ECONOMY TURKMENISTAN

The Economy of Turkmenistan: Detailed Overview

Turkmenistan, a Central Asian country bordered by the Caspian Sea, Iran, Afghanistan, Uzbekistan, and Kazakhstan, is one of the most isolated nations in the world, both politically and economically. Since its independence from the Soviet Union in 1991, Turkmenistan has pursued a path of neutrality and state control, focusing on its vast natural gas resources to fuel economic growth. Despite its rich natural resources, the country faces challenges related to governance, economic diversification, and isolation.

Key Economic Sectors

1. Natural Gas and Energy
   Turkmenistan is home to some of the largest natural gas reserves in the world, and the hydrocarbon sector dominates the economy, contributing more than 80% of export earnings and about 30% of GDP.
   • Natural Gas Reserves: Turkmenistan holds the world’s fourth-largest proven natural gas reserves, concentrated mainly in the Galkynysh gas field, one of the largest globally. Gas exports are a crucial source of revenue, with major pipelines sending gas to China, Russia, and Iran.
   • Exports to China: China is by far the largest consumer of Turkmen gas, importing about 80% of the country’s gas exports through the Central Asia-China gas pipeline. This pipeline has become the backbone of Turkmenistan’s economy.
   • Energy Projects: While Turkmenistan has made efforts to diversify its energy markets, including ambitions to export gas to Europe through the Trans-Caspian Pipeline, political and logistical challenges have delayed these efforts.
   • Hydrocarbons and Oil: Although natural gas is the main focus, Turkmenistan also produces oil, particularly from the Caspian Sea region. However, oil production plays a smaller role in the economy compared to gas.
2. Agriculture
   Agriculture is another key sector in Turkmenistan’s economy, employing about 40% of the population and contributing around 10-12% to GDP. The country’s arid climate makes water resources scarce, but with irrigation, certain crops can thrive.
   • Cotton: Cotton, known as “white gold” in Turkmenistan, is the country’s second-largest export after natural gas. Turkmenistan is one of the top global producers of cotton, and the government heavily controls the production and export of this commodity.
   • Wheat: Alongside cotton, wheat is another important crop. The government’s policy aims to achieve self-sufficiency in wheat production to reduce food imports.
   • Other Crops: Fruits and vegetables, particularly melons, are also cultivated, although these are primarily for domestic consumption rather than export.
   • Challenges: Agricultural productivity is constrained by the country’s reliance on outdated Soviet-era irrigation systems and harsh environmental conditions, including desertification and salinity in soil.
3. Manufacturing
   The manufacturing sector in Turkmenistan is relatively small and underdeveloped, contributing about 10% of GDP. The government is attempting to boost this sector as part of its economic diversification strategy, though progress has been slow.
   • Textiles: Building on its strong cotton production, Turkmenistan has developed a growing textile industry. The country exports cotton fabrics and finished textiles to markets in Europe, Asia, and the Middle East.
   • Chemical Production: The government is investing in chemical plants that produce fertilizers and petrochemicals, leveraging the country’s natural gas resources to feed into these industries.
   • Construction Materials: Cement, glass, and other building materials have become important in the domestic construction sector, fueled by government-led infrastructure projects.
4. Construction and Infrastructure
   Turkmenistan has seen a surge in construction activity over the past two decades, driven by government-led infrastructure projects, often funded by revenues from natural gas exports.
   • Ashgabat Development: The capital, Ashgabat, has undergone rapid transformation with lavish construction projects, including monumental buildings, sports complexes, and modern infrastructure. Many of these projects are funded by state revenues and are part of the government’s effort to showcase the country’s wealth.
   • Roads and Railways: Significant investments have been made in modernizing roads and expanding rail connections to improve transportation within the country and to neighboring states. However, the isolationist policies of Turkmenistan limit regional economic integration.
5. Public Sector and State-Owned Enterprises (SOEs)
   Turkmenistan’s economy is heavily state-controlled, with most major industries, including energy, agriculture, and manufacturing, dominated by state-owned enterprises (SOEs). The government’s involvement in the economy is extensive, managing key sectors and controlling trade.
   • State-Controlled Economy: President Gurbanguly Berdimuhamedow and his government tightly control economic activities, especially in the hydrocarbons and agricultural sectors. The lack of privatization has stifled private sector development, and economic reforms have been limited.
   • Monopolies: SOEs hold monopolistic power over key industries such as gas, electricity, and telecom services. This centralized control limits competition and foreign investment in many sectors.

