Energy Education Science and Technology Part A: Energy Science and Research 2012

Volume (issues) 29(2): 883-890

Role of the construction industry

in economic development of Turkmenistan
Serdar Durdyev1,*, Syuhaida Ismail2
1
RAZAK School of Engineering and Advanced Technology, Universiti Teknologi Malaysia International
Campus, Jalan Semarak, 54100, Kuala Lumpur, Malaysia
2
RAZAK School of Engineering and Advanced Technology, Universiti Teknologi Malaysia International
Campus, Jalan Semarak, 54100, Kuala Lumpur, Malaysia

Received: 05 November 2011; Accepted: 20 February 2012

Abstract

With its contribution to the economic development and economic activities, construction sector has
a significant affect in the development of any nation. Because the construction sector is large and
responsive, as well as it has a strong linkages with other industries, it is a key sector can affect
economic development and, hence, it is important to know what is the role of the construction sector is
in the economy. This paper sets out to see the importance and effect of the construction industry in the
socio development of Turkmenistan by analyzing historic statistics, which are unfortunately limited.
Significant factors, such as lack of skilled workforce, lack of privatization, bureaucracy, hard
immigration regulations constraining to the construction industry in Turkmenistan was also
mentioned, as well as improvement measures have been recommended.

Keywords: Turkmenistan; Turkmenistan Construction Industry; Economic Development; GDP

©Sila Science. All Rights Reserved.

1. Introduction

Construction is the one of the most dynamic and responsive sectors in the industry. It has
also highly visible output and stimulates sizeable amount of economic growth through
intersectoral linkages between construction and other sectors [1], which makes construction
sector powerful in the economy.
Construction industry has a remarkable contribution to sustainable economic development by
satisfying some of the basic objectives of development including output generation,
employment creation, and income generation and re-distribution. It has also a significant role
in satisfying basic physical and social needs, including the production of shelter,
infrastructure and consumer goods. To know how the construction sector responds to the
changes in other aspects of the economy is therefore very important.
______________
*
Corresponding author. Tel.: fax:
E-mail address: serdarytu@gmail.com (S. Durdyev).
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Past studies have found there to be a positive relationship between construction output and
economic growth, particularly in developing countries [1-4]. It is essential therefore, to
understand the contribution of the construction sector in terms of socio economic
development and economic growth.
This research seeks to deconstruct construction industry figures in Turkmenistan economy
and examine its role in the economy through the previous literature, as well as to see if there
are relationships other figures of the economy. I will examine the nature of the Turkmenistan
construction industry and analyze the historic statistics related with the whole economy, as
well as the constraints to the industry. This will provide an overall understanding of the sector
as well as those factors that justify further investigation and, as such, help to establish a
research agenda for the Turkmenistan construction sector.

2. Overview of Turkmenistan and its economy

Turkmenistan is largely (85 percent of the total area) a desert country boarded by
Uzbekistan, Kazakhstan, Iran, Afghanistan and Caspian Sea, which intensively deal with
agriculture and has also a large gas and oil resources. According to the International Monetary
Fund’s (IMF) 2011 World Economic Outlook Report, Turkmenistan has been considered in
the list of emerging and developing countries [5]. Table 1 gives a brief overview of the
economy of Turkmenistan is statistical terms.

Table 1. Selected economic indicators for Turkmenistan (1997-2004)

Item 1997 1998 1999 2000 2001 2002 2003 2004
Nominal GDP (Billion 11,109 13,995 20,056 25,648 35,119 45,240 55,709 64,344
Manats) 0 0 0 0 0 0 0 0
Changes in Real GDP (%) -11.4 7.1 16.5 18.6 20.4 20.5 17.1 15.5
Construction Share of GDP
11.3 13.1 12.2 6.8 5.7 9.0 9.0 9.0
(%)
Inflation Rate (%) 83.72 16.77 23.46 8.04 11.63 8.75 5.58 5.88
Unemployment Rate (%) 61.4 62.1 62.9 63.3 63.9 64.6 65.4 60.0
Source: Economic Survey of Europe 2005, Issue.

