Skip to main content

UAE Investment Casualty Of Turkey’s Egypt Policy

Foreign policy decisions are negatively affecting Turkey’s exports and attraction of foreign investment.
Turkish Karadeniz Powership Fatmagul Sultan, an electricity-generating ship, is seen docked at Beirut port February 18, 2013. A member of Karadeniz Holding's powership fleet, Karadeniz Powership Fatmagul Sultan, departed from Istanbul on February 8 to Beirut to supply electricity to Lebanon. REUTERS/Mohamed Azakir   (LEBANON - Tags: ENERGY BUSINESS POLITICS) - RTR3DY6T

The economic bill for Turkey’s foreign policy, which is resented by most regional countries, is slowly adding up. While exports to Syria and Egypt directly — and via Turkey to other countries — are steadily declining, the first real blow was the suspension of the United Arab Emirates’ (UAE) $12 billion investment in a coal-based energy project.

There is conflicting news on whether the investment in what is called the “biggest ever Turkish energy project” is suspended or perhaps altogether canceled. While company representatives in Turkey say the investment has been suspended, Reuters news agency quoted sources in the UAE asserting that the investment has been completely canceled.

Remarks by Taner Yildiz, minister of energy, suggested that reports of a complete cancellation were accurate. Yildiz said making such a decision without asking Turkey was not proper, but Turkey has ‘’already started discussions with other countries to implement this project.’’

Egypt policy

Yildiz said talks with the UAE public corporation TAQA for the $12 billion investment ‘’had reached a certain level." He added, "I hope their decision is not based on political reasons. I want to believe that the decision is not political, but developments in Egypt and Syria seem to be affecting their energy decisions.”

TAQA was to carry out rehabilitation work on the current coal reserves and power stations and build new ones. After the countries agreed in January 2013, work had started on a partnership structure. EUAS, a subsidiary of the Ministry of Energy, was to have 35% equity and TAQA 65%. After finalizing the equity, next was the “host country agreement.’’ But then TAQA announced it had decided to retain a Turkish partner, and that it was in touch with Turkish companies to sell 14% or less of its 65% share.

The original agreement called for an investment of $12 billion. With this investment, 85 million tons of coal per year and 45 billion kilowatt-hours of energy per year were to be produced. With the Intergovernmental Agreement on Cooperation for Lignite Extraction and Electricity Production in the Afsin-Elbistan region, new power stations were slated for the B, C, D, E and G fields of the basin. About 40% of Turkey’s 4.4 billion tons of lignite reserves are in the Afsin-Elbistan basin. At the moment, there are two thermal power stations with 2,888 megawatt capacity.

Saudi Arabia panic

Although Yildiz said talks had already begun with other countries who may take over the project, it is obvious that to find a company or country that will agree to such a grand investment in the context of the current global financial environment will not be easy.

It is understood that the Turkish government was surprised by the UAE decision. The government is apprehensive of such a decision by the UAE following Saudi Arabian recriminations against Turkey because of its anti-coup position in Egypt.

The Turkish government, thinking that Saudi Arabia — which had been one of the major supporters of the Erdogan government since the first day it took power — might have played a part in the cancellation of the UAE investment, is now afraid of losing the complete support of the Gulf capital. Although there is no major Saudi investment in Turkey, it is well known that with Saudis leading the way, the rulers of the Gulf countries prefer to deal with Turkey in buying personal assets and investing their personal and national savings.

This is why Turkey decided to take immediate action to repair damaged relations with Saudi Arabia. On Aug. 28, Foreign Minister Ahmet Davutoglu paid a one-day visit to Saudi Arabia. Upon his return, Davutoglu said there are many developments in the region that necessitate consultations between the two counties. He said they discussed what can be done to protect regional stability and find a solution to the crises, in addition to possible roles of Turkey and the Gulf Cooperation Council.

Davutoglu did not mention economic relations, but in the Foreign Ministry's corridors it is said that the true purpose of the visit was "how to improve the relations that were beginning to hurt the economy as soon as possible.’’

