Previous Quarterly Editions
Expropriation Risk: 70 70 68 68 Political Violence Risk: 35 34 34 34 Terrorism Risk: 46 44 45 44 Exchange Transfer and Trade Sanction Risk: 70 72 72 74 Sovereign Default Risk: 58 58 57 60
TREND ▲ OUTLOOK ▲
Following his prolonged and unexplained absence from public view last summer, President Gurbanguly Berdymukhamedov resumed his place at the centre of the country’s political scene during the autumn. Although the president is only 62, the questions about his long-term health have continued and there is a clear emphasis now on sorting out a succession plan that can produce a smooth transition of political power. The existing system in which there is both a parliament and a People’s Council is being transformed into a bicameral legislature, with the speaker of the upper chamber becoming the first in line to succeed the president if incapacitated. Berdymukhamedov’s son, Serdar, is now expected to take this position once the constitutional changes approved last year have been implemented. In February 2020, he was appointed Minister of Industry and Construction, having previously served as head of the economically significant region of Akhal. However, he is not yet 40, is still relatively inexperienced, and has no powerbase of his own among the country’s political elite. As a result, he is not yet assured of succeeding his father. Another priority of the president that preceded the arrival of COVID-19 has been to pull the country out of the economic crisis that has grown progressively worse since 2012. While he continues his traditional domestic strategy of blaming the incompetence of ministers and officials, he has been making greater efforts to engage with foreign partners, even holding an investment forum in Dubai in February 2020. A critical objective is to boost gas production, particularly from the giant Galkynysh field, and open up new export routes, although the pipeline projects on which Ashgabat is pinning its hopes both appear to be in trouble. What remains unchanged is the government’s refusal to accompany calls for new investment with any effort to improve the commercial environment for potential investors. There have been few measures to increase confidence in the security of contracts or demonstrate the government’s determination to meet its commitments. Against this background of an undiversified economy and minimal international goodwill, the impact of COVID-19 will hit the country hard. The proximity of the capital to the country’s substantial border with Iran is a huge cause for concern given the situation in the neighbouring country, and it explains why Turkmenistan took drastic measures to shut down travel and trade. However, the government’s response at home has been typical, with officials instructed not to mention the virus and a tight control over official information. The result has been considerable confusion given that some of the early measures that the government took to limit the spread of the disease, such as cancelling flights to and from China, were widely known. While reliable news from Turkmenistan on the socio-economic situation has always been scarce, it has become even rarer with the arrival of the virus, but there are reports of rapid price hikes on foodstuffs and a boom in the already large black market for foreign currency.
TREND ► OUTLOOK ▲
The continuing economic crisis has produced some signals that Turkmenistan is becoming more open to foreign investment. In particular, President Berdymukhamedov has been overcoming his previous reluctance to leave the country and is now prepared to travel with delegations to meet potential investors. However, there have been no notable changes in the operating environment, which remains extremely challenging for foreign firms, particularly for those without a longstanding connection to the ruling elite. Currently, there are five cases pending at the International Centre for Settlement of Investment Disputes. In such a hostile environment, investors are rarely willing to explore opportunities beyond the energy sector, and certainly not without guarantees from the highest level of government. But amid a further fall in Chinese demand for gas imports, which in recent years have accounted for more than 25% of GDP and been a critical source of foreign exchange, the pressure to make more tangible moves to encourage investment is greater than ever.
The coronavirus outbreak will significantly deepen a longstanding economic crisis that has already seen an end to free domestic utilities and is now producing a rapid rise in consumer prices. However, despite the hardship, the population has not shown any inclination to test the security services by holding demonstrations or engaging in protracted labour disputes. Now, with the lockdown conditions in Ashgabat meaning a significant escalation of existing government controls, any evidence of opposition is even less likely. However, the impact of the virus has already reduced access to food supplies and raised prices, and a widespread crisis in the country’s healthcare system will increase resentment at government failings even if that resentment remains unexpressed.
TREND ▼ OUTLOOK ►
The Turkmen government considers Islamist violence a potential threat to domestic stability, particularly given the country’s land border with Afghanistan. For this reason, Ashgabat has been willing to engage with the international community on terrorism issues, one of the few areas where it chooses to cooperate multilaterally. With the defeat of Islamic State in Syria and Iraq, the government views the movement of fighters to northern Afghanistan as a serious security risk and remains concerned about the return of fighters to Turkmenistan. However, the government has often exaggerated this threat to justify its own internal security measures. Terrorist incidents have not been a feature of the domestic security environment in Turkmenistan, nor are they likely to be in the near or medium term.
IMF assessments have consistently identified the inconvertibility and overvaluation of Turkmenistan’s currency, the manat, as a primary barrier to further trade and investment. Even following the demand shock brought on by the virus crisis, the government has retained the manat at its current rate. In March 2020, it limited all international payments to 200 USD a month per person and reduced the amount of USD that can be purchased through deposit onto a bank card from 500 USD to 300. These policies have resulted in an explosion in the already large black market for foreign currency. The restrictions will also undermine the limited export trade in which Turkmenistan engages, further impacting living standards.
The IMF estimates that the national debt had reached 27% of GDP at the end of 2019, up from 21% in 2015. However, the situation will have worsened rapidly with the latest drop in gas exports to China. The government has given no indication as to the depth of the COVID-19 crisis or how it plans to deal with the fallout, giving potential investors or multilateral lenders little understanding of its policy options. Even before this latest economic blow, the government had little strategy to increase and diversify its sources of income beyond the export of gas.
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