The US Administration, in the wake of September 11 and prior to the war in Iraq, has declared on several occasions that its ultimate goal is to bring democracy and economic prosperity to the Middle East. If this is in fact the grand objective, then the Turkish-US partnership has to have dimensions extending well beyond the traditional security aspect. It has to encompass economic and commercial cooperation, which have been neglected throughout the first half a century of this important partnership.
I will try to highlight some of the key aspects of Turkey’s economic achievements, and explore the potential benefits of an economic partnership between the US and Turkey in the context of the Middle East in general, and in Iraq in particular.
Until the end of 1970s, the Turkish economy was more akin to socialist economies as demonstrated by a heavy state involvement in economic activities, a relatively weak private sector and a mindset, which favored a closed, non-competitive economy. Both public and private enterprises were solely focused on the domestic market with little competition coming from the developed markets thanks to the protectionist measures imposed under the import substitution policies.
The predominantly domestic nature of this period has produced an entrepreneur class that was largely inward looking, state dependent and conservative. At that time, Turkish economy exhibited perhaps more similarities than differences with regard to the other two major economies of the region, Iran and Egypt.
The Turkish economy faced a severe economic crisis by the second half of 1970s. Although the primary source of this crisis was the significant hike in oil prices and the subsequent developments in the world economy, the inefficiencies of a closed and state dominated economy also played a significant role.
From 1980 onwards, the development of a market economy and export oriented growth has become the main driving force. Opening up of the economy to the outside world, liberalization of the economy, massive privatizations, and a considerable decrease in public investments have given rise to an entirely new class of entrepreneurs.
Another significant development was the Customs Union Agreement signed with the EU in 1995. As a result of this agreement, the Turkish manufacturing sector became part of the EU in 1996. This meant full exposure to competition from giant European multinationals. The Turkish economy had gone through a difficult transformation period but survived this major challenge. This environment was instrumental in creating a more flexible, outward looking, and risk-taking class of entrepreneurs.
More recently, the economic crisis of 2001 created the necessary climate and public support to overhaul the economy and undertake substantial economic reforms addressing the long lasting structural problems. The reform efforts targeted a wide range of areas including the banking sector, social security, public finance, public procurement and public debt reforms, introduction of independent regulatory bodies in banking, energy, telecommunications, sugar, and tobacco sectors, and the introduction of international arbitration to name a few.
Turkish entrepreneurs today do not only represent the most dynamic component of the Turkish society, but also some of the most successful entrepreneurs in Europe (mostly Germany) as well as in CIS countries since the collapse of the Soviet Union. These entrepreneurs currently command billions of dollars worth of investments and employ hundreds of thousand of employees.
As a result of all these reforms and perhaps more importantly, thanks to the lack of a natural resource such as oil, Turkey today, together with Israel, represents one of the two most developed and dynamic economies in the region. Today, as a result of the reforms initiated in early 1980s and structural reforms implemented in the last four years, Turkish economy is much more competitive, technologically advanced, and integrated with the European and American economies than ever before.
C. TURKEY VERSUS MAJOR ECONOMIES IN THE MIDDLE EAST
The idea of transforming the Middle East economically inevitably calls for both the individual skills and institutional capacity in order to deal with the specific needs of this particular region. Politically and historically, Turkey might confront some difficulties in the Middle East. Yet, when compared with the other potential economic players in the region (namely Egypt, Iran, Saudi Arabia and Jordan) Turkey stands out as the only country that has a western oriented, liberal and dynamic economy while having cultural and religious affinity with the countries of the region. (Within this framework, I exclude Israel from my comparative analysis below.)
Let me highlight some of these distinguishing elements in the form of observations rather than figures and graphs:
In terms of the size of its domestic market, Turkey is the largest country in the region, when the population size and GNP figures are considered together. Thus, it has a strong domestic base for a more competitive, sophisticated and efficient economic structure.
Moreover, the Turkish economy has gained a significant competitive edge vis-à-vis European multinationals, mainly as a result of the Customs Union agreement with the EU. None of the other countries in the Middle East has yet confronted and survived such a fierce competition.
Turkey has the most advanced logistic, transportation and communications infrastructure and manufacturing facilities in the entire Middle East. The sophistication of the economy, the diversity of the economic institutions, the level of development of its financial system, and the quality of life it offers are all far more advanced than any other country in the region.
In terms of openness to the outside world (such as the volume of foreign trade, the composition and destination of exports, and number of incoming tourists) Turkey is well ahead of the others. As you would expect, Iran and Saudi Arabia are heavily dependent on oil exports while Turkey has a highly diversified and geographically balanced export structure. Nearly 85 percent of Turkey’s exports, which are expected to reach $ 45 billion in 2003, are composed of industrial goods. Turkey’s foreign trade volume exceeds $ 100 billion while that of Egypt is around $ 20 billion.
Again, Turkey outperforms nearly all countries of the region in social and economic development indicators such as education, per capita telephone lines, number of internet users as well as per capita water resources and cropland.
The quality, number and the experience of Turkish entrepreneurs in and outside the home country is another crucial asset in dealing with a new and “risky” foreign market. Turkey has abundant entrepreneurs possessing both knowledge and experience in doing business outside its borders. This includes entrepreneurs and both white and blue collar workers with an extensive experience in the Iraqi market.
More importantly, Turkey’s western orientation far more exceeds those of the others. This is reflected in the business practices, business ethics, the variety and experience of economic institutions as well as well educated and qualified human resources. Turkey, with its 15,000 students, ranks 10th among countries whose students receive education at the US universities.
