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A complex and opaque destination for investment

Article by Eimear O'Casey

July 12, 2019

A complex and opaque destination for investment

Turkmenistan is a complex and opaque destination for investment. The business climate is characterised by structural economic problems and general economic mismanagement, with the prioritisation of vanity projects over core investment and a near-total absence of checks and balances on presidential decision-making. This facilitates endemic corruption and the influence of opaque but powerful vested interests over all aspects of the economy and business environment.

All talk

Turkmenistan’s economy has undergone few structural reforms since independence from the Soviet Union in the early 1990s. It retains key hallmarks of the post-Soviet economy, remaining overwhelmingly dependent on the oil and gas sector for growth. The Turkmenistan authorities regularly express their desire to drive economic growth and diversification through foreign investment. Since the economic slowdown began in late 2014, President Gurbanguly Berdimuhamedov has courted multiple countries, especially a number of Middle East and Gulf states, with offers of economic co-operation.

However, such statements can mostly and fairly be assessed as hollow platitudes. The vast majority of the economy remains firmly in the hands of either the state, or those of opaque companies that are largely understood to trace their beneficial ownership back to prominent politically connected figures. While there is almost never a paper trail to confirm such links, investigative journalists, and due diligence enquiries into Turkmenistani entities, routinely find indications among human sources close to the relevant sectors of companies’ beneficial ownership tracing back to prominent individuals, often in the president’s family.[1] There is a distinct lack of will at the highest political level to facilitate foreign investment in an indiscriminate manner, given the competition that this is perceived to pose to the carefully controlled division of state assets and economic sectors among a select few people close to the political centre.

This aversion to opening up the economy is evidenced by the fact that the period since the downturn that began in late 2014 has been accompanied by no improvement in the multitude of informal barriers to existing and new investment activity. The major structural impediments to a transparent, fair and competitive business environment remain firmly in place.

Protectionist instincts

There are relatively few formal barriers to foreign investment activity. However, those that exist markedly affect the country’s most prominent and attractive sector for overseas investment activity, oil and gas. Turkmenistan’s long-standing policy of granting only service contracts to foreign companies for major onshore gas projects is the main example of this approach. More commercially attractive production-sharing agreements (PSAs) are almost always granted only for offshore field development. The only company to have secured an onshore PSA for a major gas field (in 2007) is the state-owned Chinese company China National Petroleum Corporation (CNPC). Two European companies have PSAs for onshore oil fields, but these are minor reserves in the country’s west and represent an anomaly in the broader policy of not granting such contracts.

The authorities have made no move whatsoever towards relaxing these restrictions in the past few years, despite the fact that it is probably the most obvious way to drive fresh investment and counter the lost revenue from the economic slowdown and loss of key gas export contracts (with the loss of Russia and Iran as customers) since 2015. Instead, the authorities when facing increasing pressure on budget revenues and macro-economic stability show a tendency towards reinforcing protectionist instincts.

Vested interests and informal requirements create risks for investors

The handful of laws that set out the terms under which foreign companies can enter into joint ventures with the state are relatively clear and well drafted. However, the top-down nature of decision-making means that legislation generally is enacted without consultation or any formal parliamentary oversight. Its enforcement is highly irregular, and a range of informal practices trump legal provisions.

Perhaps the best example of this is the enormous informal power understood to be wielded by an opaque body known as the Union of Industrialists and Entrepreneurs (UIE). Lawyers in the country firmly attest to the absence of any legal requirement for prospective investors to be members of – or to liaise with – the UIE to secure investment in the country, and a review of the law confirms no such requirement.

However, sources on the ground and information from foreign businesses who have approached the Turkmenistan market strongly suggests that membership of the UIE and co-ordination of prospective investment activities with its chair, the influential local businessman Alexander Dadayev, is seen as a de facto requirement in order to gain access to certain contracts or state loans, especially any state tenders. This arrangement allows Dadayev, who is understood to be close to the government and president, to control which foreign entities gain access to the economy, and to exclude them where the authorities wish to reward locally connected companies with contracts or commercial opportunities.


Both high-level and low-level corruption are pervasive and endemic. They are likely to touch domestic and foreign business alike. The scale of the perceived extent of bribery and graft is captured in Transparency International’s (TI) Corruption Perceptions Index. Turkmenistan is consistently among the worst performing nations surveyed by TI globally, and the worst performing of all the former Soviet states. It has scored between 18 and 20 points since 2015, where 100 points signifies a ‘very clean’ country and 1 a ‘very corrupt’ one. Ranked against 179 other countries in 2018, Turkmenistan came 161st (where first is the country perceived to be the least corrupt).[2] These consistently poor scores highlight the entrenched nature of both high-level and low-level corruption over many years.

