Bangladesh is the most densely populated non-city-state country in the world, with the eighth largest population (over 165 million) within a territory the size of Iowa. Bangladesh is situated in the northeastern corner of the Indian subcontinent, sharing a 4,100 km border with India and a 247 km border with Burma. With sustained economic growth over the past decade, a large, young, and hard-working workforce, strategic location between the large South and Southeast Asian markets, and vibrant private sector, Bangladesh will likely continue to attract increasing investment, despite severe economic headwinds created by the global outbreak of COVID-19.
Buoyed by a young workforce and a growing consumer base, Bangladesh has enjoyed consistent annual GDP growth of more than six percent over the past decade, with the exception of the COVID-induced economic slowdown in 2020. Much of this growth continues to be driven by the ready-made garment (RMG) industry, which exported $28.0 billion of apparel products in fiscal year (FY) 2020, and continued remittance inflows, reaching a record $18.2 billion in FY 2020. (Note: The Bangladeshi fiscal year is from July 1 to June 30; fiscal year 2020 ended on June 30, 2020.) However, the country’s RMG exports dropped more than 18 percent year-over-year in FY 2020 as COVID-19 depressed the global demand for apparel products.
The Government of Bangladesh (GOB) actively seeks foreign investment. Sectors with active investments from overseas include agribusiness, garment/textiles, leather/leather goods, light manufacturing, power and energy, electronics, light engineering, information and communications technology (ICT), plastic, healthcare, medical equipment, pharmaceutical, ship building, and infrastructure. The GOB offers a range of investment incentives under its industrial policy and export-oriented growth strategy with few formal distinctions between foreign and domestic private investors.
Bangladesh’s Foreign Direct Investment (FDI) stock was $16.9 billion in 2019, with the United States being the top investing country with $3.5 billion in accumulated investments. Bangladesh received $1.6 billion FDI in 2019. The rate of FDI inflows was only 0.53 percent of GDP, one of the lowest of rates in Asia.
Bangladesh has made gradual progress in reducing some constraints on investment, including taking steps to better ensure reliable electricity, but inadequate infrastructure, limited financing instruments, bureaucratic delays, lax enforcement of labor laws, and corruption continue to hinder foreign investment. Government efforts to improve the business environment in recent years show promise but implementation has yet to materialize. Slow adoption of alternative dispute resolution mechanisms and sluggish judicial processes impede the enforcement of contracts and the resolution of business disputes.
As a traditionally moderate, secular, peaceful, and stable country, Bangladesh experienced a decrease in terrorist activity in 2020, accompanied by an increase in terrorism-related investigations and arrests. A December 2018 national election marred by irregularities, violence, and intimidation consolidated the power of Prime Minister Sheikh Hasina and her ruling party, the Awami League. This allowed the government to adopt legislation and policies diminishing space for the political opposition, undermining judicial independence, and threatening freedom of the media and NGOs. Bangladesh continues to host one of the world’s largest refugee populations, more than one million Rohingya from Burma, in what is expected to be a humanitarian crisis requiring notable financial and political support for years to come. International retail brands selling Bangladesh-made products and the international community continue to press the Government of Bangladesh to meaningfully address worker rights and factory safety problems in Bangladesh. With unprecedented support from the international community and the private sector, the Bangladesh garment sector has made significant progress on fire and structural safety. Critical work remains on safeguarding workers’ rights to freely associate and bargain collectively, including in Export Processing Zones (EPZs).
The Bangladeshi government has limited resources devoted to intellectual property rights (IPR) protection and counterfeit goods are readily available in Bangladesh. Government policies in the ICT sector are still under development. Current policies grant the government broad powers to intervene in that sector.
Capital markets in Bangladesh are still developing, and the financial sector is still highly dependent on banks.
The World Bank announced in 2020 it would pause the Doing Business publication while it conducts a review of data integrity.
