Countries

Kazakhstan: Country background

Kazakhstan is an upper-middle-income country in Central Asia. The country’s economy is dependent on fluctuations in the oil and commodity markets. Kazakhstan is the primary recipient of foreign direct investment in Central Asia (71%), and its main contributors are European Union and the United States. In Kazakhstan, infrastructure demands renovation, especially in the transport sector; 75% of the current transport system requires replacement or rehabilitation. The Kazakh government has a robust institutional capacity for infrastructure planning, unlike its neighbouring countries, and long-term planning documents are prepared to define the country’s economy and development goals.

Economy and Demographics

Kazakhstan is the only non-Baltic former Soviet country that could sustain a higher GDP than Russian Federation. Kazakhstan’s GDP fell sharply after gaining independence, but the country recovered by the early 2000s. Recently, Kazakhstan’s economic growth has depended on the oil market, as oil makes up 45% of Kazakhstan’s total export. Kazakhstan is one of Central Asia’s most urbanised countries, with a population of over 18 million.

Trade

Kazakhstan signed a treaty and entered the Eurasian Economic Union in 2014. 41% of Kazakhstan’s imports are from Eurasian Economic Union, followed by Russia (38%), the European Union (20%) and China (17%). As for exports, Kazakhstan’s relationship with its two regional trading blocs is different 46% of Kazakhstan’s export goes to the European Union, whereas 12% go to Eurasian Economic Union, mainly to Russia (11%). China accounts for 13% of total exports. Kazakhstan’s major exports are mineral products (including crude oil 45%) and metals, accounting for 61% and 23%, respectively. Machines (26%), metals (11%), chemical products (11%), mineral products (9%) and transportation (8.8%) are the country’s main imports.

Investment Climate

As reported by UNECE in 2019, Kazakhstan receives over (71%) of the foreign direct investments (FDI), which is the highest among other Central Asia countries. The country’s investment climate is strong enough to attract foreign investments. The most important investors are the Netherlands (29%), the United States (18%), Switzerland (14%), the Russian Federation (6%) and China (5%). Like other CA countries, foreign investors are primarily interested in Kazakhstan’s mineral resources and (49.5%) of the investments are going toward coal, oil and natural gas. Contrary to it, infrastructure industries such as transportation (2,6%) and renewable energy (2,2%) receive a smaller share of the FDI.

Kazakhstan’s government made investment climate and business environment its national priority, and the country made significant improvements to protect foreign investments and provide effective dispute resolution mechanisms. According to World Bank’s Annual Doing Business report, the country’s simplified procedure for getting a license and doing business made it change its ranking from 51st to 35th in a year.

Nevertheless, the Kazakh government needs to implement governance reforms, particularly on transparency and accountability, since the unaddressed corruption and corporate governance shortcomings concern investors. Kazakhstan is a significant participant in China’s Belt and Road Initiative (BRI), and unlike other countries, Kazakhstan financed its infrastructure projects with its budget.

Climate Change

As reported by World Bank in 2019, Kazakhstan’s emission only accounts for (0.68%) of total global greenhouse gas emissions. Kazakhstan’s primary emissions come from the energy sector (78%), whereas agriculture and industrial processes account for much smaller emissions of 7% and 9%, respectively. UNECE reports that the country’s reliance on coal contributes to quickly increasing greenhouse gas emissions and air pollution problems. Climate change affects agriculture and mining since the increase in temperature and severe droughts threaten water availability.

Infrastructure needs and current plans

Unlike other Central Asian countries, Kazakhstan has comparatively high-quality infrastructure. Along with economic growth and its population, the need for infrastructure is growing, and the government needs to spend USD 292 billion on infrastructure by 2040. The infrastructure needs include the upgrade of infrastructure and proper maintenance and quality control of the existing system.

Transport

Annually, Kazakhstan’s freight traffic exceeds 200 billion tonne-km or 80% of the regional freight since most of the transits for CA from Europe and Asia pass through Kazakhstan. To maintain the country’s current trade performance, Kazakhstan must enrich its road capacity by 151% of today’s levels by 2030 and by 350% by 2050. As for rail, the country already possesses enough capacity for 2030 but needs to enrich it by 138% by 2050. 

