Customs unionFrustrationcharacterisesjourney towardsintegrationPage 2

Inside »

Regional pushDebate continuesover gains andlosses from theArab springPage 3

Western ties nolonger bindCompanies lookto strengthenpresence in AfricaPage 3

Exports led totransformationExporters scan theglobe in search ofvirgin marketsPage 4

FT SPECIAL REPORT

New Trade Routes TurkeyThursday May 9 2013 www.ft.com/reports | twitter.com/ftreports

Gazing at the container shipsheading down the Bospho-rus, Sani Sener reflects alittle on the Turkish trad-ing spirit. “We used to say

that Turkey was surrounded by threeseas,” he muses, referring to theBlack Sea, the Aegean and the Medi-terranean. “Now we say Turkey issurrounded by markets.”

The change he is referring to is onethat burned slowly for decades beforeblazing into life in recent years.

Turkey, once an inward-looking pro-tectionist state, is forging into otherparts of the world. Like their counter-parts in emerging economies else-where, Turkish executives say thefastest growth often comes from doingbusiness outside traditional marketsin the west.

TAV, the group Mr Sener heads, is acase in point. Founded little morethan a decade and a half ago, it nowoperates 12 airports across the widerregion, from Istanbul and Izmir toMedina and Riga, and is helping buildairports in Abu Dhabi, Dubai, Doha,Jeddah and elsewhere.

“We used to be complacent in Tur-key,” says Mr Sener. “But after 2000,the country began to understand theimportance of globalisation, especiallyin the region . . . In Turkey, like otheremerging markets, we need interna-tional companies, so we have to go toother countries, to do business, toinvest, and to take the risk.”

The numbers tell the story. A littleover five years ago, the EU accountedfor much more than half of allTurkey’s exports. Now the figure is

heading down towards not much morethan a third. Erdem Basci, the gover-nor of Turkey’s central bank, has pre-dicted that Iraq will soon become thecountry’s largest export market; it hasalready leapfrogged Italy to take sec-ond place to Germany.

Vaunting cultural, religious and his-torical ties, Turkish businesses havefanned out elsewhere in the MiddleEast and Africa, Central Asia andbeyond.

“I tell foreign companies that comehere . . . ‘Don’t see Turkey as a coun-try of 770,000 sq km and $800bn grossdomestic product. This country hasthe potential to do so much businessin the surrounding countries,’” saysHusnu Ozyegin, one of Turkey’s mostprominent businessmen and bankers.“Foreign groups can expand from

here.” Mr Ozyegin practices what hepreaches. In addition to its presencein Turkey, his Fiba Group runs creditcard operations in Romania, privatebanking in Switzerland, Gap, BananaRepublic and Marks & Spencer fran-chises in Russia and Ukraine and ashopping mall near Shanghai.

Nor is his the only Turkish com-pany to head east in recent years.A subsidiary of Sabanci, Turkey’ssecond largest conglomerate, now hasindustrial nylon plants in Indonesiaand Thailand.

“You are going to see a lot of thisflow, leapfrogging the Indian sub-continent and going to southeastAsia, where the growth is,” says Mar-tin Spurling, chief executive of HSBCTurkey. “Turkey has got a part toplay there. It’s used to emerging

markets, to dealing with family com-panies.”

The country’s construction industryis roving far afield. After initial excur-sions into Libya and Russia in the1970s and 1980s – forays that pro-ceeded in tandem with governmentenergy deals – contractors haveexpanded into markets which moreestablished western companies shrinkfrom, such as Turkmenistan and Iraq.Turkey now claims more companiesamong the world’s top internationalcontractors than anywhere else saveChina.

To say this burst of internationalactivity is supported by the Turkishstate would be an understatement.Promoting Turkey’s new trade routes

Continued on Page 2

Silk roadslead toresurgentpowerDaniel Dombey discovers a country that hascome to grips with globalisation and sees itselfas a leader among emerging economies Lines of commerce: the Ambarli container port in Istanbul plays an important part in the drive to prosperity Alamy

For much of the world, theword “Iraq” may still be asynonym for the violencethat erupted after the 2003US invasion and the sectari-anism and instability thatremains.

That is not how KemalCakmak sees things.

For this exporter based inthe Turkish city ofGaziantep, as for legions ofhis fellow businessmen,Iraq – particularly the north– is a land of opportunity.

His Besler group exportedsome $200m of pasta, ani-mal feed and sunflower oilto the country last year. Itsexperience is part of awider trend benefitingTurkish business.

Taking in $10.8bn of Turk-ish goods and services lastyear – more than any othermarket save Germany –Iraq is well on the way tobecoming what officials inAnkara forecast it to be:Turkey’s single biggestexport destination.

While political tensionsthreaten to disrupt theonward march of Turkishentrepreneurs further southinto the country, when MrCakmak talks about Iraqhe describes an all-but-irreversible process, the tri-umph of geography overEuropean-drawn borders.

“Every year our exportsto the Iraqi market increaseby 20 to 30 per cent,” hesays, citing figures thatmirror the general rise inTurkish exports to Iraq inrecent years.

“Because Iraq doesn’thave industry like we do, itis very dependent on Tur-key, on Turkish prod-ucts . . . political tensionaffects our trade very lit-tle.”

But the broader politicalsweep has had enormousimpact on the trading rela-tionship over the past threedecades.

After seizing the opportu-nity of the 1980s Iran-Iraqwar to increase exports to

both countries, Turkey wasbarred from the Iraqi mar-ket by 1990s sanctions,about which Turkish offi-cials still complain.