Since its independence in 1991, Kazakhstan has made significant progress toward creating a market economy and has attracted significant foreign investment given abundant mineral, petroleum, and natural gas resources. As of January 1, 2021, the stock of foreign direct investment in Kazakhstan totaled USD 166.4 billion, including USD 38 billion from the United States, according to official statistics from the Kazakhstani central bank.
While Kazakhstan’s vast hydrocarbon and mineral reserves remain the backbone of the economy, the government continues to make incremental progress toward diversification. Kazakhstan’s efforts to remove bureaucratic barriers have been moderately successful, and in 2020 Kazakhstan ranked 25 out of 190 in the World Bank’s annual Doing BusinessReport. The government maintains an active dialogue with foreign investors through the President’s Foreign Investors Council and the Prime Minister’s Council for Improvement of the Investment Climate. Kazakhstan joined the World Trade Organization (WTO) in 2015. In September 2020, President Tokayev announced a New Economic Course – a reform agenda that, if implemented, aims to improve the investment climate.
Despite institutional and legal reforms, concerns remain about corruption, bureaucracy, arbitrary law enforcement, and limited access to a skilled workforce in certain regions. The government’s tendency to increase its regulatory role in relations with investors, to favor an import-substitution policy, to challenge the use of foreign labor, and to intervene in companies’ operations, continues to concern foreign investors. Foreign firms cite the need for better rule-of-law, deeper investment in human capital, improved transport and logistics infrastructure, a more open and flexible trade policy, a more favorable work-permit regime, and a more customer-friendly tax administration.
In July 2018, the government of Kazakhstan officially opened the Astana International Financial Center (AIFC), an ambitious project modelled on the Dubai International Financial Center, which aims to offer foreign investors an alternative jurisdiction for operations, with tax holidays, flexible labor rules, a Common Law-based legal system, a separate court and arbitration center, and flexibility to carry out transactions in any currency. Since 2019 the government has pursued a policy of using the AIFC as a regional investment hub to attract foreign investment to Kazakhstan. The government has recommended foreign investors use the law of the AIFC as applicable law for contracts with Kazakhstan. . In January 2021 the AIFC on behalf of Kazakhstan joined the Central Asia Investment Partnership initiated by the U.S. International Development Finance Corporation (DFC).
Against the backdrop of the worst economic downturn since 1991, a looming debt crisis, and a deteriorating COVID-19 situation in the region, the Kyrgyz Republic faces daunting prospects in 2021 to stabilize the economy and recuperate investor confidence. In October 2020, the toppling of the government under former President Soorenbai Jeenbekov in a populist uprising against vote-buying and administrative corruption created the path for the installation of a populist administration under President Sadyr Japarov, who quickly reorganized the government and enacted sweeping constitutional reforms. The Japarov administration, while maintaining its partnerships with key economic partners Russia and China, also seeks financial support and foreign investment from the United States and other Western countries to support economic recovery. However, under the auspices of a sweeping anti-corruption campaign, detentions and aggressive tactics against private businesses have increased, raising serious concerns among foreign investors about the security of their investments. In May 2021, the government levied a $3 billion fine against the country’s largest foreign investor, Centerra Gold Inc, and installed external management for a three-month period. The government and Centerra Gold Inc. have entered into arbitration proceedings, but the matter will likely have long-lasting repercussions on the country’s already challenging investment climate.
The Kyrgyz economy significantly contracted by 8.6 percent of GDP in 2020, mainly due to decreases in construction, tourism, and non-gold exports. Total inbound foreign direct investment in 2020 shrank by over 50 percent, due to reduced inflows across the board among the country’s main investors: Canada, China, the United Kingdom, and Russia. The International Monetary Fund projected growth is expected to rebound in 2021 and with a full recovery to pre-pandemic levels by 2023, barring a severe resurgence of COVID-19 or political turbulence. The government’s focus on reducing public debt, which is currently 68 percent of GDP, may restrict fiscal space in the short to medium term to move forward on public investments and public private partnerships approved in 2019.