Energy

Kazakhstan’s entire population has access to electricity, and the energy system in the country is relatively better than in other countries in the region. Only 4.9% of energy loss has been reported in the country. Kazakhstan’s import and export of electricity are balanced. The country’s investments in electricity are the following: wind power (38%), followed by solar PV (26%), coal-fired plants (15%), natural gas-fired (11%), and hydro-electric power (9%). Kazakhstan’s major energy projects are in the upstream oil and gas industry. Currently, the country’s largest under-construction project is the Central Asia-China Gas Pipeline.

Industry and mining

Kazakhstan’s pipeline infrastructure makes around 64% and mining makes the remaining 36% of manufacturing projects. Most of the country’s manufacturing projects are in petrochemical production or mining that targets the export markets in China and Russian Federation. In Kazakhstan, foreign inputs make up only 7.8% of the exports meaning that country has low integration in international production networks. There is an opportunity for the government to integrate better the country’s economy into global value chains.

Water

The country is on 8.8% exposed to unsafe drinking water, indicating that Kazakhstan’s water supply is slightly more reliable than Tajikistan, Kyrgyzstan and Mongolia. The country seeks to improve its water supply systems. 56.3% of projects focus on water supply and sanitation, and 43.7% on irrigation and water management progression.

Source: OECD (2019), Sustainable Infrastructure for Low-Carbon Development in Central Asia and the Caucasus: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/d1aa6ae9-en

Kyrgyzstan: Country background

Kyrgyzstan is a lower-middle income country, ranked as the second poorest country and a less urbanized country in Central Asia. The country’s economy is vulnerable to climate change because as the temperature rises, glaciers melt, which has profound implications for agriculture and the energy sector. In Kyrgyzstan, 31.7% of the inhabitants earn from agriculture, and remittances make up 33.2% of the country’s GDP. Kyrgyzstan does not possess a developed railway; therefore, roads account for 95% of the transportation across the country. Kyrgyzstan has the potential to become a critical business transit hub between China and Western countries. Therefore, the country’s investment in enhancing infrastructure is crucial. The Kyrgyz government have agreed on several documents and policies related to sustainability in the country in the timescale of 2020-2040. However, the challenges, like the lack of a hierarchy of documents, hinder the government from identifying its main development objectives. 

Economy and demographics

Kyrgyzstan is the second poorest country after Tajikistan in Central Asia, with a lower-middle income. So far, since 2013, the country’s population has grown by 2% annually, and its population reached 6.2 million in 2017. Kyrgyzstan’s population is young, and more than 30% of the population ages under 15 years old. According to the World Bank in 2019, Kyrgyzstan is the region’s least urbanized country after Tajikistan. However, the urban population growth is high. Since gaining independence, Kyrgyzstan’s economy has been irregular due to political conditions, which include two revolutions in 2005 and 2010. Eventually, a large share of GDP accounts for wholesale and retail trade, followed by agriculture, forestry, fishing, manufacturing, and construction.

Trade

Kyrgyzstan joined the Russian-led Eurasian Economic Union (EEU) in 2014. In 2017 as part of its integration into the EEU, the country agreed to establish a Russian-Kyrgyz Development fund of USD 261.5 million. The country is highly dependent on imports from China which makes up 45% of the country’s imports, and China holds 40% of the country’s debt. The country’s export relies on Gold (37%). The country’s main imported goods include rubber footwear (12%) and refined petroleum (9,9%).

Investment Climate

Kyrgyzstan has a relatively open economy with a competitive corporate tax rate of 10%, a low labour cost, and cheap electricity, mainly relying on hydroelectric resources. As a member of the EEU, Kyrgyzstan has preferential access to Kazakhstan’s trade markets, the Russian Federation, and China. Despite having strong legislation on taxation, and business doing permits, the country’s poor infrastructure and government’s limited capacity do not allow adequate implementation of the established rules. In 2019, according to the World Bank’s Report on Ease of Doing Business, Kyrgyzstan ranked 70th in the world. 