To an extent, the post-2003 surge in exports simplyrestores Turkey to the pathit was on before. But it hasalso served as both causeand consequence of a biggeopolitical shift: Ankara’sblossoming relationshipwith the autonomous Kurd-ish Regional Government,or KRG, of northern Iraq.

Mr Cakmak’s operationsserve as an example. All ofhis group’s exports are sentto the northern Iraqi townof Zakho, from where Kurd-ish middlemen distributethem to the rest of thecountry.

Overall, some 70 per centof Turkey’s exports to Iraqgo to the KRG, with any-thing between a third to ahalf of that total sold on tothe south.

If many Turkish groups’relationship with southernIraq is at arm’s length, thereverse is true for the KRG,where some 1,000 Turkishcompanies are active. Theyaccount for about half of allforeign groups on the terri-tory.

This phenomenon – theemergence of northernIraq or what Ali Babacan,

Turkey’s deputy prime min-ister, describes as “econom-ically, a natural extensionof Turkey” – is now a keycomponent of Ankara’sthinking.

Before, it was virtuallyroutine for Turkish troopsto cross over the border inoperations against the fight-ers of the outlawed Kurdis-tan Workers Party or PKK.Now, Ankara regards Mas-soud Barzani, KRG presi-

dent, as a key regional allyand is in peace talks withthe PKK, which is pullingits fighters out of Turkeyand back to bases in Iraq.

One consequence may beto increase exports to Iraqfrom Turkish Kurdish cen-tres such as Diyarbakir,which has profited lessfrom trade to date than hasGaziantep, despite beingcloser to the border andhaving stronger culturallinks.

Bigger economic stakesare also in play, notablyenergy-hungry Turkey’sinterest in KRG’s oil andgas resources.

Turkish officials say aframework deal has beenstruck between Turkishstate-owned groups and theKRG to take stakes in theKurdish oil and gas sector.To date, there has been noofficial announcement,because of the sensitivity ofthe issue.

Nouri al-Maliki, Iraq’sprime minister, says anagreement is unconstitu-tional without Baghdad’sbacking and the US haspublicly warned Ankarathat it could contributeto the further break-up ofIraq.

Tensions have alreadyflared between Sunni-major-ity Turkey and Mr Maliki’sShia-led government in aMiddle East increasinglycharacterised by rivalrybetween Turkey and Iraq’sally, Iran.

One casualty may beTurkish contractors, whoworked on some $3.5bnworth of projects in Iraqlast year.

Officials in Ankaraacknowledge that Turkishgroups are now effectivelybarred from larger con-tracts in the south of thecountry.

Mr Maliki’s governmentformally removed TPAO,the Turkish state oil com-pany, from an explorationdeal last year.

Nonetheless, for now atleast, Turkish confidenceremains almost impossibleto dent.

“As Turkish entrepre-neurs perform well in Iraq”,says Husnu Ozyegin, one ofTurkey’s leading businessfigures, “the Iraqis willhave more confidence inTurkish contractors than insome European companythey do not know.

“And the logistics will notchange,” adds Mr Ozyegin.“The easiest way to get intonorthern Iraq is throughTurkey.

“If European companiesgo there to do constructionwhere are they going tofind the workers? Turkishengineers and workers justneed to get on a bus fromGaziantep.”

Ankara views northern Iraq as‘natural extension’ for businessIraq

Geography drivesexpansion of exports,say Daniel Dombeyand Funja Guler

‘Because Iraq doesnot have industrylike we do, it is verydependent onTurkish products ‘

In transit: goods await passage at the border with Iraq

Sights set onCentral AsiaBusiness seeksrevival of links witharea rich in historyPage 4

2 ★ FINANCIAL TIMES THURSDAY MAY 9 2013

New Trade Routes Turkey

Few partnerships haveproved to be as enduring –despite inevitable bumps –as that between Turkey andthe US. It survived the coldwar, the collapse of commu-nism, military coups d’étatin Turkey, and a blow-upover the invasion of Iraq.

As Ekim Alptekin, presi-dent of the Turkish-Ameri-can Business Association(Taba), observes, “the USwas for years Turkey’s mostimportant anchor in thewest.”

Surprisingly, though,trade between the twocountries does not reflectthat. In 2012, according tothe Turkish Statistics Insti-tute, Turkey exported$5.6bn of goods to the US,and imported $14bn. Thatwas roughly unchangedfrom 2011, though thebalance between exportsand imports was then, ifanything, even less favoura-ble to Turkey.

The US is an importantTurkish trading partner butpales next to Germany,with which Turkey enjoyedtotal bilateral trade of $35bnlast year. Russia is also abigger trading partner thanthe US.

The Office of the USTrade Representative saysTurkey ranked 32nd amongUS trading partners in 2011.“That is not where theworld’s number one econ-omy and the world’s num-ber 16 economy should be,”says Erkan Kaplan, Ankararepresentative of the Turk-ish exporters assembly.

The challenge for Turkeyis both to increase its tradewith the US and to changethe nature of what istraded. For years, much ofthe relationship centred onmilitary hardware.

With the second biggestarmy in Nato (after the US),Turkey was a voracious

consumer of US militarykit. It remains so, thoughsince the end of the coldwar Turkey has become anindependent buyer able tochoose from other suppli-ers.

The main goods tradedbetween the two are air-craft (military and civilian –Turkish Airlines has beenone of the biggest purchas-ers of commercial aero-planes over the past severalyears), iron and steel,oil, textiles, vehicles andagricultural produce.

