A report, The Investment Climate in Turkmenistan: Challenges and Possible Ways of Attracting Foreign Investment, authored by Slavomír Horák (Charles University, Prague), along with two Turkmen researchers, Berdymyrat Ovezmyradov and Yolbars Kepbanov (Research Fellows at Lund University), provides a critical examination of Turkmenistan’s foreign direct investment (FDI) landscape. The study highlights the structural and systemic barriers to FDI, charts investment trends, and offers targeted reforms to make Turkmenistan a more attractive destination for foreign capital.
Key Challenges to FDI in Turkmenistan
- Economic Overreliance on Hydrocarbons: Turkmenistan’s economy is heavily dependent on natural gas exports, which account for over 90% of total exports. China absorbs 98% of these gas exports. This dependency leaves the economy vulnerable to price fluctuations and geopolitical risks.
- Legal and Regulatory Instability: Frequent and opaque legal changes, weak enforcement, and an absence of an independent judiciary undermine investor confidence. Many laws refer to non-public bylaws, making the legal environment unpredictable.
- Corruption and Informal Structures: Corruption and nepotism are pervasive, with informal systems often overriding official processes. Anti-corruption efforts have had limited impact.
- Currency and Banking Restrictions: Currency controls restrict the repatriation of profits and complicate payments to suppliers. The dual exchange rate – officially 3.5 TMT/USD versus ~19.5 on the black market – further complicates financial planning for investors. Delays in payments to foreign companies are common.
- Lack of Transparency and Reliable Data: Key economic indicators are often unreliable or unpublished. For example, the World Bank stopped reporting Turkmenistan’s economic data due to credibility issues. This opacity severely hampers investor assessments.
- Administrative and Institutional Barriers: The Ministry of Trade and Foreign Economic Relations nominally oversees FDI, but the Economic Risk Protection Agency functions as a non-transparent watchdog. The Union of Industrialists and Entrepreneurs reinforces state control and disadvantages non-members.
- Human Capital Drain and Skills Shortage: The emigration of educated youth (e.g., over 46,000 students abroad in 2020) limits the availability of skilled labor. Limited access to quality education and foreign language proficiency further hinders capacity building.
- Outdated Infrastructure and Poor Digital Connectivity: Restricted internet access and lack of independent internet providers impair business operations. Digital illiteracy is widespread, and infrastructure modernization is lagging.
- Restrictive Visa Regimes: Difficult visa policies deter potential investors and international partners, limiting business mobility and talent exchange.
- Banking Sector Deficiencies: The banking system lacks modern services like internet banking, is overly regulated, and often imposes withdrawal limits, exacerbating investor challenges.
Trends in Foreign Investment in Turkmenistan
- Peak and Decline: FDI peaked in 2009 at $4.55 billion (22.5% of GDP). By 2020, it dropped to $1.17 billion (2.2% of GDP).
- Sectoral Focus: FDI is concentrated in hydrocarbons, with minimal investment in agriculture, education, or services.
- Privatization: From 1994–2019, 2,466 state-owned enterprises were privatized. However, key sectors like energy remain under state control.
- Export Composition: Hydrocarbons dominate exports (>90%), while cotton contributes <5%.
- State Budget Shrinkage: Revenues fell from 102.8 billion TMT (2015) to 79.5 billion TMT (2021).
To attract more foreign direct investment (FDI), the report recommends that Turkmenistan implement legal reforms to ensure transparency and judicial independence, liberalize its economy by reducing excessive state control, modernize infrastructure and digital access, and improve data transparency and currency policies. Strengthening the rule of law, fighting corruption, and supporting human capital development are also crucial, alongside creating a predictable and investor-friendly environment aligned with international standards.
Overall, FDI is vital for Turkmenistan as it offers a pathway to diversify its economy beyond hydrocarbons, foster sustainable development, and promote technology transfer and job creation. It can also help modernize industrial production, enhance food security, and support growth in critical sectors such as education, healthcare, tourism, and renewable energy. While Turkmenistan holds vast resource potential and strategic importance, its restrictive investment climate deters long-term commitments. Hence, it is up to the government of Turkmenistan to undertake structural reforms and create an enabling environment to attract and retain foreign direct investment in the country.
