Overseas business risk for Turkmenistan

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Information on key security and political risks which UK businesses may face when operating in Turkmenistan.

1.Overview

Turkmenistan is located in a strategically important region, bordering Afghanistan, Iran, Uzbekistan and Kazakhstan. It is bounded on the west by the Caspian Sea. It gained independence from the USSR in 1991. Official statistics give the population as 5.9million, but there is evidence that it has fallen substantially in recent years as people leave to find work, and may be as low as 4 million. The Karakum desert covers 80% of the country. Turkmenistan has the world’s fourth largest proven reserves of gas^{[footnote 1]}. Gas export to China plays a major role in the national economy. Gas market diversification is a major government objective and recent years have seen increasing sales to Russia and signs of markets opening with Azerbaijan and Iran.

Turkmenistan’s current President is Serdar Berdimuhamedov, who was appointed President in March 2022, taking over from his father, Gurbanguly Berdimuhamedov, who held the post from 2006 to 2022. The volume of trade with the UK in the year to September 2022 was £43 million, in goods and services. Turkmenistan’s foreign policy is centred on its status of permanent neutrality. Turkmenistan is an FCDO Human Rights Priority country.

2.Political

2.1Politics

Turkmenistan became a Soviet Republic in 1924. It gained its independence in October 1991 following the collapse of the USSR. The 2016 Constitution defines the country as a secular democracy and a presidential republic.

The Constitution laid down that the legislative, executive and judicial branches of government would be independent.

On 21 January 2023, 3 new Constitutional Laws were passed. The first established former President and Chair of the Halk Maslahaty (People’s Council) Gurbanguly Berdimuhamedov as National Leader of the Turkmen People. The new role gives extensive rights to address the people, speak at meetings of the Mejlis of Milli Gengesh (National Assembly) and at the Cabinet of Ministers and to chair the Halk Maslahaty.

The second law returned Turkmenistan to a unicameral parliamentary system with elected deputies sitting in the Mejlis. The third restored the Halk Maslahaty to its previous role as the highest representative body of the people of Turkmenistan. It will meet routinely once a year and can be convened at other times by the Chair. The Halk Maslahaty will be chaired by the National Leader of the Turkmen People and membership includes the President, Cabinet members, members of the Supreme Court, the Ombudswoman, members of the Mejlis, mayors and other provincial officials and representative members of the public.

On 13 January 2023, the Mejlis of Milli Gengesh announced that elections of deputies of the Mejlis would take place on 26 March 2023 and on the same day members of velayat, etrap and city People’s Councils, and members of Gengeshes (Councils) would also be elected.

In the 2018 parliamentary elections 3 political parties put forward candidates: the Democratic Party (the successor to the Communist Party), the Agrarian Party and the Union of Industrialists and Entrepreneurs. Independent citizens’ groups also put forward candidates.

All the parties supported the President, with only minor differences of emphasis. The Democratic Party won 54 seats, the Agrarian Party 11 seats, the Union of Industrialists and Entrepreneurs 11 seats and independent citizens’ group candidates the remaining 49 seats.

2.2The President

Serdar Berdimuhamedov, son of the previous President, was elected President on 19 March 2022. He was declared winner with 72.97 % of the vote from a turnout of 97.12%

The OSCE’s Office for Democracy Institutions and Human Rights (ODIHR) did not observe the 2022 Presidential election. An assessment mission expressed concern that none of ODIHR’s previous recommendations on the conduct of elections had been implemented and that quarantine requirements imposed on ODIHR observers would prevent them from carrying out their mission. It therefore judged that election observation activity was not feasible. Observation missions from the Commonwealth of Independent States, Shanghai Cooperation Organisation, Organisation of Islamic Cooperation and the Turkic Council were assisted by the authorities to visit selected polling stations and expressed satisfaction with the election process.

The President is Supreme Commander of the Armed Forces and responsible for senior appointments in government, the judiciary and the major organs of state and religion.

The previous President Gurbanguly Berdimuhamedov was appointed acting President in December 2006 following the death of the country’s first president, Saparmurat Niyazov. He was confirmed in office following elections in early 2007 and again in 2012. He was re-elected for a third term in February 2017 with 97.7% of the vote. ODIHR noted in their 2017 observation report that the elections took place in a heavily controlled political environment and that a lack of genuine opposition or meaningful pluralism limited voters’ choices.

2.3Development

Turkmenistan collaborates with the United Nations under the UN Sustainable Development Cooperation Framework that will guide development until 2025. The EU, the OSCE and individual countries, including the US and the UK, also run limited in-country development programmes. Turkmenistan has prepared a 30-year plan that sees it becoming a regional transport and energy hub.

2.4Foreign policy

Turkmenistan attaches great importance to its policy of permanent neutrality, a status recognised in a United Nations General Assembly Resolution adopted in December 1995.