That looks like an eclecticlist of goods, but given theimbalance in the relation-ship – Turkey has had apersistent trade deficit withthe US of between $8bn and$10bn – it will be difficultfor Turkey to increase itsshare of the pie. Part of theproblem will be to over-come logistical difficulties.“It’s expensive to getthere,” saysMr Kaplan.

Still, the incentive is cer-tainly there. Exporters,exhorted by the govern-ment, have set an ambi-tious target of lifting totalnet exports to $500bn by2023 – the centenary of the

founding of the republic –from $153bn in 2012. Intheory, that is achievable –Turkey quadrupled thevalue of its exports between2003 and 2012. But that wasfrom a very low base of just$36bn.

One way of boosting US-Turkish trade is to encour-age more direct US invest-ment in Turkey. Centralbank figures show thatinward US investment toTurkey was just $438m in2012, down from $1.4bn in2011 and from a peak of$4.2bn in 2007.

True, Turkey is a finalassembly location for theF-16 fighter jet, and itfrequently strikes offsetagreements with the likesof aircraft manufacturerswhen placing orders, ensur-ing that some parts areproduced at home.

But the best way to boosttrade is not a secret – it isby increasing the quality ofgoods traded and the skillsof the people who makethem. Erhan Aslanoglu,who teaches economics atMarmara university inIstanbul, says Turkish man-ufactured goods are stilllagging behind those ofcompetitors such as theBric countries measured byadded value and high tech-nology inputs. He arguesthat Turkey needs to focuson its traditional exportmarkets and not haveexcessive expectationsabout new markets.

A reason to be optimisticabout the state of bilateraltrade is that there are about12,000 Turkish students atUS universities, a lot ofwhom are pursuing engi-neering degrees and MBAs.

“All of a sudden, thatmarket opens up, and peo-ple start seeing all the pos-sibilities that are there,”says Mr Alptekin of Taba.

Already, he says, theadded value of the goodsTurkey exports to the USand elsewhere is higherthan it was a decade ago.

Mr Alptekin adds that arealistic target for tradebetween the two countrieswould be $100bn annually,which would signify thatthe relationship had reallong-term value.

Commercial balance fails toreflect durable friendshipUS trade

Better quality goodsand training are keyto meeting exporttargets, reportsVincent Boland

When Turan Erdogan,chief executive of Vestel,talks about his group’sfactory, which producesalmost one in five of the

televisions sold in the EU, he is apt tomake a slip of the tongue. “It is thebiggest single location factory inEurope to our knowledge,” he says, ofthe 1m square metre facility on theAnatolian coastline, near Izmir. Thenhe corrects himself: “I mean, in theEurope area.”

The slip is understandable. AsMr Erdogan points out, of about 10mtelevisions Vestel made last year,some 8m went to the EU. (Most ofthem are sold as other companies’own label brands.) Europe’s economicproblems and the development of mar-kets elsewhere may have brought thebloc’s share of Turkey’s total exportsdown from 56 per cent to just below 39per cent in the five years since 2007,but Mr Erdogan argues no other mar-ket can compare with let alone substi-tute for the EU. Yet he worries aboutTurkey’s relationship with the bloc.

At issue is not so much Turkey’sstalled membership talks. In fact, forthe first time in three years, a newnegotiating chapter is about to beopened, because of a veto lifted byFrançois Hollande, the French presi-dent, who is less Turkey-sceptic thanNicolas Sarkozy, his predecessor.

Instead, the source of stress is Tur-key’s customs union with the EU, ini-tially intended as a way station tomembership but, as Mr Erdoganremarks, increasingly a fact of lifesince its introduction in 1995

Whenever the bloc signs a tradeagreement with a third country, ithas implications for Ankara, since

Turkey’s manufactured products canenter the country freely via the EU.That state of affairs can leave Turkeywith no reciprocal direct access for itsindustries and third countries withrelatively little incentive to negotiatea separate deal with Ankara.

The issue has jumped up the agendabecause of US and EU plans for atransatlantic trade and investmentpartnership. Recep Tayyip Erdogan,Turkey’s prime minister, recentlywrote to President Barack Obama toask for parallel Turkey-US trade talksand is likely to repeat his call on atrip to the US this month. There is nosign to date that the US will agreesuch a proposal.

Yet, though the customs union isincreasingly uncomfortable for Turk-ish politicians and executives’ alike,it remains a cornerstone of theeconomy.

“The customs union is one of thebases of Turkish prosperity duringrecent years, which sometimes peopletry to forget,” says Jean-MauriceRipert, EU ambassador to Ankara.

With some 14,000 European compa-nies in Turkey, the EU still generates70-80 per cent of foreign direct invest-ment, 40 per cent of Turkish exportsand is the country’s chief source oftechnology transfer.

While recognising Turkey’s con-cerns and emphasising EU readinessto discuss them, he adds that it is“totally impossible” for a non-memberto take part in negotiations with thirdcountries.

Notwithstanding the problems, therelationship has produced some of thecountry’s biggest changes fordecades. It is no coincidence that thehigh point of Turkey’s EU hopes in

2002-2004 coincided with a spurt ofreforms and the start in earnest offoreign direct investment in thecountry.

The pace of reforms then slowed,negotiations stalled and European res-ervations about Turkey’s prospectivemembership left their mark. Onerecent poll showed two-thirds of aonce solidly pro-EU Turkish popula-tion now against entry.

But this year there have been signsof movement over and above MrHollande’s lifted veto, as officials onboth sides push for momentum tokeep the talks alive.