Around 49% of the Kyrgyz FDI comes from China, followed by Russia (16%), Kazakhstan (8%), Germany (5%) and the United Kingdom (5%). The country’s mineral resources attract most foreign investors. As for FDI investments metal industry received 79.5% of the fund, followed by building and construction materials (7.1%), transportation (3.3%), alternative/renewable energy (1.3%) and fossil fuels (0.4%). In 2017, the debt of Kyrgyzstan was equivalent to 65% of the GDP, which makes it a big challenge for the country’s development.

Climate Change

Kyrgyzstan is a country with a small economy, and the emission share is also low. In 2012, according to the World Bank, the country was responsible for 0.026% of the total global emissions. According to the Global Climate Risk Index, Kyrgyzstan took 52nd place. The country is sensitive to climate change, as weather events and natural disasters drastically increased between 2006 and 2011 compared to 1990. A temperature rise expects to melt the Kyrgyz glaciers and negatively impact the agricultural sector employing 31.7% of the workforce.

Infrastructure needs and current plans

The demand for infrastructure in Kyrgyzstan grows mainly because of economic and demographic growth. The country needs an enhancement of facilities for cross-border trade and low transport costs to improve export capacity. Comparing infrastructure in Kyrgyzstan with countries across the region, the quality is poor, mainly in transport, which hinders the trade flow and access to international markets.

Transport

Kyrgyzstan, surrounded by mountains, has a low population and a less developed rail and road network. The poor transport system makes Kyrgyzstan spend a high amount of USD 240 for one tonne of goods, whereas in Germany, the same access costs only USD 30. The rail service in Kyrgyzstan is limited to two unconnected rail lines, one connecting Bishkek to Kazakhstan and Uzbekistan and the second connecting Osh city to Uzbekistan. There are plans to unify railway networks and upgrade existing highways. Since freight traffic increases, the country’s transport infrastructure also needs to improve; therefore, the government plans to increase road capacity from the current capacity to 251% by 2030 and 984% by 2050.

Energy

According to the World Economic Forum, in 2017, Kyrgyzstan achieved universal electricity access, but the distribution quality is still poor, and electricity losses make 19.7%. A majority of Kyrgyz electricity is derived from hydro energy (87%), followed up by coal (12%) and natural gas (1%). According to Development Program 2018-2022, by 2017, the country planned to install 100 MW of renewable electricity, but no projects have been implemented yet. Despite being a priority in strategic plans for both 2018-2022 and 2040, no installation and distribution of natural gas projects have been initiated in cities of Kyrgyzstan.

Industry and Mining

Kyrgyzstan’s significant investments in industry and mining sector go in gold mining (64%), followed by cement (32%), and copper mining (5%). According to the World Bank, in 2018, most of the country’s investments went to mining. The mining sector could be an economic driver, but there are high environmental risks; therefore, the promotion of green processes is a necessity for the sustainable development of the country. 

Water

Improving water supply to rural parts of the country is the government’s top priority right now, investing USD 245 million in improving water and sanitation projects. Furthermore, around 18% of investments go on irrigation projects that support the improvement of agricultural productivity among farmers, and development banks such as ABD, EIB, EBRD, and World Bank finance all the water projects.

Source: OECD (2019), Sustainable Infrastructure for Low-Carbon Development in Central Asia and the Caucasus: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/d1aa6ae9-en

Mongolia: Country background

Mongolia, located between Russia and China, is a lower-middle income and least densely populated country. The country’s economy mainly depends on mining, making up 24% of its GDP. China is a significant trade partner of Mongolia in terms of imports and exports. Mongolia reformed its regulatory framework to attract foreign direct investments, yet the country is considered a risky destination for investment. According to the World Bank’s Ease of Doing Business index, the country ranked 74th globally. The country’s main issue is public debt which increased from 62.1% of GDP in 2015 to 87.6% in 2016. Mongolia is a strategic hub for 90% mainly railway freight transport between Russia and China. However, the country’s infrastructure needs maintenance.