The Gross Domestic Product (GDP) of Turkmenistan has been rising year by year and in
2004 it has reached to 64,34 billion Manats (12,4 billion USD according to the 2004
exchange rate). Unfortunately, because of lack of statistical information about the economy of
Turkmenistan, economic indicators between 1997 and 2004 have been added. However, there
are some up-to-date economic indicators such as GDP and inflation rates which could have
been found through several report published on the economy of Turkmenistan. According to
the Central Intelligence Agency (CIA) World Factbook (WF), by the end of 2010 GDP of
Turkmenistan was $36,64 billion, which has increased approximately 11 percent (3rd in
comparison to the world) comparing to 2009 [6].
The main contributors to the GDP in the economy of Turkmenistan are agriculture (cotton
and wheat), gas, and oil and petroleum products. After agriculture, gas and petroleum sector,
construction industry is the 3rd with its contribution of 9 percent of GDP. By the end of 2010
this was approximately 10 percent of contribution of GDP [7].
Comparing with the other countries in Central Asia, Turkmenistan has the highest GDP
growth until 2009. Fig. 1 demonstrates the real GDP growth by country between 2005 and
2011. By the end of 2009 there was a sharp decline in GDP growth. Main reasons of that
decline are the Global Economic Crisis and disagreements on energy between Russia,
therefore it caused of closing of the export routes through Russia [7].
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Despite all these high rates in economy, Turkmenistan has been facing with a high level of
unemployment problem. According to the WF report, in 2004 unemployment rate in
Turkmenistan was estimated as 60 percent of the population, which makes it the 195th country
comparing to the World [6]. The main reasons of high unemployment rate are limited
privatization and high rates of unemployment in the rural areas of the country.

Fig. 1. Real GDP growth by country.

In summary, nevertheless Turkmenistan has a large resource of oil and gas; it is still
remaining underdeveloped due to the problems caused from impoverished population, misuse
of natural resources and unwillingness to adopt reforms in the economy [8].

3. Role of the construction sector in the economy and economic development

Construction with its large contribution in terms of output and employment can be
classified as one of the largest industry in both developed and developing countries. Role of
the construction sector in the economy can be defined in terms of its output. According to the
Engineering News Record in 2004 global construction output is approximately 4.5 trillion
USD [9]. Table 2 demonstrates a clear global picture of the output of the construction
industry.
Moreover, construction sector is a prime source of employment as it is a labour intensive
industry. It can be clearly seemed from Table 3, how construction industry contributes to the
world labour employment.
Table 2. Global contribution of construction output 1998
Output $ in Million
Region High Income Low Income
Total
Number of countries Countries Countries
9 Africa - 20,962
23 America 723,569 243,247
22 Asia 666,556 387,831
2 Oceania 46,433 -
34 Europe 876,546 123,345
90 Total 2,312,104 701,755 3,013,859
% of Total 77 23
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Source: International Labour Office Geneva Report 2001.

According to the Table 2, high-income countries contributed 77 percent of total output,

whereas the contribution of low-income countries is just 23 percent. However, the
contribution in terms of employment is vice versa. Low-income countries made a bulk of total
contribution of 74 percent, while high-income countries made just 26 percent [10].

Table 3. Global employment situation in construction sector 1998

Employment (000s)
Region High Income Low Income
Total
Number of countries Countries Countries
9 Africa - 1,867
23 America 9,275 10,917
22 Asia 7,258 60,727
2 Oceania 685 -
34 Europe 11,820 8,978
90 Total 29,038 82,439 111,477
% of Total 77 23
Source: International Labour Office Geneva Report 2001.

Several past studies have made a research on the direct contribution of the construction
industry to the economic output of the country [4, 11, 12]. The significant role of the
construction industry in the national economy has been highlighted by [2]. In his study [13],
he emphasized on the ‘construction and development’ debate. He shows that global
construction output has become increasingly concentrated in the developed market
economies. Studies have provided non-static correlation between the construction industry
and other industries in the economy as the nation’s economy grows and develops [14, 15].
Furthermore, the construction industry also plays a significant role in economic
development with its facilities both in developed and developing countries. The types of
public and private facilities produced range from residential and nonresidential buildings to
heavy construction, and these physical facilities play a critical and highly visible role in the
process of development [16]. Most developed, as well as developing countries put over 55
percent of their gross domestic investment into the creation of the physical facilities,
including infrastructure which are very necessary for development of any nation [17].
In summary, it seems obvious that construction’s role in economic growth and
development is important for any country with its considerable output and contribution to the
labour employment.