With an economy that slowed from8.8 per cent in 2011 to 2.2 per cent in2012, the prime minister is all tooaware of the economic importance ofexports to the EU. He has started trav-elling frequently to the bloc again andAnkara has even signalled it wouldwelcome US intercession to help solvethe problem of the division of Cyprus

– the biggest long-term obstacle toTurkey’s entry hopes, since Nicosia,with which Ankara has no diplomaticrelations, is an EU member.

Mr Ripert argues the EU’s interestis also affected. “What is important isto keep Turkey closely related to theEU economy,” he says. “It is a hugemarket, it is an emerging market, itseconomic and financial prospectshave to be taken into account.”

From one perspective, the target MrRipert sets is minimalist, even defen-sive – a decade ago it might have beenthought inevitable that the Turkishand European economies would growcloser. But his goal is wholly in linewith the ambition of Vestel and otherTurkish groups further to penetratethe European market. Whether thiscan be achieved depends on grandgeopolitics and brass-tacks bargain-ing. Not only the development ofwestern Turkey is at stake; so, too, isthe country’s European vocation.

Customs unionadds stress toeconomy’s lifeon the edgeEuropeFrustration characterises the journeytowards integration, writesDaniel Dombey

Angela Merkel,Germanchancellor, andRecep TayyipErdogan, Turkey’sprime ministerGetty

has become little short ofan obsession for the coun-try’s government. Some-times it seems as if RecepTayyip Erdogan, prime min-ister, is constitutionallyincapable of meeting a for-eign leader without declar-ing his ambition to doubletrade, at the very least.

Ahmet Davutoglu, foreignminister, has focused hisattention on the MiddleEast, labelling its Europeandrawn borders as artificial,striking a series of visa-freetravel deals and settinghis heart on a free tradezone.

Business figures like MrOzyegin praise the govern-ment’s fiscal consolidationfor ushering in the decadeof growth that helped serveas a springboard for inter-national expansion.

“The government has astrategic vision, saying: ‘Wewill open up more embas-sies in growth regions andemerging markets such asAfrica, Turkish Airlineswill fly there, so Turkishbusinessmen can go thereto do business there,’” hesays.

Indeed, Turkish Airlines –49 per cent owned by thestate – flies to 99 countries,more than any other carrierin the world.

The overall economicdrive is not an endeavourimmune to risk. In particu-lar, the emphasis on theMiddle East comes as muchof the region is in politicalturmoil.

Despite the surge intrade, Iraq is a countrywhose prime minister hasdescribed Turkey as a hos-tile state. Most of Turkey’sexports there are to Kurd-ish self-governing northernIraq, which also has badrelations with Baghdad.

Syria, a natural route tothe Gulf, is in the midst of abloody civil war and Turkeyis fervently opposed to thegovernment of PresidentBashar al-Assad. Ankara’srelations with Iran, the

Continued from Page 1 chief ally of Damascus,have become little short ofpoisonous.

While the Middle Eastand the Caucasus accountfor 28 per cent of Turkey’s$152bn of exports, twice theproportion of five years ago,the numbers may be mis-leading as they include ahuge upsurge in sales ofgold destined for Iran, oftenthrough third countries.

That phenomenon, anattempt to circumventtransactions with sanctions-hit Iranian banks, is declin-ing, since the gold saleshave been targeted by USsanctions. Thanks to thegold trade, however, overallTurkish exports to theUnited Arab Emirates morethan doubled last year.

Many Europeans andmore than a few Turksremark that Turkey’s mostvalue-added exports are stillfocused on the west. Theycite the country’s automo-tive and television tradewith Europe and its role inassembling F-16 fighter jets.

Yet the dynamism behindTurkey’s new trade routesis undeniable. It is a phe-nomenon that both reflectsa new economic order andconnects the country withits past.

Nowhere is that moretrue than in Istanbul. Thelate Roman Empire, runfrom what was then Con-stantinople, had trade defi-cits with both India andChina. The Silk Roadpassed through the city.

Now, according to MrSener, as he looks out fromthe Bosphorus shore at theships passing by, the coun-try and the city have redis-covered their vocation.

“If you look at Istanbul, itwas the centre of the worldeconomy for 20, 30 centu-ries,” he says, with a touchof enthusiastic exaggera-tion. “There was just oncewhen that wasn’t the case –the 20th century. But thingshave changed. Istanbul andTurkey are a launchpad forother markets. it is a newcentury now.”

Silk roads lead toresurgent power

‘The US was foryears Turkey’smost importantanchor in the west’

Ekim Alptekin, Taba

‘The EUaccounts fora large partof foreigninvestmentand Turkishexports andthis is not bychance’

Military equipment is a large part of Turkey’s US imports AP

FINANCIAL TIMES THURSDAY MAY 9 2013 ★ 3

New Trade Routes Turkey

The Turks wasted no time. Aday after Nicolas Sarkozyand David Cameron madetheir first triumphant visit toTripoli after the end of Mua-

mmer Gaddafi’s reign over the Libyancapital, Turkish premier Recep TayyipErdogan swept into town to cementpolitical and economic ties with aregion whose importance to Ankarahas grown dramatically.

Preparations had been intense. Aspecial Turkish Airlines flight full ofcleaners, cooks and repairmen arrivedin advance to spruce up the Turkish-operated Rixos Hotel, a five-star com-plex that hosted foreign journalistsduring the preceding six-month war.Mr Erdogan brought along not onlyhis foreign minister, Ahmet Davu-toglu, and other ministers, but dozensof Turkish businessmen.