What does this mean for business activity? At the higher level, family ties and political loyalty are the main factors that determine the awarding of contracts. Traditionally privilege and access to commercial opportunities extended to a group of people around the president, appointed to cabinet and other senior state positions, most of whom are not direct relatives of the president. In recent years there are growing indications that Berdimuhamedov’s family are now increasingly in control of many key sectors, and that the elite circle enjoying dividends from the country’s industry is narrowing.[3] In such a climate, foreign businesses without their own nepotistic ties to prominent figures face little chance of securing a contract, regardless of their objective value to the economy or ability to service a requirement.

At a lower level, companies are likely to find that officials – even up to ministerial level – expect bribes or favours (such as employing their relatives) in return for progress with administrative decisions or the issuing of licences.

The government made much of a new anti-corruption campaign in 2017 and 2018. However, this served primarily as a smoke screen for politically motivated prosecutions. Corruption among senior officials is likely to be overlooked; those high-profile corruption-related investigations and dismissals that do take place are likely to target individuals who have fallen out of favour with the president. The president’s dismissal in 2017 of the Prosecutor General on corruption charges, alongside public reprimands of the Minister of Interior and other officials on charges of failing to investigate and punish bribe solicitation, are examples of this. Radio Free Europe/Radio Liberty’s Turkmen service reported that anonymous sources had informed it that those individuals had been targeted because the president was frustrated with their failure to attract funds for the Asian Indoor and Martial Arts Games (AIMAG), being hosted in the capital, Ashgabat, later that year. The same sources reported that a number of local businesses people were also arrested after failing to pay informal contributions to the government towards the games.[4] Lower-level officials are prosecuted largely at random, probably by regional officials eager to please the president.

There is limited prospect of these challenges receding in the next year. Persistent economic difficulties increase the government’s willingness to employ improper tactics to raise budget revenues. Furthermore, endemic corruption is bound up in the highly centralised and authoritarian political system which relies on graft and nepotism. Without some liberalisation of the political environment – of which there is no sign – meaningful efforts to tackle corruption are highly unlikely.

Restrictions on currency flows

The economic slowdown has increased the prevalence of capital controls, as the authorities seek to control the movement of currency – both foreign and domestic – in and out the country amid cash flow shortages. These shortages reflect a combination of a reduction in foreign currency revenue linked to the loss of a number of important gas export contracts, and general mismanagement of the banking sector. The restrictions directly affect investors seeking to repatriate profits or move capital. Progressively more onerous capital controls have been introduced since 2015. There is a limit on the amount of US dollars that can be purchased each month and a waiting list system for foreign-currency transactions. There are ongoing restrictions on obtaining Western Union wire transfers. In 2017 and 2018, there were reports of limits on the volume of foreign currency that businesses could convert. The authorities’ failure to communicate or acknowledge publicly any of these restrictions exacerbates the difficulties they pose to business operations.

Lack of contract sanctity

There is a persistent, high threat of contract repudiation by the government in dealings with foreign companies. For telecoms companies, for example, this has manifested in the government suspending licences, increasing the state’s share of profits, or simply shutting down infrastructure.[5] A number of Turkish companies have also seen their assets shut down or expropriated in recent years, even while in possession of necessary licences, and without any due process or compensation.

An associated risk is non-payment, driven by the same systemic and economic problems. There are numerous reported examples of this risk. For example, a Turkish construction company in October 2018 filed a claim with the International Centre for Settlement of Investment Disputes (ICSID) following the authorities’ failure to pay for residential and school building work that the company had performed, while a German company the same month filed a claim over the lack of payment for the construction of grain elevators.[6] International law firm CIS Debt Recovery Solutions in December 2017 told an independent Turkmenistan news outlet that Turkmenistan’s state-owned oil and gas sector was defaulting on its debt, including on US $8.5 million owed to one client for equipment supplied three years earlier.[7]

Lack of recourse to domestic justice

A lack of recourse to justice within Turkmenistan compounds these problems. The judiciary does not uphold contract sanctity. Judges are subject to pressure and direction from the executive, and are likely to rule in favour of the government rather than a foreign entity in almost all instances. Furthermore, limited understanding of commercial law undermines their ability to properly judge a commercial dispute.