Economy and demographics

More than 3 million population of Mongolia lies over a vast territory of over 1.5 million km2, making it the least densely populated country in the world (2 people/km2). So far, the country’s population has grown, and most of the population (68%) live in urban centres. Unlike other countries in this study, Mongolia was never part of the Soviet Union. However, the country had strong economic links with the Soviet Union. Therefore, the Soviet Union’s breakup also impacted Mongolia’s economy, but not the same as former Soviet Union countries. The country’s GDP fell between 1989 and 1994 and recovered later. In 2019 the country’s economy was three times larger than in 1989. So far, (40.3%) of the economy’s GDP is dependent on services, followed by mining more than (23.7%), agriculture (10.9%), and animal husbandry makes (35%) of the working population’s income.

Trade

Mongolia became a member of the World Trade Organization in 1997, and so far, the government has pursued free trade agreements with partners like China, Japan, and Korea. The country’s exports fall into two major categories, mineral products (57%) and metals (18%) of the exports, especially gold. Furthermore, the country imports refined petroleum (18%), cars (5.9%), trucks (3.9%), and electricity (3%). Mongolia’s most prominent trading partner is China, followed by Russia (mainly import), Switzerland, European Union and Kazakhstan.

Investment climate

Mongolia’s geographical location and its access to minerals make the country favourable to attract further foreign direct investments. Due to severe fiscal constraints, Mongolia’s government reformed its investment regulatory framework to ensure transparency and provide equal footing for domestic and international investors. Mongolia ranked 74th on ease of doing business. Despite the country’s improvements in the doing business rankings, the investors still consider the Mongolian business environment unsafe for investment due to frequent revisions of regulations by the government. For Mongolia, the primary foreign investors are Canada (46% of total investment going to mining companies), the European Union, China, and Russia. The country’s public debt has risen from (62.1%0 to (87.6%), which puts the country at high risk of default. The government recognizes its growing debt problem and sets targets to reduce its foreign debt to (40%) by 2030. Eventually, the country attracted USD 14.3 billion of greenfield FDI projects, mainly in two sectors, metal (54%), coal and natural gas (28%), and a small share (4%) for renewable energy. 

Climate change

Mongolia’s small size of economy and population shared 0.06% of global greenhouse gas (GHG) emissions in 2014. The country’s per capita emissions were 11.8 tCO2e which is below the average of the OECD countries. The country’s rapid economic growth in the mid-2000s increased its GHG emission. However, it dropped later on, and so far, the country’s economy is less emission-intensive than some other Central Asian economies. Agriculture contributes the largest share of Mongolia’s GHG emissions (48.4%), followed by energy (27.5%), industries and construction (6.7%), transport (5.8%) and fugitive emissions from fuels (3.4%). Mongolia ratified its Nationally Determined Contributions to Paris Agreement in 2016, and the country is committed to reducing GHG emissions by (14%) by 2030. Eventually, the government is at high risk of climate change, as “lakes are drying, species are disappearing, and country’s native species are losing their habitats due to desertification and land degradation”.

Infrastructure needs and current plans

The country’s infrastructure requires investment, and the government has also undertaken infrastructure development projects to improve infrastructure service delivery. So far, no private sector has been involved in infrastructure projects, and the government has played a significant role in the energy, transport and water sectors. The government prioritizes greenfield projects but has not yet allocated adequate funds to maintain the infrastructure assets. As for investment projects, out of USD 62.9 billion, over USD 23.8 billion (38%) accounts for energy (94% of total energy projects, and 6% for electric power transmission and distribution), (32%) for mining and quarrying projects, (20%) for transport, and (9%) for manufacturing projects.

Transport

Mongolia’s poor transport infrastructure increases trade costs and limits the country’s integration into the global market. The government’s underinvestment in maintaining the transport system. The country needs to increase its road capacity by 84% by 2030 and rail capacity by 65%. Mongolia’s geographical location plays an important role domestically and internationally as it makes 90% of the freight between China and Russia. In 2016, China, Russia and Mongolia signed an agreement laying out plans to develop an economic corridor. Considering the country’s transportation shortcomings, the Mongolian government invested in significant initiatives, and as a result, the country’s national road network increased threefold. Eventually, railway projects receive most of the infrastructure investments (57%), followed by roads (42%) and logistic centres (1%).

