Building Bridges

Turkey

Economic News

22 Jul 2010
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As the first visit of a Russian leader in 32 years, President Vladimir Putin’s touch down in Ankara last week came as something of a boost to Turkish-Russian relations. It was more than a mere diplomatic nicety too, with both parties addressing some key issues – including trade, energy and security. Yet although sources of tension have been shelved with enhanced engagement on the cards, past frictions between these two great regional rivals will take time to fully flush out.



This time though, previous allegations by Moscow over support for Chechen rebels coming from Turkish soil were notably absent during the visit. But this did not stop Russian Defence Minister Sergei Ivanov from demanding that Turkey heighten its efforts to capture and question people suspected of backing the Chechen separatists. The handover of a file from Russian Foreign Minister Sergey Lavrov to Turkish Foreign Minister Abdullah Gul concerning such militants was equally indicative of Moscow’s ongoing concerns. Indeed, the September siege of a North Ossetian school by Chechen militants – leaving 300 dead – is something of a fresh wound for Moscow. It had also led to the cancellation of Putin’s visit to Turkey, which had originally been scheduled for back then.



Little coincidence then that Turkish anti-terrorism police scurried to detain nine Chechens and three Turks of Chechen descent believed to have terrorist links prior to Putin’s visit. Such initiatives moreover promised to deliver returns, with Sergei Ivanov effectively stating that Moscow was planning to include the Kurdistan Workers’ Party (PKK) – now known as Kongra-Gel – on its list of terrorist outfits. This would mark a first for Ankara, given the bone it has long picked with Moscow over PKK elements finding refuge in Russia.



Though there is continuous support for the Chechen plight within Turkey, both Moscow and Ankara have shifted to heal tensions over home-grown militant groups.



“I would like to especially underline that the two countries’ approaches on the struggle against terrorism are identical,” Putin asserted during his visit. Such rhetoric cannot rule out the potential for Moscow to once more heighten the pressure on Ankara to effectively deal with local sympathisers of the Chechen cause.



Meanwhile, Central Asia and the Caucasus – long regarded as a source of rivalry – have also been cast under the spotlight. President Putin did not fudge his words on the matter during an interview with CNN Turk: competition must be avoided if a greater level of regional stability is to be achieved. Indeed, such is the official line being toed by both by Ankara and Moscow.



But geo-political realities on the ground may test the resolve of Turkey and Russia to work as tightly in what Moscow still considers to be its own back yard. As pointed out by Zeyno Baran, director of the Caucasus Project at the Centre for Strategic and International Studies, “In the past, Georgia had asked the Russians for help against the Ottomans, but today Georgia receives military, economic and political assistance from Turkey.”



Nationalists in Moscow are less than happy about the co-operation between Turkish and Georgian security officials, with particular disgruntlement shown over Turkish assistance in modernising the Marneuli airbase near Tbilisi.



The reason for such unease in the Kremlin is clear enough.



“As long as Georgia has problems with Russia, it will need Turkey and the United States,” according to K Gajendra Singh, ex-Indian ambassador to Turkey and current chairman of the Foundation for Indo-Turkic Studies. With Putin now accusing the West of meddling in the Ukrainian elections, Moscow is unlikely to tolerate any further moves that might conceivably be interpreted as an intrusion into its own back yard.



Turkey in the meantime has its own set of concerns, with Russian bases in Armenia and Georgia causing some unease across the border. Although Ankara has expressed its wish to restore stability in the Caucasus, much will depend on the ability of each side to rein in long-standing differences. This is particularly the case with the Azerbaijan-Armenian dispute over Nagorno-Karabakh – with Turkey and Russia traditionally standing at loggerheads over the issue.



However, although Moscow and Ankara may not see eye to eye on all foreign policy matters, mutual back-scratching can often be useful in fulfilling policy objectives. While Ankara expects Russia to exert its weight in favour of Turkish Cypriots through its permanent seat in the UN Security Council, Moscow is depending on Turkey’s support in its bid to sit in as an observer of the Organisation of the Islamic Conference (OIC.)



