Ambitious plans: How Turkey aims to overcome economic woes
Over the last five years, Turkey has been investing in a massive infrastructure program. Will the resulting connectivity – plus strong sectors and an open business environment – enable the country to overcome current economic woes and put it back on the right track?
On October 29, 2018 – which is, aptly, Turkish Independence Day – the headline-grabbing, ultra-futuristic new Istanbul Airport opened for business. Or, at least, its first phase did. When completed, this infrastructure colossus will be the largest airport in the world. Covering over 76.5 million square meters, it will have six runways, an annual passenger capacity of 200 million, an air cargo capacity of 2.5 million metric tons a year in the first phase, capable of increasing to 5.5 million metric tons a year in the second and third phases, and 100 airlines flying to some 300 destinations. The resulting strengthening of regional connectivity is expected to be a boon for Turkish exporters, increasing their reach to global markets and contributing an estimated 5 percent to GDP.
Unfortunately, Turkey hasn’t only been making headlines with its new airport recently. Since January, the Turkish lira has lost 40 percent of its value against the dollar. In early August, shockwaves were felt when the U.S. administration announced the doubling of tariffs on Turkish steel and aluminum; and later that same month, the credit ratings agencies Moody’s and S&P Global Ratings downgraded Turkey. By September, the rate of inflation in the country had reached almost 25 percent; although, in October, Suma Chakrabarti, President of the European Bank for Reconstruction and Development (EBRD), called Turkey’s troubles “a slowdown” rather than a crisis, predicting 3.9 percent growth in 2018 and around one percent in 2019. “The authorities are taking action to address the issues facing the economy and investors will scrutinize the commitment to the implementation carefully,” he said. “With the right policy response, the economy will recover more quickly.”
Even so, the present current economic situation is undeniably a far cry from the country’s recent heydays when it showed solid GDP growth year after year.
Ambitious infrastructure plan
Yet despite this turbulence, there is cause for optimism in Turkey – and new Istanbul Airport is a potent symbol of it. That’s because in 2013 the Turkish government announced it would be pouring $200 billion into infrastructure projects to support its ambitious plan to increase trade levels to $1.1 trillion by 2023. The airport is part of this initiative – and thought to cost around $7 billion – but there are numerous other projects that have either been completed or are underway. This means there’s a real chance that this country of more than 80 million people could become a regional logistics hub. The potential is there, after all.
To begin with, Turkey’s geography is unique – and, possibly, uniquely beneficial. It’s located at the crossroads of Europe and the Middle East, close to the markets of the Balkans, Russia and Central Asia, and acts as a strategic stopover point between Africa and Europe. Its enviable global position should make it a major hub almost by default; but this hasn’t happened – yet – largely because parts of the country’s transport infrastructure have been historically limited.
Turkey’s road network is robust enough, and responsible for delivering 85 percent of domestic freight. Yet the country’s rail network has suffered from years of under-investment – largely because the European Union is Turkey’s main export market, and easily served by road – so that just 5 percent of domestic freight is transported by train. Around 90 percent of the country’s foreign trade is transported by sea, while just one percent of export freight goes by air.
Those statistics may be about to change, however. In 2015, Turkey’s first transshipment container terminal opened at Asyaport, the country’s largest container port with a capacity of 2.5 million 20-foot equivalent units (TEU). In 2016, work finished on the $3 billion Yavuz Sultan Selim Bridge – said to be the world’s widest suspension bridge – spanning the Bosphorus and creating an important link between Asia and Europe. Railways are another major investment component of the country’s new 2023 vision. “In the next five years, Turkey will allocate over $46 billion (€39 billion) to railway transport, either conventional or high speed,” said Ahmet Arslan, Turkey’s Minister of Transport, earlier this year. “Turkey is the second-largest country after China in railway constructions. Our target is to complete 7,270 miles (11,700 kilometers) of high-speed railway lines [by] 2023 and to link 41 cities to each other.”
Admittedly, Turkey’s location is also a concern, not least because it borders Syria and Iraq with all of those countries’ geopolitical tensions. Yet despite this – and the recent disruption to the economy – Turkey’s business sectors are thriving. “The Turkish economy is diversified,” says Ingo-Alexander Rahn, Country Manager, DHL Global Forwarding, Turkey. “Engineering, manufacturing, consumer retail, life sciences, energy and renewables, and aerospace are all doing well – and none constitute more than 10 percent of the economy. Then there’s automotive, which is a hugely important sector for Turkey as the fifth-biggest car producer in Europe and a major production hub in this part of the world.” Major carmakers such as Toyota, Ford and Honda all have plants in Turkey, with Honda increasing investment in its facility in 2017 in order to make the new Civic sedan. In July, daily newspaper The Daily Sabah reported that Turkey’s automotive exports had reached $16.4 billion in the first half of 2018, “with sales to European countries making up 80 percent of the sector’s total exports.”
The e-commerce sector, meanwhile, is increasing exponentially. That’s because the country’s future is – literally – in the hands of young Turks, who make up 16.3 percent of the population and are increasingly tech savvy.