“There is great interest in Turkey,in us,” he explained to Turkish report-ers during the September 2011 trip, asheavy fighting between rebel forcesand Gaddafi’s loyalists continued tothe east and south of the capital.“This in turn lays important responsi-bilities on our shoulders. If we . . . areable to comprehend our position andinfluence, believe me, we will be in avery different place in the world.”

Turkey’s decade-long embrace of theArab world took on a new fervourafter the Arab spring. The uprisings,having upended long-standing re-gimes across the region, put in powerIslamist political parties that look forguidance to Ankara’s 10-year experi-ment in Muslim-accented governance.

More than two years after Turkeymodified its “zero problems withneighbours” policy and started back-ing revolutions across the region, it isan open question what Turkey hasgained or lost from the seismic politi-cal changes in its backyard.

“I think Turkey is overestimatingits capabilities,” says Mustafa el-Lab-bad, director of the Al Sharq centrefor regional and strategic studies inCairo. “If you look at the Turkishimage before the Arab spring, it wasregarded as an inspiration for liberaland democratic forces. But after theArab spring, Turkey sided exclusivelywith the Islamists.”

Turkish officials insist Ankara’ssupport for the uprisings is non-sectarian, despite links to bodies such

as the Muslim Brotherhood in Syria.Turkey says its push into the region

is fuelled as much by cultural connec-tions to former lands of the Ottomanempire and a sense of political destinyas it is by economic and strategicinterests that predated revolutions inTunisia, Egypt and Libya as well aswar-ravaged Syria.

“The north African countries fromEgypt to Morocco have always beenvery close partners even before theArab spring,” says a Turkish foreignministry official, who spoke on condi-tion of anonymity. “We believe thefuture of this region is close toTurkey. They are close countries vis-á-vis the cultural dimension.”

Arab countries have proved excel-lent business partners. Turkey’s grow-ing ties with the oil-rich Arabianpeninsula nations is one of its bigrecent success stories. Trade betweenTurkey and the Gulf Co-operationCouncil (GCC) reached $13bn in 2011.Saudi Arabia is becoming a criticalsupplier of crude oil to Turkey. Qatarhas begun discussions with Ankaraabout long-term contracts to provideTurkey with liquefied natural gas.

Turkey plays a large role in theGCC’s construction sector. About115,000 Turks live and work in SaudiArabia, according to a report by theOxford Business Group.

Turkey has billions invested in

Libya, $1.5bn invested in Egypt and$1bn invested in Tunisia. Trade withLibya has reached $2.5bn and tradewith Egypt has surpassed $5bn, morethan before the 2011 revolution.

Turkish industry is venturing farand wide in the region. Tosyali, aTurkish company, has signed a dealto build a $17m steel plant in westernAlgeria. Ankara has signed a securityco-operation pact with Mauritania.

Turkish restaurants run by adven-turous Turks have flowered across theregion in cities big and small. TurkishAirlines has launched routes to sec-ondary and tertiary Egyptian and Lib-yan cities. Many Arab countries thathave long granted giant development

deals to European firms now lookclosely at Turkey.

“The strength of the Turkish com-panies is that they are able to be com-petitive in terms of price for manyprojects,” says Matthieu Roy, anIstanbul-based partner for the lawfirm Gide Loyrette Nouel, which helpsset up deals between Turkey and Araband African nations.

Turkey’s symbiosis of elite politicaland economic power helps grease thewheels during high-profile foreign vis-its by Mr Erdogan and his entourages.Official decisions to lift visa require-ments for many Arab countries andsign free trade agreements withMorocco, Tunisia, Libya and Jordanhave increased the flow of people andgoods between Turkey and the MiddleEast and north Africa.

“In general, the Turks are well-organised, and they have been able tovery quickly support business delega-tions,” says Mr Roy. “The initiativecomes from the government; it comesfrom the political will to develop rela-tionships with African countries andnot only from an economic view-point.”

Any question of whether Turkeycan exploit its cultural ties and politi-cal model to economic or strategicgain must take into account the lossesit is suffering as a result of the war inneighbouring Syria and the potentialloss in trade and influence with Iran.

Tehran and Ankara’s long festeringdifferences have sharpened over theSyrian question and the widening sec-tarian divide between Sunni and Shia.

Libya’s continuing insecurity andpolitical instability have affectedTurkish construction companies thatwere pursuing contracts worth up to$23bn before the revolution. The Turk-ish foreign ministry official says25,000 Turks were employed in Libyabefore the conflict and only a smallfraction had returned.

As Dr Labbad, an expert on Egypt’srelations with Turkey and Iran, put it.“It’s too early to assess whether Tur-key won the Arab Spring or not.”

Regional push resumes following Arab springMiddle EastDebate continues over what the country has gained or lost fromdramatic political change in its backyard, writesBorzouDaragahi

‘If we . . . are able tocomprehend our positionand influence, we will bein a very different placein the world’

From left: Prince Saud al-Faisal, Saudiforeign minister, Ahmet Davutoglu,Turkish foreign minister, and Abdullatifal-Zayani, secretary general of the GulfCo-operation Council Getty

Feyruz Ridvanogullari mar-vels at the number. “Thereare 70,000 hairdressers inLagos,” he says. “So imag-ine how much interestthere could be in hair prod-ucts.” As the exports co-ordinator for Sinbo, anappliance company basedon the outskirts of Istanbul,his interest is irresistiblydrawn.

