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Turkish soldiers hold their weapons at a checkpoint near the southeastern town of Midyat, Sept. 9, 2015. (photo by REUTERS/Sertac Kayar)

Erdogan’s secret economic weapon

Author: Ufuk Sanli

During his first decade in power, President Recep Tayyip Erdogan won widespread respect as a mediator working to resolve international issues. He largely settled Turkey’s problems with neighboring countries, advocated democratic values and presided over a dynamic economy, cashing in on the reputation he had earned. From 2002 through 2012, Turkey’s exports increased fourfold, from $36 billion to $152 billion, boosting economic prosperity and employment in the country.

SummaryPrint Turkey’s defense industry sector has emerged as a shining star in a turbulent period of economic jitters and falling exports.
Author
TranslatorSibel Utku Bila

In recent years, however, the tide has turned. Erdogan’s new problems with neighbors sounded alarm bells for exports, which have dropped to $144 billion. In a medium-term economic program announced at the end of 2015, the government’s projection for this year’s exports was $155.5 billion. The data from the first four months of 2016, however, show that this target is nothing but a dream, with Turkish companies destined to sell even less to international markets this year compared with 2015. According to figures from the Turkish Exporters’ Union (TIM), exports for the period January-April dropped 8.4%, or $4.2 billion, compared with the same period last year.

Yet, one sector stands out in this otherwise gloomy picture: the defense and aviation industry. Exports by Turkish defense companies reached $556 million in the first four months of the year, a 23% increase, up from $460 million for the same period last year, according to TIM.

Latif Aral, head of the Defense and Aviation Industry Exporters’ Union, told Al-Monitor, “I guess we’ll go over the $2 billion mark this year, setting an all-time record.” The revenues of Turkish defense companies have risen from $800 million to $1.6 billion over the past five years.

“The Turkish defense industry provides a wide range of products and services, from advanced satellite systems to boots,” Aral said. “Investment in the sector has increased product variety, thanks to which new export items are being added to subproduct groups. With the advantage of such a broad portfolio, we are able to enter new markets more easily.”

The Stockholm International Peace Research Institute lists Turkey, which has NATO’s second-largest standing army, as the world’s seventh-largest arms importer and the world’s 16th-largest arms exporter in terms of sales. The country’s arms imports total $2 billion to 2.5 billion per year. As recently as 15 years ago, Turkey spent much more on such imports. A comprehensive drive to expand the local defense industry since the early 2000s has led to a significant reduction in money spent on foreign-made weapons and equipment.

In an April 30 ceremony in Istanbul marking the start of construction on Turkey’s first assault ship, the TGC Anadolu, Erdogan said, “Our reliance on [defense imports] has decreased to about 40%, from 80% in 2002. Our target is to bring this down to zero at the centenary of the republic [in 2023]. We’ll not only be meeting our own needs, but we’ll also become the main supplier of friendly and brotherly countries.”

Turkey’s defense industry bureaucracy adopted quite a simple road map in its drive to reduce spending on imports and produce critical weapons and equipment domestically: Instead of buying weapons, manufacture them in Turkey when possible, and if not, ensure technology transfers through joint production.

Turkish defense companies have teamed up with Italian counterparts to produce assault helicopters and with Spanish counterparts for cargo planes and the assault ship, and talks on air defense systems are underway with US and European firms. The Turkish defense sector has already put a domestically produced warship to sea and is preparing to put a main battle tank in the field. A domestically produced infantry rifle and a drone have been tested successfully and are being showcased at international fairs.

Figures place the United States at the top of the Turkish defense companies' client list, with the Americans paying $30 out of every $100 the industry earns from exports. Turkish defense exports to the United States amount to $500 million a year, while such Turkish imports from the United States stand at about $1.5 billion. Hence, Ankara can hardly be satisfied with the current state of trade. The picture is more or less the same vis-a-vis other Western countries, including Britain, Germany, France and Spain, from which Turkey buys more than it sells. According to 2015 figures, Western allies bought more than half of Turkey’s defense exports, while supplying all its imports in the sector.

Azerbaijan, Pakistan and Central Asian republics form the second-largest group of Turkey's clients. Located in conflict-torn regions, these countries have quite high defense expenditures and naturally tend to prefer the much cheaper Turkish products over their Western-made equivalents.

Meanwhile, conflict and tensions in the wake of the Arab Spring have boosted Turkish arms sales to the Middle East and North Africa, according to data compiled from TIM figures. In this regard, Saudi Arabia, the United Arab Emirates (UAE) and Lebanon are Turkey's leading clients in the Middle East, while Tunisia is its top trade partner in North Africa. The state-owned Aselsan, Roketsan, Machinery and Chemical Industry Corporation and armored vehicles producer BMC, owned by the Sancak Group, which is known to have close ties to the Erdogan family, have all emerged as winners from the Arab Spring's fallout.

Turkish sales of arms and military equipment to the Middle East and North Africa in millions of dollars:

chart1.png

Compiled from Turkish Exporters Union data

Africa is another market that Turkish defense companies have recently targeted. TIM figures reveal some remarkable Turkish sales of arms and equipment to African countries on a seasonal basis. Few are willing to talk about the nature and content of exports to Rwanda, Nigeria, Djibouti and Kenya.

Turkish sales of arms and military equipment to sub-Saharan Africa in millions of dollars:

chart2.png

Compiled from Turkish Exporters Union data

The number of defense company owners and executives taking part in Erdogan’s foreign trips grows by the day. With his personal charisma and strong relationships, Erdogan is cutting paths for arms companies to new markets, providing an important boost for the Turkish economy. It remains unclear, however, whether arms sales are a better remedy for the Turkish economy than peace.

Read More: http://www.al-monitor.com/pulse/originals/2016/05/turkey-erdogan-secret-economic-weapon.html

Ufuk Sanli
Contributor,  Turkey Pulse

Ufuk Sanli is a Turkish journalist who served most recently as the director of the economics division of Millet. He has also worked for Turkish dailies Sabah and Vatan, the TGRT television station and Aksiyon magazine covering finance and energy issues. Sanli is the founder of the finance news site Uzmanpara.

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