Author: Not mentioned
Posted on: Bloomberg Businessweek | December 3rd, 2017
Turkey’s economy has proved to be more than just resilient in recent years, showing strong growth even as developed countries around the world experience stagnation.
Turkey has long benefitted from its position as a bridge between Europe, the Middle East and Asia. From ancient times when Turkey (then known as Anatolia) served as a major link to Europe near the end of the Silk Road trade route, to its more recent position as the seat of power of the Ottoman Empire, the country has enjoyed a privileged trading position.
Today this is a legacy that the government of the Republic of Turkey is keen to advance as it seeks to expand and diversify its international trade. In particular, Turkey is looking to the Middle East, and particularly the GCC countries, as key partners for bilateral trade and investment.
Although European countries are the largest export market and the largest trading partners for Turkey, trade with other markets has been an important element of the country’s diversification strategy. As a country with a trade deficit, Turkey was keen to develop a strategy to diversify its export markets and products. Over the past 14 years, exports to the Middle East have increased sevenfold while Turkey’s overall exports have increased threefold during the same period, according to Rahim Albayrak, country advisor, Investment Support and Promotion Agency of Turkey. Moreover, diversity became a pillar of Turkey’s trade planning in the wake of the financial crisis or 2008-9, and policies to boost Turkey’s trade and business ties with the GCC have already proven they’re worth.
“It was an important step for the Turkish economy as it faced declining external demand from its traditional trading partners during the global financial crisis of 2008-2009,” Albayrak says.
The numbers prove the point: As a result of Turkey’s diversification policies, the share of exports to the Middle East increased from 12% in 2002 to 26% by 2016. Likewise, Turkey’s trade volume with the MENA region has increased significantly.
It is not just Turkey’s close proximity to Europe and the Middle East that gives the country an edge. It also has a diverse economy and this is reflected in the goods and services it trades with the GCC. As of 2016, the main export products of the GCC countries (comprising Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Kuwait, and Oman) to Turkey were: precious metals ($3.2bn), plastics and related articles ($1bn), aluminum and related articles ($441mn), and organic chemicals ($327mn), according to data from the Investment Support and Promotion Agency of Turkey.
Also in 2016, the main import products of the GCC countries from Turkey were precious metals ($3.0bn), iron and steel ($594mn), tobacco and substitutes ($516mn), electrical machinery and equipment ($384mn), mineral oils and products ($356mn), and machinery and mechanical appliances ($346mn). Precious metals, along with natural or cultured pearls and precious and semi-precious stones, are mainly traded with UAE, whereas trading of the other items is well-diversified among the GCC countries.
In terms of trade inflows to Turkey, the UAE is one of the biggest investors from the Middle East. Between 2005 and 2016, total FDI flows from the GCC to Turkey amounted to $13 billion. As of 2016 there were 1,835 GCC companies operating in Turkey. Tracking Turkey’s FDI from the GCC offers an interesting perspective on just how much investment has increased during the past 12 years, from less than $1.7 million a year in 2005 to $445 million in 2016.
With regard to FDI, the stock of UAE companies in Turkey exceeded $4.6bn in 2016, and there are more than 400 companies with UAE capital operating in Turkey. These include DP World, DAMAC, Emaar, Etihad, and Dubai Islamic Bank. A recent example of a major FDI contributor would be DP World, which commissioned a $650mn container terminal in Turkey in May 2016. Gulf countries plan to invest in projects other than oil by 2030, and it will be possible for Turkey to take advantage of this in the coming period.
Bilateral trade volume is another indicator of the health and growth of business between the GCC. Turkey’s foreign trade volume to the UAE has increased steadily over the years, reaching $8.6bn in 2008, stemming from the rise in exports of Turkey, Albayrak says. In 2009, the trade volume between the two countries fell to $3.5bn under the influence of the global crisis before peaking in 2012 at $11.7bn. “It is a fact that the trade volume declined to $6.9bn in 2015; however, even that volume was above average for the past decade, and it recovered quickly the following year, growing 36% in 2016 to reach $9.1bn,” Albayrak says. He adds that Interim trade figures in 2017 also show considerable year-on-year increase, which can be taken as a signal of recovery between the two countries.
Turkey has a trade surplus with the UAE as it does not import oil or gas from the country and there are no trade policy measures or investigations carried out by the UAE against products originating from Turkey. Considering these trends, the Investment Support and Promotion Agency of Turkey believes that the country’s trade with the UAE will continue on an upward trend. There are clear reasons to believe this is the case, with the Turkish government implementing some reforms to attract more investors from and accelerate trade with the UAE. To this end, the Turkish Exporters Assembly, with the support of the Ministry of Economy, commissioned a Turkish Trade Center in Dubai in 2016, the first of a series of trade centres worldwide.
There are other incentives for big investors; in January 2017, with an amendment made to the Turkish Citizenship Law, foreigners that have acquired an immovable property in Turkey worth a minimum of $1 million are now eligible to acquire Turkish citizenship.
Taking a step back from the number crunching, Turkey has many advantages for international companies. “Turkey is a dynamic and growing G20 economy that links east and west in a unique way. In addition to being one of the world’s fastest growing economies, Turkey also supports international investors’ growth via a business-friendly agenda and through access to a large domestic market and neighbouring international markets,” Albayrak says.
Istanbul Teknopark aims to become a hub for high-tech businesses in Turkey.
Strong market fundamentals, such as a young and dynamic population with an average age of 30, a well-educated work force, increasing rates of employment over the years, a growing middle-class, and a unique geographical location, have all helped transform Turkey into the fastest growing OECD member country, Albayrak adds. Turkey has performed particularly well in terms of job generation, with more than 6 million new jobs created since the global financial crisis of 2008-2009, which means the country has increased its employment rate by 28% between 2008 to 2016.
As of end-2016, Turkey was the 13th largest economy (GDP at ppp) in the world, with an average annual growth rate of 5.6 percent since 2003.
Turkey’s location at the crossroads of Europe, Central Asia, and the Middle East, provides easy access to the European, Middle Eastern, North African, Central Asian, and Gulf markets. These markets comprise more than 1.6 billion people and account for a total GDP of $28 trillion. More than half of the world’s trade takes place within a four-hour flight radius of Turkey – a key reason why multinational companies have chosen Turkey as a strategic regional hub for their operations.
Turkey also stands to benefit from Saudi Arabia’s bold plans to diversify and develop its economy as part of the government’s Vision 2030 plans. Albayrak stresses that Turkey has already developed solid ties with Saudi Arabia and that this relationship should continue to grow. “There has been a rapid increase in Saudi investments in Turkey over the past 14 years. The FDI amount of Saudi companies in Turkey has reached $2bn since 2002. As of June-2017, more than 1,000 companies operate in Turkey with Saudi capital,” he says. “Turkey and Saudi Arabia remain, and will continue to remain, important and strategic economic partners.”
In 2016, the trade volume between the two countries stood at $5bn. While this figure is the average of the past 5 years, it is still far below the potential of the two countries.