Hunting new markets, Turkey finds limits in Middle East turmoil

By bne IntelliNews February 14, 2011

Justin Vela in Istanbul -

The global economic crisis and subsequent fall in EU trade taught Turkey a lesson about the benefits of diversification. As such, Turkey began seeking new markets among its Muslim neighbours and with the unrest in Tunisia and Egypt, it's now even being talked about as a model for the region. Is Ankara in danger of overplaying its hand?

Traditionally, the EU has been Turkey's biggest trading partner and is likelty to remain so for some time to come. Even so, its share of Turkish exports fell to 46.3% from 56.5% in 2002, while at the same time exports to Middle Eastern countries rose from 9.6% in 2002 to 20.3% in 2010. "The dominance of the Eurozone market sometimes might be a bit problematic, [especially] when the global crisis hits developing economies," says Haluk Burumcekci, chief economist at EFG Istanbul. "Turkey is trying to diversify the export market and find new markets for its products, especially for its manufacturing products."

In January, as part of efforts to find new markets in Muslim countries, the Istanbul Stock Exchange (ISE) launched a new participation index to track 30 sharia-compliant companies. The index is meant to bolster trade with countries in the Middle East, Gulf and North Africa. Real estate trust Emlak Konut, retailer Birlesik Magazalar and telecommunications giant Turk Telekom are among the companies listed on the index.

Turkey has also ended visa requirements for many neighbouring countries, especially those in the Middle East such as Lebanon, Syria, Jordan, Iran, and Yemen. Free trade zones with many of these countries are expected soon. "Diversifying export destination is clearly a key positive for Turkey," says Thomas Wilson, head of emerging markets at Schroders. "Increasing the share of exports, primarily to the Middle East and North Africa, has gradually been reducing exposure on Europe and increasing exposure to economies with good growth potential and young populations. Turkish diplomacy appears to have done much to facilitate this."

Lionised because of its economic prosperity, coupled with a perceived willingness to stand up to the US and Israel, Turkey's search for new friends has proved relatively straightforward. And now with unrest threatening the autocratic regimes in the Muslim world, the country is even being looked on as a model for the region. A recent survey carried out in Arab countries by the Turkish Economic and Social Studies Foundation (TESEV) found that 65% of respondents believed Turkey could be a regional model. 15% of those surveyed thought Turkey could serve as a model due to its Muslim background; 12% put Turkey's strong economy as a reason; and 11% put its democratic government. However, 10% rejected Turkey as a model because of its relations with western nations.

Delusions of grandeur

Turkey may have won popularity among the region's populations and opened doors at the local finance and trade ministries, but experts bne spoke with recently in Washington DC warned that the country is in danger of becoming over-confident.

Turkey's ruling Justice and Development Party (AKP) is seeking to highlight its leadership role in the region, especially before parliamentary elections in June. Yet the more Turkey involves itself in this volatile region, the more the limits of its influence become apparent.

In terms of trade, nearly all imports are centred on energy - the gift and curse of the Middle East. Turkish exports already have a good market there, especially in Iraq where Turkish companies are very active. However, consumption levels rising across the region is still theory. Democracy may make Turkey popular, but in practice it has only strengthened ties with autocratic rulers in Iran and Syria. According to Alternatifbank economist Serdar Senol, a number of Turkish firms have also reported a great deal of bureaucratic red tape in doing business in the Middle East.

On a policy front, Turkey quickly dropped out of mediating between pro-western parties in Lebanon and the anti-western Hezbollah, which toppled a coalition government in January. This was just two months after Turkish Prime Minister Recep Tayyip Erdogan was enthusiastically greeted in Beirut, where he claimed to have moved forward the prospect of a free trade zone between Turkey, Lebanon, Jordan, and Syria. It appears Middle Easterners enjoy Turkey's star all the more when it shines from home.

Even so, the problems at home of an overheating economy and a ballooning current account deficit could make the AKP more likely to concentrate on being perceived as a regional leader and perhaps even intensify jabs at the EU over the slow accession process, experts say.

The country demands that the West accept the geopolitics of a post-Cold War world, but, sitting in so many camps, Turkey might find itself spread too thin.

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