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From chaos to stability and growth

World Cement,

Stronger and stronger

Ten years ago Turkey’s economy was in meltdown, inflation was high, the International Monetary Fund (IMF) was regularly being called in to rescue the ailing situation, and politically the country was unstable with weak coalition governments coming and going. Turkey’s application to join the European Union (EU) was put on hold as the former communist countries in Eastern Europe leapfrogged ahead of it into acceptance and admission. Today, Turkey is a very different country, and even though it was badly battered by the 2009 recession, it has not fallen victim to what has been termed the ‘Mediterranean economic sickness’ currently gripping Greece, Spain, Portugal, and which has now spread north to Ireland. Last year, while the western banks were being bailed out, Turkey’s economic strength and large domestic market ensured that it emerged from the recession in much better shape than many other countries. This is all down to the fiscal reforms introduced in 2002 following the previous crisis in the early 1990s.

At a joint press conference last month, Turkey’s state minister and deputy prime minister Ali Babacan, together with Angel Gurria, secretary general of the Organisation for Economic Cooperation and Development (OECD) announced OECD’s 2010 report on Turkey (the previous one had been issued in 2008). Gurria confirmed that with Turkey becoming the strongest country in the OECD this year, there was full international confidence that growth will continue. It is not only able to attract the confidence of investors – it can maintain it. Turkey’s growth of 11% in the first six months of 2010 was extremely impressive. The IMF forecasts 3.6% growth next year, well above its 2.2% forecast for growth in advanced economies, but slightly below their world economic growth forecast of 4.2%. This conflicts somewhat with Babacan’s predictions of 4.5% growth for 2011, 5% for 2012 and 5.5% for 2013. Caution about the pace of the recovery has been mentioned via a Reuters poll of some 30 analysts that predicts a slowing but robust economic recovery. While economic growth will slow in 2011 in tandem with major Western export markets, forecasters expect the Turkish lira to hold its value despite uncertainty about vast budget austerity measures in the EU states.

Rapidly emerging

Turkey is now a member of the G20 club of important economies. Some analysts are suggesting that its growth over the next ten years could match or even exceed that of any country with the exception of China and India. Others see the country as possibly being next in line to join the BRIC Group of emerging majors (Brazil, Russia, India, China) – and that by 2050 it could become the world’s tenth largest economy. All this is good news for potential investors. In the 1990s foreign direct investment was less than US$1 billion per year, but just before the recent global financial crisis it was running at almost US$20 billion, although slipping back and losing some ground, it is still looking good. Now that a stronger financial situation is in place, Turkish companies are emerging as leaders in the manufacturing industries, and in particular in construction, furniture, textiles, and car production. A recent article in a leading business magazine, citing a comment from the Dutch bank ING, suggests that foreign investment has made Turkish businesses more competitive, and pointing out that it is Europe’s leading maker of televisions and DVD players, while its construction order book is reported to be surpassed only by China. At the beginning of October 2010, Mark Mobius, the chairman of Templeton Asset Management’s emerging markets group announced that the group is planning to invest US$250 million in Turkish equities, this in addition to US$1 billion previously invested by the group.

Last year, Turkey overtook China as the world’s largest cement exporter when its exports more than doubled between 2007 and 2009 while China’s more than halved.

Earlier this year Russia’s President Dmitry Medvedev and Turkey’s Prime Minister, Recep Tayyip Erdogan signed 17 agreements including a deal to build Turkey’s first nuclear power plant. Russia will have a controlling stake in the plant, which is likely to cost US$20 billion and which will be built on Turkey’s Mediterranean coast. The former cold war rivals have said they want to improve trade links and increase bilateral trade from the current US$38 billion to US$100 billion over the next five years – a figure reported to be half the value of Russia’s current trade with the whole of the EU. Turkey is aiming to reduce its dependence on foreign energy supplies, and to this end wants to have nuclear plants up and running in at least two regions by 2023. It wants to build three nuclear plants as a means to preventing energy shortages and reducing dependence on foreign supplies. It is currently involved in talks with Japan’s Toshiba Group on the construction of a nuclear power plant after negotiations with South Korea hit a snag last month. As Turkey reduces its reliance on outside energy sources it also wants to create a hub through which oil and gas producers can ship their supplies to other countries in Europe.

Two months ago China’s Prime Minister Wen Jiabo and Turkey’s Erdogan signed eight agreements to develop further cooperation in trade and transportation. Turkey’s Prime Minister preferred to highlight the agreement to switch from US dollars to their respective currencies in bilateral trade. Turkey already has a similar agreement with Russia and Iran. The Jamestown Foundation reports that through such bilateral agreements Turkey appears determined to underscore its willingness to pursue independent policies in the global economic and world order, which has been structured around US primacy. As such, Ankara seeks to readjust to a post-American-led world order, as the existing order is in a state of flux. Erdogan described the decision to use mutual currencies as a step to cement the strategic partnership between China, the economic giant likely to dominate the world economy for many years to come, and Turkey, an emerging economy that currently ranks 17th in the world. However, as is often the case, there is a major trade imbalance in China’s favour, which observers say needs addressing. In 2009 Turkey’s imports from China were around US$12.7 billion, while Turkey’s exports to China amounted to only US$1.6 billion.

Top cement exporter

Last year, Turkey overtook China as the world’s largest cement exporter when its exports more than doubled between 2007 and 2009 while China’s more than halved.

The Turkish Cement Manufacturers Association reports that in 2009 cement production totalled 59.2 million t, of which the export market accounted for 16.5 million t. For the first half of 2010, cement exports were 8.6 million t, the main beneficiaries being Iraq, Syria, Libya and Egypt. Russia is becoming an important market and its

economic developments are being closely followed by the Turkish cement manufacturers who foresee great potential business opportunities, especially as new infrastructure and housing projects will be the main drivers for construction and cement consumption next year and beyond. The 2014 Winter Olympic games, scheduled to take place in Sochi, will provide a further boost to the country’s construction industry. Infrastructure developments and new building projects in many African countries will also prove to be promising markets for Turkish cement exporters. More good news arrived in October when the Turkish company Cimtek, an affiliate of Isiklar Holding, announced that it had signed a protocol agreement with a local group to build a 2 million tpa cement plant in Northern Iraq.

EU: in or out?

It is not possible to leave this brief insight on Turkey without mentioning its application to become a Member of the European Union membership. The country has to complete some 33 chapters of negotiations to bring all its laws into EU compliance. So far only 13 have been opened and 19 have been frozen over the unresolved matter of Cyprus. Last month the EU issued its annual report on Turkey’s progress towards membership. Once again it has demanded that Turkey opens its ports and airports to Greek-Cypriots, but this was rejected by President Abdullah Gul. In an interview with The Economist he said that Turkey will pursue the reforms necessary for membership even if most of the chapters remain closed. Many of the chapters are blocked by Cyprus and by other EU countries, especially by France and Germany. Of course the real fear among the pro-Turkey members is that Turkey might reject membership and turn away from the west, preferring to strengthen ties with the east. The governing AKP has said it will pursue the passing of EU-related laws, but there will be a general election in June 2011, so it will be interesting to see what develops after that and before the publication of the next EU annual report n the country. In the meantime Turkey continues to power ahead. 

Paul Maxwell-Cook, Managing Editor, World Cement

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