Kingdom, UAE dominate Turkish-GCC trade

Arab News

Kingdom, UAE dominate Turkish-GCC trade

By Arab News

1 January 2012

JEDDAH: Turkish trade with the GCC (Gulf Cooperation Council), in spite of considerable positive progress in recent years, is lagging far behind its potential. Negotiations for a free trade agreement between Turkey and the GCC were launched in November 2005 but are still ongoing and are expected to conclude soon. The delays appear to have been linked above all to the global economic crisis with the talks suspended for a while in 2008-2009, according to a report "Turkey and the GCC: A strengthening Relationship" issued by the National Commercial Bank (NCB).

Apart from a cyclically driven correction in 2008-2009, Turkish trade relations with the GCC have expanded fairly rapidly in recent years. Overall Turkish-GCC trade rose more than ten-fold from $1.5 billion in 1999 to $16.1 billion in 2008. This figure declined to $7.8 billion in 2009 but rebounded to $10.0 billion in 2010.

Trade partners

The UAE is now one of Turkey’s ten largest trade partners. Turkey is Dubai’s 18th largest trade partner and Dubai’s nonoil trade with Turkey reached AED8.8 billion in 2010. Total Turkish imports from the GCC economies in 2010 rose to $3.6 billion, a figure that expanded further to $3.9 billion in January-October 2011. Trade flows in the opposite direction stood at $6.4 billion in 2010, as compared to $5.9 billion in the first ten months of 2011. In spite of its reliance on GCC energy, Turkey has been fairly consistently running a substantial trade surplus in its commerce with the GCC economies, the report said.

Turkish-GCC trade is still heavily dominated by the two leading Gulf economies, Saudi Arabia and the UAE which in 2010 jointly accounted for some 86 percent of GCC exports to Turkey and an identical share of Turkish imports. Saudi Arabia has remained the most important source of Turkish imports from the Gulf.

Bilateral trade between Turkey and the UAE peaked at $8.7 billion in 2008 before declining sharply to $3.6 billion in 2009 and subsequently recovering to $4.0 billion in 2010. Trade between Turkey and Saudi Arabia attained $5.5 billion in 2008. It dropped to $3.1 billion in 2009 before rebounding to $4.7 billion in 2010, the NCB report added.

Turkish imports from Saudi Arabia have been traditionally dominated by crude oil, although the proportion has declined, more or less in parallel with Saudi Arabia’s falling market share. At the same time, petrochemicals have grown in importance and are now clearly the second largest category of Saudi exports to Turkey. Turkish exports to Saudi Arabia are much more diversified. However, steel and iron products tend to dominate, followed by vehicles, electrical engineering products, and occasional grain exports.

Turkey’s main exports to the UAE are iron and steel, textiles, and electrical machinery. The import side is dominated by gold, gold-plated silver, and base metals, highlighting especially Dubai’s position as precious metals hub and Turkey’s role as one of the leading global gold markets. Turkey is Dubai’s second largest gold export market with the total value of gold shipments rising steadily from $60 million in 2006 to $103 million in 2007, $312 million in 2008, $472 million in 2009, and $426 million in 2010. The value of articles of jewelry and part exports stood at $36 million in 2006, peaked at $70 million in 2007, and reached $52 million in 2010, according to World Gold Council estimates. The UAE has in recent years accounted for more than 12 percent of overall Turkish steel exports.

According to the NCB, the strong momentum of trade between Turkey and the Gulf is set to continue with for instance trade with the UAE projected to increase from the current $4.4 billion (January-October 2011) to some $10 billion by 2015. For Saudi-Turkish trade, the Turkish authorities see $10 billion as within reach in two years while $20 billion has been presented as a realistic medium-term target.

Investment flows

The attractive growth prospects and rapid development of the Turkish and GCC economies will create a growing number of investment opportunities for companies on either side. The pipeline of infrastructure projects in the GCC is estimated at more than $1 trillion, with some $630 billion worth underway in Saudi Arabia alone. Nearly comparable opportunities exist in Turkey where GCC investors have shown particular interest in banking, cement, textiles, heath, real estate, logistics, automotives, and electronics. In fact, the Arab Spring seems to have redirected some Gulf investors from other Arab countries to Turkey. Total GCC investments in Turkey are estimated to have exceeded $10 billion by the end of last year. Turkish investments in the GCC are likely to be increasingly comparable, although the available estimates tend to be imprecise and often methodologically inconsistent. However, total Turkish FDI flows to the GCC have until now lagged significantly behind GCC FDI into Turkey.

The total value of GCC FDI flows into Turkey reached $6.5 billion in 2004-August 2011 whereas FDI in the opposite direction totaled only $305 million.

The UAE has historically been Turkey’s most important GCC partner in terms of investments, having accounted for 56 percent of all GCC FDI into Turkey in 2004-August 2011. Overall investment flows between Turkey and the UAE are estimated to have reached some $10 billion in 2010, with UAE companies investing some $4 billion in Turkish tourism and energy. Turkish investments in the UAE totaled $6 billion, mainly in construction. UAE investments in Turkey are expected to grow by $1 billion to $5 billion in the course of 2011. Turkish Trade Minister Zafer Caglayan in December 2009 stated that 35 Turkish companies had undertaken 77 projects worth $6.2 billion in the UAE so far.