Corruption and government gridlock are major impediments to prospective investment and business development. Since February, the new government has undergone a mass re-structuring of ministries and state agencies, including re-organization of state bodies for economic policy formation such as the State Committee for Information and Communications Technology and the Investment Promotion and Protection Agency, as well as law enforcement oversight by disbanding the Financial Police. Until permanent leadership is assigned for new state bodies, the new government’s short-term priorities and internal capacity continue to be in a state of transition, which may increase some administrative costs for doing business. While the legal and regulatory framework is set up to be in accordance with international norms, poor implementation and weak enforcement, particularly with respect to intellectual property rights protection, and transparency in extractive licensing, are endemic problems. Since October 2020, President Japarov’s anti-corruption campaign resulted in a significant uptick in business investigations and detentions of business executives on criminal charges. Although the government extended the moratorium on business inspections until January 1, 2022, state security services are increasingly involved in economic crime cases, raising concerns about deteriorating transparency and oversight of business regulations.
The Kyrgyz Republic remains a frontier market, oriented towards higher-risk investors seeking to capitalize on the country’s minimal market entry barriers, lack of restrictions on foreign ownership, and export-oriented tax incentives to establish a foothold in Central Asia. Although FDI has historically targeted mining-related sectors, finance, and petroleum product manufacturing, the new government’s stated commitment to develop the country’s digital economy and to enhance regional trade integration presents numerous long-term investment opportunities in agribusiness and food processing, ICT infrastructure, energy, and transit and customs. The Kyrgyz Republic’s participation in the newly launched CASA-1000, a regional electricity transmission project, may increase the country’s export capacity and investment opportunities in the power sector. This also may catalyze political will to pursue energy tariff reform and leverage new investment with the country’s largely untapped hydro resources. In order to unlock these opportunities, it will be contingent on the new government to prevent backsliding in structural reforms to increase competitiveness and transparency in the investment climate to unlock these opportunities.
*Some information in the report may be subject to change upon date of publication and will be updated in the ICS 2022.
The Republic of Maldives comprises 1,190 islands in 20 atolls spread over 348 square miles in the Indian Ocean. Tourism is the main source of economic activity for Maldives, directly contributing close to 30 percent of GDP and generating more than 60 percent of foreign currency earnings. The tourism sector experienced impressive growth, from 655,852 arrivals in 2009 to 1.7 million in 2019, before a steep decline in 2020 resulting from the COVID-19 pandemic. Tourism began to recover in late 2020 and will continue to drive the economy. However, following the COVID-19 outbreak, the government has re-emphasized the need to diversify the economy, with a focus on the fisheries and agricultural sectors.
GDP growth averaged six percent during the past decade, lifting Maldives to middle-income country status. Per capita GDP is estimated at USD 11,890, the highest in South Asia. However, income inequality and a lack of job opportunities remain a major concern for Maldivians, especially those in isolated atolls. Following the COVID-19 outbreak, GDP fell 29.3 percent in 2020; following nascent signs of recovery in the tourism industry, the government forecast growth in 2021 to reach 13.5 percent.
Maldives is a multi-party constitutional democracy, but the transition from long-time autocracy to democracy has been challenging. Maldives’ parliament ratified a new constitution in 2008 that provided for the first multi-party presidential elections. In 2018, Ibrahim Mohamed Solih of the Maldivian Democratic Party was elected president, running on a platform of economic and political reforms and transparency, following former President Abdulla Yameen whose term in office was marked by corruption, systemic limitations on the independence of parliament and the judiciary, and restrictions on freedom of speech, press, and association. The MDP also won a super majority (65 out of 87) seats in parliamentary elections in April 2019, the first single-party majority in Maldives since 2008. President Solih pledged to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental rights.
Corruption across all sectors, including tourism, was a significant issue under the previous government and remains a concern. There also remain serious concerns about a small number of violent Maldivian extremists who advocate for attacks against secular Maldivians and may be involved with transnational terrorist groups. In February 2020, attackers stabbed three foreign nationals – two Chinese and one Australian – in several locations in Hulhumalé. ISIS claimed responsibility for an April arson incident on Mahibadhoo Island in Alifu Dhaalu atoll that destroyed eight sea vessels, including one police boat, according to ISIS’ online newsletter al-Naba. There were no injuries or fatalities.
