Politics

Turkmenistan this year remained an economic basket case and will almost certainly stay that way in 2019 but in Gurbanguly Berdimuhamedov at least its people have a president who regularly takes to the stage for a sing-song to cheer them up.

In his public comments, Berdimuhamedov—who takes the honorific “Arkadag” (“The Protector”)—is not known for dealing with the tightly controlled, remote Central Asian nation’s economic turmoil head on, but it seems unlikely that he and his officials in Oguzkhan Palace remain entirely uninformed of the desperate circumstances now afflicting much of the population of 5.7mn. The summer brought reports of a passport-based bread rationing system, month-long flour queues and inflation running at 360%, while people determined to leave the country in search of a better life have been barred from boarding flights at airports.

Interest in Turkmenistan’s plight perked up in the summer when Cakiroglu Group, a Turkish metals and construction company, revealed that contracted foreign companies had faced four to five years of non-payment after fulfilling contracts. In November, Belarus raised a bit of a stink over sums owed by Turkmenistan for the construction of the $1.1bn Garlyk fertilizer plant.

Turkmenistan’s budgetary crisis—believed to have originated from loss of revenues caused by low world hydrocarbon prices across 2015-2016 and the loss of Russia as a major gas customer, leaving China as the only substantial gas client and Iran receiving only intermittent shipments amid a row over historical debts that has gone to international arbitration—is undeniably dire, despite the lack of reliable information that gets out of the country. And just perhaps Berdimuhamedov, who despite it all wins re-election by ridiculous numbers not worth citing here, is awake to the precariousness of the situation. In early December, Berdimuhamedov told a cabinet meeting Turkmenistan needs to adopt a “new economic model” for the years through to 2025. Unfortunately, he did not elaborate.

President Gurbanguly Berdimuhamedov.

In terms of reforms and modernisation, the EU has expressed a willingness to engage and is to open a delegation in the Turkmen capital Ashgabat in 2019.

The dismal level of adherence to basic human rights in Turkmenistan was reflected by a call from Human Rights Watch (HRW) in June for German technology companies to publicly disclose whether they are considering sales to Ashgabat and whether technology sold by them was being used by the country to block websites and carry out surveillance. “The Turkmen government controls all media, arbitrarily blocks access to information, and carries out surveillance on communications to identify and persecute critics,” said Wenzel Michalski, Germany director at HRW.

In May, the US banned all imports of cotton goods from Turkmenistan without specifying the reason, but the boycott was almost certainly down to the country’s use of child labour and forced labour in cotton harvesting—a common Soviet-era practice, which was recently officially banned in neighbouring Uzbekistan. Leading global retailers, including H&M and IKEA, have previously said they no longer use Turkmen cotton and textiles in their products.

The 2016 Global Slavery Index estimated that 15,800 people were believed to be held in "modern slavery" in Turkmenistan. There seems to have been little progress in the past two years that might point towards an improvement ahead in the country’s abysmal ranking in Freedom House’s Freedom in the World report (the 2019 edition will be released in January). The 2018 edition of the report listed Turkmenistan as among the 12 "worst of the worst countries" for political freedom and civil liberties.

But at least Berdimuhamedov’s administration enters 2019 with the challenge of achieving brisk business at its shiny $2.3bn airport and the first Turkmen golf course, an 18-hole designer affair in Ashgabat—though it’s vainglorious investments like these that have some observers wondering if Turkmenistan will ever get its priorities right.

Economics

Turkmenistan, GDP growth. Source: World Economic Outlook, IMF.

The latest forecast for Turkmen GDP growth from the European Bank of Reconstruction and Development (EBRD) is 6.2% in 2018 and 5.6% in 2019, down from 6.5% in 2017. The development bank noted the absence of major structural reforms.

In its latest World Economic Outlook, released in October, the IMF came up with exactly the same 2018 and 2019 figures as the EBRD. The Turkmen government, meanwhile, has also said it expects 2018’s growth to come in at 6.2%. The figure of 6.2% was also officially posted for the first nine months of the year.

"Contributions to growth from public spending would be limited in light of fiscal consolidation efforts. Growth might also be dragged down by a further contraction of domestic consumption and the scarcity of foreign exchange that makes it difficult to conduct business," the EBRD noted.

A big boon to Turkmen growth could come in early 2019 if Russian state gas giant Gazprom lives up to its announcement in October that it would resume importing Turkmen natural gas from the start of the upcoming year. That could partly help support economic growth in 2019. But Turkmenistan has clearly been shaken up by the double whammy of losing Russia as a gas export destination two years back and the world oil price slump that also dragged down gas prices. Though hydrocarbon prices have been on the way back up, helping to quench the thirst of the Turkmen budget for revenues, Ashgabat has been making efforts to diversify its economy. Turkmenistan has the fifth largest gas reserves in the world, which means cheap raw materials are available for making fertilizers and petrochemicals. The country is making big efforts in that value-added direction.

There is some indication that Turkmenistan is moving to introduce some relatively significant economic and business reforms based on recommendations from the IMF, but the pace and scope of reforms already put in place has not been significant.

Striking an optimistic note, the IMF mission that visited Ashgabat two months ago concluded that Turkmenistan’s indicators of economic growth “remain broadly stable”. The growing hydrocarbon prices have helped the country improve its trade and fiscal balances, and there were identifiable rising exports of natural gas and petrochemicals, it added.

Finance

The Turkmen population will enter 2019 having lost even the remnants of their country’s three-decade-old free and discounted gas, electricity and water programme. The subsidies have been eliminated under an austerity decree brought in to help right the public finances that threatened to go belly-up.

As the economic crisis gripped the country, Turkmen banks entirely suspended operations of locally issued Visa cards both inside and outside Turkmenistan. The only money transfers currently allowed in the country are limited to parents whose children are studying abroad.