Personnel turnover

Strong personal relationships with influential officials are all but essential in order to engage in business activity in Turkmenistan. However, forming such relationships is significantly complicated by the high degree of turnover in personnel. The president regularly uses government ministries, ministers and agencies as scapegoats for setbacks in the economy or in specific sectors. This tactic typically involves a ministry undergoing a large reshuffle. Rather than improving performance at the ministry in question or driving accountability, personnel changes of this kind serve primarily to deflect attention from the president for the industry’s poor performance. Where ministers are being used as scapegoats, they are typically simply moved into less prominent positions. Only in the rare cases where they have launched a challenge to the president in some form are they likely to be removed entirely from the senior political and public administration scene.

Furthermore, identifying the relevant department or official responsible for an industry or regulatory regime, obtaining information and maintaining regular contact are all labour-intensive tasks. Government officials are unlikely to provide transparent or consistent reasons for decisions. Officials are frequently reshuffled, and there is little sense of continuity of office; a new minister is liable to scrap deals signed by a predecessor, if only to obtain bribes for replacements. Furthermore, many officials do not have the requisite training, and delays are as likely to arise from incompetence and paralysis in the decision-making process as from corruption.

Rising reputational concerns

Pervasive human rights abuses and the lack of any genuine democratic competition create considerable reputational threats that businesses engaging in Turkmenistan should bear in mind.

Berdimuhamedov’s personality cult, state-funded vanity projects and the country’s poor human rights record have gained more international attention since 2015. The US $7.3 billion Asian and Indoor Martial Arts Games hosted in Ashgabat in September 2017, though intended as a positive advert for the country, increased international awareness and scrutiny of the restrictive political environment and the president’s flamboyant, eccentric behaviour.

There are also sector-specific threats linked to child labour. The cotton industry is a particular source of reputational threat. The Cotton Campaign, which brings together business associations, companies and NGO groups, has long contended that all cotton production in Turkmenistan involves forced labour. Specifically, cotton farmers must meet state-dictated production quotas under threat of penalty, while state employees are forced to harvest the crop. The Responsible Sourcing Network NGO in June 2018 launched a campaign to encourage an organised boycott of Turkmenistani cotton, similar to a boycott in place against cotton from neighbouring Uzbekistan.[8] 66 companies had signed up to the boycott as of May 2019. Turkmenistan’s cotton is likely to be in the spotlight increasingly over the next two years as Western governments’ attention to supply chain risk continues to grow.


In sum, Turkmenistan presents a challenging environment for international businesses. Most of these challenges directly stem from the highly controlled political environment and the predominance of informal approaches to regulation and economic decision-making, features of the landscape that show little sign of lessening in the years ahead.

Photo by Kalpak Travel, published under Creative Commons with no changes made.

[1] Freedom House’s 2017 and 2018 Nations in Transit reports on Turkmenistan summarise findings by investigative journalists at the Vienna-based Chronicles of Turkmenistan and Turkmen Yurt TV news outlets that the president’s family controls various sectors of the economy. His nephews, for example, are cited as controlling financial operations, a shopping mall, and Turkmen telecom, the monopoly communications provider, Freedom House,;

[2] Transparency International, Corruption Perceptions Index 2018,

[3] Ibid.

[4] Radio Azatlyk, Генпрокурор Халлыев был уволен за невыполнение указа президента собрать деньги на Азиаду (Prosecutor General Khallyev was dismissed for failure to comply with the presidential decree to raise money for the Asian Games), RFE/RL, May 2017,

[5] Ad hoc notice by MTS telecoms, July 2018,

[6] SECE İnşaat ve Ticaret A.Ş. v. Turkmenistan (ICSID Case No. ARB/18/34), International Centre for Settlement of Investment Disputes (ICSID), October 2018,; Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v. Turkmenistan (ICSID Case No. ARB/18/35), ICSID, October 2018,

[7] Alternative News of Turkmenistan, “В связи с временными трудностями”. ГК “Туркменнефть” 4 года не выплачивает долг в $8,5 млн (“Due to temporary difficulties.” GC “Turkmenneft” 4 years does not pay the debt of $8.5 million), November 2017,

[8] Responsible Sourcing Network, The Problem with Turkmen Cotton, May 2019,

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