Balkan countries look increasingly east as well as west

By bne IntelliNews March 16, 2015

Clare Nuttall in Bucharest -


The slowdown of the Eurozone economies since the 2008 crisis has encouraged Southeast European countries to look to Turkey, the Middle East and other regions for investment, though their primary orientation remains towards Western Europe.

Turkey is already the largest economic power in Southeast Europe, and its clout will increase with the opening of new pipelines transporting gas from Azerbaijan and Russia to the region. Both Turkey and Azerbaijan will take on a greater role as energy suppliers to Southeast and Central Europe within the next decade. From 2019, Azerbaijan will start exporting gas from the offshore Shah Deniz field to Europe via the Trans-Anatolian Natural Gas Pipeline (TANAP) and Trans Adriatic Pipeline (TAP). As well as being a transit state for Azerbaijani gas through TANAP, Turkey could also start transporting Russian gas on to Europe when a new pipeline starts operating. The Russia-Turkey pipeline, or ‘Turk Stream’ as it’s been dubbed, was announced in December 2014 after Moscow scrapped South Stream, a rival project that would have delivered Russian gas across the Black Sea to Europe.

Several countries from Southeast Europe not currently included in the pipeline projects are considering options to plug into them. These include the Greece-Bulgaria-Romania vertical gas corridor agreed between the three countries’ energy ministries in December. More recently, Russia’s Stroytransgas announced plans to build a pipeline across Macedonia that in future could connect to the Russia-Turkey pipeline.

Turkey’s new role as a gas transit state for Southeast Europe can be expected to further increase its importance in the region. “A greater role in transit of natural gas will give Turkey more bargaining power in other fields, bringing more inter-dependence in Turkey’s relations with the Western Balkans,” Mehmet Uğur Ekinci, foreign policy researcher at the Ankara-based Foundation for Political, Economic and Social Research (SETA), tells bne IntelliNews.

“Construction of the pipelines will mean the region depends on Turkey in the same way that it now depends on Ukraine,” agrees Vito Komac, CEO of the Slovenian Turkish Business Club (STBC).

The degree to which the new pipelines will affect Turkish-Balkan relations is uncertain, as it will depend partly on future demand for gas in the region, where governments are also exploring other options – from liquefied natural gas (LNG) terminals on the Adriatic to renewable energy generation – in an attempt to reduce their dependence on Russian exports via Ukraine.

Old Ottoman ties

Turkey is already economically important for Southeast Europe, ranking among the top 10 investors and trading partners of most countries in the region. However, despite its geographic proximity, Turkey generally ranks below EU economies. Komac believes this is due to the different business cultures in Turkey and the Balkans. “All too often Slovenian businesspeople assume that Turkey has the same mentality as the Balkan countries, but this is not true,” he says. “Our businesspeople are often surprised by the high level of development and industrial growth in Turkey.”

As a result, relatively few attempts by Turkish companies to invest in Slovenia have been successful and even fewer in the opposite direction, despite efforts by both countries’ governments to boost mutual trade and investment. The STBC, a non-profit organisation, was set up to address these obstacles. By contrast, Macedonia, which is geographically closer to Turkey and has a 100,000-strong Turkish minority, has been more successful in attracting Turkish investment.

The assumption of a common business culture stems partly from the long shared history of Turkey and the Balkan region, much of which was under Ottoman rule for hundreds of years. Part of this legacy remains today, with substantial Turkish minorities in several countries and Muslim populations in Albania, Bosnia-Herzegovina and Kosovo. Even in countries that are largely Orthodox Christian such as Serbia, phenomena like the huge popularity of Turkish soap operas highlight the enduring cultural ties.

However, the Balkans’ Ottoman history is a double-edged sword. While in some countries it fosters a closer relationship with Turkey, almost a century after the disintegration of the Ottoman Empire there is still wariness in the region and a lingering perception of Turks as invaders. The concept of neo-Ottomanism, which has been associated with Turkey’s current prime minister, Ahmet Davutoğlu, has been in evidence in recent years, mainly among those sceptical about Ankara’s ambitions abroad.

