The Economy

In the economic sector, Turkmenistan pursues an open door policy, looking for cooperation with foreign partners and is open to foreign investment. The country is rich in natural resources - natural gas, petroleum, cotton, minerals and is also known for its rugs. The development of gas resources and transportation of natural gas to the lucrative markets of Europe and Asia present the country, which has no direct access to the ocean, with major problems. With the commissioning of the Turkmenistan-China gas pipeline and a second pipeline to Iran in late 2009/early 2010, the previous pipeline monopoly of Gazprom has been broken and an important step has been taken in the direction advocated by Turkmenistan of diversifying gas exports. The EU is negotiating with Turkmenistan on gas supplies for the planned Nabucco pipeline. RWE was also awarded a license for offshore drilling in the Caspian Sea. With support from abroad, the expansion of the petrochemical industry as well as power generation is being enhanced, which makes Turkmenistan one of the largest electricity exporters in the region today. The country also has favorable conditions for the use of renewable energies (solar, wind power).

The Economic Potential

Turkmenistan's main economic activities are:

  • the natural gas and oil industry
  • the textile industry
  • Livestock
  • Carpet Manufacturing

On the Kara-Bogaz-Gol Bay on the Caspian Sea sodium sulfate is mined and in the centre of the Kara-Kum Desert and the south eastern region of the country sulfur is mined.
Fundamenttal to the manufacturing industry, is the processing of crude oil (refineries in Turkmenbashy and Seydi) as well as electricity production and cotton processing. 

The chemical industry (e.g in particular the sodium sulfate salts and the sulfur deposits), the construction industry, mechanical engineering and food industry are particularly underdeveloped.
A consumer goods industry is currently in the development phase.
Productivity in the farming industry is limited.

Reforms

After years of stagnation and isolation Turkmenistan has started introducing basic reforms.

Priorities are:

  • liberalization of the economy
  • the modernization and diversification of the economy
  • the privatization of state enterprises with the exception of companies in the oil and gas sector
  • the establishment of a western style free market economy

A special program has been launched to develop rural areas and improve living conditions for people living in rural areas.
For the implementation of these reforms, Turkmenistan is seeking foreign assistance and investment.

Foreign Trade

Turkmenistan's economy is dependent on the country’s commodity exports - oil, natural gas and to a lesser extent cotton. Main trading partners of the country are the CIS, the United Arab Emirates, Turkey, Iran, China, Korea, the EU and the USA.

The main imports include machinery, vehicles and equipment, chemicals and consumer products. Over 50% of imports come from countries in Asia. Import tax is low.

Finance and Banking

The financial and banking sector is largely in the hands of the state. The currency reserves of the country are provided by the Asian Development Bank, currently at $8 billion. A reform of the budget was set in motion with the help of the EU. Cooperation with the World Bank and the IMF has intensified and the EBRD has also intensified its activities to strengthen the private sector. The Asian Development Bank and the Islamic Development Bank have provided extensive loans and have also invested in large infrastructure projects.

The banking system is currently being reorganized, with the aim of further supporting the private sector. The credit approval process was relaxed. Small and medium-sized companies have regained access to capital markets since the unification of exchange rates. 
The GDP growth rate in 2009 was 6.1% and was below 10% for the first time. For 2010, there is an expected growth rate of 6.5%.
The inflation rate fell by 0.1% to 14.5% in 2009 due to the falling international price of food, customs facilities and facilitating access to foreign capital, for 2010 it is expected to rise by 3.5%. Improved tax and customs legislation has had a positive impact on general government revenues. The per capita gross domestic product amounted to 1,979 USD for 2007, far above that of the neighboring countries of Uzbekistan, Kyrgyzstan and Tajikistan. In its June 2010 report, the IMF praised the government’s increasing efforts to improve the population’s social situation and its budget allocations for the further development of the country. The majority of the population is, however, hardly able to benefit from the recent economic growth. Unemployment is still high, and poverty flourishes particularly in rural areas. The national unemployment rate is estimated to be at about 50%. The proportion of people living in absolute poverty is, according to the World Bank, less than one percent, but nearly 50% are living below the poverty line.

Enterpreneurship

Private entrepeneurship, which has so far mainly been focused on the trade and services sector is now also gaining importance in the construction and transportation industries. The construction sector has become the „engine“ of the economy – and has seen a growth rate of 300% since the previous year. In October 2009, President Berdymuhammedov announced that the share of the private sector was already at 40%, an increase of 70% is the aim.
The conditions for small and medium-sized enterprises have improved considerably. Entrepeneurial ambition is encouraged. The banks are now empowered to grant loans and foreign transactions. A Union of Producers and Entrepreneurs of Turkmenistan has been established. The tax system has been simplified and new tax laws have been introduced which international organizations contributed to. Great efforts are being made to promote economic thinking and trade as well as modern management in the economic sphere and in governmental institutions.

Investment Climate

Despite the difficult regulatory environment, corruption, inefficiency of state agencies and lack of transparency, the share of foreign investment in 2008 was already at 17% of total investments - and it is still rising. Meanwhile, the climate for foreign investment has been significantly improved (foreign exchange regulations, tax incentives, legal protection, exemption from customs duties for equipment) and a new law on investment has been passed.
 
The new law allows the establishment of joint ventures with Turkmen companies, the creation  of own enterprises in Turkmenistan, the acquisition of existing Turkmen companies, the opening of branches of foreign companies, the acquisition of property, etc. The state guarantees for foreign investment have been expanded considerably. The visa requirements have also been relaxed.

Outlook

The financial crisis did not hit Turkmenistan as hard as other countries in the region, since in the past the country was kept away from the international financial markets, has little foreign debt, has extensive currency reserves, and the capital transfer of Turkmen workers abroad only plays a minor role. A stability fund was launched by the government, powered by the budget surpluses. According to the report of the International Monetary Fund in June 2010, the high export earnings from the natural gas industry has increased government revenues and foreign assets. This has set the stage for an acceleration and expansion of the economic reforms which were established in 2008 with the alignment of exchange rates. With support from the EU, the budget bill was drafted and reforms in public financial management were introduced. First steps have been taken towards a fundamental reform of the financial sector. The banks are again interested in deposit business and have expanded their business towards a market-based credit system. Great efforts are being made to combat the widespread corruption in the country, to establish an efficient administration and also to establish the legal framework for a modern and efficient economy.
The adaptation of the exchange rate which was made in two steps, the tax code reform, the improved environment for foreign investment, training for managers and financial experts as well as a reduction in subsidies and a first attempt to liberalize the price structure all emphasize the extent of reform efforts.
Despite all the difficulties inherent in the current transformation process, the country's political stability, continued economic growth and favorable conditions for foreign investors still make the country a favorable place to invest.




Caspian Way - Turkmen Business

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