D. TURKEY AND THE RECONSTRUCTION OF IRAQ
The Iraqi challenge will be the first major test to see how well-suited Turkey is to form an economic partnership with the US, considering its western orientation, dynamic and sophisticated economy as well as cultural affinity to and experience in the Middle East.
Prior to 1991, Iraq was the second largest trade partner of Turkey after Germany. Exports to Iraq in 1990 had reached 8 percent of Turkey’s total exports. The annual trade volume between Iraq and Turkey was in the range of $ 2.5 to 3 billion. The Kirkuk-Yumurtalik Oil Pipelines had also been an important economic channel between the two countries. Furthermore, Iraq ranked third, after Libya and Saudi Arabia, in the list of countries where Turkish construction companies had been operating.
The intensity of economic relations led several Turkish companies to open their representative offices in Iraq, and thousands of Turkish engineers, workers and trade specialists had been employed by these companies.
These facts demonstrate quite well the experience of Turkish entrepreneurs and companies in doing business in Iraq. Therefore, Turkish business community is capable, ready, and willing to take its part in improving the economic setting in Iraq.
(My following remarks about the current situation in Iraq are based on reports published by TOBB, DEIK and Iraqi-Turkish Business Council of DEIK)
1. What has Turkey done so far in Iraq?
- An “Iraqi Coordination Committee” was formed at the initiative of the Turkish Ministry of Foreign Affairs, with the participation of related public institutions and the umbrella organizations representing the Turkish business community.
- A significant amount of humanitarian assistance was provided starting from late April.
- Turkey has made cash contributions to the UN after its Review of Iraqi Humanitarian Aid.
- Turkey has become an important procurement, shipment and delivery conduit for the UN organizations involved in meeting the humanitarian aid needs of the Iraqi people.
- With the objective of contributing to the efforts of the Iraqi people in reconstructing Iraq, Turkey commenced work for the construction of two hospitals in the country.
- The railway between Turkey and Iraq, which was closed since the end of February, was reopened for traffic on August 1st.
- Turkey has just signed a coordination protocol with Iraq to provide electric power (Sale of electricity; Use of mobile power plants) and technical assistance to Iraq.
- Turkish Airlines has already applied for a permit to begin flights to and from Iraq.
- A Turkish private bank (Akbank) is a member of an international financial consortium formed to set up a Trade Bank in Iraq.
2. The areas in which Turkish and US companies can work together:
- Education: Construction of schools and preparation of the required infrastructure. Capacity building: Training of the educators and administrators, and curriculum development.
- Food and agriculture: Investments in agriculture and food processing; development of agricultural credit market; improving the human and physical capital base
- Water management
- Housing: Nearly 1 million units are currently needed. Also, 90,000 units are needed annually.
- Electricity generation and distribution
- Transportation: New highways. Repairs of the existing highways, ports and airports.
- Health: Building new facilities and improving the existing ones.
- Investments in existing factories and privatization of the state owned enterprises
3. Turkish business community faces four essential problems in their activities in Iraq:
- · Accessing information. The information related to contracts is either unavailable or inconveniently available to Turkish companies. The inconvenience arises from the fact that most of the time only 2-3 days are given to the prospective bidders to submit their offers.
- Difficulties in the shipment of goods through Northern Iraq.
- Inadequacy of payment and insurance systems, which is an issue for everyone doing business in Iraq.
4. What needs to be done?
- Information dissemination framework needs to be improved significantly
- Levies and additional difficulties confronted by Turkish businessmen at the border in Northern Iraq need to be eliminated to level the playing field
- Initiatives aiming to bring together Iraqi business organizations with their Turkish counterparts should be encouraged and facilitated
- Turkish companies that are providing subcontracting services to US companies should be given coverage by an existing insurance scheme such as OPIC.
The political issues that led the Iraqis and then the US Administartion to reject the presence of Turkish peacekeeping forces in Iraq could unfortunately undermine the role Turkey can play in the economic reconstruction of Iraq. Our American friends have unfortunately failed to demonstrate a firm leadership when dealing with the deployment of Turkish peacekeeping troops in Iraq. Despite a number of positive steps taken recently by both parties to repair the damage, the mishandling of the deployment of Turkish peacekeeping troops in Iraq by the US Administration has caused disappointment as well as confusion among most Turks. The Turkish public opinion is puzzled by the U.S. Administration’s change of course, given that both Washington and Ankara were well aware of the Iraqi local group’s objections to the sending of Turkish troops well before the Turkish Parliament’s October 7th vote. The resulting situation has led many Turks to feel that the American Administration has not only overplayed Iraqi ethnic groups’ concerns, but has done so in a manner that undermines the vital partnership that Turkey and the US have nurtured for over five decades. I would like to express my hope that these developments will not shadow the contribution Turkey can make in the peacemaking process and the economic reconstruction efforts in Iraq.
I believe it’s in the best interests of the US to set the required framework enabling the delivery of the basic goods and services to the Iraqis as quickly as possible in addition to providing security. This is a must in order to improve the quality of daily life of the Iraqi people and reduce tensions in the region. The most recent move by the US Congress to pass a bill earmarking $ 18.3 billion for infrastructure reconstruction in Iraq has been a very positive step toward this objective.
Turkish companies are able partners of the US, capable of cooperating with not only the US authorities and companies but also Iraqis in providing the best goods and services at a much faster pace than companies from other countries in and out of the region.
I would urge the US Administration to set up the right communication channels to benefit from this readily available and experienced economic power. The success of the Turkish business community in Iraq would undoubtedly and directly be reflected in the success of the US.