, there will still be
numerous inspections. The law also does not provide a clear
definition of "unjustified interference," so there is a possibility
that it will be up to government agency officials, potential
"interferers," to decide which type of interference is justified and
which is not. The businessmen also mentioned that the law seems to
favor medium-sized enterprises and opined that they, as small
business owners, will not see significant changes with the adoption
of the law.


8. (SBU) COMMENT: The adoption of this law has been touted as a
positive development for Turkmenistan by the government. At the

ASHGABAT 00001083 002 OF 002


same time, the law does not provide SMEs with more independence,
leaving decision-making power over SMEs in government hands.
Whether and how the new law is to be implemented remains a major
question for SME owners in Turkmenistan. If the GOTX takes positive
steps to implement the law, then SMEs might be able to claim a small
victory in the battle for some commercial independence. END
COMMENT.

MILES