|
Tim Harcourt*
Chief Economist
Australian Trade Commission
Sydney
Email: tim.harcourt@austrade.gov.au
9 December 2005
 After the expansion of the European Union (EU) into the former eastern bloc, all eyes now turn to the secular Islamic nation of Turkey. Whilst the EU accession talks tend to be a marathon rather than a sprint, Turkey’s recent modernization has certainly boosted its economic credentials necessary to join the European Club. After all, things have to be reasonably “Prosperous on the Bosphorus” for Turkey to get a guernsey in Brussels.
How is Turkey faring. It’s a case of, so far so good. According to the Economist Intelligence Unit, Turkey’s economic growth prospects are robust, with annual rates of growth expected to sit at around the 5 per cent mark, after a strong showing of 8.9 per cent in 2004. In fact, in terms of industrial components, Turkey’s growth is faster than China’s and resource rich- Russia and Turkey are the sprinters in terms of emerging economies. Ironically, Turkey’s growth rate currently outstrips the major economies in the very club it is trying to join in the form of the EU.
Tevfik Aksoy, Deutsche Bank’s Chief Economist for Turkey is pleased with Turkey’s current economic performance. “I would say that Turkey’s economy is in its best shape in 40 years. We have experienced strong levels of economic growth, low inflation and reasonable fiscal discipline in the past few years. The current government is reform-minded and is committed to raising productivity levels and undertaking essential privatization programmes,” he explained in an interview with me in Istanbul recently.
Of course, this is a far cry from Turkey’s economic history. “When inflation was 60 per cent, we used to regard this as zero,” quips Gunduz Findikcioglu, Chief Economist of Turkiye Sinai Kalkinma Bankasi (TSKB – the Turkish equivalent of the old Commonwealth Development Bank in Australia). “When I was at the World Bank, the Turkish economy was in two states – either in crisis or in a mini-crisis. Things got particularly bad during the 1994 crisis when the value of the exchange rate tripled in three months,” he explained. However, Dr. Findikcioglu now regards the Turkish economy as being “in reasonable shape,” with government debt only at around 3.3 per cent of GDP, “well below Maastricht treaty levels” (as prescribed by the EU when admitting new members) and fewer bankruptcies in the financial private sector. “The TSKB has not had a non-performing loan in the past five years,” he explained.
So what are Turkey’s trade prospects? Of course, Istanbul (nee Constantinople, nee Byzantium) has always been a trading hub – acting as bridge between Europe, Asia, and the Middle East. Accordingly, trade is based heavily around the neighbourhood. As Ahmet Erelcin, HSBC’s General Manger for Turkey, points out: “Turkey is in an excellent geo-graphical position trade-wise. When things are slow in Western Europe, we can look north to Russia, or east to Central Asia. Alternatively, we can go south to the Middle East and North Africa where we have strong cultural and trading ties.” Ereclin says Turkey’s manufacturing sector – especially in textiles and motor vehicles – is “like everybody” concerned about the rise of China, although increased international competition from the Far East “will be beneficial for raising innovation and productivity in the local manufacturing sectors”.
So what does Turkey’s economic resurgence mean for Australia? Research by Austrade and Australian Bureau of Statistics (ABS) shows that there are almost 300 Australian exporters who do business with Turkey, which makes it a medium range market. In which sectors can you find Aussie companies? According to Damian Fisher, Australia’s Senior Trade Commissioner and Australia’s Consul-General in Istanbul, “Australia has a strong presence in oil and gas, infrastructure, information and communication technologies (ICT), food and beverage with a growing presence in services areas such as education, healthcare and recreation.” Fisher has helped a number of Australian clients do business in Turkey, including Austal ships in the fast-ferry business, Ottoman Petroleum and Incremental Petroleum who are large foreign investors in Turkey and is working with Oceanis a Melbourne based builder of aquariums (who have had great success in Shanghai, Pusan and Bangkok and are now looking to Paris, Prague, Copenhagen and Dubai as well as Istanbul). Fisher believes further opportunities exist in technical education, agribusiness and environmental technologies.
One thing driving opportunity in Turkey is the “Young Turk” factor. According to Fisher, 50 per cent of the Turkish population being under 25, which helps Australia’s prospects. “Turkey’s unique demographics, has helped Australian education providers build their market share there as well as providing a growing consumer base,” he says.
Turkey’s young population also has important implications for EU accession. According to HSBC economist Esra Erisir, “Old Europe is literally old, with an ageing population and a pension programme that needs funding. Turkey has lots of young people who need work. That’s why so many move westwards,” she explains. Indeed, there are many Young Turks working in Europe. According to Erisir, there are “2.5 million Turks working in Germany alone.” This has not gone unnoticed on Damien Fisher, who regularly organises Turkish elements to Australian-German trade missions. “With such a strong Turkish-German trade link, it is important to take advantage of these networks to see if there is any benefit to Australian business potentially at play,” he says.
However, it can’t all be good news. And whilst the economic outlook for Turkey is solid, there are some risks concerning fiscal discipline, currency volatility, and geo-political issues locally. Tevfik Aksoy of Deutsche Bank believes the main economic risks are the current account deficit (which is around 6.2 per cent of GDP), and Turkey’s vulnerability to exchange rate volatility and mood swings in the capital market or “hot money”. He also thinks that how the government handles the sensitive issues of Cyprus, human rights will be critically important. “Of course, EU accession matters, and it will take between 10 and 15 years. However, the reforms required to join the EU are essential for Turkey’s economic future in any case. Reforms that help raise productivity, upgrade our infrastructure, and ease our fiscal burdens will help modernize Turkey’s economy,” he says.
Whilst the issue of EU accession dominates the headlines, to some extent, market analysts have factored in the point that the negotiations between Ankara and Brussels are now ‘qualified’ reducing the economic risks associated with a protracted accession process. Fortunately the many Turkish commentators are patient and have a strong belief in their political institutions. As Ahmet Ereclin remarked: “Don’t forget, Turkey has been a secular Islamic democracy for 75 years with a strong commitment to free markets. This is a pretty unique position to be in. So why worry about another 10 years?” he asks.
In conclusion, Turkey may be knocking on Brussels’s door but there is plenty of housekeeping to do back at home. This modernization process will drive forward plenty of business opportunities in Turkey with a role for Australia companies – like Austal ships, Ottoman Petroleum, Incremental Petroleum and Oceanis - who have seen their hard work Istanbul and Ankara paying off.
* This article was written in Istanbul, Turkey. Many thanks are due to Damian Fisher, Ingrid Asya, Sema Karalok, Adam Blight and Lee Kennedy for their assistance with this article and with my visit to Turkey.
|