In 2023, Turkmenistan is expected to have the highest GDP growth in Central Asia. Project finance plays an increasingly important role in the development of the local economy. Turkmenistan is carrying out large-scale reforms that are aimed at creating a favorable economic environment and improving the investment climate and project finance in Turkmenistan
The attractiveness of a country for foreign investment is determined by the following:
Energy sector development: Turkmenistan has enormous reserves of energy resources, including natural gas, oil and thermal coal. This provides ample investment opportunities in energy sector development.
Infrastructure projects: The country is actively investing in infrastructure development, including transport, energy and logistics. This creates opportunities for investment in numerous business projects related to construction and modernization.
Developed agriculture: The country has vast agricultural lands and very high potential for the development of agriculture and some sectors of food industry. Investments in this sector can be promising.
Human capital: Turkmenistan has a large number of highly qualified specialists, which can be useful for companies looking for talent.
Viola funding Limited provides comprehensive project finance and lending services (PF) for investment projects in Turkmenistan and other Central Asian countries, including large projects aimed at the construction.
Economy and foreign investment in Turkmenistan
The economy of Turkmenistan looks more balanced compared to neighboring republics. Thus, the share of the mining industry in the structure of Turkmenistan’s GDP in 2022 is less than 4%, while the most developed sectors of the economy are agriculture (25%) and industrial manufacturing (20%). Leading industries in Turkmenistan traditionally include cotton ginning, mechanical engineering, textiles, gas, non-ferrous metallurgy, electrical engineering, electronics, instrument making, oil refining, automobile manufacturing, and agricultural financing and processing.
In addition, large investments in agriculture provide Turkmenistan with most of the main types of agricultural products. In addition, local agricultural producers have established successful exports of a number of products far beyond Central Asia.
Thanks to a well-balanced government policy, over the past decades, Turkmenistan has been able to form production clusters in many high-tech industries, attracting foreign investment and technology. In the domestic market of Turkmenistan, the share of sales of locally produced TVs is about 70%, air conditioners – almost 60%, refrigerators – about half of sales.
Turkmenistan is located in Central Asia, and it has been undergoing significant economic reforms in recent decades. Local government has been working to liberalize the economy and attract foreign investment on a large scale.
Thanks to favorable external conditions and reforms, Turkmenistan’s gold and foreign exchange reserves reached $35.8 billion by the end of 2022. Today the country has the largest reserves of monetary gold in Central Asia. These resources are sufficient to cover the costs of imported goods and services for about 14 months.
The national development program of Turkmenistan for the next five years includes attraction of foreign investment, digitalization, and trade liberalization. The country has been actively seeking foreign investment in different sectors, including infrastructure, energy, and agriculture.
Project finance plays a crucial role in financing large-scale investment projects across the country.
Between 2022 and 2024, Turkmenistan intends to implement investment projects totaling more than $52 billion. For 2022 alone, the country’s government has planned investment projects worth more than $16 billion, including about $6 billion in FDI. Many of these projects require large capital investments amounting to hundreds of millions of dollars.
Are you considering a project finance in Turkmenistan, consult with our experts, legal and financial advisors with extensive experience in business development in Central Asia.
Main development scenarios for project finance in Turkmenistan
All scenarios considered are based on the long-term results of political and economic reforms launched by the local government back in 2016. They rely, among other things, on the modernization of the legal and financial systems, in particular on the development of advanced instruments for attracting capital, such as project finance.
Based on internal factors determining project finance in Turkmenistan, several options for further economic development can be identified.
One of the significant obstacles for this scenario is the limited water resources. The increase in water scarcity is due to rapid economic growth (average annual growth rate approx. 7%) and population growth (Turkmenistan‘s population could increase to almost 40 million people by 2030). Under such conditions, water shortages will increase to 45% by the end of the decade. This, in turn, will lead to a slowdown in the development of not only agriculture, but also other industries.
The first scenario assumes the continuation of current development trends and financing priorities, which will lead to further unlocking the potential of existing growth factors. This includes new investment programs aimed at modernizing the real economy, increasing employment in traditional small businesses and services, and increasing revenues from mineral exports.
However, such growth will not provide a comprehensive boost to the economy. In particular, challenges associated with job creation in innovative and labor-intensive sectors will remain unresolved. In addition, the share of energy resources and primary products in the country’s exports may continue to increase. The sustainability of such a model is also a concern as the risk of environmental problems increases.
This model provides for a limitation of administrative regulation. Instead, it is supposed to create incentives for preserving resources, effective antimonopoly policy, tax reform and foreign investment attraction. The desired result of this scenario is to achieve a higher quality of economic growth and increase its sustainability.
Project finance in Turkmenistan: Our main service
The term “project finance” refers to the method of implementation of capital-intensive business projects with limited recourse to the borrower.
Project finance is essentially a method of attracting long-term debt financing for large projects through financial engineering instruments, based on borrowing against the cash flows generated only by the project itself. In the modern realities of doing business in Central Asia, PF is a complex organizational and financial event for financing and monitoring the implementation of a project by all its participants, requiring significant experience and perfect methodology.
The most attractive sectors for project finance in Turkmenistan:
Transportation: Infrastructure development, including roads, railways, and local airports, has been a priority to improve connectivity within the country and the broader Central Asian region.
Energy sector: Turkmenistan has a significant focus on large energy projects, including renewable energy sources such as solar and wind power, as well as oil and gas exploration and production.
Mining and natural resources: Turkmenistan has rich resources, including gold, copper, and uranium, which may attract investment in mining projects.
Agriculture: Local agriculture business is another sector with potential for investment, as the country has a long history of cotton and grain production.
In 1993, Turkmenistan became a member of the World Bank. In subsequent years, the IBRD and other international financial institutions successfully financed a dozen large projects worth more than $700 million, and this cooperation continues.
The partnership strategy between the Republic of Turkmenistan and the World Bank is focused on modernizing infrastructure, projects in the water supply sector, modernizing the education and health care systems, and improving the efficiency of the energy sector.
Private capital actively uses this tool to develop highly profitable investment projects in the field of mining, downstream projects in oil and gas sector, energy, metallurgy, and other industries.
Challenges and considerations for large business in Turkmenistan:
Cultural and language differences: Understanding the local culture and working effectively with local partners is crucial for successful investment project implementation.
Access to finance: While Turkmenistan is taking steps to improve access to financing, it’s essential to consider how project financing will be secured and whether there are local or international sources of funding.
Political and regulatory risks: As with any emerging Asian market, investors should be aware of potential political and regulatory risks.
Bureaucracy: Despite the reforms, dealing with bureaucratic processes can sometimes be challenging. Investors should be prepared for administrative procedures and paperwork.
Despite challenges, Turkmenistan offers potential opportunities for business development based on project finance, particularly in sectors like energy, infrastructure, and agriculture.
It’s essential for investors to conduct thorough due diligence, seek legal and financial advice, and stay informed about the evolving business and regulatory environment.
If you are looking for a reliable partner for long-term financing of capital-intensive projects in Central Asia, contact our team at any time.
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