Turkey’s foreign trade is navigating troubled waters. Despite a significantly weakened Turkish lira, exports have kept dropping over the past six months. According to the Turkish Exporters’ Assembly (TIM), exports stood at $73.26 billion in the first half of 2015, down 8.1% from the same period last year. Following a staggering 19% decrease in May, the downward trend slowed down in June, with exports decreasing 6.4% compared with the same month last year.
In 2014, Turkish exports had hit an all-time high in Republican history, rising 4% from the previous year to reach $157.6 billion. But the record-breaking drive proved short-lived. Only six months later, the 12-month value of exports is down to $150.8 billion.
Turkish exporters have long advocated a cheap currency as a means to boost foreign sales. Today, they have exactly what they want, namely, a fast-depreciating Turkish lira. A dollar was worth 2.69 Turkish lira at the end of June, up from 2.35 Jan. 2.
So, why are exports decreasing despite the cheapening currency?
Faik Oztrak, a former treasury undersecretary and now a parliament member for the main opposition Republican People’s Party, says unfavorable conditions in the European Union, the Middle East and Russia have all hit Turkish exports.
“European countries hold the largest share in Turkish exports. The uncertainty in the EU economy and surrounding countries as well as the falling euro-dollar parity have had a negative impact on Turkish exports,” Oztrak told Al-Monitor.
“The Turkish lira’s slump against the dollar was supposed to prop up the exports. But the uncertainty in the EU and the falling euro-dollar parity has curbed that [positive] impact. The parity, which was above 1.3 in July 2014, is now down to 1.1. According to TIM figures, Turkish exports to EU countries decreased 12.5% in the first half of the year, compared with the same period last year,” he explained.
The turmoil in the Middle East is another major factor affecting foreign trade. The Islamic State’s (IS) blockage of the Iraqi route, one of the most crucial for Turkey, the civil war in Syria and Egypt’s decision to terminate a transport deal with Turkey have all curbed Turkey’s commercial outreach to the Middle East and Africa.
“The Middle East was Turkey’s second-largest export market after the EU. The conflicts in the region have directly hit exports,” Oztrak said. “The IS threat in Iraq and Syria has blocked export routes into the Middle East’s inner regions, which is a very serious problem. We see that exports to Middle Eastern countries decreased by 7.22% in the first half of the year.”
Russia, Turkey’s hope to make up for the downturn, has also proved a disappointment. Last year, Russia boosted the spirits of Turkish exporters when it said it would buy vegetables, fruits, poultry, fish, milk and dairy products from Turkey after it banned the import of those products from the EU. But the economic sanctions slapped on Russia over the Ukraine crisis badly hurt its citizens’ purchasing power. Thus, the Russian roulette hit Turkey and this market shrank, too.
Oztrak noted that exports to the Commonwealth of Independent States, which includes Russia, decreased 27.2% in the first half of the year.
Durmus Yilmaz, Turkey’s much-respected former Central Bank governor and a newly elected lawmaker for the Nationalist Action Party, pointed to Turkey’s diplomatic problems with neighboring countries as an additional strain on trade.
In remarks to Al-Monitor, Yilmaz said, “The first reason [for the decline in exports] is the insufficient economic recovery in Europe, which is our primary market. EU economies are not growing, meaning that demand is not growing either. The second reason is the geopolitical situation that emerged in the Middle East and the Gulf, the regions to which Turkey had opened up to compensate for the markets it lost due to the crisis in the EU. The Syrian market is now lost because of the civil war there. The same goes for Iraq. Adverse political developments in the Gulf have had a negative impact on Turkish exports as well. Also, Turkey’s political and diplomatic problems with regional countries make it more difficult for Turkish goods to enter those markets.”
Pointing to the rift in relations with Egypt, Yilmaz said, “We are experiencing serious problems in our exports to Africa via the Suez Canal and this, too, is having an adverse impact.”
He offered the following explanation as to why the cheaper currency had failed to boost exports: “The depreciation of the Turkish lira should have made Turkish goods more competitive, but this did not happen. Why? Because the import of raw materials and intermediary products needed to manufacture the export goods became more expensive as the exchange rate increased. This has led to a cost inflation and thus the advantage is gone.”
According to Yilmaz, the 34.6% drop in exports to Russia in June was the result of the Russian economy contracting due to the Ukraine crisis and ensuing sanctions.
Turkey’s exports to its top five markets all declined in June. The drop in exports to Germany was 9%, to Britain 2%, to Iraq 7%, to Italy 6% and to France 16%. Remarkably, exports to Saudi Arabia, Egypt and Austria increased — by 60%, 18% and 17%, respectively.
TIM Chairman Mehmet Buyukeksi is optimistic that the second half of the year will prove better, given the forecasts of a stronger growth in Europe.
Yet, the June figures come as an alarming illustration of how much Turkey’s market share has shrunk, underscoring the need for fresh measures and a focus on higher-value products.
But more than a month after the June 7 polls, Turkey is still without a new government, with parliamentary arithmetic dictating a coalition. Buyukeksi urged political leaders to form the government as soon as possible and draw up measures to revive exports. “We need a strong and reformist coalition government that will swiftly ensure stability. The focus should be on minimizing risk and maximizing reform,” he said earlier this month, while presenting the June export figures.
“We can’t tolerate wasting time at a time when global risks are putting strain on economies, international trade is shrinking and our vicinity is virtually becoming a circle of fire. From the new government we expect export-oriented growth. Turkey needs a new growth model,” he stressed.
Even Economy Minister Nihat Zeybekci has admitted the bleak prospects in foreign trade. In remarks last month, he said exports were down by $5.5 billion in the first five months of the year and the risks would persist despite expectations of better figures in the coming months.
It seems that containing the downturn at the current level will be an accomplishment in itself for Turkey this year.
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