GCC investors warm to Turkey’s economic prospects

Opportunities in trade and other segments of the Turkish economy are opening up to hydrocarbon-rich Arabian Gulf countries.

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Corporations and sovereign wealth funds in the GCC are eagerly eyeing investment and trade opportunities in neighbouring regions, particularly in business-friendly jurisdictions where they hope to park their cash.

While North Africa remains a fertile ground for UAE and Saudi investors, Turkey has been gaining prominence as a viable investment and trade destination for Gulf states.

Turkey’s economy is set to grow at a steady pace of between 3  and
3.5 per cent over the next few years on the back of expanding key sectors and a fast-growing population, which is set to reach around 75 million.

Although not immune to the economic lethargy engulfing the European Union and the rest of the world, Turkey is still poised to take advantage of steadily improving financial climate in 2017.

According to the Organisation of Economic Co-operation and Development (OECD), the country’s growth has been robust in recent years despite very adverse regional and domestic conditions.

“Job creation has been strong, in particular for vulnerable groups and less developed regions,” the OECD said in its report on Turkey.

However, the organisation also believes Turkey's integration in global value chains remains below its potential due to structural bottlenecks.

“This calls for changes in trade and investment policies to make export orientation more profitable and attract more foreign direct investment. Substantial investment in human and knowledge-based capital will be necessary to catch up with international best practices,” the OECD added.

REFORMS: POTENTIAL DRAW FOR INVESTORS

To address the issues, Turkey unveiled an action plan last year that, among other things, focused on creating more business-friendly rules and unifying business licencing rules across various government levels. Other measures included new policies to attract foreign direct investment; develop Islamic finance instruments and institutions; revise the country’s public procurement law; and create an Istanbul Arbitration Centre to resolve trade issues.

Such initiatives are geared towards casting the investment net wider and building sustainable trade ties, especially with neighbouring countries.

A GCC-Turkish Joint Committee for Economic Cooperation (JCEC) was launched in 2009. It is focused on specialised subcommittees in the areas of agriculture and food security, electricity and water, energy, environment, financial and monetary issues, health, investment, tourism, and trade.

But Turkey and GCC countries may be ready to deepen their economic ties. Last year, Turkey’s then-prime minister Ahmet Davutoğlu also expressed an interest in further strengthening trade relations with Arabian Gulf nations, by working towards the development of a free-trade agreement.

TRADE TIES

Countries across the GCC region invested USD457 million in Turkey in 2015, representing roughly 2.7 per cent of the entire USD17 billion foreign direct investment (FDI) that flowed into the country in 2016, according to the latest available data from the Central Bank of Turkey.

In 2014, Gulf FDI in Turkey stood at USD364 million, but that amount was dwarfed by the USD940 million invested in the country by Gulf states in the heyday of 2014, when oil prices were trading at more than USD100 per barrel.

While investment flow has ebbed, primarily due to plummeting oil prices, the trade flow between Turkey and the GCC states continue to rise.

The UAE emerged as Turkey’s 9th largest export market in 2015, with goods valued at USD4.67 billion – a far cry from the USD1.98 billion posted in 2006, latest data from the Turkish Statistical Institute showed. Turkish exports to the UAE include precious stones and mines, iron and steel, mineral fuels and oils, according to the Turkish Ministry of Foreign Affairs.

Meanwhile, UAE exports to Turkey have fallen off a bit, standing at just over USD2 billion in 2015, primarily in the form of precious stones and mines, aluminium and plastic. In as far as tourism is concerned, more than 51,600 UAE citizens visited Turkey in 2015.

Not far behind UAE is Saudi Arabia, the MENA region’s largest economy, which emerged as Turkey’s 12th largest export market. Turkish trade to the oil-rich kingdom reached USD3.47 billion in 2015, compared to a paltry USD983 million in 2006.

Turkey primarily exported mineral fuels and oils, organic chemicals and plastics to Saudi Arabia. In return, the kingdom exported plastic, organic chemicals, aluminium, mineral fuels and oils, valued at USD2 billion, to Turkey. Around 450,000 Saudis visited the country in 2015.

MORE OPPORTUNITIES

Turkey is increasingly taking advantage of its strategic location in forging closer ties with the GCC region. Straddling Europe and Asia, the country can serve as a gateway to emerging markets in Central Asia and Africa.

Turkey also has grand ambitions of reaching out to various markets to support its growing pool of small and medium enterprises (SMEs), as well as efforts to access affordable and reliable hydrocarbons, a report from the Oxford Gulf and Arabian Peninsula Studies Forum (OxGAPS) has noted.

“Also important is the contribution of GCC states in Turkey’s response to the stalled EU accession process and the decreased opportunity space of European crisis-hit markets,” according to OxGAPS.

The two regions are just scratching the surface, as they pursue closer economic ties. UAE and Saudi construction, real estate and leisure companies are expected to find a rich vein of opportunities in tourism, real estate and infrastructure sectors in Turkey.

Meanwhile, banking – especially Islamic banking – healthcare and education are areas where Gulf investment and/or expertise can play a valuable role in expanding the Turkish economy.

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