In 2022 the Ministry of Foreign Affairs described Turkmenistan’s foreign policy priorities as 5-fold:

• ensure regional security and stability
• promote neutrality in the international arena
• diversify Turkmen foreign economic relations
• promote stable development
• work for ‘humanisation’ of international relations. In this last respect, it noted the importance of promoting human rights to food, water, health, education and light

Turkmenistan’s major international trading partner is China. In January 2023, President Serdar Berdimuhamedov paid his first official visit to China, where the 2 Presidents discussed plans to bring the bilateral relationship to a comprehensive strategic partnership. Turkey is the next most significant, underpinned by historical, cultural, commercial, economic and political ties.

Turkmenistan cannot ignore Russia’s political weight and Russia still regards Turkmenistan as within its legitimate sphere of interest. In 2022 and 2023 several high-level visits to and from Russia took place. President Berdimuhamedov paid a visit to Moscow in June 2022. President Putin attended the sixth Caspian Summit in Ashgabat in June 2022.

In November 2022 the Speaker of the Halk Maslahaty Gurbanguly Berdimuhamedov was received by the Kremlin and presented with the Order for Service to the Fatherland. Turkmenistan has not voted in any UN General Assembly Resolutions concerning the illegal invasion of Ukraine by Russia. In April 2022 Turkmenistan sent a consignment of humanitarian aid to the people of Ukraine.

Turkmenistan shares 462 miles of border with Afghanistan. Some 1 million ethnic Turkmen live in Afghanistan along its borders with Turkmenistan and Uzbekistan. Relations with Afghanistan are generally good. Turkmenistan has played a small but positive role in its development and reconstruction, delivering humanitarian aid and supplying Afghanistan with cheap electricity, gas and oil. Taliban diplomats took charge of the Afghan Embassy in Ashgabat in early 2022.

Turkmenistan also shares 621 miles of border with Iran. There are at least 1 million ethnic Turkmen living in Iran, mostly in the border region of Turkmen Sahra. In June 2022 President Berdimuhamedov paid an official visit to Tehran to discuss bilateral cooperation and gas swap deals to third countries.

Following the efforts of Berdimuhamedov senior and then the new Uzbek leadership, relations between Turkmenistan and Uzbekistan improved in recent years. Building on his father’s foreign policy efforts, President Serdar Berdimuhamedov’s third official foreign visit was to Tashkent in July 2022. In October 2022 President Mirziyoyev paid a visit to Ashgabat.

The EU’s engagement in the region is governed by its Strategy for Central Asia. This supports peaceful, prosperous, sustainable and stable development and the promotion of good governance, human rights and the rule of law.

Relations with the United Kingdom focus on climate change, the green economy, gender equality, education, regional security and human rights.

3.Economy

No reliable economic data are published in Turkmenistan. Most sources cite figures that the government releases to international financial institutions. These do not always square with observation on the ground. Turkmenistan’s economy is based on the sale of gas and (some) oil. China is the main market for Turkmen gas. Turkmenistan exports some cotton, yarn, textiles and processed food.

The volume of trade with the UK declined from £123 million in 2011 to £43 million in 2022. The balance of trade is significantly in the UK’s favour.

In February 2023 Fitch Ratings reaffirmed Turkmenistan’s long-term foreign currency Issuer Default Rating (IDR) at “B+” and uprated the outlook from “stable” to “positive”.

The recommendations of the latest IMF mission to Ashgabat in 2019 remain relevant. The IMF noted that economic growth had slowed because of lower public investment and stringent exchange controls, which had reduced both demand and imports. This, and rising hydrocarbon prices, had resulted in a balance of trade surplus but the economic outlook was uncertain because of the disequilibrium between the official and non-official exchange rates. The mission made a number of recommendations, including:

• enhancing competitiveness and improving currency convertibility in order to achieve development goals without recreating a trade deficit, but sequencing changes and taking steps to protect the vulnerable
• accelerating moves towards a market-based economy, including privatising state-owned enterprises, promoting competition, enhancing the rule of law and reducing red tape
• phasing out import substitution policies to make exports more competitive and help diversify the economy
• greater transparency and better economic statistics to attract private foreign and domestic investment
• better regulation and supervision of the banking sector to preserve financial stability and integrity
• improved access to internet and greater use of digital technologies
• better policy frameworks, including for management of public finances, debt, and investment
• building human capital, in particular improving the education and health systems

The economic effects of sanctions imposed by the international community on Russia following its invasion of Ukraine in February 2022 appear to have been felt less in Turkmenistan than in other countries in the region. This is likely to due to the dominance of China in the economy and the growing economic relationship with Turkey.

The Government of Turkmenistan has not acknowledged any cases of COVID-19 on its territory but did impose large scale restrictions that are likely to have impacted the economy. Restrictions ended in late 2022 and current economic indicators are showing a positive trend.

In February 2022 Turkmenistan became a WTO accession country and in July 2022 a WTO delegation paid an official visit to Ashgabat to discuss Turkmenistan’s accession process.

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