Previous Quarterly Editions
Expropriation Risk: 68 70 70 68 Political Violence Risk: 34 35 34 34 Terrorism Risk: 45 46 44 45 Exchange Transfer and Trade Sanction Risk: 68 70 72 72 Sovereign Default Risk: 56 58 58 57
TREND ► OUTLOOK ►
President Gurbanguly Berdimukhammedov’s return to public life after disappearing from view for more than a month over the summer has not ended speculation about his future. After what is widely thought to have been a serious health issue, he has limited his public appearances and now participates in government meetings via videophone. Although the president is only 62 and succession is not formally on the agenda, there are signs that efforts to line up his son Serdar to succeed his father are being accelerated. Serdar, who will reach the minimum age for the presidency in 2021, was recently praised for delivering the harvest in his region faster than any other region and has led a trade delegation to the United Kingdom. However, Serdar would be an unpopular choice among Turkmenistan’s elite and his inexperience would also raise concerns in Beijing and Moscow, the country’s two main trading partners, about the prospect of instability. There have been indications that Turkmenistan is moving closer to Russia, potentially in a bid to secure its support for a Serdar succession. Following the restoration of gas purchases by Gazprom earlier in 2019, a number of figures have been appointed to the government with affiliations to Russia. The most notable is Igor Makarov, who is now an advisor to the president on oil and gas issues. Despite his physical absence from cabinet meetings, Berdimukhammedov has vigorously applied his usual approach to the country’s economic crisis, which has progressively worsened since 2012. In a series of bruising meetings on the gas, oil, industrial and agriculture sectors in November, the president castigated his ministers for poor performance and dismissed several of them. More surprisingly, since his absence in the summer he has undertaken visits to Singapore, Japan and Italy as well as Azerbaijan. These are key partners not only for financing but also for supplying the machinery and equipment needed to boost Turkmenistan’s energy, industrial and agricultural output. Without additional financing beyond crippling Chinese loans, the resources required to exploit reserves in the country’s largest gas field, Galkynysh, where deposits are 4km deep, will increasingly move out of reach. The president has also been lobbying hard for two new gas export projects, the Trans-Caspian Pipeline (TCP) to Europe and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, although neither is likely to be moving forward in the near term. Domestically, Turkmenistan does not have the production capacity to fill another pipeline beyond those going to China and Russia, while the security situation in Afghanistan combined with fading interestin both Pakistan and India makes TAPI an unlikely prospect. Meanwhile, with no progress towards a market economy, unemployment is estimated to be somewhere between 40-60%, with most of those in work still employed by the public sector.
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In late 2019, reports emerged that Turkmenistan had extended a production-sharing agreement with Malaysian oil and gas firm Petronas from 2028 to 2038. This would mark some progress in the investment environment in Turkmenistan. While Ashgabat has traditionally had good relations with Turkish investors, particularly in the construction sector, even this relationship has frayed in recent years. There are currently five cases pending in the International Court for the Settlement of Investment Disputes, all involving Turkish companies. In such a hostile environment, investors are rarely willing to explore opportunities beyond the energy sector, limiting any prospects for privatisation.
TREND ► OUTLOOK ▲
Despite the extensive economic hardships, Turkmenistan is not known for political violence, demonstrations or labour disputes even though the government has been forced to reduce state benefits and subsidies, most notably ending free domestic utilities in 2018. The government has also taken measures to limit external and internal migration, with reports that the police have been blocking access to the capital from the regions. Shops and markets in Ashgabat are forbidden to sell goods to individuals not registered in the city, and merchants are now required to ration out goods according to the number of family members. Most recently, they have been forbidden to accept cash in some cases following the launch of a government payments card. While these measures will make it even harder for people to buy staple products, the government appears confident that this will not trigger any demonstrations.
TREND ▲ OUTLOOK ►
Turkmenistan continues to worry that extremist violence will enter the country through its long border with Afghanistan, and this is one of the few political and security issues on which the Turkmen government engages with the international community. The threat has grown somewhat in recent years as some Islamic State fighters relocated from Syria and Iraq to northern Afghanistan, where they have recently suffered a series of defeats. Ashgabat’s concern that the ongoing economic crisis could act as a source of radicalisation may be overstated, however. 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.
A recent IMF staff visit concluded that overvaluation and inconvertibility of the currency were primary barriers to growth and investment in Turkmenistan. However, the government remains determined to maintain the 2015 exchange rate of the manat, despite the volatility of commodity prices and disruptions in gas exports. This has created an extensive black market for both currency and consumer goods. Restrictions on the travel of migrant workers have also added to the shortages of foreign currency in the country. Turkmenistan’s cotton industry continues to be the subject of a ban on imports into the United States due to the use of child and forced labour.
According to the IMF, total government debt was set to reach 27% of GDP by the end of 2019, up from 21.8% in 2015. Some of this has been a result of state-led credits for investment into capital goods, such as machinery and equipment for the energy and agricultural sectors. However, the government also has a history of investing in inexplicable vanity projects, such as the enormous airport in Ashgabat that has already cost 2.25 billion dollars. While public debt remains at a manageable level, the economy remains in desperate need of alternative sources of investment in the long term.
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