Exports of commodities and services are the main source of foreign currency in Turkey. Its economy relies on them heavily for a foreign currency balance between supply and demand, and to generate a surplus for the foreign currency reserves as a means of defending the value of the Turkish lira.
As a result of the conditions created by the coronavirus pandemic, last year saw a decline in Turkey's foreign currency revenues from exports. Hence, the decline in the value of the Turkish currency. This explains why steps have been taken to compensate for that decline.
Some success has been achieved, according to the results of the first ten months of 2021. The export of commodities grew by about 34 per cent compared with the same period in 2020. Service exports grew as a result of the growth in net revenues from tourism by 111 per cent. Motivated by the decline in the value of the lira, foreign purchases of Turkish properties rose, and there were more foreign investments in the country compared with the previous year.
It could be said that it was only natural for exports to increase during the year that followed the first twelve months after Covid-19 first appeared, once its adverse effects on the economy had receded. However, Turkish exports during the ten months of this year reached $182 billion, higher than the whole of 2020. By year end, it is possible that exports could hit a record high, despite the health crisis.
The relative distribution of exports is as follows: eleven per cent in cars, spare parts and accessories; nine per cent in machines and parts; eight per cent in clothes; five per cent in electrical appliances and parts; likewise for gems, jewellery and rare metals; 4.5 per cent in plastics and plastic products; four per cent in iron and steel products; and the same in petroleum products.
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Of course, exports benefited from the sharp decline in the value of the Turkish lira during the current year. Yet the problem is that the value of imported commodities increased too, growing by about 22.5 per cent to reach $215.5bn during the first ten months. This has prolonged the chronic deficit that has been in existence in the commodities trade balance for decades. With many Turkish exports relying on foreign component parts, an increase in exports necessarily means an increase in imports.
Although an improvement in the export of services, in the presence of a historic surplus in the services trade balance, leads to narrowing the gap in the balance between commodities and services, the export of commodities remains the larger and more important factor. After all, the export of commodities has a much larger value and operational effect than the export of services, incoming foreign investments and remittances from workers abroad.
Hence, the Turkish authorities have sought to prepare the markets for an increase in exports, whether of commodities or services. This includes ironing out the differences with Greece; reaching out to Armenia; releasing the Israeli tourist and his wife at the request of the Israeli Prime Minister; seeking rapprochement with the United Arab Emirates, Egypt and Saudi Arabia; containing the tension between the presidents of Turkey and France; launching the Council of Turkic States; and convening the Turkish-African summit.
The geographical map of Turkish exports during the first ten months of the current year indicates that 55 per cent of those exports headed for Europe, while 24 per cent went to Asia, 10 per cent to North and South America; 9 per cent to Africa; and 0.5 per cent to Australia and New Zealand. The Turkish-African summit was held in an attempt to increase exports to Africa. These are valued at less than $17bn in a continent of 54 countries. There has been a special effort to focus in particular on the Arabic-speaking countries of North Africa.
The Arab share of Turkish exports overall was 17 per cent with an estimated value of $17bn. As usual, Iraq tops the list of Arab importers of Turkish goods and services followed by the UAE, Egypt, Morocco and Libya.
The share of Turkish exports to the member states of the Organisation of Islamic Cooperation, including the Arab states, totalled 25 per cent. This points to the fact that Turkish exports to large Islamic countries such as Indonesia, Malaysia, Pakistan, Bangladesh and Nigeria continue to be relatively small in volume.
Turkey's dispute with Saudi Arabia in the wake of the murder of journalist Jamal Khashoggi and the call by the Saudi Chamber of Commerce for a boycott of Turkish products, had an economic impact. The value of Turkish exports to Saudi Arabia, which reached $214m during the first ten months of 2021, was down on the previous year. There has been an unprecedented decline over the past two decades. In 2012, Turkish exports to Saudi Arabia were valued at $3.6bn, and this figure was more than $3bn for several years. This year, Saudi Arabia ranked 19 among 22 Arab states with regard to the value of Turkish exports during the period under review. Turkey's exports to Yemen were four times its exports to Saudi Arabia.
Despite the extensive call in October 2020 for a boycott of Turkish goods by the UAE, businesses justified continued imports by saying that it was intended to re-export the commodities to other countries. Even so, Turkish exports to the UAE, valued at $4.3bn, are still much lower than they were several years ago. In 2017, for example, their value exceeded $9bn.
The same negative impact was felt with regard to trade with Armenia. Exports there were valued at no more than $2m. Despite the fact that this is quite a small figure, it is still the best over the past ten years, during which there were also zero exports.
Improvements in relations with Greece, however, led to an increase in Turkish exports, up to $2.5bn. This is an unprecedented figure in the past fifteen years.
The relative share of Turkish exports to the Organisation of Turkic States is rather small, estimated to be no more than three per cent. Nevertheless, maximising the sources of foreign currency would require reducing the value of the trade deficit that has been ongoing for many years, especially with those states where such a deficit is concentrated. Foremost among these is China, with which the trade deficit was $23bn in ten months this year. This is followed by Russia, with a trade deficit of $18bn, then South Korea and India with more than $5bn deficit each.
This emanates from the local manufacturing of some of these imports from Turkey. This is not a simple matter, taking into consideration the structure of Turkish imports during the ten months. This included 17 per cent for fuel (oil, natural gas and coal), 12 per cent for machines and spare parts, 10 per cent for iron and steel, seven per cent for plastics and plastic products, six per cent for cars and spare parts, and three per cent for organic chemicals.
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Fuel imports were affected by the sharp rise in the price of natural gas and coal during the current year in addition to the low proportions of self-sufficiency in gas and oil, which means that it is difficult to do without these imports in anticipation of the start of production from the fields discovered during the past one and half years. In addition, there is also the difficulty of doing away with the import of machines that serve to increase production and the need for iron and steel as a raw material used in such manufacturing processes.
Whereas Egypt resorted to the IMF as well as to other lenders; opted to abide by the IMF programme as a means of maintaining the stability of the value of the Egyptian currency; and put up the interest rate in order to attract investment and bolster its foreign currency reserves, Turkey has refused to resort to the IMF or put up the interest rate.
Opting for the alternative of reducing the interest rate in order to encourage local production and attract foreign investment, and resorting to more exports and operations in order to reduce unemployment requires some time to see the benefits. It also requires an understanding on the part of the Turkish people as they bear the brunt of inflation. There must also be measures aimed at alleviating the burden of inflation, such as those undertaken by the government, which increased the minimum wage and abolished two taxes.
Such options come at a time when the opposition is inciting the public against the government, foreign countries are seeking to remove the Justice and Development Party from power — just as Egypt, Morocco and Tunisia did to their Islamist parties — and when speculators, who are only interested in quick profits, continue to be active.
Hence the importance of paying attention to all sources of foreign currency while encouraging imports that go beyond tourism to construction and services in the finance, health, education and culture sectors, as well as the environment. This also includes the promotion and marketing of Turkish drama, encouraging Turkish expatriates to continue transferring earnings to relatives back home, and attracting more direct foreign investments and deposits.
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.