His group sells kettles,blenders, hairdryers andhair-straighteners to sub-Saharan Africa, which rep-resents more than 10 percent of Sinbo’s annualexports of $80m. In fiveyears, Sinbo’s sales to theregion have increasedalmost 500 per cent, withSouth Africa representingits biggest African marketand Nigeria a rising hope.

“Africa is a big marketand improving,” says MrRidvanogullari. “Consump-tion of electricity is increas-ing, consumption of electri-cal products is increasing.”

He adds that by manufac-turing goods at sufficientvolume to keep prices low –Sinbo splits productionbetween China and Turkey– his group hopes to sellits goods throughout thecontinent.

His story is part of awider push by Turkey tobolster its political andeconomic presence in Africaat a time when neitherofficials nor executives arecontent to rely on tradi-tional ties with the west.

Turkish Airlines, 49 percent owned by the state,flies to 34 destinations inthe continent, includingAccra, Lagos and Mogad-ishu. Ankara has opened 22embassies in Africa in thepast four years, taking itsnumber of representationsto 34 in the continent as awhole and 29 south of theSahara.

Although the drive waspartially spurred byAnkara’s successful bid towin a place on the UN Secu-

rity Council for 2009 to 2010– Africa represents morethan a quarter of UN mem-bers – the phenomenon stillhas some way to run.Embassies in Eritrea andBotswana are scheduled toopen this year.

It is no coincidence thattrade has also soared. Since2005, Turkish exports toAfrica have gone from$3.5bn, including $1bn tosub-Saharan Africa, to morethan $13bn last year, includ-ing $4bn south of theSahara.

Construction companieshave moved southwardfrom their more establishedstamping grounds in theMaghreb.

“When you want to dobusiness in a new marketyou need state support,”says Emin Sazak, the presi-dent of Turkey’s contrac-tors union. “You need asdirect flights as possi-ble . . . and you need yourembassy to help you.”

He hails the government’sAfrica drive as a big help tobusiness, while cautioningthat the Turkish presence isrelatively new in the sub-Saharan region – “more atthe marketing stage” – andthat it is hard to competeagainst Chinese competitorswith state financing fromBeijing.

Turkey’s interest in

Africa reflects more thanjust government initiativesand the efforts of individualbusinesspeople. One keygroup is Tuskon, a businessorganisation that says ithas more members thanany other in Turkey. Manyof its members are follow-ers of Fethullah Gulen, aPennsylvania-based Islamicpreacher.

In March, Tuskon tooksome 70 Turkish companiesto a west African business

fair it held in Lagos, one ofhundreds of delegations itorganises each year.

The group has evenorganised the Africa trips ofRecep Tayyip Erdogan, Tur-key’s prime minister, andAbdullah Gul, the presi-dent.

“We were the only associ-ation working with Africaand therefore we can saythat the majority of the[export] increase there isthe result of Tuskon,” saidRizanur Meral, Tuskon’s

president, in an interviewthis year.

The role of the Gulenistmovement goes furtherstill. Its supporters runschools in about 140 coun-tries across the world,many of them in Africa,and the educational linkscan often facilitate businessconnections.

“Most of the Turks whoarrived in the first placewere with the schools –Gulenist schools – and thensome switched to trade,mainly related to construc-tion equipment,” says UmutTekeli, a Turkish engineerworking on a mass housingproject in Tanzania.

He adds that many Turk-ish construction groupstravelled to the southwhen the Arab revolutionsrocked more traditionalmarkets in north Africa.He himself worked inTunisia and Libya beforeTanzania.

Mostly, Mr Tekeli says, itis smaller Turkish groups,hungrier for profits wher-ever they can find them,that come to new marketsin Africa.

So far, moves by largercompanies into the conti-nent, such as the $325macquisition of Defy, a SouthAfrican white goods group,by a subsidiary of Koc,Turkey’s biggest industrialconcern, are relatively rare.

Sales to all of Africa, letalone the sub-Saharancountries, remained rela-tively small compared withtotal exports of $152bn for2012 – just under 9 per cent.

Yet ties with Africaacross the spectrum remainnot just a priority but acommitment for Turkey,as evidenced by MrErdogan’s 2011 visit toSomalia, a country fewnon-African leaders arewilling to brave. Turkey isperhaps the most notableforeign presence there,building hospitals, provid-ing shelter and issuingscholarships.

Ahmet Davutoglu, Tur-key’s foreign minister,sometimes even refers toTurkey as an Afro-Eurasianpower. Given his country’sgrowing interest in the con-tinent to its south, it is adescription that mayincreasingly come to fit.

Companies no longer content torely on traditional ties with westAfrica

Executives andofficials look south,write Funja Gulerand Daniel Dombey

Since 2005,exports to Africahave gone from$3.5bn to morethan $13bn

The African market for hair products has huge potential

4 ★ FINANCIAL TIMES THURSDAY MAY 9 2013

New Trade Routes Turkey

On the main road linkingAnkara’s airport with thecity, a small forest of high-rise apartment blocks hassprung up in the past fewyears as the authorities aredetermined to eliminateshanty towns and offerTurks modern homes.

These state-funded devel-opments are one example ofa surge in construction thathas powered the Turkisheconomy for at least a dec-ade and, despite ups anddowns, shows no sign ofslowing permanently. Theyare further ammunition forthose who argue thatTurkey is in the throes of aproperty bubble that canonly end badly.

Emin Sazak begs to differ.Construction accounts forabout 7 per cent of Turkey’sgross domestic product, and30 per cent of ancillary serv-ices are included, the presi-dent of the Turkish contrac-tors association admits. Buthe says talk of a bubble hasbeen over-dramatised, withthe building industry’sgrowth rate slowing inrecent years.