Energy

Mongolia’s energy is poor, and the government failed to invest in energy while the economy rapidly grew. The country’s poor electric quality leads to 1.4% losses. Unlike former Soviet Union countries, Mongolia has not received universal electricity access, and almost a tenth of the population has no access to electricity. Furthermore, coal-fired thermal power plants running on outdated technology generate 93% of the country’s electricity. Most investments go to coal-fired electric power plants (95%) and only 3% to hydro power plants.

Industry and mining

The mining sector (24% of GDP) is the primary driver of the economy in Mongolia, providing 60% of industrial output, 80% of total exports, and employment for 2% of the population. Agriculture contributes 13% of GDP, employing about a third of the labour force. Essential non-mineral export is raw hair fibres from cashmere goats, but the country’s role in textile products is limited. The agricultural decline and mining rise have led to a chronic lack of economic diversification, and Mongolian exports rely only on mining and China.

Water

Mongolia’s water supply and sanitation infrastructure are poor, and 20% of the population faces water insecurity. The country ranked 100th out of 140 countries in the World Economic Forum’s Report due to the underdevelopment of water supply systems. The government aims to increase access to clean drinking water to cover 90% of the population by 2030 and increase the share of the population using improved sanitation and hygiene by 60% by 2030. Eventually, only a tiny share of USD 62.9 billion of the country’s investments accounts for water.

Source: OECD (2019), Sustainable Infrastructure for Low-Carbon Development in Central Asia and the Caucasus: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/d1aa6ae9-en

Tajikistan: Country background

Tajikistan is a low-income economy and a former Soviet Union country with 27% of urbanization. Agriculture, the central pillar of the economy, is making 21% of GDP and is threatened by climate change. The country ranks 126th in World Bank’s report for Doing Business. The country’s strategy to attract FDI flows and 80% debt to China puts the country at a high risk of debt stress. Infrastructure in Tajikistan is poor, which impacts the trade costs to be very high and limitations for the country’s access to nearby markets. Around 83% of the roads are unpaved and need investment by the government. The planned rail project aims to connect the country with neighbouring markets. However, the country has achieved universal access to electricity. While Tajikistan has development strategies, it lacks a mid-term strategy against which short-term documents can be compared. The government does not consider environmental concerns in its policies.

Economy and demographics

Tajikistan’s population is primarily rural and the least urbanized country in Central Asia. The Tajik government has been facing challenges in providing a job for its younger generation. The country’s economy fell after its independence from the Soviet Union. Furthermore, the country’s economy is based on the service sector (41%), followed by industry (27%), and agriculture (21%). Agriculture’s share of GDP is the largest in the region. Tajikistan’s economy is highly dependent on remittances, which make up 29% of the country’s GDP, and around 3-4% of the economy is dependent on private sectors, which also facilitates 11% of employment across the country.

Trade

Tajikistan is not a member of the Eurasian Economic Union. However, in 2013 it joined World Trade Organization. The country’s major exports are mineral products, and imports are textiles and machines. Tajikistan’s leading traders are Kazakhstan, China, Russia, Turkey, and Switzerland.

Investment climate

Tajikistan’s poor implementation of regulations led the country to an unpredictable regulatory environment for investors to operate. However, the country has a well-developed regulatory framework. The government has taken the step to simplify business registration, licencing, taxation, and competition law. However, implementing reforms remains weak due to corruption and incorrect interpretation of laws. The Tajik government has taken the step to deal with investment policy and promote investments, yet there is a need for additional capacity for the institutions to be more effective. According to IMF and World Bank’s assessments, Tajikistan has a high risk of debt; 80% of its debt is to China’s Export-Import Bank. The country could attract around USD 7 billion for greenfield FDI projects, and most foreign investors have been investing in metal projects.

Climate change

The climate threats are high in Tajikistan. Since 1950, the country’s 20% of glaciers have melted. Certain parts of the country are facing up to 5°C warming by the end of the century, which increases heat waves and droughts and threatens the country’s agriculture, future energy and food security, access to water, transportation system, and health system. The country’s contribution to GHG emissions is the lowest in the region but higher than the OECD average. The country’s emissions come from the energy sector (67%), followed by agriculture (20%), industry (10%) and waste (3%). By 2014, the agriculture share grew by 50%, while energy dropped to 28%.

