Turkey’s exports are booming. Following a record surge in trade volumes, Turkish exporters and trade finance banks are on course to emerge from the pandemic in a stronger position than before Covid struck – but is this dramatic recovery here to stay? John Basquill reports.


August 2021 was a record-breaking month for Turkish exporters. Exports totalled US$18.9bn in value, a more than 50% year-on-year increase and an all-time high for the month, according to figures unveiled by trade minister Mehmet Muş at a September press conference held jointly with the Turkish Exporters Assembly (TIM).

The dramatic increase cannot solely be attributed to last year’s disruption, caused by Covid-19, however. Muş pointed out that the latest figures also mark a 43% increase compared to August 2019, showing that export activity has “surpassed the pre-pandemic performance”.

“Similarly, we witness an increase of approximately 20% in the January-August period compared to 2019,” the minister added. Growth was noted in the automotive, steel and chemicals sectors, all of which are traditionally strong markets for Turkish exporters.

Germany, the US and UK remain the biggest importers of Turkish goods, but sales to Belgium, Israel, Morocco and Spain all recorded their highest ever figures. Exports to the EU as a whole were more than 50% higher year-on-year.

Data from TIM shows that around 1,500 firms exported for the first time in August, taking the total number of Turkish firms selling overseas to more than 80,000 for the first time. As of press time, the association says that figure has already risen above 90,000.

If the export volumes seen between January and June 2021 are matched in the second half of the year, the full-year figure will reach around US$210bn (see graph), far in excess of the government’s initial year-end target of US$184bn. The target was revised to US$211bn in late September.

TIM head Ismail Gülle says the figures show Turkey “has been promoted to a new league in exports”, adding: “Our goal now is to reach US$300bn in [just] five years. Our export family has broken records in 10 of the last 12 months.”

Surging exports are also proving good news for Turkey’s trade finance sector. Local and international banks have reported increasing interest in trade-related facilities, while government ministers are vowing to support continued growth by boosting access to export finance products.

Senem Ertuncay, Deutsche Bank’s head of corporate banking for Turkey, says last year’s quarantine measures, combined with commodity price volatility and a general downturn in economic activity, had “a significant effect on trade finance facilities”.

“By comparison, 2021 so far has been very active in terms of general economic activity returning. We have experienced an overall increase in demand for trade finance facilities both in exports and imports,” she tells GTR.

“Certain industries such as iron and steel, consumer goods, oil and gas have picked up as the markets gradually normalise.”

Muzaffer Aksoy, chief executive of Bank ABC Turkey, says the improvement is also visible in the lender’s figures for 2021 so far. “Our trade finance volumes in 2021 for Turkey are almost 50% more than last year, and interestingly, are also higher than the 2019 figures,” he tells GTR.

“We are seeing significant interest in imports of certain raw materials from Europe to Turkey, and significant interest in exports of consumer goods from Turkey to Europe. Even though a lot of that is done on an open account basis, there is a lot of activity on the receivables financing side as well.”

Describing exports as “the locomotive of the Turkish economy”, trade minister Muş vowed in September to ensure that access to finance remains robust for local companies.

“We are doing very important work regarding the access of our exporters to finance,” he said at a TIM general assembly meeting on September 18. “We will focus more on export financing in the coming period because we know that [it] is one of the most important agenda items of our country, considering the positive results it may bring.”


Economic drivers

There are several factors that have driven Turkey’s export surge. One major change appears to be the trend towards onshoring or localising supply chains, a step taken by larger companies across the world in the face of the Covid-19 crisis.

Throughout 2020, the disruption caused by virus containment measures – in particular national-level lockdowns – affected different parts of the world at different times, exposing points of failure within global supply chains. That accelerated a pre-existing trend towards shortening supply chains, to ensure they are leaner, more sustainable and easier to manage.

At the same time, a staggering increase in container costs and freight rates during 2021 has made importing inputs much costlier. In mid-September, the average cost of a 40-foot container had reached more than US$10,300, a year-on-year increase of more than 300%, according to the Drewry World Container Index.

Deutsche Bank’s Ertuncay suggests Turkey appears to have been one of the beneficiaries of that trend. “Supply chain shifts are offering Turkey new markets and long-term contracts,” she says. “Located at the crossroads of Europe and the Middle East, Turkey is benefitting from its geographic location advantages as some of the trade activity shifts away from Asia.”

In the automotive sector, for example, certain processes have been shifted from China to Turkey. Ersin Şahin, head of Istanbul-headquartered engine producer Erin Motor, told state-owned news agency Anadolu earlier this year that the trend was already opening up new export opportunities, notably to Africa.

Textiles companies have also brought supply chains closer to home. Global fashion brand Benetton has already moved more than 10% of production out of Bangladesh, Vietnam, China and India and boosted manufacturing in Turkey, as well as Serbia, Croatia, Tunisia and Egypt. The company says it is aiming to halve production in Asia over the next year.

