DEVELOPMENT CHALLENGES
Turkmenistan is a “lower-middle” income country with a per capita GNI of US$3,800 in 2010. Its GDP growth has remained strongly positive, driven by stimulated local demand and rising investment in production facilities, transport networks, and social development, including residential construction and education and healthcare facilities. Turkmenistan is ranked 102nd of 187 countries on the Human Development Index (HDI), valued at 0.686. While the recent global economic crisis adversely affected the country’s economy, mainly through a drop in global demand for gas that was exacerbated by disruption of natural gas exports to the Russian Federation in 2009, swift implementation of several fiscal stimulus measures attenuated the effects and growth reached 8% in 2010. The country faces some important development challenges.
Poverty and inequality
Despite substantial reduction of poverty, over 10% of the population is considered “extremely poor”, defined as living on less than US$1.25 per day. Disparities in living standards among specific geographic areas and population groups also remain a priority challenge. Rural areas are particularly vulnerable to poverty, given that most technological and human resources are concentrated in urban areas.
Underdeveloped public administration
Another challenge faced by Turkmenistan is the insufficient development of its governance structures and capacities. In particular, there is a need to build local ownership and capacity and decentralize the delivery of quality social services, especially in view of the fact that the most urgent issues are most pronounced in rural areas. Underdeveloped capacity also creates an opaque and unpredictable environment that tends to reinforce inequalities and discourage foreign direct investment (FDI).
Skills gap
In 2009, 100% of adults in Turkmenistan were literate, and school enrolment rates were generally high. However, progress towards universal primary education has been uneven, with disadvantaged minorities and remote areas facing limited access to education. In addition, the country’s human capital is undermined by a significant skills gap, characterized by a mismatch between workers’ skills and job market needs, which results from poor quality of education, a shortage of trained teachers, and insufficient involvement of employers in educational decision-making.
Environmental issues
As a result of the heavily prevalent energy, manufacturing and transport sectors, the presence of inefficient and obsolete equipment, and a lack of incentives for energy saving and use of alternative energy sources, Turkmenistan has high greenhouse gas (GHG) emissions and is among the world’s top 20 carbon-intensive economies. Owing to insufficient investment in energy efficiency, energy losses make up nearly one-third of total domestic energy use. As a result, the country is still far from achieving environmental sustainability, and energy management requires further improvement.
KEY TRADE ISSUES
Product and market concentration
Turkmenistan is heavily reliant on exports of crude and refined oil and natural gas, holding an estimated 223 years of natural gas reserves. The country is also a large producer of cotton fibre. In 2009, these raw resources accounted for 86% of total exports. The market distribution of exports follows a similar pattern of very high concentration: Turkmenistan’s top market in 2009, Ukraine, was the destination of nearly half of all exports. 78% of total exports went to only five countries (Ukraine, Iran, Poland, Hungary, and Turkey). High product and market concentration exposes the country’s economy to external shocks, fluctuations in commodity prices, and adverse trends in partner countries’ economies.
Weak competitiveness and low productive capacity
Despite efforts to increase value-added production through local processing of cotton into textiles and clothing, the range of internationally competitive products is small, and their value-added is low, due to the weak productive capacity of enterprises in non-resource sectors. Moreover, existing trade support institutions (TSIs) in the country have limited capacities to provide the services necessary for enterprises, in particular SMEs, to increase their international competitiveness.
Limited access to finance
An important financing gap is present in the country, disproportionately affecting SMEs. Access to finance is hindered by high interest rates and collateral requirements. Financial products are not diversified and guarantee schemes are underdeveloped. Further limiting access to finance is the country’s high rating (6 out of 7) on the OECD’s Country Risk Classification scale, indicating a high risk to service its external debt and raising interest rates for external financing. In fact, despite significant reform efforts, FDI remains concentrated on the energy sector as the willingness of creditors to incur risk is limited. In addition, as a result of the financial crisis, FDI inflows have more than halved, decreasing from 21% of GDP in 2009 to 10% in 2010.
High transportation cost and continued need to develop physical infrastructure
A landlocked country, Turkmenistan is largely a sparsely populated desert, located far from seaports and separated from its neighbours by mountains and the Caspian Sea. This severe isolation limits the country’s access to world markets and raises the time and cost of shipping goods. Further inhibiting trade is the poor physical infrastructure of the country. As a result, there is a need to continue investing in the creation of trade corridors, by building roads, upgrading railway networks, and constructing freight terminals and border crossing facilities.
Underdeveloped quality management infrastructure
The quality management infrastructure is also little developed, leaving few possibilities for local enterprises to ensure and to demonstrate the conformity of their goods with international standards.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the United Nations Development Assistance Framework for Turkmenistan 2010-2015; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; the 2010 UNDP Aid for Trade Regional Review for the Countries of the United Nations’ Special Programme for the Economies of Central Asia (SPECA): Trade and Human Development; and the 2011 OECD report on “Central Asia Competitiveness Outlook”.