GOLDEN ARCHES ON THE FAR HORIZON?:WHY THERE'S

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 001217 SENSITIVE SIPDIS STATE FOR SCA/CEN; EEB; NEA/IR ENERGY FOR EKIMOFF/BURPOE/COHEN COMMERCE FOR EHOUSE E.O. 12958: DECL: 09/25/2019 TAGS: EPET PGOV EINV ECON TX SUBJECT: GOLDEN ARCHES ON THE FAR HORIZON?:WHY THERE'S STILL NO MCDONALD'S IN TURKMENISTAN REF: ASHGABAT 662 Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d). ¶1. (SBU) SUMMARY. To date, McDonald's does not have a franchise restaurant in Turkmenistan, nor in any of the five former Soviet republics in Central Asia. There is continued strong interest, among Turkmen business people and government officials alike, in opening a McDonald's in Ashgabat. The idea that Ashgabat could be the home of the first McDonald's in Central Asia, and knowledge that Azerbaijan has already opened three McDonald's restaurants, has sparked Turkmen entrepreneurs and government officials to discuss the possibility with Embassy representatives. Although opening any type of franchise should be a commercial endeavor, the Turkmen appear to treat it more like a bilateral issue that governments should broker. Divorcing government officials from the idea of a state-owned McDonald's will also take time. More important, presidential approval will be needed before any franchise could open in the country. Even if the government were supportive of a franchise, the Turkmen infrastructure would require much-needed investment in the agricultural and food production sectors, since depending on imports from neighboring countries could prove risky. END SUMMARY. FIRST ATTEMPTS ¶2. (SBU) According to local contacts, the idea of opening a McDonald's in Ashgabat was pursued seriously in the late 1990s by Turkmen business people. Embassy sources recounted that McDonald's sent representatives to Ashgabat to negotiate with Turkmen entrepreneurs, but McDonald's soon found itself at the table with only government officials who wanted McDonald's to sell a franchise directly to the Turkmen Ministry of Trade. In addition, Embassy contacts added that the presence of dual currency exchange rates forced many potential entrepreneurs to seek clandestine financial routes in order to escape government detection. Huge investment would be needed to establish food processing centers, as imports were too costly and would take too long to get to land-locked Turkmenistan. Despite the potential positive impacts on the Turkmen economy and unemployment rate, no deal with McDonald's came to fruition. �A;¶3. (SBU) Recently, a few Turkmen business people have sought out Embassy representatives regarding Turkmen-initiated plans to open a McDonald's franchise in Ashgabat. They explained that they had re-established ties with McDonald's regional office in Austria. Unfortunately, the start-up capital needed for a franchise has increased dramatically since the late 1990s, and getting loans from Turkmen banks is very difficult for non-government enterprises. Nevertheless, these young entrepreneurs have retained a lawyer from one of Turkmenistan's most reputable firms in order to initiate talks with McDonald's. The entrepreneurs took an Embassy representative to a large building in the center of Ashgabat where they plan to eventually open the first McDonald's in Central Asia. This group of Turkmen entrepreneurs told us they were interested in partnering with foreign investors to cover start-up costs, but drumming up foreign investors would immediately put them "on the government's radar screen." They were hopeful that Embassy support for a franchise might ease any potential government concerns or obstacles. MINISTRY OF TRADE DISCUSSES MCDONALD'S ¶4. (C) On September 22, Economic Officer received a call from the Turkmen Trade Ministry requesting a meeting the same ASHGABAT 00001217 002 OF 003 day. Ministry officials said the meeting was in response to a May 2009 meeting request to discuss U.S. chicken imports. During the meeting, however, Ministry officials seemed to know nothing about chicken imports. Instead, they began a series of questions regarding the opening of a McDonald's franchise in Ashgabat. (NOTE: Ministry of Trade officials told DAUSTR Lilienfeld in early 2009 that they had received inquiries from representatives of the McDonald's franchise in Azerbaijan in late 2008 (reftel). END NOTE.) The Trade Ministry's Foreign Relations Chief Legal Expert Abat Hezretova led the meeting by asking why the Ministry of Trade could not own a McDonald's franchise. She explained that the Ministry would like to own the franchise initially to ensure that it was a "safe" commercial enterprise for private Turkmen citizens before eventually selling the franchise to Turkmen entrepreneurs. Ministry officials then asked for the names of interested Turkmen investors, stressing that few private Turkmen would have the monetary means to open a McDonald's on their own. A BILATERAL JOINT TRADE COMMISSION ¶5. (C) Trade Ministry representatives were adamant that opening a McDonald's in Ashgabat was a bilateral (governmental) as well as a commercial issue. They asserted that a U.S.-Turkmenistan Trade and Economic Cooperation Agreement reportedly signed by the two countries in March 1993 provided the legal basis for the creation of a joint trade commission to discuss foreign investment in Turkmenistan. She encouraged the U.S. and Turkmenistan to establish such a commission as soon as possible, reporting that similar existing commissions with other countries have been productive. She did not accept that a project as "big" as a McDonald's franchise would be successful without bilateral cooperation. She envisioned the commission as a regular forum for the discussion of expanding U.S. and Turkmen trade. She promised that the Trade Ministry was not opposed to private Turkmen investors partnering with U.S. investors to open a McDonald's, adding that she thought it was the best option, if the government was indeed unable to own a franchise. (COMMENT: It did not appear that Ministry officials were aware of the recent decision to establish a bilateral commission that included a sub-group dealing with economic/commercial and development issues. END COMMENT.) SOME POSITIVES....... ¶6. (C) There are several positive factors that might help push the McDonald's franchise idea forward. First, Coca-Cola Turkmenistan is located in Ashgabat and could supply beverages without depending on imports. Second, our contacts have told us that a couple large Turkmen bakeries that produce western-style bread and buns have the capacity to provide bread products to a franchise restaurant. Potential Turkmen investors thought that Turkmenistan might have additional domestic resources to supply vegetable and dairy products, but investment in those sectors would be key. They noted that the government would have to approve any investments in these sectors as well. They also stressed that dependence on food imports from neighboring countries might prove too risky, due to regional politics, and the Turkmen government would most likely oppose such imports. Nevertheless, the notion that Turkmenistan could be the first Central Asian country to host a McDonald's might motivate government officials to re-examine the idea and show more flexibility. Ministry representatives also told us that if Azerbaijan already has three McDonald's, there must be a way for Ashgabat to have at least one for starters. ASHGABAT 00001217 003 OF 003 ¶7. (C) COMMENT. Although Post has repeated that McDonald's dictates it own business interests without USG involvement, Turkmen officials have not accepted the idea that such a project should be strictly commercial. Ministry officials seemed surprised to hear of attempts by Turkmen business people to bring McDonald's to Ashgabat without government involvement, noting that such a project would ultimately need the support of President Berdimuhamedov. The difficulty Turkmen entrepreneurs are having in establishing a foreign franchise like McDonald's in Ashgabat reflects the government's well-known fear of losing its tight control by allowing Turkmen citizens to partner with foreign investors. At the same time, the GOTX has not made its loan structure accessible to small, medium-sized entrepreneurs, making it difficult for Turkmen to finance a franchise on their own. Furthermore, corruption is so pervasive and the business climate so inhospitable that it would be difficult for a "brand" like McDonald's to be comfortable here. Even established foreign businesses complain about the corruption and bureaucratic red tape. As a result, Turkmen who have traveled abroad, and the expatriate community in Ashgabat, will have to endure the absence of other "golden arches" in Ashgabat, at least for now. END COMMENT. CURRAN