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Country Highlights

Turkmenistan: Foreign Investment and Economic Growth

Turkmenistan, a nation abundant in natural resources, particularly natural gas, has been actively seeking foreign investment opportunities to diversify its economy beyond hydrocarbons. While some foreign investors have engaged in public works contracts within Turkmenistan, challenges such as state-directed priorities and payment delays have posed risks for businesses operating in the country. Efforts to attract foreign capital into non-resource industries through special economic zones near Turkmenbashi and Alat ports have faced setbacks, with limited tenant participation hindering their performance.

To create a more investor-friendly environment and stimulate foreign investment inflows, Turkmenistan must implement crucial reforms. Establishing independent courts, strengthening property rights, and easing capital controls are essential steps to enhance the business climate and instill confidence among investors. Additionally, regional cooperation initiatives within institutions like the Commonwealth of Independent States (CIS) could help Turkmenistan diversify its markets and reduce its dependence on China as a primary trade partner.

Overcoming isolation and investing in human capital are vital for maximizing the long-term impact of foreign investment on Turkmenistan’s economic growth. The country’s efforts to attract foreign investment through preferential Public-Private Partnership (PPP) models and tax incentives are commendable; however, persistent challenges such as opaque regulations, inconsistent policymaking, and corruption continue to deter significant investment inflows despite recent accession to the World Trade Organization (WTO) and legal reforms.

Turkmenistan’s tightly controlled economy heavily reliant on hydrocarbons limits opportunities for private sector growth and competition. State dominance in key sectors hampers private enterprise development, while bureaucratic hurdles, challenging visa procedures, and an authoritarian political system undermine investor confidence in contract enforcement and dispute resolution. The country’s limited pool of skilled local talent and self-imposed isolation further impede technology transfers and partnerships with global firms, despite attracting investments from Chinese, Turkish, and Russian companies primarily in oil/gas, construction, and infrastructure sectors.

As Turkmenistan faces economic challenges, addressing structural impediments is crucial to fully harness the growth potential of foreign capital across diverse sectors. Comprehensive reforms aimed at transitioning away from fossil fuel dependency towards a more diversified economy will be imperative for Turkmenistan’s sustainable economic development and attracting increased foreign investment in the long run.

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