Economic Challenges

1. Lack of Diversification
   Turkmenistan’s heavy reliance on natural gas exports has left the economy vulnerable to fluctuations in global gas prices. The country’s efforts to diversify its economy, particularly in agriculture and manufacturing, have had limited success.
   • Hydrocarbon Dependency: As global gas prices fluctuate, so does Turkmenistan’s revenue. Economic volatility is a major concern due to the lack of other strong economic sectors.
   • Slow Diversification: The government’s diversification efforts, such as investing in textiles, chemical production, and agriculture, have been sluggish and face challenges related to inefficiency, lack of infrastructure, and insufficient foreign investment.
2. Isolation and Limited Foreign Investment
   Turkmenistan’s political isolation and restrictive economic policies have hindered foreign investment and international trade relations.
   • Limited Trade Partners: Turkmenistan’s key trading partners are China, Russia, and Iran. However, the country’s reluctance to engage fully with international markets and its isolationist policies reduce the potential for economic growth through trade diversification.
   • Foreign Investment: Investors are deterred by the opaque business environment, corruption, and heavy government control. The lack of transparency in economic data and restrictive visa policies also limit the potential for tourism and foreign involvement.
3. Poverty and Unemployment
   Despite its wealth in natural gas resources, much of the population lives in poverty, especially in rural areas. Unemployment is also a significant issue, particularly among young people.
   • Income Inequality: There is a wide disparity in income distribution, with the capital Ashgabat showcasing significant wealth while rural areas struggle with poverty and underdevelopment.
   • Youth Unemployment: The high unemployment rate, particularly among young people, is a challenge. Many young people seek employment abroad, especially in Russia, to escape economic hardship.
4. Water Scarcity and Environmental Issues
   Turkmenistan faces severe water scarcity, which poses a significant challenge to agricultural productivity and long-term economic sustainability.
   • Irrigation Problems: Much of Turkmenistan’s agriculture relies on irrigation, and the inefficient use of water resources, combined with an aging Soviet-era infrastructure, exacerbates water shortages.
   • Environmental Degradation: Desertification, salinization of the soil, and the shrinking Aral Sea have negatively impacted the environment and agriculture, reducing arable land and productivity.

Government Policy and Reforms

The Turkmen government has made efforts to address some of the country’s economic challenges, although reforms have been slow and largely focused on maintaining state control.

• Economic Modernization: In recent years, President Berdimuhamedow has promoted efforts to modernize the economy, particularly in areas like infrastructure, chemical production, and textiles. However, these initiatives have yet to produce significant results in terms of economic diversification.
• Hydropower and Renewable Energy: Turkmenistan is exploring the potential of hydropower and renewable energy to reduce dependence on gas. However, given the vast gas reserves, this is not yet a priority.
• Neutrality Policy: Turkmenistan’s policy of neutrality, which it has maintained since the collapse of the Soviet Union, limits its international trade partnerships and reduces the likelihood of deeper economic integration with regional and global markets.

Future Outlook

Turkmenistan’s future economic growth will depend largely on its ability to diversify its economy, attract foreign investment, and integrate more with global markets.

• Hydrocarbon Market: Turkmenistan will remain reliant on gas exports for the foreseeable future, and its economic prospects will be closely tied to global demand and prices for natural gas.
• Economic Diversification: While the government has taken steps to diversify the economy, real progress will require addressing underlying issues such as corruption, inefficiency, and a lack of private sector development.
• Foreign Relations: Building stronger economic relations with neighboring countries and international markets could help boost trade and investment, but the government’s isolationist policies remain a significant obstacle.

Conclusion

Turkmenistan’s economy is heavily dependent on its vast natural gas reserves, which have fueled growth and provided significant revenue. However, the country faces several challenges, including a lack of economic diversification, political isolation, and environmental issues. Despite government efforts to modernize the economy and develop sectors like agriculture and manufacturing, progress has been slow, and the state’s tight control over the economy has stifled private sector growth and foreign investment. Turkmenistan’s future economic stability will depend on its ability to diversify its economic base and engage more with the international community.

References

International Monetary Fund. “Turkmenistan Economic Outlook.” 2024.

World Bank. “Turkmenistan Economic Overview.” 2023.

Asian Development Bank. “Turkmenistan: Key Economic Indicators.” 2023.