The relationship between Turkey and the GCC economies is emerging as one of the most promising new economic axes in the world. The countries in question share a number of important historical, cultural, and demographic communalities but also matching opportunities and needs in the economic sphere. Nonetheless, mutual commercial and investment flows have historically been relatively modest, partly because political alliances and aspirations as well as trade tended to tie both Turkey and the GCC to the advanced economies of the West. Both a certain political reorientation, as well as a growing recognition of the economic potential of the emerging market space has prompted the recent refocusing which looks likely to continue to gather pace with a number of transformative developments now underway. Among other things, negotiations for a free trade agreement, which were launched in November 2005, are expected to conclude soon.
In the words of Chief Economist Dr Jarmo T. Kotilaine of the National Commercial Bank, "The most obvious complementarity between Turkey and the GCC is the sheer size and geographic proximity of the two markets which makes them leading economic hubs in the Middle East. The population of Turkey is 72.2mn while that of the GCC stands at 43.3bn. The Turkish GDP of USD735.5bn compares to a GCC total of USD1.1trn." Both Turkey and the GCC adhere to a highly technocratic paradigm of policy making, partly as a result of past challenges, and are characterized by macroeconomic stability and sustained robust growth.
"But," in the words of Kotilaine, "it is above all the ability of Turkey and the GCC to serve each other's growing needs in key sectors that should lay an enduring foundation for growing trade and investment." The GCC - and notably Saudi Arabia - remains one of the leading providers of imported energy to Turkey. Oil makes up 32% of Turkey's overall estimated energy consumption and more than 90% of Turkish oil is imported. The Saudi proportion of Turkish oil imports has remained relatively constant in the range of 10-15%, although it this year fell to 8.6%. From the Saudi perspective, oil used to be absolutely dominant among Saudi exports to Turkey, making up around 80% of the total until recently. The figure declined below 60% in 2009 and below 50% in 2010 as the role of petrochemicals has risen. Gas makes up 31% of Turkish energy use and a pipeline from Qatar is under consideration.
Turkey is playing an increasingly important role in meeting the growing needs of the Gulf economies in areas such as steel, textiles, agriculture, and tourism. Turkey was the 10th largest steel producer globally in 2010 and the second largest in Europe. The country exported a total of 8.14mn tn of iron and steel products to the Middle East last year, some 46% of its total iron and steel exports. Also motor vehicles, machinery, and electrical engineering products are an important part of the export bundle. Turkey is a leading regional producer of food products and unique in the Middle East in terms of its net exporter status. Agriculture in 2010 accounted for 9.5% of the country's GDP and some 30% of its active work force. About 35.5% of Turkey's surface area is arable land and more than 26.5mn hectares are under cultivation. By contrast, the GCC remains critically dependent on food imports in most key categories and for instance Saudi Arabia is in the process of dismantling its once substantial wheat production operations.
Tourism has emerged as an important driver of closer relations between Turkey and the GCC. The infrastructure for tourism has improved significantly with most of the regional carriers now offering regular flights. The number of GCC tourists visiting Turkey has increased sharply in recent years, from some 20,000 in 2000 to nearly 200,000 this year. Pilgrimage remains an important dimension of Turkish travel to the GCC and has seen dramatic growth in recent years. While the numbers of hajj pilgrims remain subject to quotas, umrah trips have increased to a total of more than 400,000 this year. This was up from 181,221 in 2009 and 278,555 in 2010. Beyond tourism, the GCC is home to a significant number of full-time Turkish residents. There are an estimated total of 115,000 Turks living in Saudi Arabia, 70,000 of them working in the country. The UAE has 5,500 Turkish residents and the rest of the region just over 7,000.
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 USD1.5bn in 1999 to USD16.1bn in 2008. This figure declined to USD7.8bn in 2009 but rebounded to USD10.0bn in 2010. Total Turkish imports from the GCC economies in 2010 rose to USD3.6bn, a figure that expanded further to USD3.9bn in January-October 2011. Trade flows in the opposite direction stood at USD6.4bn in 2010, as compared to USD5.9bn 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 (bar Saudi Arabia). Saudi Arabia has remained the most important source of Turkish imports from the Gulf. In the opposite direction, the UAE has tended to dominate - in the pre-crisis years quite decisively so. Trade flows are expected to grow rapidly in the coming years with Turkish authorities seeing a Saudi-Turkish trade volume of USD10bn as within reach in two years. USD20bn has been presented as a realistic medium-term target.
The attractive growth prospects and rapid development of the Turkish and GCC economies will create a growing number of investment opportunities. Total GCC investments in Turkey are estimated to have exceeded USD10bn 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 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 USD6.5bn in 2004-August 2011 whereas FDI in the opposite direction totaled only USD305mn. 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. In an important development this year, TAV (Tepe Akfen) Airports Holding and its Saudi consortium partners concluded an agreement on the USD1.5bn expansion of the Prince Mohammad bin Abdulaziz International Airport in Madinah.
In general, the 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," noted Kotilaine, "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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Further information on the subject can be found in a recent NCB report entitled Turkey Economic Update: Defying expectations.
© Press Release 2011