4. Construction industry in Turkmenistan

Construction industry plays very important role on economic development as a physical

infrastructure supplier [1], besides that infrastructural development in Asia was an important
part of economic development [18]. After break up of the Soviet Union, the several
international construction companies in line with the first president’s taste for giant-scale
projects have been reconstructing Turkmenistan [19]. Therefore, construction sector has been
playing a significant role in socio economic development, as well as in reducing
unemployment, so that, in January – April period of 2010, the GDP growth rate rose in the
construction sector 2.2 times [20].
Despite some bureaucratic problems and certain laws, Turkmenistan has started to attract
foreign investments especially construction companies from Turkey and France. In recent
years number of construction projects (industrial enterprises, gas-turbine power plants,
S. Durdyev, S. Ismail / EEST Part A: Energy Science and Research, 28(2012) 883-890 887

children’s health improvement and recreation centers, healthcare, educational and pre-school
institutions and apartment houses) have been implemented through international companies,
which have contributed to the employment, as well as to the socio economic development of
Turkmenistan. Furthermore, in 2008 Turkmen government introduced new favorable terms of
housing loans as part of National Program on the Transformation of Social and Living
Conditions of the Population by 2020. One of the commercial banks in Turkmenistan is
offering loans with a reduced deposit of 10 percent, annual rate reduced to 1 percent with up
to 30 years of loan. All these opportunities supplied by the government make Turkmenistan
people to improve their life standards, even in rural areas.
In summary, it seems that Turkmenistan is going to invest a lot of money ($7 billion in
2011) to reconstruct the country after Soviet Union and make an improvement in social and in
living conditions in rural areas. However, government should also pay attention on the factors
which are constraining the construction industry of Turkmenistan and explore the innovative
ways of improvement.

5. Constraints to the Turkmenistan construction industry and improvement measures

Construction industry has an essential role in the economy of Turkmenistan with its
contribution of 10 percent to the GDP. However, considering Turkmenistan as a new and
developing country after breaking up of the Soviet Union, there are factors constraining the
construction industry in terms of cost, time and quality.
Past studies have identified typical constraints to improvement of the construction industry
[21, 22]. Unfortunately, because of the lack of literature related with the construction sector of
Turkmenistan it is hard to identify the factors constraining construction industry through the
literature. However, the main factors can be classified as privatization, lack of skilled
workforce, immigration regulations, bureaucracy and corruption. In addition to addressing the
key constraints classified in this study, there are some recommendations for the improvement
of the construction industry in Turkmenistan.
According to the IMF, by 1999 only 4.25 percent of medium and large-scale firms
privatized [23]. However, privatization helps to increase competitiveness in the industry and
competitiveness correlates well with increase in productivity as well as long-term growth and
sustainability of an industry and a nation [24]. Because of the labor intensive nature of the
construction operations, workforce in all levels has a significant impact in the industry.
However, in Turkmenistan there is just one university which provides an education in civil
engineering. Therefore, there is lack of skilled and educated workforce and to improve skills
of the workforce there has to be more education providers in all areas of the construction
industry.
Furthermore, Turkmenistan welcomes foreign companies to develop and invest in all
areas of the construction industry; however, certain laws, corruption, immigration regulations
and bureaucracy are creating difficulties for the international developers and construction
companies. To attract foreign investment and workforce, all these constraints have to be
improved in the era of the development of the industry and the economy.

6. Conclusion

This study, as part of its key aim, presents a state-of-the-art review of the construction
industry in Turkmenistan, and discussed some of the potential and barriers that exist for the
transfer adaptation and development of an indigenous industry. The role of construction in the
era of development and its important contribution to economic growth and employment
creation has also been discussed.
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Furthermore, factors constraining the construction sector of Turkmenistan were stated

despite limited source of literature. Those factors were privatization, lack of skilled
workforce, immigration regulations, bureaucracy and corruption. The factors discussed in this
study were taken from the relevant literature; however it is important to identify them
according to the experiences of the key players of the sector. Therefore, it may be necessary
to aim for representative feedback from contractors, consultants and subcontractors in future
studies, as they are the key players construction sector [25-32].
Considering the importance of the construction sector, it is essential to identify the most
significant factors affecting the construction industry and take corrective actions to increase
the economic growth and development of Turkmenistan.

Acknowledgment

The author would like to thank Ministry of Higher Education Malaysia, University of
Technology Malaysia (UTM), Research Management Center (RMC) and Innovative
Construction (ICON) Research Alliance for their financial assistance under the Research
University Grant (GUP) 00H47 and Short Term Research Grant 77332.

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