Large scale infrastructure construction in recent years contributed to economic growth but has resulted in a significant rise in debt. The Maldives’ debt-to-GDP ratio increased from 58.5 percent in 2018 to an estimated 61.8 percent in 2019 according to the World Bank (WB); this further increased to 138 percent in 2020 according to the Ministry of Finance, an increase driven by a sharp drop-off in government revenue.
Maldives welcomes foreign investment, although the ambiguity of codified law and competition from politically influential local businesses act as deterrents. U.S. investment in Maldives thus far has been limited, and focused on the tourism sector, particularly hotel franchising and air transportation.
Nepal’s annual Gross Domestic Product (GDP) is approximately USD32.1 billion, and trade totaling USD11.1 billion. Despite considerable potential – particularly in the energy, tourism, information and communication technology (ICT), infrastructure and agriculture sectors – political instability, widespread corruption, cumbersome bureaucracy, and inconsistent implementation of laws and regulations have deterred potential investment. While the Government of Nepal (GoN) publicly states its keenness to attract foreign investment, this has yet to translate into meaningful practice. The COVID pandemic further slowed reform efforts that might have made Nepal a more attractive investment destination. Despite these challenges, foreign direct investment (FDI) into the country has been increasing in recent years. Historically, few American companies have invested in Nepal.
In 2017, the Millennium Challenge Corporation (MCC) signed a USD500 million Compact with the GoN that will focus on the electricity transmission and road maintenance sectors. The GoN has agreed to contribute an additional USD130 million for these Compact programs. The GoN’s slow progress in securing Parliamentary ratification for the Compact and implementing it has not sent a good signal to potential investors.
Nepal’s location between India and China presents opportunities for foreign investors. Nepal also possesses natural resources that have significant commercial potential.
Hydropower – Nepal has an estimated 40,000 megawatts (MW) of commercially-viable hydropower electricity generation potential, which could become a major source of income through electricity exports.
Other sectors offering potential investment opportunities include agriculture, tourism, the ICT sector, and infrastructure, although the tourism sector is unlikely to recover until 2022 from the downturn due to the pandemic.
Nepal offers opportunities for investors willing to accept inherent risks and the unpredictability of doing business in the country and possess the resilience to invest with a long-term mindset. While Nepal has established some investment-friendly laws and regulations in recent years, significant barriers to investment remain.
Corruption, laws limiting the operations of foreign banks, challenges in the repatriation of profits, limited currency exchange facilities, and the government’s monopoly over certain sectors of the economy, such as electricity transmission and petroleum distribution, undermine foreign investment in Nepal.
Millions of Nepalis seek employment overseas, creating a talent drain, especially among educated youth.
Trade unions – each typically affiliated with parties or even factions within a political party – and unpredictable general strikes create business risk.
Immigration laws and visa policies for foreign workers are cumbersome. Inefficient government bureaucratic processes, a high rate of turnover among civil servants, and corruption exacerbate the difficulties for foreigners seeking to work in Nepal.
Political uncertainty is another continuing challenge for foreign investors. Nepal’s ruling party has spent much of its energy over the last years on internal political squabbles instead of governance.
Government restrictions on the media and non-governmental organizations highlight an increased tendency toward censorship.
The persistent use of intimidation, extortion, and violence – including the use of improvised explosive devices – by insurgent groups targeting domestic political leaders, GoN entities, and businesses is an additional source of instability, although the country’s most prominent insurgent group (led by Netra Bikram Chand, also known as Biplav) recently agreed on March 5, 2021 to enter peaceful politics, which may reduce this threat.
Nepal’s geography also presents challenges. The country’s mountainous terrain, land-locked geography, and poor transportation infrastructure increases costs for raw materials and exports of finished goods.
