Guidance

Overseas Business Risk - Turkmenistan

Updated 15 February 2021

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 Soviet Union in 1991. Official statistics give the population as 5.9 million, 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 and it has the world’s fourth largest proven reserves of gas. Gas receipts initially allowed the Government to undertake a major development programme, transforming the capital, Ashgabat, the port of Turkmenbashi and the new Caspian tourist resort of Avaza.

The fall in the world prices of oil and gas in 2014, the reduction in gas supplies to Russia and continued high levels of infrastructure expenditure led to a slow down of the economy from 2016 onwards. Gas supplies to Iran were cut in January 2017 in a dispute over pricing, further reducing income. The government has since sought to address this by a programme of diversification and by sharply reducing imports.

2. Political

2.1 Politics

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.

2.2 The 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 his third term in February 2017 with 97.7% of the vote. The OSCE’s Office for Democratic Institutions & Human Rights, who observed the elections, noted that they took place in a heavily controlled political environment and that a lack of genuine opposition or meaningful pluralism limited voters’ choice.

President Berdimuhammedov is Supreme Commander of the Armed Forces and responsible for senior appointments in government, the judiciary and the major organs of state and religion. He sets government policy and takes all major decisions on its implementation.

2.3 Parliament and political parties

The 2016 Constitution laid down that the legislative, executive and judicial branches of government would be independent.

In October 2017 President Berdimuhammedov announced the replacement of the Council of Elders, responsible under the 2016 constitution for local government, by a People’s Council with a wider composition and more extensive competences. Its members were elected on 25 March 2018.

It must be convened not less than once a year and its decisions must be implemented by the President, the Parliament, the Cabinet of Ministers and other government bodies. The inclusion in its executive committee of the President himself (as chairman), the Speaker, the President of the Supreme Court and the Chairman of the National Security Council calls into question the extent to which a separation of powers is now possible.

Three political parties put forward candidates for the parliamentary elections, which were held in March 2018 in parallel with elections to the People’s Council: 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.

Turkmenistan is switching to the bicameral system of parliament and the elections will take place in March 2021. The national parliament will be called Milli Gengesh. The upper house will be called Khalk Maslahaty and the lower house will be called Mejlis.

The Khalk Maslahaty will have 56 members, of which 48 will come through elections and eight will be nominated by the President.

2.4 Development

Turkmenistan collaborates with the United Nations under the UN Sustainable Development Cooperation Framework which will guide development until 2025. The EU, OSCE and individual countries, including the US and the UK, also run limited in-country development programmes.

2.5 Foreign policy

Turkmenistan attaches importance to its permanent neutrality, a status recognised in a United Nations General Assembly Resolution adopted in December 1995. Following the 2017 presidential elections the Ministry of Foreign Affairs set out its foreign policy objectives. These include:

• retaining neutrality as the cornerstone of its foreign policy and the United Nations as the principle forum through which it works, in particular on environmental issues, including energy security, the development of transport corridors across Central Asia, water management and the prevention and mitigation of natural and man-made disasters

• expanding its relations with the OSCE, the Islamic Cooperation Organisation, the Non-Aligned Movement, the CIS (as an Associate Member, and without compromising its neutrality), the Shanghai Cooperation Organisation and regional neighbours, with a particular emphasis on Afghanistan, in order to preserve and strengthen peace and security in Central Asia

In practice, Turkmenistan’s major international trading partner is China, to which it exported 34.4 billion cubic metres (bcm) of gas in 2018. Turkey is the next most significant, underpinned by historical, cultural, commercial, economic and political ties. Relations with Russia are not straightforward. Both Turkmenistan’s presidents have sought to embed a sense of single nationhood among the different Turkmen tribes, in many cases at the expense of other ethnicities, including Russians and Uzbeks.

But Turkmenistan cannot afford to ignore Russia’s political weight, and the Russians for their part still regard Turkmenistan as within their legitimate sphere of interest. President Putin visited Ashgabat in October 2017. President Berdimuhammedov paid a return visit to Moscow in August 2018.

Turkmenistan shares 462 miles of border with Afghanistan. Some one million 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.

Turkmenistan also shares 621 miles of border with Iran. There are at least one million ethnic Turkmen living in Iran, mostly in the border region called Turkmen Sahra.

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 are friendly, but limited in scope.

3. Economy

No reliable economic data are published in Turkmenistan. Most sources cite figures which the government releases to the 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. The world price of oil and gas fell in 2014 and has staged only a limited recovery. Turkmen gas is now sold mainly to China (see paragraph 3.1 below). Turkmenistan exports some cotton, yarn, textiles and processed food but not enough to make up for the loss of gas revenue.

An IMF mission to Ashgabat in April 2019 noted that economic growth in 2018 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 and the subdued outlook for gas prices. 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

Many of these are recurring themes.

