Turkmen Construction Slump Has Builders Heading for Uzbekistan

Construction in Turkmenistan is slowing to a standstill, while neighboring Uzbekistan is in the grip of a building boom. High-end projects in Turkmenistan sit half empty, and builders wait years for payment or sell at a significant loss. The crisis in construction struck quickly and had even the major firms on their uppers. The devaluation of the manat in 2015 hit companies hard, and the authorities’ imposition of restrictions on the free exchange of hard currency only made matters worse. The manat’s fall has put imported construction materials out of reach of most buyers, while local production is failing to fill the gap.

Turkmen.news correspondents Oguljan Tairova and Selim Haknepesov take a closer look at the construction industry in Turkmenistan’s eastern Lebap region.

Over 500 construction companies were operating in Lebap region at the start of 2016, before the full effects of the manat devaluation hit home. Most of those companies still exist, but only on paper, as there’s no building going on any more.

For example, in 2015 company X invested 350,000 manats ($100,000 at that time) in the construction of premises to be mortgaged. But currency conversion was stopped and the manat collapsed, falling five-fold in value against hard currency. It was a painful struggle but the company completed and sold the premises, receiving 450,000 manats for them according to the balance sheet. But really this was equivalent to $25,000. Since most of the construction materials (metal, timber) had been imported for hard currency, they suffered a loss of $75,000, and these are all minimum figures.

Jorakuly, a former builder from Lebap region’s main city, Turkmenabat, says that dozens of private firms have not yet received even the devalued manats for work already completed satisfactorily according to the contract. The lack of payment means owners cannot shut down their firms, as, once they do, they give up hope of ever seeing their money. This is why a firm continues to exist on paper, and to pay pension, tax and other contributions to the budget, but doesn’t actually build anything any more.

In 2011-2012 the Turkmenistan authorities announced that local firms would take priority in the awarding of construction contracts. This encouraged businessmen to set up dozens of companies across the country, compete in tenders, and receive orders to build residential blocks, kindergartens, schools, and other infrastructure. Payment was made on completion of the work. In almost every instance the state would transfer the final installment after the completion and commissioning of the premises.

With the start of the financial crisis in late 2014-early 2015, payments began to be delayed, and in 2017 they stopped altogether. Observers think the state simply does not have the funds to pay the builders.

What’s happened to mortgages in Lebap?

Turkmen media report 30-year mortgages at an interest rate of “just one per cent per annum.” So why not take one out? There are two serious caveats: first, no bank will give a mortgage to anyone who does not have a permanent job. In Lebap region countless people are unemployed or have gone abroad to find work as there is none at home; second, they stopped giving out mortgages altogether in Lebap in May 2018. No one can explain why. And when the authorities give no explanations, people think up their own conclusions, such as the state has no more money for mortgage loans or all the money is going to the capital Ashgabat.

Be that as it may, only those who supplement their main salary with additional “income” in the form of bribes can afford to build a new house or buy an upscale apartment in a showpiece development direct from a construction company. In Lebap and other regions of Turkmenistan the authorities forced state and private construction enterprises to build these showpiece developments, but many of their homes remain unoccupied because of the high prices. Though the showpiece developments were lauded in the press and on TV, they stand half-empty.

Shortage of construction materials

Another important reason for the standstill is the shortage of essential construction materials, in particular cement, bricks, and rebar. Imported building materials are too expensive at the black market exchange rate, while local production is experiencing a number of problems:

Brick shortage

The majority of brickworks in Lebap and other regions are in private ownership, and entirely dependent on the gas suppliers. During Soviet times gas supplies were cut to brickworks from November 15 through February 15, as brick production was seasonal. Another reason was to maintain pressure in the gas supply during the season of highest demand for residential heating.

This year, though, gas was not supplied to the brickworks until March 15. It usually takes 12 to 13 days to fire a raw brick, so the first new bricks did not reach building sites until early April. No one has been able to change this practice, not even the heads of the local administrations. One even told concerned constructors: “I can’t solve this problem!”

On top of this, many cannot afford today’s prices for what bricks there are. Even though plots of land have been allocated to residents of Lebap and other regions to build private homes, there are no buyers for the fired bricks. Not many people can afford to buy 1,000 bricks for 160 manats, as construction of a typical house requires up to 100,000 bricks. Locally produced bricks, and there aren’t many of them, sell for 160 manats in Lebap, while those from Mary region cost twice as much—320 manats.

Cement ends up abroad

Turkmen media have reported the construction of new factories, which fully satisfy the country’s requirements for cement. However, in reality the picture is quite different, according to builders in Lebap.

There is a shortage of cement on the domestic market, as the cement factories are sending practically all their cement abroad for hard currency, but at a very low price. Freight cars of cement head for Uzbekistan in particular, where construction is booming. So, a sack of cement used to sell for 10 manats but now costs 25, and takes some finding at that price.

Builders think that domestic demand should be met first, before any surplus is exported. 

As for Turkmenistan’s rebar, what is available on the market is not suitable for construction, as it’s made from scrap metal. Using that kind of rebar is dangerous.

Surface materials are the only local products that are available and up to standard, but a house has to be built first and that’s impossible without foreign building materials. 

Traders in construction materials have also been affected by the standstill in the construction market. They complain that there is hardly any trade; imported goods are sold at the black market rate and are beyond the means of ordinary people.

Uzbekistan attracts Turkmen specialists

Construction in Turkmenistan is stagnating, despite announcements that 22 billion manats ($1.2 billion dollars) will be invested in the sector in 2019. This sum was trumpeted at a sitting of the cabinet of ministers on February 1. However, Turkmen builders have lost all faith in these figures and the grandiose plans. The Turkmen have a saying: scald yourself on milk and you’ll blow on water, or once bitten, twice shy.

Nevertheless, while some builders wait for an injection of money from the state, others look for opportunities abroad, for example in Uzbekistan. After its change in leadership, this neighboring country is in the grip of a construction boom. The state has announced ambitious construction projects—Tashkent City and Bukhara City, but most important it has simplified the procedure for the registration of legal entities with foreign financing.

“Three of my former colleagues on the Turkmen market are actively seeking partners in Uzbekistan and they say someone has already registered a construction firm,” Jorakuly says. “We’ll see how they get on, and if everything works out, then I’m ready to roll up my sleeves and get down to work in Uzbekistan too.”