News analysis: Turkey’s exports grow amid external threat

HATICE KARAHAN
ISTANBUL
Published 14.07.2014 12:24
Updated 14.07.2014 12:30
News analysis: Turkey’s exports grow amid external threat

The unflinching Turkish economy seems to have continued to grow with the support of foreign trade in the second quarter of the year, as well. Recent data show that national exports kept climbing whereas imports went down in a sharp manner in this period. This trend, in return, delivers an outlook in which net exports boost the GDP growth while putting a brake on the famous current account deficit in the economy.

When the figures are examined, the star in the backstage of this success turns out to be the exports. What pumped up the tempo of exports, on the other hand, has mainly been the economic recovery in the EU area. In the first half of 2014, Turkish exports excluding gold grew by 6.7 percent, 6 points of which came from the EU market. In that period, the speed of exports was supported by Middle Eastern trading partners with 2.1 points, while it somewhat rolled back due to the partial contractions in the markets of CIS, Asia, Africa and America.

One critical message to be derived from these numbers is that the Middle Eastern market still has a considerable impact on Turkish exports. However, the recent developments in Iraq, the top destination in the region for Turkey's exports, have been quite upsetting for exporters. This is because of the ISIS move that broke out in the month of June which led to a 21 percent annual decline in the value of national exports to Iraq, which is the second biggest market for Turkey.

In this sense, let me emphasize that the Iraqi market has been serving as one of the strongest engines of Turkish exports in the last years, based on both its share in the pie and its remarkable growth rate. Besides, Iraq is a destination, to where a good number of Turkish sectors export. The market generates demand for various sectors, in a large spectrum ranging from iron and steel to electronics, from machinery to plastics and from furniture to dairy products. That is why; any further contractions in the Turkish exports heading to Iraq have the potential of adversely affecting not only the export growth rate of Turkey but also many sectors in the economy.

Having underscored the importance of the neighboring country for Turkish trade, let's now take a quick look at the ISIS-based drop in the exports of June. One of the reasons behind the downfall appears to be decreasing demand, which is quite understandable. Demand naturally goes down in any economy on earth where chaos and uncertainty dominate. Moreover, such a trend might even reverse in a reasonable amount of time as in the case of Syria. As can be recalled, upon the events that flared up in Syria in the year of 2011, country's imports from Turkey had sharply fallen down. However, the demand recovered later leading to a gradual escalation in the trade figures. Parallel to this, it would not be wrong to claim that the demand in the Iraqi market for Turkish products could revive in time.

What complicates the forecasts at this point is the second but more powerful reason behind the story in June: The blockage of the trade routes in Iraq. The Mosul route heading down to the Baghdad region, the main destination point for a considerable portion of Turkish exports has been seized by ISIS. The alternative Sulaymaniyah line, on the other hand, is not preferred due to higher costs and security reasons. Hence, it is almost impossible for Turkish goods to arrive at the central and southern regions of Iraq right now. The temporary solution has been identified as stacking up the products in the storage areas that are located in Northern Iraq. However, capacity has its limits. So, at this juncture, the only healthy solution seen on the horizon is unblocking the routes. Otherwise, Turkey would have to consider new alternative routes that transit through Iran and reach the southern cities of Iraq, with higher costs unfavorable to Turkish exporters though.

All these reflect the concrete effects of the recent developments on the exports of Turkey. In case the chaos in the region lasts longer, the Turkish economy could also negatively be affected through its investments in the country and a possible increase in oil prices.

The other side of the coin, however, seems more critical to me: Let's think for a moment on the recently flourished relations between Turkey and the Iraqi Kurdistan Regional Government as well as the strategic energy collaboration blooming thereupon. Taking into account the attack on the Turkish consulate in Mosul and the lately captured energy fields as well, the timing of ISIS does not appear to be coincidental. So, when I put the pieces of the jigsaw puzzle together, what I see in the background - and indeed in the future of the picture - is "energy." After all, energy is the casus belli of the wars in the modern world.

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