3.1 Energy sector

Turkmenistan has the world´s fourth largest proven reserves of natural gas and the world´s second largest single deposit in the Galkynysh field in the south east of the country. It currently produces 70 to 75 bcm of gas annually. 35 bcm is consumed internally, mainly for power generation, fertiliser production and residential use. Over 34 bcm is exported to China. Supplies to Russia (2016) and Iran (2017) were cut following disputes on pricing and payment. Some exports to Russia resumed in April 2019. In 2019, the State Concern Turkmengaz signed a 5-year contract with Russia’s Gazprom for the supply of up to 5.5 bcm of natural gas per year. Exact figures have not been released, but are believed to be in the region of 3-4 bcm.

Potentially Turkmenistan’s gas reserves could provide an additional 30 bcm annually for the proposed Southern Gas Corridor (a project to bring gas to Europe through Turkey from Azerbaijan initially and possibly from Iran and/or Turkmenistan in the longer term). Moves to build a Trans-Caspian pipeline to bring gas from Turkmenistan to Europe have so far faltered however in the absence of progress on negotiations between the EU, Azerbaijan and Turkmenistan. Following more than two decades of negotiations, Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan signed the Convention on the Legal Status of the Caspian Sea in August 2018. Iran remains the only littoral state to ratify the agreement.

In January 2021, Turkmenistan and Azerbaijan signed a Memorandum of Understanding on joint development of a previously disputed offshore oil field in the Caspian Sea.

Launched in 1995, the Turkmenistan-Afghanistan-Pakistan-India pipeline project (TAPI) was developed to provide an alternative route for Turkmen gas. A preliminary engineering feasibility study has been completed and the project remains a high priority for the government. The progress of securing financial support is slow, partly because of security concerns in Afghanistan and partly because of the reluctance on the part of Turkmenistan to allow foreign companies to take an equity share in on-shore production facilities.

The energy sector is the main driver of the economy and is of commercial interest to both the international energy companies and the service and supply chain. To date however many have been deterred from entering the market because of the difficult business environment (see 3.2 below) and because the terms proposed do not offer the security they need for the scale of investment required.

3.2 British business

There are challenges to doing business in Turkmenistan. Decision-making is centralised at the highest level, in particular if a project has foreign involvement. This reflects poor experience in years after independence and a heightened concern to prevent foreign influence and interference, and the erosion of traditional Turkmen values.

There is an institutional mistrust of investment on terms which would attract foreign companies. The law does not adequately protect contracts, and can be changed by decree or ignored with impunity by vested interests. Both domestic and foreign businesses can be forced out of the market for specious, or undisclosed, reasons. It can be difficult to obtain payment for goods and to remit in-country profits, exacerbated by lack of foreign reserves. Foreign exchange accounts and international transfers require state approval.

There remain opportunities however. UK companies are advised to consult DIT for advice (see section 9), to focus on sectors where Turkmenistan is investing and to work through a trusted local partner to manage bureaucratic and political hurdles. It is advisable to obtain payment for goods and services in advance, splitting larger projects into tranches for this purpose. Those who are successful have built up relations over many years, and, reflecting the hierarchical nature of Turkmen society, been prepared to engage at the most senior level in business negotiations.

The Turkmenistan United Kingdom Trade and Industry Council (TUKTIC) was established in 2010 to support the development of the UK’s bilateral business and economic relationship with Turkmenistan. The Turkmen government continue to attach importance to it as a forum to take forward dialogue with British business. A former British Ambassador to Afghanistan, Ron Nash, is UK co-chairman.

Meetings take place at approximately annual intervals, alternately in London and Ashgabat. The last meeting took place in Ashgabat in April 2019. Dates for the next meeting have not yet been agreed, but anyone interested in participating should keep in touch with the DIT office in the British Embassy in Ashgabat (see below).

Turkmenistan is not included in the World Bank’s Ease of Doing Business index because of the absence of reliable data.

3.3 Visas

Obtaining a business visa requires a letter of invitation from a counterpart in Turkmenistan, making it difficult to pay an exploratory visit to assess business opportunities. One option is to sign up for one of the many conferences and exhibitions held in country, and for which visas are more easily available.

Nationals from conflict regions, including the Middle East, North Africa and South Asia, face considerable difficulties in securing visas.

3.4 International business practices

Banking facilities are underdeveloped and banks cannot yet provide many basic services. The number of ATM machines is increasing but they are still not widespread, and can run out of money. Most visitors bring US dollars in cash as other currencies are difficult to exchange. Few places accept bank or credit cards. The best known foreign bank is the Turkmen Turkish Commercial Bank, part of the Ziraat Bank group. There is a large divergence between official and unofficial exchange rates, strict controls and harsh penalties are being applied to those who are caught breaking currency exchange regulations.