Pakistan’s current government has sought to foster inward investment since taking power in August 2018, pledging to restructure tax collection, boost trade and investment, and fight corruption. However, the government also inherited a balance of payments crisis, forcing it to prioritize measures to build reserves and shore up its current account rather than medium to long-term structural reforms. The government entered a $6 billion IMF Extended Fund Facility in July 2019, promising to carry out structural reforms that have been delayed due to the COVID crisis. In March 2021, the IMF Board authorized release of the latest tranche under the EFF program, and Pakistan successfully accessed global bond markets for the first time since 2017.
Pakistan has made significant progress since 2019 in transitioning to a market-determined exchange rate and reducing its large current account deficit, while inflation has been under 10 percent for the entire reporting period. However, progress has been slow in areas such as broadening the tax base, reforming the taxation system, and privatizing state owned enterprises. Pakistan ranked 108 out of 190 countries in the World Bank’s Doing Business 2020 rankings, a positive move upwards of 28 places from 2019. Yet, the ranking demonstrates much room for improvement remains in Pakistan’s efforts to improve its business climate. The COVID-19 pandemic negatively impacted Pakistan’s economy, particularly during the spring/summer of 2020, but Pakistan fared relatively well compared to other economies in the region. Pre-COVID, the IMF had predicted Pakistan’s GDP growth would be 2.4 percent in FY 2020. However, Pakistan’s economy contracted by 0.5 percent in FY 2020, which ended June 30, 2020.
Despite a relatively open formal regime, Pakistan remains a challenging environment for investors with foreign direct investment (FDI) declining by 29 percent in the first half of FY 2021 compared to that same time period in FY 2020. An improving but unpredictable security situation, lengthy dispute resolution processes, poor intellectual property rights (IPR) enforcement, inconsistent taxation policies, and lack of harmonization of rules across Pakistan’s provinces have contributed to lower FDI as compared to regional competitors. The government aims to grow FDI to $7.4 billion by FY2023 from $2.56 billion in FY2020.
The United States has consistently been one of the largest sources of FDI in Pakistan. In 2020, China was Pakistan’s number one source for FDI, largely due to projects under the China-Pakistan Economic Corridor (CPEC) for which only PRC-approved companies could bid. Over the last two years, U.S. companies have pledged more than $1.5 billion of investment in Pakistan. American companies have profitable operations across a range of sectors, notably fast-moving consumer goods, agribusiness, and financial services. Other sectors attracting U.S. interest include franchising, information and communications technology (ICT), thermal and renewable energy, and healthcare services. The Karachi-based American Business Council, a local affiliate of the U.S. Chamber of Commerce, has 61 U.S. member companies, most of which are Fortune 500 companies and spanning a wide range of sectors. The Lahore-based American Business Forum – which has 23 founding members and 22 associate members – also assists U.S. investors. The U.S.-Pakistan Business Council, a division of the U.S. Chamber of Commerce, supports U.S.-based companies who do business with Pakistan. In 2003, the United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA) as the primary forum to address impediments to bilateral trade and investment flows and to grow commerce between the two economies.
Sri Lanka is a lower middle-income country with a Gross Domestic Product (GDP) per capita of about $ 3,682 (according to the Central Banka of Sri Lanka (CBSL) and a population of approximately 22 million in 2020. The island’s strategic location off the southern coast of India along the main east-west Indian Ocean shipping lanes gives Sri Lanka a regional logistical advantage.
After 30 years of civil war, Sri Lanka is transitioning from a predominantly rural-based economy to a more urbanized economy focused on manufacturing and services. Sri Lanka’s export economy is dominated by apparel and cash-crop exports, mainly tea, but technology service exports are a significant growth sector. Prior to the April 21, 2019, Easter Sunday attacks, the tourism industry was rapidly expanding, with Lonely Planet naming Sri Lanka its top travel destination in 2019. However, the attacks led to a significant decline in tourism that continued into 2020 due to COVID-19 and the government’s related decision to close its main international airport for commercial passenger arrivals in March 2020. The airport reopened for limited commercial passengers in January 2021, but newly reimposed travel restrictions are resulting in severe contractions for both the tourism and apparel export sectors with potential follow-on impacts in related sectors including services, construction, and agriculture. Tourism revenue dropped 73 percent year-over-year (YoY) in 2020 while apparel exports dropped 15.6 percent in the same period. However, official figures for migrant labor remittances, another significant source of foreign exchange, increased to $7.1 billion in 2020 due to the collapse of informal money transfer systems during the pandemic, despite the job losses to Sri Lankan migrant workers, especially in the Middle East.