Turkmen officials have also squeezed the limit on cash withdrawals that Turkmen citizens are allowed to make from ATMs abroad.

Whether the coming year brings more economic support from Turkmenistan’s allies remains to be seen. President Berdimuhamedov this year skipped a summit of Central Asian leaders and sent his son in his stead—he was busy pursuing his policy of moving closer to Arab Persian Gulf States, by visiting UAE and Kuwaiti leaders. Subsequently, a memorandum of understanding was signed by the State Bank for Foreign Economic Affairs of Turkmenistan and the Dubai Center for Islamic Economic Development; a confidentiality agreement was inked by state-run company Turkmengas and UAE company Mubadala Petroleum; a memorandum of understanding was agreed by Turkmengas and Mubadala Petroleum and a cooperation agreement was devised by the government of Turkmenistan and the Abu Dhabi Development Fund.

Planned routed of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline.

While in the Middle East, Berdimuhamedov was no doubt keen on obtaining some financing for the construction of the planned $10bn Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline. Work on building the Afghan section of the 1,814-kilometre (1,144-mile) pipeline is under way and Turkmenistan has committed to covering 85% of the project’s costs. The project has at least received a surprise pledge of protection from the Taliban, which analysts say will look to pick up some pay-offs for preventing too much disruption to the infrastructure construction.

Turkmenistan has been negotiating with several export credit agencies to secure financing for TAPI. These include Italy’s SACE, France’s Hermes and Greek export credit insurer ECIO.

The Organisation for Economic Cooperation and Development (OECD) this year left the Turkmenistan rating unchanged on its Country Risk Classification of Participants to the Arrangement of Officially Supported Export Credits.

Business and trade & investment potential

Turkmenistan got some good news in November when the US State Department exempted Iran's oceanic port project in Chabahar on the Gulf of Oman from sanctions. The move was made in recognition of its importance to landlocked Afghanistan as well as to India’s need to use the Indian Ocean and Iran to bypass Pakistan to trade with both Afghanistan and Central Asia. Iran’s plan is to link the port by railway through Zahedan on the Pakistani border up to Mashhad in the northeast of Iran near the Afghanistan and Turkmenistan borders.

When it comes to bringing Iran into the Moscow-led Eurasian Economic Union (EEU), of which Turkmenistan is a member, there is still no reliable indication that progress will be fast, but the EEU’s Commission Council in September did at least approve a roadmap for Tehran’s entry into a free trade zone to be shared with the trade bloc.

In mid-December, the first haulage trucks set off from Afghanistan bound for Turkmenistan, Azerbaijan, Georgia, and Turkey as the Lapis Lazuli international trade corridor linking the war-torn country with Central Asia, the South Caucasus and Europe was inaugurated by Afghan President Ashraf Ghani.

China has been running its first freight trains that pass through all five of the Central Asian countries. The development is another step in its massive One Belt One Road initiative which seeks to expand Central Asia’s interconnectivity via construction of infrastructure that will allow the region to offer transit hubs for Chinese goods exported to destinations including Europe.

Beijing has also signalled that it is considering building a spur from the Pakistan stretch of the planned Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline. China sees the spur from the Pakistan-segment of TAPI as a possible alternative to its drafted plans to construct a fourth arm of the Central Asia-China pipeline, also known as Line-D, which would originate in Turkmenistan.

On the western side of Turkmenistan, officials were pleased to this year see at least some progress in the neverending negotiations on carving up the Caspian Sea between Russia, Kazakhstan, Azerbaijan, Iran and Turkmenistan. But as regards the sea’s oil and gas resources, the delineation of the seabed is still to be determined in future negotiations.

More progress in reducing Turkmenistan’s dependence on gas export revenues will be made in 2019 as production is ramped up at a new $3.4bn polyethylene and polypropylene plant and a new $1.6bn nitrogen fertiliser plant. Both facilities have been built on the Caspian coast for the convenience of export logistics. Nearby is a new $1.5bn cargo and passenger seaport facility in Turkmenbashi, opened in May. It has tripled Turkmenistan’s annual cargo handling capacity to 25mn-26mn tonnes.

Turkmenistan is also working to generate more export revenues from agriculture. In September, somewhat replicating measures undertaken by neighbouring Kazakhstan, Ashgabat called for the “transfer [of] agricultural lands from the financially unprofitable peasant associations that have extremely low production outputs to other agricultural producers, who are able to work on the ground in the best way”. President Berdimuhamedov has suggested “highly specialised peasant associations” should be formed near provincial centres to increase the supply of fruit and vegetables to both local and foreign markets.

An environmental threat to progress with agriculture in Turkmenistan is severe sand and salt storms experienced by areas bordering the largely dried up Aral Sea. In May this year, one such storm hit large swathes of western Uzbekistan and northern Turkmenistan, damaging agriculture and livestock herds in a tempest that lasted three days.

With speeds of up to 20 metres per second, it was a particularly alarming incidence of the phenomenon. The salt storms lift out dried-out former parts of the sea. The Aral Sea, once among the four largest seas on Earth, has been drying up since the former USSR implemented a number of intensive irrigation projects in the 1960s. Remaining parts of the sea were polluted with pesticides and fertilisers.

Central Asia stands as one of the most vulnerable regions to climate change. It is likely to experience more intense warming than the global average in the 21st century—in a scenario where the world grows 4°C warmer, the temperature in the region would grow 7°C.

Finally, in telecoms Russian mobile networks major MTS is suing Turkmen authorities for $750mn at the World Bank's ICSID (International Center for Settlement of Investment Disputes). MTS had to suspend its operations in Turkmenistan in 2017 after the Turkmen authorities cut off its access to the intercity and international communications network.