Over 170 Saudi firms invested a total of $1.3 billion in Turkey between 2004 and 2009. The main areas of operation are textiles, food, banking trade, real estate, and tourism. Also purely financial investments are growing in importance with for instance the Kuwait Investment Authority identifying Turkey as one of its priority countries and increasing its investments there to $1.7 billion.

GCC companies

In spite of significant progress in recent years, the number of GCC companies operating in Turkey is relatively modest. Only 217 Saudi companies were active in the country as of the end of June 2011. The most important sectors were construction (40 companies), transportation (21), real estate (9), food production (9), and tourism (9). In the opposite direction, the Turkish presence in Saudi Arabia has tended to be dominated by constructions companies with an estimated 150 Turkish firms now active in the Kingdom. Some 500 Turkish companies operate in the UAE in sectors such as trade, petroleum, construction, transport, security equity, and pharmaceuticals.

The NCB report said total Turkish investments in the UAE were most recently estimated at $6.5 billion while UAE investments in Turkey stand at $5.0 billion.

Construction and real estate remain dominant themes in the Turkish presence in the Gulf. Turkish companies established a major foothold in the GCC during the regional construction boom led by Dubai, but their presence far predates this. For instance, they carried our work worth $492 million in Kuwait between 1972 and 2000. To date, Turkish contractors have undertaken some $281 million worth of construction and infrastructure projects in Bahrain. Turkish engineering companies first came to Oman in 2000 have since undertaken more than 20 projects worth more than $3 billion, starting with the Sohar Industrial Port.

Qatar has encouraged Turkish investment for the World Cup preparations. Total investments for the event are expected to reach $170 billion. Total Turkish investments in Qatar reached $4 billion by the end of 2010 and 25 Turkish contractors are currently active in the country.

In an important development this year, TAV (Tepe Akfen) Airports Holding and its Saudi consortium partners, Al-Rajhi Holding Group and Saudi Oger in October concluded an agreement on the $1.5 billion expansion of the Prince Mohammad bin Abdulaziz International Airport in Madinah. Among other things, the airport will receive pilgrim flights from Istanbul, Ankara, and Izmir. The project, which will double the currently 4 million passenger capacity of the airport thanks to a new terminal, is due to be completed in the first half of 2015. The Saudi-Turkish consortium will operate the facility for 25 years in the first GCC public-private partnership in the area of aviation. TAV Airports currently operates four major airports in Turkey and six foreign airports. The Madinah airport is expected to go through a second planned expansion in 10 years to further double the annual capacity to 16 million passengers. TAV is currently active also in the new Doha International Airport venture, at the Muscat International Airport, and with the expansion of the Abu Dhabi International Airport.

Financial services

The operations of GCC companies in Turkey are fairly diverse. The initial focus on GCC investments was heavily on financial services and, as a result, GCC-owned banks are dominant within Turkey’s group of four Shariah-compliant participation banks. Bahrain’s Albaraka Banking Group, jointly with the Islamic Development Bank and Turkish partners, established the Albaraka Türk participation bank in 1984-1985. The second one, Kuveyt Türk was established in 1989 with Kuwait Finance House a majority partner, currently with a 62 percent stake. The Islamic Development Bank holds a 9 percent of the company. The National Commercial Bank of Saudi Arabia acquired a 60 percent stake in Türkiye Finans in 2007. More recently, GCC companies have begun to pay attention also to the conventional space. This reflects the strong growth of the economy and the health of the country’s banking sector which went through major reforms after the 2001 crisis. Qatar National Bank was in October reported to be negotiating a majority stake in Turkey Deniz Bank which is currently controlled by the troubled Franco-Belgian lender Dexia. Interest has grown also in the opposite direction. A number of Turkish banks have branches in Bahrain, reflecting the Kingdom’s continued strength as a regional financial center. Ziraat Bankası in March 2011 opened a branch in Jeddah and is planning a network of ATMs for Turkish pilgrims visiting the holy cities.

One of the earliest major transactions involving GCC investors in Turkey was the UAE-based Oger Telecom’s involvement in the privatization of Türk Telekom in 2005. Oger paid $6.6 billion for a 55 percent stake in Türk Telekom in the largest Turkish M&A deal to date. Saudi Telecom Co. has a 19.25 percent stake in Türk Telekom through its 35 percent holding in Oger Telecom. Oger is interested in increasing its stake when the government divests its remaining 15-20 percent of Türk Telekom. About 35 percent-40 percent of the more than $7 billion of investments made by Oger in recent years have been in Turkey. Oger Telecom’s parent company Saudi Oger is also interested in further broadening its footprint in Turkey, most notably in the energy sector, as well as in banking and insurance.

Beyond this, the NCB report said awareness of business opportunities on either side has grown dramatically in recent years. Although the growth of investments has been adversely affected by the tough international economic climate, there has been a steady increase in the number and sectoral footprint of acquisitions. The growing number of serious expressions of interest on either side suggests that this trend will continue, and probably accelerate further, in the coming years.

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