Despite the favourable effects of the fall in oil prices and relatively strong political leadership, the seemingly stable Turkish economy keeps being knocked by global challenges. Sofia Lotto Persio reports.
The hotel in which the annual GTR Turkey Trade & Export Finance conference was held is one of the most closely-guarded venues in Istanbul. A stone’s throw away from the historical Dolmabahçe Palace, which is home to the prime minister’s offices, the area is surrounded by armed policemen.
Police presence was appropriate, considering that the conference took place in the wake of the second brutal suicide attack to hit the city since the beginning of the year. In January, a suicide bomber targeted the touristy Sultanahmet district, killing 13 foreigners, while in March another such attacker targeted the busy Beyoglu district, killing four passers-by and injuring dozens of others. Both incidents were carried out by Daesh, while three other bombings in the Turkish capital of Ankara were claimed by the Kurdistan Workers’ Party (PKK).
But terrorism threats are not the only thing challenging the ostensibly resilient Turkish economy. The Turkish government’s position on the Syrian war has also created tensions with Russia, a country that became a significant trading partner when demand for Turkish goods from the European Union (EU) started to decrease following the recession. Tensions with Russia culminated in the downing of a Russian plane by a Turkish missile in November last year. Russia responded by imposing sanctions and freezing strategic infrastructure projects such as TurkStream, a pipeline designed to provide a route for Russian natural gas to reach the EU without going through Ukraine.
A resurging growth
Turkey’s ability to bounce back from these challenges is now being tested. The country’s circumstances have somewhat improved from last year, with a government that enjoys a strong majority and a narrowing current account deficit thanks to the low oil prices. Speakers at GTR’s event were proud to highlight various statistics showing accelerating export growth: Bader Arslan, secretary general of the Turkish Exporters’ Association (TIM), presented a positive outlook for the country, which was reinforced by Pinar Artiran, director of the research centre on international trade law and arbitration and WTO chairholder at Istanbul Bilgi University. “Despite the problems, we are above the 2008 level [of exports],” she said. This growth was driven by the recovery of the EU, an area that remains key for Turkey’s exporters. As Ahmet Cimenoglu, chief economist at Koç Holding, indicated in his speech to conference delegates, every percentage point of GDP growth in Europe results in a 4.5% increase in Turkish exports.
The EU’s crucial importance to Turkey as a trade partner is mirrored by Turkey’s critical role in regulating the flow of refugees that are travelling to the continent from the Middle East and Asia. Turkey’s geographic position as a bridge between Europe and Asia enabled the country to sit at the EU refugees deal negotiating table with a set of demands, including visa-free travel to the EU for Turkish citizens and the re-igniting of its long-stalled EU accession talks. Now that the communication channels are wide open, the Turkish business community has trade deal ambitions: “Upgrading the custom union is a crucial must,” said Cimenoglu at the event.
Of particular importance, Artiran explained in her speech, is that the 1995 custom union agreement be amended to include services, as the country can be very competitive in the healthcare, tourism and construction service sectors. In return, trade defence instruments put up by Turkey have to end: “If not by 100%, it has at least to come to a threshold that is acceptable by both the EU and the WTO,” she said.
Artiran also advocated for the EU to give Turkey a different status from countries such as Ukraine, Georgia or Moldova, with which it also has preferential trade agreements in place. “[Turkey] should not accept any trade deal that would make it equal to those countries,” she said, as the target, according to her, has always been to join the EU. “Any new enhancement of relations must be towards strengthening and making Turkey closer to full membership of the EU.”
A number of obstacles lie ahead of that accession goal, which many would like to see accomplished by 2023, coinciding with the centenary of the Republic of Turkey. Firstly, there are serious concerns among EU countries over the state of press freedom, minorities’ rights and the independence of the judiciary in the country, as evidenced in the latest European Commission report on Turkey’s progress to meet the EU’s accession criteria. Additionally, the Transatlantic Trade and Investment Partnership (TTIP) deal the EU is negotiating with the US risks hurting Turkey’s trade position with both the EU and US.
“TTIP may be a huge problem, for Turkey as well as for neighbouring countries with strong trade relations with EU,” said Artiran, highlighting that the problem lies mainly with the TTIP rules of origin, which would limit Turkey-made goods from accessing the US and EU markets. In return, American and European goods would still enjoy access to the Turkish market, thus creating an imbalance that would hurt Turkish exporters. A solution to this issue, according to Artiran, would be to “anchor” Turkey to the negotiations, putting pressure particularly on the American side, to ensure Turkey’s interests are taken into account.
“We have to make sure that Turkey has a separate deal, or is somewhat anchored on the deal. If not, the Turkish government and Turkey in general will lose faith in the EU as a partner and I don’t think the EU wants to lose Turkey as a trade partner either. So yes, TTIP will be concluded, but a similar arrangement with Turkey will also be made,” Artiran told GTR on the sidelines of the conference.
Mena and other opportunities
While Europe is likely to remain Turkey’s key growth driver, 50% of delegates at the GTR conference believed that despite the challenges, Mena remains a primary opportunity for investment, even if exports to the region have been falling for the past four years. The challenge in doing business with Mena countries, particularly in the Gulf area, is that opportunities there are linked to oil prices. “Considering the current levels, it will be very difficult for the Turkish economy to keep up with the change,” said Cimenoglu, referring to the lower levels of investment, trade and tourism from the region.
“Turkish corporates are getting a lot of debt from Gulf countries, but funding costs are rising in that market,” said Muzaffer Aksoy, chief representative for Turkey at Bank ABC, adding that if the price of oil went up to US$70 a barrel, the situation would improve. Alas, as recent talks between oil producing countries failed to strike a deal on a production freeze, it looks like the current price, around US$40 a barrel, will remain the norm for a while.
The low prices nonetheless have been beneficial for Turkey as a net oil importer, which could soon add Iran to its list of suppliers. The reopening of the Iranian market looks generally promising, even if relations between Iran and Turkey are strained on other fronts, such as the Syrian conflict. “[Iran] will resume being a large trading partner for Turkey,” said Cimenoglu, adding that the aviation, construction and technological sectors look particularly competitive in that market. A recent visit by President Hassan Rouhani to Turkey saw the two parties reaffirming their intention to strengthen banking and trade ties and triple bilateral trade to US$30bn annually within two years. The interest in Iran at the conference was palpable, as most delegates chose to attend a session discussing business opportunities in Iran rather than that on Europe and the United Kingdom.
Outside of Mena, speakers noted the possibilities for infrastructure projects in African countries such as Angola, Ghana and Kenya, thanks to strong government support allowing access to ECA or multilateral financing. “[We see] more demand to access ECA financing or structured trade finance combining multilaterals, ECAs, sometimes insurers, and that is how we are developing those transactions, always keeping our clients’ needs in mind,” said Antonio Sala, executive director, global export and agency finance at Santander.
An increase in demand for structured trade finance is something Aksoy noted, too. This, according to him, is the result of the changing banking structure in the country: with more foreign banks buying Turkish banks, there will be changes to the lending system, resulting in more structured finance in the market. “Islamic finance is also an option,” he added, inviting companies to diversify their lending sources.
Watch GTR‘s 90-second interview with Pinar Artiran