Financial effects

As financial indicators in Turkey are seriously deteriorating, the debate is now to what extent the risks caused by foreign policy are playing a part. In the week of Aug. 26, dollar parity went above 2 Turkish lira and treasury bill interests passed 10%, both exceeding psychological limits that are seen as indicators of bad news for the economy.

It is known that the real cause of the deterioration in the economy is the Federal Reserve’s plan to reduce treasury bond purchases. Turkey, similar to other developing countries, fears a reduction in incoming foreign investments. But it is not a secret that the level of deterioration in Turkey over the past month is higher than in other developing economies. Turkey’s recent foreign policy is seen as the main cause of this divergence.

Turkey, with its resolute stand on the side of the Muslim Brotherhood in Egypt, has dissociated itself from the United States and the Western bloc, but this time is also confronting regional countries that back the coup in Egypt. This perception of loneliness is bound to negatively affect the economy.

Now, should there be an operation against Syria, Turkey and Israel are listed as countries to be targeted in retaliation. This risk of clashes leads to concerns about its affects on Turkey and its economy, which in turn affects market indices.

Bankers say that they can't precisely estimate the effect of such policies, but that they are clearly instrumental.

Effect on exports

Regional foreign policy has led to a decline in exports, which in turn has adversely affected the economy. Zafer Caglayan, minister of economy who is responsible for foreign trade, when answering questions on trade with Syria, said that at the beginning of the crisis Turkey’s exports to Syria were at the $1.5 billion level, and if all had gone well they would have been at the $2.5-3 billion level now.

The Turkey–Egypt volume of trade was also in an upward swing, reaching $5.16 billion in 2012. In 2012, Turkey's exports to Egypt grew by 33% to $3.68 billion.

Although final numbers are not available, exports to these two countries have declined significantly this year. Moreover, there are problems with Turkish exports to other countries via Egypt and Syria because of transport problems. Europe once made up Turkey’s largest market, and increasing exports to regional countries was important for the economy. Now this hope has been disrupted as foreign policies implemented and international positions taken have hit Turkey’s exports, and therefore its production.

In short, Turkey now has to cope with multifaceted negative trends — not only politically but also economically.

Erdal Saglam is an economics writer for Hurriyet and a consultant for Radikal and produces programs on several TV channels. He was previously a lecturer on economics journalism at Istanbul University and worked for Dunya newspaper.

Join hundreds of Middle East professionals with Al-Monitor PRO.

Business and policy professionals use PRO to monitor the regional economy and improve their reports, memos and presentations. Try it for free and cancel anytime.

Free

The Middle East's Best Newsletters

Join over 50,000 readers who access our journalists dedicated newsletters, covering the top political, security, business and tech issues across the region each week.
Delivered straight to your inbox.

Free

What's included:
Our Expertise

Free newsletters available:

  • The Takeaway & Week in Review
  • Middle East Minute (AM)
  • Daily Briefing (PM)
  • Business & Tech Briefing
  • Security Briefing
  • Gulf Briefing
  • Israel Briefing
  • Palestine Briefing
  • Turkey Briefing
  • Iraq Briefing
Expert

Premium Membership

Join the Middle East's most notable experts for premium memos, trend reports, live video Q&A, and intimate in-person events, each detailing exclusive insights on business and geopolitical trends shaping the region.

$25.00 / month
billed annually

Become Member Start with 1-week free trial

We also offer team plans. Please send an email to pro.support@al-monitor.com and we'll onboard your team.

What's included:
Our Expertise AI-driven

Memos - premium analytical writing: actionable insights on markets and geopolitics.

Live Video Q&A - Hear from our top journalists and regional experts.

Special Events - Intimate in-person events with business & political VIPs.

Trend Reports - Deep dive analysis on market updates.

All premium Industry Newsletters - Monitor the Middle East's most important industries. Prioritize your target industries for weekly review:

  • Capital Markets & Private Equity
  • Venture Capital & Startups
  • Green Energy
  • Supply Chain
  • Sustainable Development
  • Leading Edge Technology
  • Oil & Gas
  • Real Estate & Construction
  • Banking

Already a Member? Sign in

Start your PRO membership today.

Join the Middle East's top business and policy professionals to access exclusive PRO insights today.

Join Al-Monitor PRO Start with 1-week free trial