When the Chairperson of the Board of the German-Turkey Chamber of Commerce and Industry Markus C. Slevogt replied to a question during a panel session in Ankara last week he did not mince his words: "Customs Union 2.0? Definitely!" At stake: the official launch of a large-scale survey report about views of Turkey’s private sector with regards to European Union-Turkey business relations.

A total of 1,828 businesses from all regions of Turkey participated in this undertaking and it is no surprise that the vast majority of companies are SMEs, or small and medium sized enterprises (92%), which is a mirror reflection of the fact that almost all active businesses in this country are SMEs anyway.

KOSGEB, the Small and Medium Enterprises Development Organization of Turkey, states that this figure stands at 99.83%; SMEs are classified as enterprises with no more than 250 staff (micro businesses with not more than 10, small businesses with less than 50 staff, respectively). The maximum turnover is capped at 125 million TL ($8.45 million). Over the past two decades the nation’s SMEs totally restructured themselves and increased their previously extremely limited share of exports and added value to the economy from just above 10% to well over 50%, a development that enables observers to understand why Turkey’s economy fares better during times of a global crisis then most other European states. Turkey’s economy is based on both the family business and SME, and can thus react faster to new challenges and adapt faster, too. If there were not one obstacle, as this occurs only as long as adequate financing is provided, of course; we shall return to that point further below.

In favor of EU membership

Support for EU membership remains high in Turkey’s private sector at 60%. The 59% value environmental protection and 76% supported the ratification of the Paris Agreement. Almost half of all those surveyed are aware of the brand-new EU’s Green Deal road map. Very interestingly, 74% of businesses say they are in favor of a strengthening of EU-Turkey cooperation in the domain of digitalization.

Often a point of heated debate, the vast majority of respondents wish to see a speedy upgrading of the customs union with the EU, including adding agricultural products into the mix.

The survey is the third of its kind and forms an integral part of a project called Turkey-EU Business Dialogue (TEBD). This venture is co-funded by the EU and part of Turkey’s pre-accession programs. The Association of European Chambers of Commerce and Industry (Eurochambres) based in Brussels and the Union of Chambers and Commodity Exchanges of Turkey (TOBB) at home in Ankara have teamed up to implement steps to fostering economic cooperation as well as support Turkey’s EU accession in broader terms.

Out of the ivory tower!

What makes this project – "EU-Turkey Business Relations: Views of the Turkish Private Sector, Third Edition 2021" presented to the public during the TEBD SME Survey Launch Event – and by now the third survey of its kind, so important, is that it attempts to bring what most consider a subject reserved for academic circles and policymakers literally to the receiving end. Only when owners and managers and staff of small and medium-sized enterprises fully accept that change must be embraced as something positive and not interpreted as a threat will the domestic economy continue to prosper. "Change" includes most definitely coming to terms with the wider and constantly evolving global political, economic and monetary situation yet, at the same time, has a much more local dimension, too.

Let us discuss one example. In order to not only enter the market but to stay in it, entrepreneurs must better understand the concept behind the term innovation. Innovation leads to products and services with better standards and quality, which in turn allows for higher turnovers. We shall briefly come back to this observation when mentioning another term, competitive advantage.

Can we innovate something that already exists? Of course, we can! Think of an office chair. Some have four, others have five legs. They come in all shapes and colors. Innovation would not mean adding one more color to your product range, innovation would mean improving the user-friendliness of that very chair. Changing the fabric so that it becomes fire-resistant or more easily cleanable: That would be cases in point.

From office chairs to cars – everything we manufacture, or produce, can theoretically be made better, can be improved, would become more user-friendly and would thus achieve a higher sales price both at home and abroad when talking about exports.

But explaining the need and concept behind innovation is no easy task, and after all, costs money as production facilities need upgrading or outright replacement.

Money, money, money

The banking system has come a long way when one takes a close look at how SME financing via credit lines became a staple diet of a bank managers portfolio. Initially, it was more cumbersome to convince SME owners to actually avail themselves of these new offers instead of convincing banks to approach that market segment.

But "going red" is not for each and every type of business regardless of coming up with guarantees; governments should step into the financing ring as well.

In an ideal scenario, public and private funds would be made available for SMEs on a much grander scale; there are preparations for an investment platform seem to be underway whilst penning this article. Funds for expansion, funds for startups, funds for restructuring and innovation – perhaps joint ventures such as EU-Turkey business relations – can create a lobbying road map to facilitate domestic and European public and private funding in particular for Turkey’s ever-ready SMEs that can upgrade themselves.

Peace, growth, advantage

Returning to Slevogt one more time before coming to the end of this short summary, three overarching concerns were mentioned: When asking many of his own almost 1,000 German companies currently engaged in Turkey’s market, peace and prosperity, economic growth and arriving at a competitive advantage feature most visibly on respondent’s agendas. The first item has certainly gained prominence although not in a manner as intended as Russia’s invasion of Ukraine was not foreseeable, but the other two topics clearly underline the joint vision and approach. The term "competitive advantage" highlights both Turkey’s and Germany’s business leaders’ realization that by working more closely together more value will be added to both economies. Adding more value allows entrepreneurs to invest more per return. This creates employment.

Germany is a strong partner for all things Turkey. Having the German Chamber as a proactive supporter amongst the very active EuroChambers should make the modernization of the customs union easier to achieve. In particular if concerns voiced by both business communities are properly addressed, and these most definitely include, besides the wider picture introduced in the preceding paragraph, volatile exchange rates, monetary policies and the unfortunate rise in energy and raw material prices.

Customs Union 2.0? It will not happen overnight but should occur sooner rather than later.