EBRI Q4 2021 results: Turkmenistan makes the leap

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One of the more significant aspects of Euromoney’s Belt and Road Index is the trend improvement in values for countries that have latched on to China’s initiative with enthusiasm.

The Maldives, Nepal, Bangladesh and Bhutan are just a few of the prime examples, contrasting with Afghanistan, which has taken a backward step under the Taliban despite China’s willingness to aid reconstruction.

The benefits of doing so are certainly evident with regards to Turkmenistan, which has leapt into the tier-1 category for the first time.

The top tier contains countries with index scores above 200, representing the largest improvements to GDP and/or investor climates since the inception of the Belt and Road Initiative (BRI) in 2013.

The rise is nothing short of meteoric. Only three other countries have seen their index values appreciate by 100 points or more, but none of these is in Russia’s backyard.

This has much to do with the ambitions of longstanding president, Gurbanguly Berdimuhamedow, whose express desire to become involved in BRI was seen as the most suitable means for resolving the country’s fiscal and project financing difficulties that resulted from deteriorating gas supply relations with Moscow.

Starved of Russian revenue, China’s resources have rejuvenated delayed infrastructure projects. These include a gas pipeline to China that serves the dual purpose of diversifying Turkmenistan’s export markets while ensuring that Beijing meets its green goal ambitions for the new Silk Road by lessening its reliance on coal.

Among the ambitious projects that are either completed or under construction is the Turkmenbashi International Seaport on the Caspian Sea serving Azerbaijan, Kazakhstan and Russia. There are road and railway developments linking Turkmenistan with various other countries under the auspices of the International North-South Transportation Corridor and the Lapis Lazuli International Transit Corridor.

A gas pipeline providing a link to Afghanistan, India and Pakistan is further cementing the country’s role as a transit hub for the region.

Expert views

Turkmenistan is a fascinating example of the new normal, believes Nicolas Firzli, director of the Singapore Economic Forum and advisory board member of the World Bank Global Infrastructure Facility, who monitors the BRI-related issues.

“It is ranked as one of the ‘worst countries’ in the world by the US State Department and Transparency International, and yet Chinese, Russian, Emirati, EU and, more recently, Iranian and Indian investors have flocked to Ashgabat, seeking new investment opportunities in natural gas infrastructure, mining, construction and real estate, as reflected by the exceptional country risk turnaround recorded by Euromoney,” he says.

Firzli provides an answer as to why Turkmenistan seems to do so many things wrong in the eyes of Washington but is able to rank as a very attractive investment destination for many.

The answer, he says, has to do with “the age of geo-economics” paradigm, which will eventually render obsolete what remains of the Cold War era Washington consensus, he argues.

“From a geo-economic standpoint, we had an almost perfect sequence: America’s humiliating retreat from Afghanistan (August 2021) and the ensuing establishment of the AUKUS pact between Australia, the UK and the US (September 2021), followed earlier this month by the Japanese-American virtual summit (21 January 2022), whereby president Joe Biden and prime minister Kishida Fumio laid out their joint ‘Indo-Pacific’ ambitions etc.

“All that is sending a simple message to central Asia and the Arabian Gulf: as the race with Beijing accelerates, Washington’s ‘new grand strategy’ will give precedence to the maritime nations of southeast Asia.”

By doing so, he says that America has de facto abandoned a wide crescent stretching from Almaty to Abu Dhabi, where the world’s biggest reserves of natural gas, uranium and rare-earth metals are found, which are the “pillars of the Fifth Industrial Revolution”.

Turkmenistan, he concludes, is located at the very heart of that crescent and that fact has not evaded China’s economic planners.

Lilit Gevorgyan, senior economist and country risk analyst at IHS Markit argues that Turkmenistan’s soaring index value has more to with the potential that BRI offers than any meaningful infrastructure developments to date; although in that respect her view is similar to Firzli’s.

Turkmenistan’s involvement in the BRI is welcome and overdue, she says, but the overemphasis on the good news concerning new roads and railways perhaps masks the problems with the external debt burden and the profitability of projects that the government has been investing in recently.

“The north-south railway between Kazakhstan and Iran via Turkmenistan is a case in point. The project remains incomplete despite mounting debt levels,” she says, while adding that: “Economic data from the country is notoriously unreliable, which further complicates a risk and performance assessment for Turkmenistan.”

Other improvers

Turkmenistan is not the only major improver in the Belt and Road index. Others include tier-1 Bosnia-Herzegovina as well as Croatia and Armenia, which have both climbed from tier-3 to tier-2.

Margarit Mamikonyan is an international cooperation coordinator and macroeconomist at the Central Bank of Armenia. She notes that one of the government’s priorities is ensuring the development of high-quality transport infrastructure, including interstate, republican and local roads, the continued construction of the north-south road corridor and modernizing the railway network and rolling stock.

“China’s Belt and Road Initiative is expected to improve transport connectivity and enhance economic integration. In this regard, a certain level of improvement of the cross-border transport infrastructure of Armenia will be fixed,” she says.

Given the structure of the Armenian economy, Mamikonyan believes the BRI will create great opportunities for some regions, especially the urban centres with a larger manufacturing base and “agglomeration potential.”

The potential economic impact of BRI will be to reduce the delivery time of exports, foreign direct investment (FDI) and GDP, which will reduce trade costs.

“The reduction in delivery times and trade costs will boost overall exports and restructure them towards more urgent goods. Increasing FDI inflows into increasingly lucrative opportunities for such commodities and greater access to imported inputs are likely to boost productivity and GDP.”