ISTANBUL -- Turkey is looking to Asia as exchanges of goods with its main trade and investment partner, the European Union, diminish. Asia seems to welcome Turkey's return.
Exports to the EU in 2003 constituted 58% of Turkey's total, as the country enjoyed the fruits of customs union with the bloc since 1996. By 2012, the ratio of Turkey's exports to the EU had decreased to 39%.
The Justice and Development Party, Turkey's mildly Islamist ruling party, acted to remedy the loss. It more than doubled the share of exports to the Middle East to 28% in 2012, up from 11% in 2003.
The country is now looking to the long-neglected Asia and Pacific region to diversify its trade relationships, and attract foreign direct investment. Between 2003 and 2012, Turkey increased its ratio of exports to the Asia Pacific region by 2 percentage points to 7%.
Prime Minister Recep Tayyip Erdogan in December visited Pakistan and announced a preferential trade agreement with the country. This year's first foreign trip for the prime minister was to East Asia. Erdogan embarked on a five-day visit to Japan, Singapore and Malaysia at the beginning of January. He was accompanied by almost 100 executives and business officials.
Erdogan and Japan's Prime Minister Shinzo Abe announced economic partnership agreement negotiations between the two countries will start in June. They set a target for increasing annual trade to $10 billion from the current amount of less than $4 billion. The two leaders also confirmed progress on a $22 billion nuclear power plant deal in Turkey that involves Mitsubishi Heavy Industries and French energy giant Areva, and agreed to establish a joint science and technology university in the country.
In Singapore, Erdogan announced the start of free-trade agreement negotiations with the country. In Malaysia, at a news conference with Malaysia's Prime Minister Najib Razak, Erdogan announced free-trade agreement talks between the two countries will be completed in April, when Najib visits Turkey.
Sinan Ulgen, chairman of the Istanbul think tank Center for Economics and Foreign Policy Studies (EDAM) said Turkey has a multifaceted strategy. "Turkey is trying to catch up with the EU, which is negotiating with Asian countries for signing FTAs," he said, "in order not to fall into a disadvantageous position, as it's a member of the EU customs union. However, the real motive is to attract FDI from Asian countries such as Japan and China."
Export growth has slowed in recent years. "Turkey can not extend her trade beyond $ 200 billion from current $150 billion levels with the current export routes," said Economy Minister Nihat Zeybekci, accompanying Erdogan on the East and Southeast Asia trip. "We want to sign FTA or EPA agreements with Japan, Singapore, Malaysia, India, Indonesia, Thailand and other countries, to gain access to a market with a population of 3 billion."
The minister added that a FTA agreement between Turkey and South Korea has been in effect since May 2013, and expressed hopes of signing an agreement with Japan by the end of 2015 or the beginning of 2016.
Eye on investment
FDI into Turkey is far from its peak of $22 billion in 2007. It decreased to $10.3 billion between January and November 2013, and was $12.4 billion for 2012. More than 70 percent of the FDI coming into Turkey is from crisis hit EU.
Turkey's population increases by about a million every year. It needs FDI to create jobs and rein in the country's current account deficit, which is officially estimated to be around 7% of GDP in 2013, at about $59 billion.
The country is making progress in attracting East Asian money. Malaysia's Najib announced investments in Turkey in the health-care, insurance and airport management sectors has reached $1.5 billion. Singapore's state investment arm, Temasek Holdings, acquired a stake in one of Turkey's largest state-owned banks, Halkbank, according to local media. "As well as finance, we expect Singapore also to invest in Turkey's infrastructure and energy sectors," Erdogan told Singapore's Prime Minister Lee Hsien Loong during a joint news conference.
Speaking in Malaysia, Erdogan said, "It was Asia's dynamism that revived the global economy during the harshest time of the crisis. We very much value our ties with Asia." Turkey also wants to become a dialogue partner with Association of Southeast Asian Nations, another sign of the increasing appetite to enhance relations with the region.
Reciprocal visits also highlight Asia's interest in Turkey. Before Erdogan's visit to Japan, Prime Minister Abe visited Turkey twice.
On the Chinese front, Erdogan paid an official visit to China in April 2012. It was the first visit by a Turkish Prime Minister in 27 years. In February of the same year, Chinese Vice President Xi Jinping, now president, visited Turkey. Then-Prime Minister Wen Jiabao was in the country in 2010. Sino-Turkish trade skyrocketed eightfold from $3 billion in 2003 to around $24 billion in 2012.
Chinese companies are actively participating in high-speed train projects and negotiating multibillion-dollar missile defense systems in the NATO member country, which raised eyebrows in the U.S. and Europe. Japan's Mitsubishi Electric also won a bid to build two communication satellites in 2011, worth $571 million, partly due to the reluctance of French Alcatel and U.S. Lockheed Martin to transfer technology.
Turkey aims to become one of the world's top 10 economies by 2023, the centennial of the founding of the country's republic. It has launched massive transport and energy infrastructure projects. Asian heavyweights are competing to win tenders in the $800 billion G-20 economy. As Turkey lacks immediate funds, most projects are foreign financed. The Turkish infrastructure market is today a battleground for Japan, China and, to a lesser degree, South Korea.
Japan has been active in Turkey's infrastructure projects since the 1980s, providing funding through official development assistance. As Turkey is an earthquake-prone country, Japanese know-how and technology is valued. Officials indicate that Japanese construction company IHI, which built the second suspension bridge in Istanbul in 1988, won the project to construct one of the world's largest suspension bridges in Izmit bay, western Turkey, in 2011, mostly because of the region's high seismic activity.
South Korea has also started to leave its mark on Turkish infrastructure. Hyundai E&C and the SK E&C consortium are currently participating in building the third Bosphorus bridge as subcontractors for the $697 million dollar worth part of the project. SK E&C is also building a second tunnel under Bosphorus for vehicles with a Turkish company, at a cost of around $1.4 billion.
"Turkey is effectively utilizing the political and economic rivalry between the Asian giants of Japan, China and South Korea to win better conditions in infrastructure deals," said EDAM'S Ulgen. "This is quite natural."