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Business shifts west as regional crises rage 22 septembre 2014

Posted by Acturca in Caucasus / Caucase, Economy / Economie, Middle East / Moyen Orient, Turkey / Turquie, Turkey-EU / Turquie-UE.
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Financial Times (UK) Monday, September 22, 2014, p. 1 & 2
FT Special Report ~ Turkey and the World

By Daniel Dombey

Instability in the Middle East and north Africa is hurting trade, says Daniel Dombey. These days Turkey’s -relations with the rest of the world start in places like the Oncupinar border crossing. The backdrop is the same as it has been for decades, if not centuries: on the Syrian side of the border, pine trees climb up rolling hills.

But in the foreground are a refugee camp, a watchtower and a stream of people escaping the nightmare next door. Some break into tears, others into smiles, as they reach Turkish soil. The fighters of the Islamic State of Iraq and the Levant, the jihadi group known as Isis, are just a few kilometres away.

Scenes like this at Oncupinar and, more generally, the threat Isis represents are shaping Turkey’s relationship with the rest of the world at a tumultuous time. They highlight how toxic an environment much of Turkey’s neighbourhood has become.

Relations with Damascus, once a showpiece of Turkey’s « zero problem with neighbours » policy, have become poisonous in the wake of -President Bashar al-Assad’s crackdown in Syria and the brutal war in which Isis has come to the fore. Ties with Iraq have also been severely strained. Such shifts have had a big impact on a state that already sells to 137 countries but which needs to increase exports to reduce its hefty current account -deficit and its vulnerability to shifts in global financial flows.

« For Turkey, exports are crucial for not just the development but also the sustained resilience of the economy, » says Haluk Dincer, head of Tusiad, Turkey’s biggest business confederation, who argues that the country needs to transform its trading sector to ramp up exports and move higher up the value chain.

A few years ago, Ahmet Davutoglu, then Turkey’s foreign minister and now its prime minister, vaunted the -country’s increasing links – notably its trade – with the countries of the Middle East and Africa.

Between 2004 and 2012, Turkey’s share of exports to the Middle East, the Caucasus and north Africa more than doubled from 16 to 34 per cent.

Now those markets to the south and east are languishing. According to trade figures for July , sales to Iraq, which -soaring trade made into Turkey’s second biggest export destination, fell 45 per cent compared with July 2013. The chaos in Syria has shut off a traditional export route to the Gulf.

There are also consequences to regional tension that flared after Turkey opposed a Gulf-backed coup last year that ousted Egypt’s elected Muslim Brotherhood government.

Exports to Egypt, Saudi Arabia and the United Arab Emirates have fallen, respectively, by 11.6 per cent, 15.7 per cent and 5.9 per cent for the first seven months of the year compared with the same period of 2013.

The economic impact of the chaos in the Middle East is all the more important because of the economic weakness of the EU, which accounts for 44 per cent of Turkish exports.

A tentative European recovery has quickly faded, constraining Turkey’s ability to reduce its current account deficit by exporting to the economic giant to its west. In such circumstances, it is a mark of the resourcefulness of Turkish industry that overall exports were up 6 per cent for the first seven months of the year, largely because of a 13 per cent increase in exports to the EU.

« Exports to the EU have been compensating for the problems in the Middle East and north Africa (Mena) markets to a certain degree and cushioning the slowdown in Turkey’s export growth, » Mr Dincer says. « However, if contraction in the Mena markets gains further momentum, the EU markets may not be able to maintain export performance. »

p. 2

Nation’s focus shifts to the west as regional crisis flares

At the same time, the rise of Isis is giving fresh importance to Ankara’s ties with the west. Faced with a barbarous pseudo-state on Nato’s borders – and flows of home-grown jihadis to and from Syria across Turkish territory – western countries that were steering clear of Turkey’s long-serving prime minister and now president, Recep Tayyip Erdogan, have little choice but to engage with him.

« You can’t sideline Erdogan, you have to take account of him in the Middle East, » says a senior Turkish official.

Indeed, after months of not taking Mr Erdogan’s calls, US President Barack Obama held a lengthy bilateral meeting with him at this month’s Nato summit. Nevertheless, the White House account of that encounter read like a reproach, speaking of « the need for strengthened measures against foreign fighters transiting to and from the battlefield » and « the importance of building tolerant and inclusive societies and combating the scourge of anti-Semitism ».

A further test of Turkey’s international standing comes next month when it stands for election to the UN Security Council. Some diplomats suggest Ankara may struggle to be elected; others wonder how the country will manage its presidency of the G20 next year.

In short, although Mr Erdogan and his western partners are talking again, the relationship is strained by divergent stances on the Middle East and western unease over his crackdown on last year’s anti-government protests, his derailing of a corruption probe that he depicts as a coup plot and his attempts to ban access to Twitter and YouTube.

Turkey also has a to-do list in the economic realm. Like other economies in the developing world, it profited from the US’s ultra-loose monetary policy in the wake of the great recession. Easy money boosted growth to around 9 per cent in 2010 and 2011, although the reform agenda also receded.

This year, Turkey’s government hopes for growth of 4 per cent – a level many outside forecasters believe is ambitious but one which still appears too low for Mr Erdogan, who is pushing the central bank to cut rates despite nearly double-digit inflation and the prospect of US rate rises. In addition, although Mr Erdogan ascended to the hitherto largely ceremonial presidency in August following Turkey’s first direct presidential election, Mr Davutoglu’s government still faces a general election by June next year.

As a result, wrote Moody’s Investors Service, « the presidential election is unlikely to resolve Turkey’s key economic and institutional credit challenges (ie. slower growth, high inflation, material external vulnerabilities, and the weakening independence of key institutions such as the central bank) because of . . . domestic political tension and uncertainty that will prevail at least » to the next elections.

Turkey has much in its favour. Its western coast is ideally situated to supply Europe, as automotive and textile manufacturers have shown. Its Anatolian heartlands are the Middle East’s industrial and construction powerhouse. And, as a signal of how seriously the country takes links with the rest of the world, Turkish Airlines now flies to more countries than any other carrier.

But with an anaemic recovery, a neighbouring region in flames, and interest rates across the ocean determining its economic outlook, the country will need all its resourcefulness and entrepreneurial zeal to forge ahead in the years ahead.

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