Another economic factor behind the rise in exports is that Turkish companies in these sectors can also generate higher revenue selling internationally, says Bank ABC’s Aksoy.

“Manufacturers are focusing more on the export market because returns are much better than in the local market,” he says. “That wasn’t really the case before 2019. The domestic market remains quite stable, without huge growth.”

Part of that has been the long-term decline in value of the Turkish lira. At the start of 2020, the lira was worth around US$0.17, but has since fallen to US$0.11 as of press time – a drop of around a third, and 80% lower than its value a decade ago.

The trend has meant Turkish companies “have gained certain advantages, cost-wise” when selling goods in international currencies rather than in the local market, Aksoy says.

However, Turkey’s foreign exchange situation presents other challenges to the financial sector. “Due to the volatility in the exchange rate, companies are reluctant to borrow in hard currencies; they prefer to borrow in Turkish lira. Part of our business is providing FX lending to Turkish banks, but if that market is diminishing and those banks are reluctant to borrow in hard currencies, then that affects our FX volumes and puts pressure on the yield side,” he explains.

It also creates supply issues domestically, with companies preferring to take advantage of high prices in the export market even where there is significant domestic demand, Aksoy adds. That has led to discussions around limiting exports of certain crucial materials, such as cement.

Those local tensions could be considered reflective of wider public discontent with Turkey’s economic situation. Despite a 21.7% increase in GDP in the second quarter of this year, polling shows dissatisfaction with President Recep Tayyip Erdoğan’s handling of the economy – particularly in the jobs market, where unemployment stands at nearly 12%.

Turkey’s low credit rating remains another concern for financial institutions. For several consecutive quarters, Fitch Ratings has affirmed the country’s long-term foreign currency issuer default rating at BB-minus, which reflects its “weak monetary policy credibility, high inflation [and] low external liquidity in the context of high financing requirements and geopolitical risks”, it said in August.

Bank ABC’s Aksoy is hopeful the country’s rating can recover in the near future, but says it is currently “putting pressure on our limits”.


Sustainable finance

Looking ahead, sustainable finance is emerging as another driving force for banking activity in Turkey. The country’s environmental concerns became global news in July and August this year, when hundreds of wildfires resulted in the destruction of 1,700km2 of forest across its Mediterranean region.

The conditions that led to the fires have been widely attributed to the effects of climate change. 2021 saw the hottest May on record for more than half a century, which was followed immediately by a drought and then by far higher than average temperatures into July. The catastrophe marked the worst wildfire season in Turkey’s history.

It is against that backdrop that banks are ramping up provision of sustainable finance activities.

“2021 will be a record year for Deutsche Bank in relation to the number of projects that are being financed with a sustainability link in Turkey,” says Orhan Ozalp, head of global emerging markets for Central and Eastern Europe and chief executive of Deutsche Bank in Turkey, speaking to GTR.

“We announced recently that we are in talks with a number of Turkish clients to help finance their sustainability change agenda and strategy. Recent disclosed transactions include an ESG-linked repo deal with Akbank, where Akbank will use the proceeds to support diversity and renewable energy.”

Details have not been disclosed on the targets underpinning that US$300mn deal, but Deutsche Bank says it brings its ESG-linked financing to nearly US$600mn in the first half of this year.

Claire Coustar, vice-chair of Deutsche Bank’s Turkey unit, says the bank “would like to expand this to other financial institutions in Turkey and outside Turkey, to have ESG-linked transactions in the financial or derivatives space”.

Renewable energy is emerging as a sector holding great promise. The share of electricity generated using renewable sources has increased from 17% to 44% over the past decade, the International Energy Agency reports, putting Turkey years ahead of government targets. Solar, wind and geothermal capacity has also trebled over the same period.

However, despite growing opportunities around sustainability, there may be challenges ahead for some Turkish exporters. The European Bank for Reconstruction and Development (EBRD) has warned that producers of energy-intensive products, notably cement but also steel and aluminium, could be facing significant hefty extra charges when selling into the EU.

As part of the union’s Green New Deal, the European Commission has proposed legislative reforms that would see exporters billed relative to their carbon emissions. If direct emissions are considered, the EBRD estimates Turkish businesses would face extra charges of around €400mn in 2026; if the rules also cover indirect emissions that figure could rise to nearly €800mn.

The market’s outlook remains bullish, however. As Bank ABC’s Aksoy says, Turkey continues to be a unique place to do business, thanks to its manufacturing base, proximity to Europe and well-established infrastructure.

“It has good manpower, especially in certain industries, and is a good place to grow when you compare with other European countries,” he says. “Turkey is an opportunistic market for everybody – the banks, the international companies and the big local companies.”