Turkey ponders whether Iran is economic partner or rival
Istanbul - Some are rubbing their hands in anticipation, others are concerned about an emerging rival but what Turkish business leaders and politicians agree on is that economic relations with Iran are in for a massive change.
Iranian President Hassan Rohani has said his country needs up to $50 billion in foreign investment a year if it wants to reach its aim of 8% annual economic growth after the removal of international sanctions following the deal on Tehran’s nuclear programme.
As a neighbour with an $800 billion economy and a strong export industry that ships everything from high-standard washing machines to modern cars and television sets, Turkey can expect to be among the biggest beneficiaries of the expected Iranian boom.
“As Turkey is like an entrance door for Iranian goods on the way to Europe and Iran is like a door for Turkish products on their way to Central Asia, Iran and Turkey can be good trading partners for each other,” Eyup Bartik, head of the Chamber of Trade and Industry in the south-eastern Turkish city of Gaziantep, said after a visit to Tehran.
Bartik put potential bilateral trade between Turkey and Iran at $35 billion a year, almost three times the current volume. The government in Ankara aims for $30 billion in 2023. Turkey’s exporters, as well as the construction and the steel industries, are in a good position to provide goods and expertise for a country that wants to catch up with the rest of the world after being cut off from much of the international trade for many years.
Turkey’s car industry, which accounted for $22 billion in exports in 2015, could use its advanced manufacturing techniques to enter the Iranian market.
Turkish companies could hope for many contracts in a short time period, Mehmet Dudaroglu, the chairman of the Turkish auto parts manufacturing association TAYSAD, said in January. He said up to 2 million cars would be sold in Iran and the need for spare parts would rise. He also noted that many Iranians speak Turkish.
But Iran’s economic awakening is not a chance just for Turkish companies hoping to widen export markets. The Turks are not the only ones out to secure plum business deals and establish themselves in what could be a huge market in a country of 77 million people that sits on some of the world’s richest oil and gas reserves.
During a recent European visit by Rohani, Italian and French companies signed contracts worth tens of billions of dollars with Iranian counterparts. Deals in Italy amounted to $18 billion, while aeroplane manufacturer Airbus won Iran’s agreement to buy 118 jets worth $27 billion, including a dozen A380 super-jumbo jets.
Rohani’s shopping trip demonstrated to the international community that Iran is open for business. The International Monetary Fund expects Iran’s economy to expand 4.3% in 2016, with growth at or more than 4% in the following two years. It also sees Iran’s imports expanding 18% in 2016, 14% in 2017 and 7% in 2018.
“Iran would always prefer Turkey but they are entering a period where they will evaluate numerous alternatives,” Bilgin Aygul, president of Turkey’s Foreign Economic Relations Board (DEIK) and head of the Turkish-Iranian Business Council, told the Hurriyet Daily News, an English-language daily in Turkey. “They want cooperation but they want to do the same with the Europeans, too.”
European countries, as well as Japan and China, sent large trade delegations to Iran, Aygul added. In contrast, Turkey had lost time with two general elections in 2015. “We have to catch up now and start moving faster,” Aygul said.
Economic rivalry by Europeans and others is not the only problem for Turkey. Aygul said political differences between Ankara and Tehran, which follow contrasting agendas in the Syrian conflict, could affect economic relations.
Potential competition from within Iran itself is another concern. With its large population and a well-educated workforce, Iran could become a rival to Turkey, which has the biggest and most advanced economy in the region.
At the moment, Iran is no match for Turkey when it comes to foreign investment. Turkey attracted more than $12 billion in direct foreign investment in 2014; Iran just $2 billion. Turkish Economy Minister Mustafa Elitas told Reuters that this was unlikely to change as foreign investors preferred democratic countries.
But the minister admitted that, further down the road, Iran could become a force to be reckoned with. “If Iran advances with its economy, then they could become a rival,” he said.
Dudaroglu also said state incentives for Iran’s industries as well as lower costs could turn Iran into a competitor. Namik Ekinci, the head of the Turkish Steel Exporters Association, said Iranians had “the potential to export some of what they produce and could compete with Turkish steel”.
Cement producers are also wary. “The input with the highest cost is energy and energy is cheap in Iran,” Reuters quoted a senior officer at a major Turkish cement producer as saying. “There’s tough competition ahead.”