Infrastructure needs and current plans

Tajikistan’s infrastructure is poor, mainly in energy and transport, which interconnected with high trade costs, and restricts the country’s access even to its nearby markets. The country’s infrastructure poses risks to population mainly during extreme weather events and earthquakes since soviet constructed infrastructures are still used. As for projects under construction and planned investments tracked, 58% are allocated for energy projects, followed by transport (18%), mining (13%), manufacturing and water supply and sanitation (3%), and planned and under construction investment projects (1%).  The investment for energy is divided into electricity generation projects (49%), and electric power transmission and distribution (7%). Tajikistan focuses on hydroelectric power in order to sell excess energy to neighbouring countries, particularly Afghanistan and Pakistan.

Transport

According to the World Bank’s Logistics Performance Index, Tajikistan ranks 147th out of 167 countries, the lowest and with weakest infrastructure system in the region. In Tajikistan, (96%) of the cargo and passengers travel is done by road. In 2016 (74.5%) of the travels were accounted by motor and (24.7%) by air transport. Tajikistan, with no access to the sea, mainly relies on road transportation for its trade, and 83% of the roads are unpaved, which limits country’s connectivity to trade both domestically and internationally. The roads capacity is planned to be increased by 191% by 2030 and 516% by 2050. Tajikistan’s rail network routes through Uzbekistan (Tashkent to Fergana valley through Tajikistan), and (Dushanbe to southern Uzbekistan). Around 80% of the planned infrastructure projects focuses on railway, followed by roads (17%), and remaining (3%) for airports.  

Energy

The energy system in Tajikistan is poor, and its function inefficiently. According to the World Economic Forum, the electricity loss has been reported 17.1%. Tajikistan is a net importer of oil and gas, while it exports electricity. The country faces energy security concerns due to its dependency on hydroelectric dams that leaves 1 million people without electricity mainly during the winters. The energy independence is at government’s top priorities for the future. The country’s planned investments are aligned with government’s strategies which aims to increase capacity of renewable energy, and the majority of the electricity generation projects are in hydropower (94%) whereas only (6%) accounts for coal-fired electric power. Tajikistan got the eight highest hydropower potentials in the world, however most of them needs rehabilitations as they are remained from soviet-era.

Industry and mining

Tajikistan’s National Development Strategy aims to increase the share of industry in country’s GDP 16-16.5% by 2025 and 20-21% by 2030, and to decrease the role of extractives. The country’s manufacturing projects are mainly focusing on metallurgical plants (53%), followed by aluminum plants (22%), cement manufacturing (19%), and basalt fiber production (7%). Mining industry and heavy industries produce and facilitate job opportunity for almost 90% of local workers.

Water

Tajikistan is rich in water. The largest river of Central Asia is originated there and it provides more than 70% of all drinking water in the region. According to the World Bank, only three out of four Tajiks have access to clean water. The irrigation infrastructure is poor, and 50% of water distribution system, and 65% of the drainage systems are dysfunctional. Most of the planned projects focuses on water supply and irrigation (81%) and on water management (19%).

Source: OECD (2019), Sustainable Infrastructure for Low-Carbon Development in Central Asia and the Caucasus: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/d1aa6ae9-en

Turkmenistan: Country background

With the second highest GDP per capita, Turkmenistan is an upper-middle-income country in Central Asia. The country’s main export is minerals, mostly gas (91%), whereas the majority (83%) of its exports go to China. Turkmenistan has a challenging business environment among all Central Asian countries due to the state’s strict control, regulations, weak law and high corruption levels. Still, the government receives a large amount of FDI, mainly from China investing in the oil and gas sector. Despite investment in transport, the country’s infrastructure remains weak, and logistic costs are high. Turkmenistan’s government has adopted some strategic documents, but they are not as actionable due to the lack of specified duties among public actors.

Economy and demographics

In Turkmenistan, more than half of the population lives in urban areas, and a quarter of them are in the capital city of Ashgabat. In 2018, the economy became 12 times larger than before its independence from the Soviet Union. Industry, including construction, accounts for the most significant portion of the economy (57%), followed by the service sector (28.1%) and agriculture (9.3%).

