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Jennifer Miel, Executive Director for the U.S.-Turkey Business Council sat down with the Turkish Heritage Organization to discuss the important economic relationship the United States has with Turkey.
Here are a few excerpts:
So when we were talking about the potential of U.S.-Turkey business relations, I think we have not even begun to scratch the surface and there is going to be a lot of consultations between the new administration and Turkish counterparts in strategic ways where we can upgrade the relationship.
U.S. businesses that are multinationals, they are in Turkey for long-term investors, both in infrastructure projects and also in hard investments in Turkey. They employ more than 60,000 people in Turkey – U.S. companies in particular—and then you have to separate those investors from more of the hot money and capital markets, financial investors that are more governed by interest rates and also global capital flows. So, I think that there are two distinct areas and on the international investor side, the multinationals, they will continue to view the long-term potential of Turkey as positive, whereas some of this hot money may flow to other pockets of the globe depending on global capital markets.
I think cooperation between private sector and public sector in all spheres – specifically cybersecurity is a great one – and separating security concerns from business concerns, so that businesses can be able to function continually while security concerns are being addressed.
The subject matter has been relevant for the last three years since the U.S. Chamber of Commerce launched our U.S.-Turkey Business Council and we have been talking to companies and also the government and the right policy mix to get Turkey to break out of the middle-income trap, which is what you referred to. And we think through structural reforms and advancing trade deals, such as EU customs union modernization, enhanced trade relationship with the U.S., that that will provide more opportunities for Turkey’s private sector to upgrade its status.
And definitely these are also opportunities that are on many U.S. companies radars. Turkey has advanced its infrastructure vastly over the last 10 to 12 years with large projects that you mentioned— with roads, airports, ports, and so forth, and with the new Istanbul airport, we were actually just out there in December. We took a delegation of U.S. companies to see the construction and it is a massive site and a massive undertaking. They are ahead of schedule to complete the airport by the end of this year and the operational in February of next year. And there is also a delegation coming from Turkey to the U.S. through the U.S. Trade Development Agency at the end of this month, so I think U.S. companies are looking at these opportunities for their businesses and seeing Turkey as an entry point where they might not have.
For the last 24 quarters, there was positive growth and then third quarter of 2016, we saw a contraction, so this is a concern for companies, for everybody in Turkey, and for investors as well. I think that companies right now and rating agencies, in particular, are very focused on Turkey. There is a Fitch Rating that is going to be announced at the end of this week and a lot of what they are looking for is currency stabilization. And we know that Turkey’s been working very hard to stabilize the Turkish lira and continuing to discuss the right policy mix—with the business community, with international investors, international institutions— that is going to put Turkey on the right path to get this under control and also to maintain its investment grade status with Fitch an hopefully to regain it with the other two rating agencies.
I think when you look at, especially after the U.S. elections in November, you see a trend from many emerging markets, emerging markets peers of Turkey as well that there is a downward trend for currency. Now, there is expected to be additional rate hikes in the U.S. from the Federal Reserve and that is also going to impact emerging markets including Turkey, so it is something to keep an eye out for the rest of the year—and again with the right policy mix in consultation with private sector, institutional investors, and international organizations, I think that Turkey can put itself on the right track. There was just this week a J.P. Morgan note that went out to investors, specifically looking at asset managers and its said that through macroeconomic stabilization and more orthodox policies, Turkey in this year could be the number one gain for asset markets.
For the upcoming year, I think consumer product sector has traditionally been very strong in Turkey. Many U.S. companies, in particular, will use Turkey as a base for their manufacturing and exporting through Europe, so I think that is a continued sector to look for. Also, automotive sector—Turkey is a large automotive manufacturing hub. I think about 70% of automotives that are produced in Turkey are then exported. There is U.S. participation in both of these markets. Another strong emerging sector is in energy. There is many energy projects underway in Turkey—nuclear, solar, and also natural gas, so these are all opportunities that international investors are looking at.
I think partially it has to do with the currency and it is more difficult for companies that are dealing in foreign exchange to operate and export and then have the prices be higher for a consumer that now have currency that is worth less. So, I think with continued stabilization of the currency that this trend can definitely be reversed. In another positive element is domestic savings rate in Turkey and there was recently a law passed for auto enrollment into pension plans and that is also something that in the medium and long term looks to increase the level of domestic savings for Turks.
So first, I will highlight some that have been made over the last year. The auto enrollment pension plans is definitely one. There was just recently passed an intellectual property law and this provides enhanced patent protections for inventions and technology products in science, research and development, and innovation. The implementation of this law will be key moving forward. Last year there was also a data protection law that was passed—again the implementation of this law will also be key moving forward. I think Turkey has a lot of potential in both of these sectors—data protection is ICT driven. I think if Turkey can fully embrace cloud services, cloud computing, it will provide a lot of opportunities for high tech Turkish startups to find new business abroad.
The U.S. Chamber of Commerce is very optimistic. We have a new neighbor across the street of course. We have had some consultations initially with the new administration. Their new economic team is not in place yet, so we do not fully know what they are thinking, but what we can say is it looks like they are more in the direction of bilateral agreements versus multilateral agreements and in Turkey’s case I think that helps. We can reevaluate the U.S. - Turkey trade relationship under the new administration and potentially find opportunities for, if it is not a new agreement, but maybe new sectors to focus on. One of the sticking points for our trade kind of flat lining over the last few years—we have peaked at 20 billion bilateral trade volume. The last few years it has kind of ridden between 17 to 19 billion, so I think as the new administration looks at areas of opportunities they will see that we have not even begun to scratch the surface of the U.S.-Turkey trade and investment potential, so that could an opportunity for both of our governments to deepen collaboration.
First, I am quite optimistic about the U.S.-Turkey economic partnership. We have 1,400 U.S. companies doing business in Turkey; 60 of those companies use Turkey as their base and as we said, there is at least 15 to 20 billion dollars of potential each year for bilateral trade volumes, so I think we have a strong foundation and we can only go up from here and increase our collaboration.
I would say that if you want to describe the current U.S.-Turkey economic trade relationship, it has always been based on potential and not reaching its full potential—so, I think that working together with new administrations and identifying key sectors and key market barriers that we can break out of the flat lining we have been seeing over the last few years, so I think there is a lot of potential in short.
So I think that Turkey is a star in the investment climate over the last 10 years—you know it has really risen and it stands out as an emerging market for sure. Some of the highlights of Turkey’s markets is its diversified economy. It is a blessing and a curse not having strong natural resources, but in Turkey’s case, the strongest natural resource they have is human capital and human resources. There is also a strong banking sector and also diversified industries, so construction, textiles, and then you also have new economy coming in with many high tech startups that are active in areas such as internet of things, big data, and artificial intelligence. And last but not least, the favorable demographics of Turkey. I mean you have one of the largest labor pools in Europe. In Turkey I think it is about 65% of the population is between 24 and 54 years old, so a lot of companies see the long term potential because of the labor market and strong demographics.
I think in certain sectors, you know we are seeing an uptick in automotive industry, looking at new ICT projects, U.S. companies working with Turkish ICT providers or internet providers, internet services. There is some fin tech opportunities, financial technology. Healthcare as well and also solar energy.
U.S. Chamber of Commerce and international investors believe in the long term, strategic potential of Turkey and both for its geographical location as a hub in the corridors of Europe, Asia, and the Middle East and also because of its favorable demographics that support positive economic growth over the next 5 to 10 years.
You can watch the entire series here.