Turkey a fearless investor in the Middle East

By bne IntelliNews April 17, 2012

Justin Vela in Istanbul -

Even as the turmoil from the Arab Spring drags on, Turkish businessmen are already setting out to reestablish themselves in the region. While most remain wary, the Turks consider the Middle East and North Africa (MENA) to be their backyard market.

"They are sophisticated enough to manage risk very well," says Mouayed Makhlouf, MENA director for the World Bank's International Financial Corporation (IFC), adding that Turks have close cultural ties to the predominantly Arab region and understand the local way of thinking and doing business. "They understand the risk and the potential of the region very well. That makes them a little bit different than other investors from Asia or even Europe. For Asian investors, MENA is a completely unknown territory; for Turkish investors it is almost a home market."

The chaos in many of the region's nations from the various revolutions has had only a limited effect on Turkish trade, according to a study done by Istanbul's Bahcesehir University Center for Economic and Social Research (Betam). Exports to Egypt rose to $2.7bn in 2011 from $2.2bn in 2010, despite the sustained civil unrest. Exports to Iraq also increased to $8.3bn in 2011 from $6bn in 2010. "Our exports to these countries mostly increased, except to Syria, because of continued civil disorder and we expect that it will decline more," Baris Soybilgen, a researcher at Betam, tells bne.

Exports to Libya also fell from $1.9bn in 2010 to $748m in 2011. Turkish companies stayed on in Tripoli until the last minute, but were eventually forced to pull out as the civil war spread. "We nearly lost $1bn in exports to civil war," says Soybilgen, adding that post-conflict Libya has been a priority for Turkish business.

Talk of customs unions and free trade zones may have receded as the region has descended into civil strife. But the consistency of Turkish business remains clear.

No fear

Turkey's desire to increase business with MENA is no mystery. Its market of Europe is suffering as the economies there stagnate. European Central Bank forecasts put average annual real GDP growth for the Eurozone at between -0.5% and 0.3% in 2012. Turkey has to increase its exports to finance a massive current account deficit, which registers around 10% of the country's $772bn annual GDP, and so is trying to look beyond Europe.

Soybilgen says Turkey can continue to grow its exports to the MENA region, where many countries, recovering from the effects of the Arab Spring, are beginning to show growth. "We expect that exports [to the MENA region] will increase. Europe is a declining export area for Turkey," he says, adding that the country knows it can increase its exports to MENA and that it has a "technological advantage" over these countries.

The IFC's Makhlouf explains that his organisation has a strategy for "south-south" investment. Essentially, this is one emerging market country investing in another and furthering its development. "Turkey fits into the strategy because one of our main strategies has been to increase the flows of investment from the most developed to the least," he says.

There is a very little foreign direct investment (FDI) in MENA, so the IFC has a goal to increase FDI and further regional integration. "This is where Turkey comes into the picture" he says.

Turkey is strong in the manufacturing, textile, construction, and infrastructure sectors. Makhlouf wants to bring Turkish firms that are already well developed at home to assist in growing those sectors in MENA. The region is made attractive by its strong labour force, good energy resources, along with geographic proximity to Turkey. These are all factors that can be attractive to Turkish investors.

Some of the last to leave Libya, Turks were also some of the first to return. Libya, famous for its massive oil reserves, has huge possibilities for Turkish investors. It is also seen as an access point for the rest of Africa. "We have started looking into Libya now," says Makhlouf. "We want to partner with a regional client that we know well, that we feel comfortable with. We aim to promote trade finance in Libya and are looking for a banking partner [to do that]."

Turkish Airlines was the first international carrier to restart flights to war-torn Tripoli. The Libyan National Transition Council and civil administration officials are in talks with Turkish TAV to repair the damaged runway at Tripoli International Airport.

In January, Turkish Economy Minister Zafer Caglayan declared that Turkey would provide $750m in loans to Tunisia and Libya. Turkey has already signed a $500m loan agreement aimed at helping the Tunisian economy recover from the impact of the 2011 revolution. The partnership between the countries will be further strengthened by planned agreements in industry, tourism and other sectors, according to Egyptian media.

Turkish tradesman also did not hesitate to return to Egypt after Hosni Mubarak was ousted. Egyptian Minister of Industry and Foreign Trade Mahmoud Eissa says that Turkish companies will pump in over $1bn into Egypt over the next few years. He also stressed the importance of a quick launch for the planned shipping trade route between the port of Alexandria and Mersin, on Turkey's Mediterranean coast.

The black sheep among a region of expanding partnerships is Syria, the country with which Turkey shares its longest border. Turkish exports to Syria fell by 77% in March compared with the year-earlier period. And Turkey's government has burned its bridges with the regime of Bashar al-Assad and hosts opposition forces on Turkish soil, looking to benefit as a top priority partner if and when the regime is overthrown.

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