The administration of President Gotabaya Rajapaksa, who was elected in November 2019, has largely promoted pro-business positions, including announcing tax benefits for new investments to attract foreign direct investment (FDI). As outlined in its election manifesto, the Rajapaksa government’s economic goals, include positioning Sri Lanka as an export-oriented economic hub at the center of the Indian Ocean (with government control of strategic assets such as Sri Lankan Airlines), improving trade logistics, attracting export-oriented FDI, and boosting firms’ abilities to compete in global markets. However, COVID-19 and the subsequent lockdowns brought new economic challenges, forcing the government to adapt policies to the situation on the ground. In April 2020, the Ministry of Finance restricted imports of luxury and semi-luxury consumer products such as consumer durables, motor vehicles, and the import of certain agricultural products as a means of saving foreign reserves and creating employment in labor intensive agriculture. With a debt-to-GDP ratio now above 100 percent (of which 60 percent is foreign debt), Sri Lanka is facing a potential liquidity crisis, exacerbated by declining export receipts due to the pandemic. Exports of goods fell 15.6 percent to $10 billion in 2020, down from $12 billion in 2019. Exports of services fell roughly 60 percent to $3 billion in 2020 down from $7.5 billion in 2019.
FDI in Sri Lanka has largely been concentrated in tourism, real estate, mixed development projects, ports, and telecommunications in recent years. With a growing middle class, investors also see opportunities in franchising, information technology services, and light manufacturing for the domestic market. The Board of Investment (BOI) is the primary government authority responsible for investment, particularly foreign investment, aiming to provide “one-stop” services for foreign investors. The BOI is committed to facilitating FDI and can offer project incentives, arrange utility services, assist in obtaining resident visas for expatriate personnel, and facilitate import and export clearances. However, Sri Lanka’s import regime is one of the most complex and protectionist in the world. Sri Lanka ranks 99th out of 190 countries on the World Bank’s Doing Business Index and ranks very poorly in several areas, including contract enforcement (164 out of 190); paying taxes (142/190); registering property (138/190); and obtaining credit (132/190). Sri Lanka ranks well in protecting minority investors, coming in at 28/190 in 2020.
Sri Lanka’s GDP contracted 3.6 percent to approximately $81 billion in 2020 due to COVID-19, an improvement on the International Monetary Fund (IMF) projection for a 4.6 percent contraction. FDI fell to approximately $550 million in 2020, significantly less than the $1.2 billion in 2019 and $2.3 billion in 2018. The IMF projects a four percent growth in 2021.
Tajikistan is a challenging place to do business but presents potential high-risk, high-reward opportunities for foreign investors who have experience in the region, a long-term investment horizon, and the patience and resources to conduct significant research and due diligence. At the most senior levels, the Tajik government continues to express interest in attracting more U.S. investment, and in 2020 President Rahmon signaled the importance of outreach to U.S. companies by appointing the former head of the government’s Investment Committee as Tajikistan’s ambassador to the United States. Nevertheless, the poorest of the Central Asian countries harbors few U.S. investors and remains an uncompetitive investment destination.
President Rahmon publicly emphasizes the need to foster private-sector-led growth, and attracting investment is prioritized in the government’s 2016-2030 National Development Strategy and in-progress 2021-2025 Economic Development Strategy. Strategy documents notwithstanding, authoritarian policies, bureaucratic and financial hurdles, widespread corruption, a flawed banking sector, non-transparent tax system, and countless business inspections greatly hinder investors. The absence of private investment and the government’s decision to dedicate significant financial resources to the construction of the Roghun Dam hydropower plant, creates pressure for the Tax Committee to enforce or reinterpret arbitrary tax regulations in order to meet ever-increasing revenue targets. The government launched a tax reform project in 2019 to ease the burden for the private sector; it is intended to enter into force in 2022.
