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This publication is available at https://www.gov.uk/government/publications/overseas-business-risk-turkmenistan/overseas-business-risk-turkmenistan
Information on key security and political risks which UK businesses may face when operating in Turkmenistan.
Turkmenistan gained independence from the Soviet Union in 1991. In a strategically important region, it borders Afghanistan, Iran, Uzbekistan, Kazakhstan and the Caspian Sea and has a population of approximately 5.5 million. The Karakum desert covers 80% of the country. It has the fourth largest proven reserves of gas in the world. 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 price of gas in 2014 and the termination of gas supplies to Russia, however, led to a trade deficit of $5.6 billion in 2016. Gas supplies to Iran were cut in January 2017 in a dispute over pricing. The government is now pursuing a programme of diversification and import substitution.
Turkmenistan became a Soviet Republic in 1924 and 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, when he won 89% of the vote, and won a second term in 2012 with 97% of the vote. 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 with a lack of genuine opposition or meaningful pluralism and that this limited voters’ choice.
2.3 Parliament and political parties
The 2016 Constitution lays down that the legislative, executive and judicial branches of government shall be independent. In practice the President governs the country. He is Supreme Commander of the Armed Forces and responsible for senior appointments in government, the judiciary and the major organs of state and religion.
Turkmenistan has a Partnership Framework for Development with the United Nations which will guide development until 2020. The EU, OSCE and individual countries, including the US and the UK, also run limited in-country development programmes in a range of sectors.
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 included:
- retaining neutrality as the cornerstone of its foreign policy and the United Nations as the principle forum through which it would work, in particular on environmental issues, including water resource management and the prevention and mitigation of natural and man-made disasters, energy security and the development of transport corridors across Central Asia
- 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) and the Shanghai Cooperation Organisation, and with 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 30 billion cubic metres (bcm) of gas in 2016. 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.
Turkmenistan shares 462 miles of border with Afghanistan. Approximately 1 million Turkmen live in Afghanistan along the border and that between Afghanistan and Uzbekistan. Relations between the two countries are generally good. Turkmenistan has played a small but positive role in Afghanistan’s 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 1 million ethnic Turkmen living in Iran, mostly in a region called Turkmen Sahra which borders Turkmenistan.
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.
No reliable economic data are published in Turkmenistan. Most sources cite figures which the government release to the international financial institutions. These do not 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), but growth in demand for gas in China has in recent years been lower than forecast. Turkmenistan exports some cotton, yarn, textiles and processed food but not enough to make up for the loss of gas revenue.
An IMF mission in November 2017 noted a slight reduction in the trade deficit and the scale of public investment (at 50% of GDP among highest in the world) but reiterated the need to reduce both further as a priority. The Mission again recommended:
- broadening and deepening market-oriented reforms, including developing the private sector, reforming state owned enterprises and simplifying administrative procedures and regulations
- further gradual but significant cuts in public investment
- devaluing the Manat
- accelerating the planned introduction of medium-term budgeting and the transition to IMF standards of fiscal data reporting
- the introduction of effective banking supervision
- broader dissemination and improving the quality of macroeconomic and financial data and prioritising the accumulation of human, rather than physical, capital
3.1 Energy sector
Turkmenistan has the fourth largest proven reserves of natural gas in the world and the 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. 30 bcm is exported to China. Supplies to Russia (2016) and Iran (2017) were cut following disputes on pricing and payment.
Potentially Turkmenistan’s gas reserves could provide an additional 30 to 40 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 establish a Trans-Caspian pipeline to bring gas from Turkmenistan to Europe have so far faltered however in the absence progress on negotiations between the EU, Azerbaijan, Georgia, Turkey and Turkmenistan.
Launched in 1995, the Turkmenistan-Afghanistan-Pakistan-India pipeline project (TAPI) was developed to provide an alternative route for Turkmen gas. An engineering feasibility study began in February 2017. The project remains a high priority for the government. It has however failed to win financial support from the international oil companies, partly because of security concerns 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.
The business environment in Turkmenistan is challenging. 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. 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.
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 generally 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.
Turkmenistan is not included in the World Bank’s Ease of Doing Business index because of the absence of reliable data.
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. There are few ATM machines, and those there are can run out of money. Few places accept bank or credit cards. The best known foreign bank is the Turkmen Turkish Commercial Bank, part of the Ziraat Bank group.
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.
Access to the Internet and high speed telecommunications is limited, and most social media are blocked (see section 4). Visitors can also experience difficulties when using roaming services. Blackberries do not work in Turkmenistan. The sole mobile phone service provider is state owned.
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. There is particular concern about the fate of over 80 people, many of them politicians, arrested following the alleged assassination attempt on President Niyazov in 2002, and whose whereabouts are not known.
The government controls the media. Only about 10% of the population have Internet access, many sites on which are blocked. Almost all social media, including Facebook and Twitter, are similarly blocked. Freedom House ranks Turkmenistan joint 198th with the DPRK out of 199 countries in its latest Freedom of the Press index, and Reporters without Borders ranks Turkmenistan 178 out of the 180 countries it covers.
Turkmen law prohibits proselytizing and the publication of religious literature. The importation of religious publications requires the approval of the Council of Religious Affairs, which is often difficult to obtain. Religious organisations wanting to operate in Turkmenistan must register with the authorities, but bureaucratic and other hurdles make obtaining registration difficult.
There have however been some positive developments. The Turkmen Government sent a delegation to participate in the OSCE Human Dimension meeting 2 years running (though not in 2017, citing the need to focus on AIMAG). Foreign Ambassadors resident in Ashgabat have been allowed to visit the women’s prison in Dashoguz and a young offenders institution (but not, so far, Ovadan Depe, where the worst abuses are alleged to take place). The government’s National Human Rights Action Plan was launched in 2016, and Parliament agreed a new constitution later in the year which 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. 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 FCO’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 2016 Transparency International Corruption Perception Index, which measures perceived levels of corruption, ranked Turkmenistan 154th out of 176 countries. We have no reports of UK companies facing corrupt practices, although there have been some cases of agents or middle men seeking facilitation payments.
6. Terrorism threat and protective security advice
Refer to the latest version of the FCO’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.
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.