Geopolitics takes heavy toll on Turkish exports

When the Turkish Statistics Institute (TÜİK) announced the latest foreign trade data on the last day of the year, there was one piece of good news and one piece of not-so-good news for the country’s economic policy makers and business community.

The reopening of Habur border crossing will bring relief for exporters

The reopening of Habur border crossing will bring relief for exporters

The good news was that Turkey’s trade deficit had narrowed down over the first eleven months of the year, by 25% compared with the same period in the previous year. There was, however, not much ground for optimism, as over the same period Turkey’s exports had fallen too, by 8.4%, and the narrowing of the deficit was only thanks to a larger reduction in the country’s imports mainly due to falling energy prices in world markets.

The interesting point is that this slump in exports is coming at a time when Turkey’s economy is going through a period of moderate yet relatively consistent growth. Turkish official data shows that the country’s economy has grown by 4% over the third quarter of the year, and industrial production is rising too, with an annualized 4.6% rise in October last year. In other words, Turkey’s economy is growing, so does its industry, but at the same time exports are going down.

Turkey has a significant capacity to produce the goods to be exported, however its ability to actually transport those goods to their destination markets is getting increasingly limited due to a rapidly deteriorating geopolitical environment in the country’s near neighborhood.

Comparing TÜİK’s most recent foreign trade data, i.e. from the first eleven months of 2015, with the corresponding period in the previous year reveals a striking picture in this respect. Over this one-year period, Turkey’s exports to its eighth largest market, Russia, went down by a massive 36.8%, and this decline, corresponding to the first eleven months of the year, does not even include the effect of Kremlin’s ban on imports from Turkey which took effect as of December 1.

In 2016, with the full set of Russia’s measures against Turkey in action, the export volume will continue to drop at an even higher rate. In the first eleven months of 2015, Turkey’s exports to two its major Middle Eastern markets, Iran and the United Arab Emirates, suffered from significant declines as well, by 42.7% and 31.6% respectively.

A more illustrious example for the Turkish exports’ plight due to geopolitical circumstances is related to Iraq, currently Turkey’s third largest export market after Germany and Britain, despite the ongoing instability in the country.

Over the mentioned period, Turkey’s exports to Iraq went down by 16.1% from $939.7 million in the first eleven months of 2014 to $788.5 million over the same period in 2015. Risks and threats associated with the continuing dominance of the self-proclaimed Islamic State (also known as IS) are certainly a major reason behind this decline. However, recent developments show that it is not only external conflicts but also internal ones that are jeopardizing Turkey’s economic interests in Middle Eastern markets.

Escalating clashes between the outlawed separatist Kurdistan Workers Party (PKK) and Turkey’s security forces in the country’s southeastern provinces since last June have resulted in a number of curfews and other security measures that have seriously interrupted daily life in the region.

In addition to losses in human lives, economic activities came to a halt, and there have also been a profound number of bankruptcies. On December 14, the Habur border crossing between Turkey and Iraq, through which more than 40% of Turkey’s exports by road is passing, was closed down due to the security situation on the Turkish side of the border, and this development took the economic dimension of the issue to a new and more serious level.

Before the border closure, more than 60% of Turkey’s exports to Iraq were conducted with the Kurdistan Regional Government in northern Iraq and the rest with the central and southern parts of the country. Trucks carrying Turkish products were arriving in the so-called free zones near Zaho and Dohuk, not far from the Turkish border, from where goods were carried to different parts of the country on Iraqi vehicles.

This traffic has now had to be stopped due to the border closure, resulting in a number of Turkish citizens (between 3,000 and 10,000 of them, according to various sources) and trucks (around 2,500) remaining stranded on the Iraqi side.

The Association of Turkey-Iraq Industrialists and Businessmen (TISİAD) has announced that losses caused by the border closure have reached a level of $300 million, including unrealized trade revenues as well as other losses related to uncollected payments, while at the same time Turkish companies are exploring alternative routes to reach the Iraqi market, such as the Iranian route.

Trucks stopped at Habur are directed to the Gürbulak crossing between Turkey and Iran. However, this route is not only longer and costlier, but also extremely congested.

According to the website of Turkey’s Association of International Transporters (UND), which relays real time data from Turkey’s land border gates, the length of the queue of trucks waiting to cross to the Iranian side is 14 kilometers at any given time. Losing the Iraqi market, which can still be said to be lucrative despite the IS threat, to competitors such as Iranian exporters is a major concern for Turkey’s business community.

While this article was being written, the Habur border crossing was reopened albeit in a limited capacity, following the Turkish Customs and Trade Minister Bülent Tüfenkci’s statement that gates would open as soon as “security forces ensure necessary road security in order to facilitate the business of exporters and importers.”

The reopening of Habur border crossing will certainly be a relief for exporters, but it is not going to change the fact that Turkey is facing a situation where escalating security risks and geopolitical turmoil both within and outside its boundaries are taking a severe toll on the country’s exports and hence on the economy.

Dr. Altay Atlı is a lecturer at the Asian Studies program of Boğaziçi University in Istanbul, and a senior research associate at Turkey’s International Strategic Research Organization (USAK).

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