To a large extent, these ambitions are economic rather than political. For several decades, Turkey has pursued a strategy of export-led growth, encouraging investors and businesses to be more active in Southeast Europe along with other regions. Turkey’s top trading partners in the region include Romania and Serbia, which account for a much larger share of trade than the smaller majority Muslim countries.

Furthermore, Turkey has become a natural economic engine in the region, given its size and strength even as major West European economies stagnated. “Turkey is building economic relations with every actor, as part of its aim of increasing inter-dependence with the region. Ankara has also been quite active in cementing soft power in all parts of the Western Balkans,” Ekinci says. “However, after the Arab Spring it is no longer a political priority for Turkey. Urgent security issues have resulted in a shifting of Turkey’s interest to the Middle East, though relations with the Balkans are continuing to expand and diversify.”

Alongside Turkey, Azerbaijan can also expect an increase in its economic influence in the region to follow the launch of gas exports and the construction of TAP. So far, Azerbaijani investment has been spearheaded by the State Oil Company of the Azerbaijan Republic (Socar). The company already owns a network of petrol stations in Romania and is currently working on plans to develop the gas grid in Albania, one of the TAP transit states. Outside its core business, Socar is also investing into a €500mn resort at a former military base in Montenegro via its subsidiary Azmont Investments.

Arab allies

In further signs of the Balkan countries’ engagement with states to their southeast, United Arab Emirates-based companies have dramatically increased their investments into the region.

Serbia has become the primary target for UAE investors, a surprising development given the UAE’s earlier backing for the Nato bombings of Serbia in 1999 and its early recognition of Kosovan independence. The recent rapprochement, which is attributed to Serbian Prime Minister Aleksandar Vucic’s friendship with Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nahyan, has brought billions of euros worth of investment and loans to Serbia.

In 2012, Al Dahra Agricultural Company bought up 20,000 hectares of Serbian agricultural land as part of the UAE’s plans to boost food security by investing in farmland abroad. The following year, Etihad Airways took a 49% stake in Serbia’s struggling Jat Airways and embarked upon an ambitious rebranding and modernisation programme partly financed by the Serbian state. This had knock-on effects for Serbia’s main international airport in Belgrade, which reported record profits in 2014. Plans for Belgrade Waterfront, a massive mixed-use development on the Sava river, are now underway. The project is being developed by Emaar Properties, the investment fund of UAE businessman Mohamed Alabbar, at a cost of over €3bn.

While Serbia has been the main recipient of UAE investment, other countries are also starting to benefit. In Bosnia, Dubai-based Buroj Property Development recently announced plans to build a €2.3bn luxury resort near the site of the 1984 Sarajevo Winter Olympics. Local media in Croatia reported in early March that the government is in talks over a possible $2bn loan from the UAE to fund debt refinancing.

The recent global crisis that particularly hit economies in Western and Central Europe is part of the reason why Southeast European governments have started looking to Turkey and the Middle East for investment, as well as further afield for example to China. But for the most part the EU remains the greatest influence on regional economies, given that EU countries top the lists of trading partners and investors across the region.

Aside from Southeast Europe’s four existing EU member states, all countries from the region – including Turkey – are aiming for EU membership, though they are progressing at different rates. In future, Turkey’s relationship with the Balkan region could depend on whether it follows countries from the region into the EU and on its relationship with Brussels.

Turkey has already made substantial progress in aligning legislation with the EU, but the dispute with Greece over Cyprus and concerns over the growing authoritarianism of President Recep Tayyip Erdogan’s rule are holding back progress. Some European politicians also fear that the entry of a large, majority Muslim state straddling Europe and Asia could change the culture of the EU. Meanwhile, Turkey enjoys a high level of trade with the EU, while still enjoying benefits of being a non-member, namely a greater ability to protect its domestic economy.

“Ideally, Turkey and the Western Balkans will progress together towards the EU, which will contribute to stability in the region. Even if some countries enter ahead of Turkey, I don’t foresee any problems because currently some 80% of Turkey’s trade in the Balkan region is with EU members,” says Ekinci. “However, if Turkey’s membership prospects get lower and there is a difference of opinion between Turkey and Brussels over political or economic policy, governments in the Western Balkans could be forced to pick sides. At the moment I don’t see Turkey as a pole in the region in the way that Russia is, but Turkey could arise as a real pole in future.” 

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