If domestic operationslook saturated, the interna-tional market, where Turk-ish construction companiesare increasingly competi-tive, is shifting dramati-cally. In the period between1972 and 1979, Turkish con-tractors did most of theirinternational work in Libya– about 75 per cent of alltheir foreign business.

In the decade from 2000,that share shrank, whileRussia jumped up theleague table. Libya nowaccounts for about 15 percent of Turkish contractors’overseas business. Iraq and

the central Asian states areimportant outlets. Con-struction saw its annualinternational contractingservices rise to $26bn in2012, 10 times greater thana decade before.

An example of this typeof business is Summa, afamily-controlled group inIstanbul that boasts socialhousing in Venezuela andthe African Union’s confer-ence centre among itsdevelopments.

Such companies can oper-ate much more easily inwhat might look like prob-lematic environments thanin, say, the EuropeanUnion, says Selim Bora,Summa’s president, becauseof strict EU regulation. Butthey are not only winningbusiness from emergingmarkets and Africa. MrBora says most US embas-sies around the world arebuilt by Turkish-US jointventures or by Turkish sub-contractors.

This competitive streakis becoming increasinglynecessary. Turkish contrac-tors say much of the compe-tition comes from state-owned Chinese contractorsarmed with a mandate fromtheir government to ensurethat construction contractsare won in exchange forBeijing’s purchase of oiland gas from the hostcountries.

“It is hard to competewith that,” Mr Bora says.

Builders roambeyond bordersConstruction

A competitive streakis increasinglynecessary, writesVincent Boland

Emin Sazak: overseas work

Atime traveller to theTurkey of today, especiallyon a return ticket from1980, would be scratchinghis head at the change.

Then, the economy was in atailspin. The rise in world oil pricesduring the 1970s had rung the finalcollapse of a postwar policy ofindustrial import substitution. Highimport tariffs could not save Turkishindustry from itself. There wereshortages of cooking oil andlightbulbs and Turkish coffee wasnear impossible to find.

Today, Turkey is clambering upthe ranks of the G20 group ofindustrial nations and Turkishexporters scan the globe. Last year’ssales to a virgin market like LatinAmerica ($5bn) were double Turkey’sentire exports in 1979. Then, Turkishindustry tried to persuade consumersto buy bone-shaking, fibreglassbodied cars. Exports consisted ofhazelnuts, dried fruit and tobacco.Now, Turkey is a major exporter ofcars and heavy vehicles to Europe.Exports are close to 20 per cent, not2 per cent of gross domestic product.

How did the transformation begin?The answer provided by mosteconomic historians is that it started,literally, at gunpoint. In September1980, there was a military coup.

The coup was a response to manythings – an increasing level of streetviolence, a breakdown in parliamentand bitter clashes between left andright. Brutal in its execution, themilitary takeover gave free rein tothe new deputy prime minister ofthe time, Turgut Ozal.

Mr Ozal, who later as primeminister and president was to lendhis name to a decade of liberalisingreform, had been a top official in thegovernment removed from power bythe military. He was author of thefamous January 24 1980 set of“decisions”. Those policies – tosubsidise export-oriented productionand expose Turkish manufacturers togreater competition from abroad –could at last be implemented.

September 1980 also saw the startof the eight-year Iran-Iraq war.Whether Turkey was the netbeneficiary of so much instability onits eastern frontier would require acomplex calculation. However, therewas no doubt that Mr Ozal saw theconflict as an immediate opportunity

to export Turkey’s way out of itsbalance of payments bottleneck.Turkey became an even-handedsupplier to both sides in the war sothat, by 1985, exports to Iran hadincreased 25 times from levels of thelate 1970s and 15 times to Iraq.

“Under Ozal, a traditionallyisolationist Turkey began to discoverits neighbourhood,” explains AtilaEralp, professor of internationalrelations at Ankara’s Middle EastTechnical University. It was atendency that gathered momentumwith the end of the cold war wheneconomic policies and the search formarkets very much dictated a new,more active foreign policy. Turkishmanufacturers and contractors, evensmall and medium-sized businesses,followed the flag into easternEurope, central Asia and into Russiaitself.

So, while Russia maintained a zoneof strategic influence in its “nearabroad”, Turkey cultivated a newgeographic concept of Eurasia – anew Silk Road that stretched fromthe Adriatic Sea to northwest Chinaand where its influence as the

industrial power of its region wouldhold sway.

At the same time, Turkey becameintegrated into the global economy.By the mid-1980s the Turkish lirabecame fully convertible and by 1989capital flowed unrestricted in andout of the country – although it wasnot until 2001 that the currency wasallowed to float freely.

The journey to neoliberalism wasat the price of society becomingmore authoritarian, according to ZiyaOnis, professor of internationalpolitical economy at Istanbul’s KocUniversity. The immediate legacy ofthe 1980 coup was a constitutionwhich centralised power within lessaccountable state institutions.

It is that constitution which apresent generation of politicians isstruggling to rewrite. At stake is notjust the greater protection of civilliberties, but the ability to move theTurkish economy to a sustainablemodel of growth and to increase itsresearch and developmentcapabilities and the technical contentof its exports. Crucial in this regard,many believe, is not Turkey’s

relationship with its immediateneighbourhood but the democraticinstitutions of the EU.

Certainly, the other greatlandmark in Turkey’s economictransformation was the customsunion with the EU for manufacturedgoods sealed at the end of 1995. Thismarked the ability of Turkishindustry to compete on price andquality with the most sophisticatedmarkets in the world.