Trade

Turkmenistan is neither a member nor an observer of the World Trade Organization and Eurasian Economic Union. Petroleum gas accounts for 83% of the export of Turkmenistan, and manufactured goods, mainly machines, make up 36% of the country’s imports. Most of Turkmenistan’s exports go to China (83%), and only a fraction of its exports go to Central Asia and Caucasian neighbouring countries. As for imports, Turkmenistan’s main imports come from Turkey (30%).

Investment climate

Due to a challenging business environment and complex regulatory framework, Turkmenistan is not in the World Bank Doing Business survey. In 2019, the country ranked 164th in terms of economic freedom and scored 10 out of 100 on investment freedom. The main reasons for taking low place are heavy state control, exchange rate restrictions, the weak rule of law and corruption. In 2012, Turkmenistan’s largest source of FDI was China (39%), followed by Russia (16%), the Persian Gulf countries (12%), Turkey (9%), and Canada (8%). The Turkmenistan government aims to develop its market, expand its private sectors, and stand among highly developed countries. The government seeks to transform state-owned enterprises into private companies. From 2003 to 2017, Turkmenistan could attract over USD 12 billion for its cross-border greenfield FDI projects.

Climate change

Turkmenistan’s GHG emissions are (0.0017%) of global emissions, and the majority (83%) of the GHG emissions come from energy, followed by agriculture (7%), industrial processes (2%), bunker fuels and waste account for the remainder. The country’s per capita GHG emissions are the second highest after Kazakhstan (17.5 tCO2e). Turkmenistan’s economy and agriculture are at high risk of climate change, leading to a 10% annual increase in floods and mudflows, a 5% increase in rainfall, and 1.6% heatwaves.

Infrastructure needs and current plans

Infrastructure, mainly transport, needs investment by Turkmenistan’s government as that can increase economic benefit for the country. The vast infrastructure network covers Turkmenistan’s entire territory, yet its services are inadequate. According to World Bank’s Logistics Performance Index, Turkmenistan ranked (142 out of 167) which indicates the country’s infrastructure quality is poor. In Turkmenistan, energy (66%) dominates the infrastructure plans and projects above, followed by manufacturing (25%) and transport (9%).

Transport

The geographical location of Turkmenistan and its low population density complicate the development of transport infrastructure, deserts cover (80%) of the country’s territory. The construction of road and rail requires extra costs, and the lack of private sector involvement in transport infrastructure or operation is another reason for having a poor transportation system across the country. A recent development in transport could increase the country’s connectivity with its neighbours. Furthermore, the country’s International Sea Port on the Caspian Sea and rail link connecting Kazakhstan to Iran via Turkmenistan increase trade in Turkmenistan. There are three main projects focusing on cross-border roads and railways, but there are insufficient investments in transport projects. According to UNPD, Turkmenistan’s government is planning a series of projects related to the transport sector by 2030.

Energy

Turkmenistan achieved universal access to electricity, but the electricity system is unstable. A loss of energy makes 12.5%. Turkmenistan does not encounter energy concerns. However, its dependency on gas exposes the country’s economy to instability due to fluctuations in the market. Turkmenistan’s electricity is mainly generated by natural gas, however, in the 1990s, the country tried to generate electricity through its hydroelectric dams, but its share declined. The government prioritizes the modernization of gas and oil pipelines to reduce leakage. So far, the country does not have any renewable energy sources. However, it calls for installing such developments in the nearest future. 

Industry and mining

Turkmenistan’s National Climate Change Strategy calls for developing non-hydrocarbon industries in the country, but the government does not provide any clear goals. So far, a few industry projects are planned and under construction in Turkmenistan, primarily in the chemicals, coke, and refined petroleum sectors, with enough investment. Korean corporations or domestic companies fund the ongoing greenfield projects.

Source: OECD (2019), Sustainable Infrastructure for Low-Carbon Development in Central Asia and the Caucasus: Hotspot Analysis and Needs Assessment, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/d1aa6ae9-en