According to information from the Turkish Statistical Institute, the online market is expanding. Four out of five young people (aged 16-24) now use the internet, while, last year, the number of smartphone users in the country was estimated to reach 41.09 million. E-commerce giant Amazon launched in the Turkish market in September, initially offering products across 15 categories. “We are committed to building our business in Turkey in the coming months by expanding our selection and delivery options,” said Sam Nicols, country manager for Amazon.com.tr, in a written statement, according to Reuters.
However, e-commerce is also highly attractive for Turkish businesses wanting to expand abroad. Especially the recent exchange difference fluctuations in Turkey are expected to motivate local producers to attach more importance to cross-border e-commerce, while governmental incentives for export will surely boost the area of e-commerce, says Ali Emre Arpacı, founder and managing partner of Istanbul-based design brand KAFT. “E-commerce is at the core of our business model. We have sold our items on the international platform since the first day we opened our online portal and we have managed to attract customers in 60 countries.”
“It’s an exciting industry from a growth point of view,” agrees Claus Lassen, CEO, DHL Express, Turkey. “Small and medium-sized businesses, which have traditionally been domestic players, are now going global thanks to opportunities afforded by e-commerce.”
Belt and Road gamechanger
In 2016, the Turkish Industry and Business Association estimated the e-commerce sector to be worth €7.95 billion ($9.18 billion) – and it looks as though it’s on course to grow at more than 35 percent by the end of this year. This hasn’t gone unnoticed by Chinese online retailer Alibaba. In July, it announced it was investing in Trendyol, Turkey’s top e-commerce fashion platform – at a reported $750 million, was the largest internet business transaction in the country to date. Alibaba also recently partnered with B2B services provider E-Glober to expand cloud services across the country. “Cloud adoption in Turkey is gaining momentum, with a public cloud market valued at $96.93 million in 2017, according to IDC (International Data Corporation),” noted Alibaba. “In addition, Turkey is considered a gateway between the East and West and is a key country within the Belt and Road Initiative. This enhanced connectivity, as well as increasing trade activities in the region, are bringing growth opportunities to Turkish companies equipped with cloud computing technology.”
China’s long-awaited Belt and Road Initiative could certainly be a growth gamechanger for Turkey. Beijing wants to re-establish trade corridors along many of the historic Silk Road’s original routes, passing overland from China through Central Asia to continental Europe (the “belt”) and via a sea route (the “road”) from China to Europe and Southeast Asia by way of ports in India and Africa. As a key player in the project, Turkey would be better connected to other countries along the route, offering increased opportunities for Turkish businesses to export abroad. Its infrastructure has also been designed to integrate with Turkey’s Middle Corridor initiative – a multi-transportation route that runs through Georgia and Azerbaijan over the Caspian Sea, Turkmenistan, Kazakhstan, Uzbekistan and ends in China. Indeed, last November, Abdulkadir Emin Önen, Turkey’s ambassador to China, told The Daily Sabah that developing Belt and Road infrastructure was a priority for the Turkish government.
“Turkey has been realizing tremendous infrastructure projects, which will connect China and Europe together,” he said. “For instance, the construction of the third Bosphorus bridge, which has a railroad, and the renewal of various railroads. The most important step in this field is the Baku-Tbilisi-Kars railroad, which was opened on October 30, 2017. With the realization of this project, a product produced in China will reach London through Turkey within 14 days. This will contribute to the increase of the trade volume between countries.”
Good for business
What’s more, Hüseyin Keskin, former CEO of İGA Airport Operation, believes that Istanbul New Airport will create an “aerial” Silk Road, enabling countries such as India and China to connect more easily with Istanbul. “Collaborating with global actors whose joint trade activities date back to centuries ago, we will generate new opportunities and bring fresh breath to competition not only in Turkey but across the world,” he says. And because Istanbul is aiming to become a center for global air freight, DHL Express is planning to open a 42,000-square-meter facility at the airport, complete with support units, by the end of 2019 or early 2020.
For countries wanting to tap into Turkey, opportunities are plentiful, says Claus Lassen. The domestic market is huge, for example, and the talent pool is deep. “The population is young and dynamic and the labor force is qualified and hardworking,” he notes. “It’s also a business-friendly environment. It’s easy to set up a company here – on average it takes five days – and corporate income taxes are relatively low. And, since the mid-1990s, Turkey has been in a customs union with the EU, which has helped lower barriers to trade between the two parties by eliminating tariffs on bilateral trade in most industrial goods. There are a lot of simplification initiatives, too, such as getting rid of paper customs procedures documents and moving toward digitalization.”
As this year has shown, no one would be wise to downplay the economic challenges Turkey faces. But Ingo-Alexander Rahn is at least optimistic about the country’s long-term fortunes. “Ease of doing business will continue, as will the immense scope of its infrastructure investments,” he says. “Make no mistake: There is a strategic target behind these plans and investments. Turkey aims – and wants – to become a regional logistics hub.” — Tony Greenway
Published: November 2018
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