Politics also play a role. Tajikistan is saturated in opaque loans connected to China’s Belt and Road Initiative, and Chinese investments account for more than three-quarters of the country’s total Foreign Direct Investment. Tajikistan also reportedly continues to face pressure to join the Russian-led Eurasian Economic Union. Should it apply for and receive membership, firms could experience higher trade tariffs. Finally, despite Tajikistan’s 2013 accession to the World Trade Organization, the Tajik government has imposed trade policies to protect private interests without notifying its partners, notably in the poultry and mining sectors.
Additionally, the Tajik economy faces endemic challenges, and the novel coronavirus pandemic exposed a number of systemic economic weaknesses. Consumption, the major driver of Tajikistan’s economic growth, is driven by migrant remittance flows from Russia, where about one million labor migrants reside. In 2020, closed borders depressed both the flow of remittances and foreign trade, leading to a three percent contraction of Tajikistan’s Gross Domestic Product, and precipitating an 11-percent currency devaluation in the face of foreign exchange shortages. Tajikistan’s banking sector is plagued by politically directed, non-performing loans, high interest rates, and the absence of correspondent banking accounts in the West.
Despite these challenges and risks to potential investors, Tajikistan is pursuing greater trade links with its neighbors and has made modest progress on trade facilitation and increasing transparency in the extractives sector to improve its investment climate in past years. In 2020 authorities continued small steps towards compliance on intellectual property rights protections. Should the government pursue an economic reform path, opportunities in energy, agribusiness, food processing, tourism, textiles, and mining could prove promising.
Turkmenistan is slightly larger than the state of California but is sparsely inhabited, with abundant hydrocarbon resources, particularly natural gas. Turkmenistan’s economy depends heavily on the production and export of natural gas, oil, petrochemicals and, to a lesser degree, cotton, wheat, and textiles. The economy entered a deep recession following the late 2014 collapse in global energy prices. The COVID-19 pandemic put downward pressure on all Central Asian energy exporters in 2020 and further weakened the Turkmen economy. Endemic corruption, a weak commercial regulatory regime, and strict currency controls compromise the investment climate and discourage FDI. Turkmenistan is currently considered high risk for U.S. foreign direct investment. It does, however, offer numerous opportunities for the export of U.S. goods and services in certain sectors, including energy, food processing, agriculture, financial services, and IT services. The government recently announced a major digitalization effort for various sectors including banking and governmental operations.
Official figures from the government of Turkmenistan show that the country’s GDP at the official exchange rate was $45.25 billion in 2019 and $40.76 billion in 2018. The black-market exchange rate for dollars, which averaged over 5 times the official rate in 2019-2020, suggests the true GDP numbers are much lower. An official number for 2020 GDP was not yet available, though the government reported GDP growth of 5.4 percent in 2019. GDP growth in 2018 was reported as 6.2 percent. Most economic indicators released by the government are widely seen as unreliable.
The government has not taken serious measures to incentivize foreign direct investment outside the petroleum industry and there is no significant U.S. FDI in Turkmenistan. Most U.S. commercial activity in Turkmenistan is related to exports. Some companies, such as General Electric, Boeing, and John Deere, have established themselves as key suppliers of industrial equipment in certain sectors, but their business operations are largely limited to sales to the Turkmen government. Government delays in payment to foreign companies have occurred and some firms require upfront payment prior to delivery of goods.
A lack of established rule of law, an opaque regulatory framework, and rampant corruption remain serious problems in Turkmenistan. Contracts are often awarded to companies with close ties to the President’s family. The government strictly controls foreign exchange flows and limits on currency conversion make it difficult to repatriate profits or make payments to foreign suppliers. The official exchange rate is pegged at 3.5 manat (TMT)/dollar. Starting in 2015, the black-market value of the manat has steadily fallen against the dollar. In 2020 the average black market exchange rate was 22 TMT/dollar.