The UK-Turkmenistan Investment Promotion and Protection Agreement entered into force on 9 February 1995.

The UK-Turkmenistan Double Taxation Convention entered into force on 19 December 2016.

3.5 Communications

Access to the Internet and high speed telecommunications is limited and most social media are blocked (see section 4). Visitors can also experience difficulties using roaming services. Blackberries do not work in Turkmenistan. The sole mobile phone service provider is state owned.
Although it’s against the law, VPNs are widely used in Turkmenistan but with continuous difficulties and blockages.

It is not possible to buy international newspapers or other foreign publications in Turkmenistan.

4. Business and human rights

Turkmenistan remains a UK Human Rights Priority Country. Although it is a signatory to most of the international human rights instruments and its national legislation contains provisions for the protection of basic human rights, implementation remains problematic.

Civil liberties and freedom of expression are severely curtailed. Preparations in Ashgabat for the Asian Indoor and Martial Arts Games (AIMAG) in September 2017 led to widespread abuses, including the demolition of homes, the forced removal of tenants from apartments near the Olympic village and increasingly severe travel restrictions in and around the city. Human rights activists work largely outside the country. They make credible claims of torture and abuse in prisons.

The government controls the media. Reporters without Borders ranks Turkmenistan at the bottom of the 180 countries it covers, below the DPRK (2019). Only 17% of the population have internet access (Internet World Stats 2019), many sites on which are blocked. Almost all social media, including Facebook, Whatsapp and Twitter, are similarly blocked.

There have however been some positive developments. In recent years, the Turkmen government sent a delegation to participate in the OSCE Human Dimension meeting. The government’s National Human Rights Action Plan was launched in 2016 and the new constitution passed by Parliament later in the year contained human rights provisions, including an independent human rights ombudsman. Yazdursun Gurbannazarova, previously head of the Institute for Democracy and Human Rights, was appointed in March 2017.

The British Embassy in Ashgabat supports human rights projects through the United Nations and OSCE and seeks to encourage implementation of the National Human Rights Action Plan, in particular in the fields of justice and freedom of expression and the use of forced labour. The gap between legislation and implementation nevertheless remains wide and the lack of government transparency makes monitoring difficult.

Further material on human rights can be found in the FCDO’s Annual Report on Human Rights.

5. Bribery and corruption

Bribery is illegal. It is an offence for British nationals or anyone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership to solicit or accept or offer a bribe anywhere in the world. In addition, any commercial organisation carrying on a business in the UK can be liable under UK legislation for the conduct of a person who is neither a UK national or resident in the UK nor a body incorporated or formed in the UK. In these circumstances it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

The 2020 Transparency International Corruption Perception Index, which measures perceived levels of corruption, ranked Turkmenistan 161st out of 180 countries.

We have no reports of UK companies being asked to be complicit in corrupt practices, but there have been reports of agents or middlemen seeking facilitation payments and of Turkmen organisations seeking to have their expenses met to pursue business in the UK.

6. Terrorism threat and protective security advice

Please refer to the latest version of the FCDO’s Travel Advice for Turkmenistan.

7. Intellectual property

The protection of intellectual property in Turkmenistan is regulated by a number of pieces of legislation, including laws on:

• Scientific Intellectual Property (1992)
• Legal Protection of Algorithms, Software, Databases, and IC Devices (1994)
• Inventions and Industrial Designs (2008)
• Trade and Service Marks and Places of Origin (2008)
• Copyright and Allied Rights (2012)

Companies doing business in Turkmenistan are advised to take legal advice locally to ensure that their rights are protected under the appropriate provisions of these, and that contracts include non-competition clauses and confidentiality/non-disclosure provisions. The Chamber of Commerce and Industry of Turkmenistan and the State Agency for Intellectual Property Protection can also provide advice.

Please read our Intellectual property guidance and read protecting your intellectual property abroad.

8. Organised crime

Turkmenistan is neither a producer nor a source country for illegal drugs or precursor chemicals. It is however positioned along the western and northern routes for Afghan opiates travelling to Europe and Russia and is believed to be one of the main conduits for this traffic.

Turkmenistan acceded to the 1961 UN Single Convention on Narcotic Drugs and the 1972 Protocol amending it, the 1971 UN Convention on Psychotropic Substances and the 1988 UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. The government has brought national laws and regulations in the field of drug control into conformity with these.

Turkmenistan is also a member of the regional mini-Dublin Group (The Dublin Group was established in 1990, under the auspices of the European Committee to Combat Drugs, to analyse and exchange information, make recommendations and co-ordinate action on the production and trafficking of illegal drugs).

Find more information on our organised crime page.

9. Contact

For further information please contact the DIT office in Turkmenistan or email ukembassy.ashgabat@fco.gov.uk.