As Turkey’s EU application stalled,the customs union has come underincreasing criticism for havingsurrendered the control of Turkey’sexport regime to a Brussels where ithas no political voice.

Such arguments are dismissed byNur Ger, a ready-to-wear producerwho was president of the Turkishclothing manufacturers associationin those key 1994-96 custom unionyears. “Customs union forced Turkeyinto an economy of scale,” Ms Gersays. “Instead of producing for apopulation of 60m [in 1995] we wereproducing for 500m. Without Europe,Turkey could not have become the17th largest economy in the world.”

Coup and exports led to transformation

Industrial push:exports of carsand heavy vehiclesconstitute closeto 20 per centof GDP Bloomberg

Ozal saw the[Iran-Iraq]conflict as achance toexportTurkey’sway out ofits balanceof paymentbottleneck

Few historical develop-ments are as shrouded inmyth and misunderstand-ing as the Silk Road. Thisancient series of traderoutes stretched across theEuropean and Asian landmasses, connecting Japanand China in the east withthe Mediterranean throughCentral Asia – globalisationavant la lettre.

It is said to have origi-nated in the first centuryBC and flourished more orless until it disappearedalong with the Mongols inthe middle of the secondmillennium. But the term“Silk Road” was not coineduntil the 19th century byFrederick von Richthofen, aGerman geologist. Andthere were many routes,not just one “Silk Road”.

Today, the realities ofCentral Asia are perhaps alittle less romantic than inthe days of the Silk Road.But it retains its allure as aplace in which to do busi-ness. Perhaps nowhere isthis more true than forTurkey, which regards theregion as practically itsbackyard. In the past fewyears, as the governmenthas begun to offer greatersupport to exporters as akey plank of its economicgrowth policy, officials andexporters alike have put arenewed focus on CentralAsia as export markets.

The focus is starting to

pay off. Erkan Astarci, abusinessman who co-owns acompany that makes elec-tricity pylons and commu-nications towers in a townoutside Ankara, says about15 per cent of the factory’sproduction is now sold tomarkets in Central Asia, upfrom nothing just a fewyears ago. The constructionindustry has made a partic-ular push into the region inthe past two decades. Turk-menistan and Kazakhstanaccount for a fifth ofTurkish contractors’ inter-national operations, accord-ing to the Turkish contrac-tors association.

There are several reasonswhy Turkey wants toincrease its trade with Cen-tral Asia. One is that Turksfeel a particular affinitywith the region – after all,they arrived in Anatoliafrom there 1,000 years ago.More importantly, though,the push is part of a con-certed attempt to reduceTurkey’s dependence onEurope, by far the country’smost important export mar-ket. The view in Ankaraseems to be that the euro-zone is broken indefinitely.Moreover, there is growingresentment at the restric-tions imposed by Turkey’scustoms union with the EU,not to mention the difficul-ties that many Turkishbusinesspeople have ingetting visas.

“The customs union isunfair and it hinders Turk-ish investors going abroad,”says Erkan Kaplan, Ankararepresentative of the Turk-ish exporters assembly.

But it is important not tooverstate the importanceor attraction of Central

Asia for Turkish exports. Ofthe country’s total exportsof $152bn in 2012, barely 4per cent went to the region.The biggest market wasAzerbaijan, which is veryclose ethnically and linguis-tically to Turkey in anycase. According to the fig-ures, from the Turkish sta-tistics office, exports toKazakhstan in 2012 werejust $1bn, while Kaza-khstan’s exports to Turkeywere $2bn. It is trade gapslike this that create worriesabout Turkey’s currentaccount deficit.

Erhan Aslanoglu, whoteaches economics at Mar-mara university in Istanbul,observes that it is toughtrading into Central Asiabecause Turkish exporterswill keep bumping upagainst China. “BeyondIran, it is very difficult,” hesays. “Turkey’s exports toCentral Asia are not greatand I don’t think they willbe great.”

Observers say it is highlyunlikely that Turkey will beable to repeat in CentralAsia what it has achievedin northern Iraq, whereannual trade has boomed to$10bn and Turkish compa-nies completely dominatethe commercial landscape.

The two share a border,while exports to CentralAsia require road, rail andair links that are only nowstarting to be re-establishedafter being destroyed dur-ing the Soviet era. Untilthese links are renewed andre-invigorated, trade amongthe countries of CentralAsia will remain patchyand, more importantly,expensive to execute.

Subidey Togan, a profes-sor of economics at Bilkentuniversity in Ankara, saysthat there is a genuinedesire both in Turkey andacross Central Asia torenew their old trade links.The fortunes of the SilkRoad and of the Ottomanempire were inextricablylinked, he says, and thechange in the trade routes

from land to sea affectedthe Ottomans badly. Heis cautious about howbig this trade couldbecome. As he pointsout, just as on the oldSilk Road, trade on itsnew incarnation – ifthat is indeed what isbeing recreated – “has to

be profitable at the end ofthe road”.

Groups aim to renew links withan area rich in ancient historySilk Road

Central Asia is a vitaltarget for business,says Vincent Boland

Daniel DombeyTurkey Correspondent

Borzou DaragahiNorth Africa Correspondent

Vincent BolandLex Writer

Funja GulerFT, Ankara

Andrew FinkelFT Contributor

Aban ContractorCommissioning Editor

Steven BirdDesigner

Andy MearsPicture Editor

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Contributors »

Trade talks: ErhanAslanoglu of Marmarauniversity says trading inCentral Asia is tough

Guest ColumnANDREW FINKEL