Although Turkmenistan regularly amends its laws to meet international standards, the country often fails to implement or consistently enforce investment-related legislation. There are no meaningful legal protections against government expropriation of assets and there is no independent judiciary. There have been reports in recent years of officials associated with the family of President Gurbanguly Berdimuhamedov seizing local companies. There have also been reports that local Turkmen business owners have been jailed using security-related laws as a pretext to reopen the business under new ownership.
Key issues to watch: developments in the financial sector, including the TMT/USD black market exchange rate and the severity of restrictions on currency conversion, will determine to some extent the health of the investment climate. The impact of COVID-19 on Central Asian economies remains to be seen. Forecasts from major international financial institutions estimate a contraction in 2020 of 1.7-2.1 percent in Central Asia, followed by positive but subdued growth in 2021 and 2022. Fundamental shifts in post-COVID-19 natural gas markets could add additional pressure on Turkmenistan’s hydrocarbon-dependent economy.
The pandemic and subsequent stagnation of the global economy had an impact on the economy of Uzbekistan and the dynamics of market reforms launched in 2016. Addressing public health and social support issues became a higher priority and required the mobilization of significant resources. Quarantine measures, domestic lockdowns, and travel restrictions led to the bankruptcy of a significant number of private businesses and an increase in unemployment, especially in the first half of the year. Mining, services, transportation, and tourism sectors suffered the most. In the second half of the year, however, business activity began to recover after quarantine restrictions were relaxed. The government has taken measures to mitigate the impact of the pandemic on business, including the introduction of temporary tax holidays, concessional lending, and other incentives.
In general, Uzbekistan’s economy demonstrated relative resilience in 2020 with 1.6% GDP growth. Despite 2020’s challenges, foreign direct investment (FDI) inflows continued – about $6.6 billion in 2020 compared to $9.3 billion in 2019 – which is undoubtedly the result of pre-pandemic reforms. Over 11,780 companies with foreign capital were operating in Uzbekistan as of January 1, 2021, including 1,399 created in 2020. While the government encouraged investors to develop processing and manufacturing industries in support of its import-substitution and export diversification policy, there was a notable increase of FDI in the service, retail, and banking sectors. In November, Uzbekistan successfully placed $750 million in dual-tranche sovereign international bonds denominated both in U.S. dollars and Uzbekistani so’m on the London Stock Exchange.
In 2020, Uzbekistan’s leadership continued to implement reform policies targeted at boosting economic growth and improving public welfare by creating a supportive climate for private and foreign direct investment and reducing the share of the public sector in the economy. To further develop anti-corruption measures, Uzbekistan established an Anti-Corruption Agency to inspect governmental bodies and legal entities, including state-owned banks, and to prevent and combat corruption in public procurement based on the ISO 37001 standard. President Mirziyoyev signed a decree to reduce government involvement in the economy, prohibiting the establishment and operation of state-owned enterprises (SOE) in commodity markets, where SOEs might compete with private firms or have conflicts of interest. The decree also called for compliance with anti-monopoly statutes by nine large SOEs, including the national airline, car producers, and energy companies. In October, Mirziyoyev announced plans to perform internal corporate governance reforms at 39 SOEs and privatize 548 SOEs, including strategic assets in the oil and gas, mining, chemical, transportation, banking, and manufacturing industries which had been considered off-limits in previous rounds of privatization. The pandemic delayed the process of SOE reorganization and privatization, and slowed further liberalization and development of Uzbekistan’s capital market.
During the reporting period, foreign businesses continued reporting cases of non-transparent public procurement practices, and cases where government agencies and state-owned enterprises inconsistently complied with official policy guidelines and regulations. Enforcement of legislation on protection of intellectual property rights also remains insufficient. Uzbekistan has the potential to become one of the most successful economies in Central Asia, but to achieve this goal, it needs to ensure that market reforms become entrenched by improving legislation and ensuring laws are then properly enforced.