Yet, the issue that ranked at the very top of the agenda for 2004 has been trade and commerce, with Ankara looking to narrow its trade deficit with Russia. Thanks largely to an insatiable inflow of oil and natural gas imports from its northern neighbour, Turkey managed to accumulate a bilateral trade deficit of as much as $5bn in the first nine months of 2004. Quite a hitch given that the balance was $4bn in the red for 2003. This, according to the Foreign Economic Relations Foundation, can be put down to Russia’s violation of a natural gas agreement signed in 1984, whereby 70% of natural gas bought from Russia be paid for with Turkish goods and services.



However, trade imbalances have not deterred overall growth. Bilateral trade increased 60% year-on-year in the first half of 2004, reaching $4.6bn, according to the Russian Trade Ministry. Meanwhile, year-end estimates anticipate a walloping $10bn for 2004. Not bad considering that bilateral trade was registered at $1.3bn in 1992, up to $6.8bn by the end of 2003. Such growth has been equally reflected in levels of one-way Turkish trade to Russia, registering a cross-border flow worth $1.5bn in the first seven months of 2004, versus $1.6bn in 2003. Meanwhile, Russia exported goods worth $2.7bn to Turkey in the first seven months of 2004, with $5.4bn registered in 2003.



In spite of a fairly asymmetrical trade relationship, Turkish firms have in fact been able to cash in on juicy contracts and business ventures in Russia. Particularly over the last five to six years, there has been a surge in Turkish direct investments in Russia, notching over $1bn in 2004, according to the Turkish Foreign Economic Relations Board (DEIK). Such heavy weights as Enka Holding, Koc Group, Zorlu Holding, Anadolu Group, Netas, Ruscam, Vestel and Collin’s Jeans have not only succeeded in penetrating the Russian market, but have also seized sizeable shares in their respective business areas.



Construction has also proven to offer Turkish contractors further opportunities to line their pockets. According to DEIK, Turkish contracting companies have so far managed to bag 813 projects in Russia, amounting to $14bn. More are expected to emerge in the coming years with contracts for public projects up for grabs. This, along with an influx of over 1m Russian tourists a year, bodes well for Turkey’s coffers – both public and private.



Russia too is looking towards a bright future for bilateral commercial ties. During a December speech at the Turkey-Russia Business Forum, Prime Minister Recep Tayyip Erdogan urged Russian business circles to heighten investment levels in Turkey. The $5m worth of overall capital invested by Russian companies is insufficient given the potential on offer, according to Erdogan. Russian investors meanwhile have quite a selection of opportunities at hand with transportation, the defence industry, tourism, the food industry, the textiles industry and banking all earmarked by Turkish authorities as potential areas for business co-operation. Putin in the meantime has pointed to tenders in energy, hydroelectric and thermal power plants, Turkish petroleum refineries and the defence industry as drawing particular interest from Russia’s business elite.



In particular, energy will continue to be an area of interest between Russia and Turkey. No slow down in the trend is expected either, with future co-operation between BOTAS – the Turkish petroleum pipeline corporation – and Russia’s Gazprom on the cards.



Like politics, energy offers its own set of choke points. The most well-known of these is the Bosphorus, which tanker traffic from the Black Sea passes through in order to reach the Aegean. Turkey has long argued that this traffic is too high and exposes the city of Istanbul to the risk of collisions and explosions. Russia has often accused Turkey of exaggerating the problem and shutting the strait down unnecessarily.



Although Russian officials concede that past levels of traffic cannot be sustained in the long term, Moscow and Ankara have not yet been able to reach an agreement on the alternative route. Whilst Russia is looking at plans for a pipeline to run through north-western Turkey to the Aegean – while at the same time advancing an identical project with Bulgaria and Greece to do the same thing – Turkey favours a north-south pipeline route running from the Black Sea to the Mediterranean. The issue has yet to be properly discussed, let alone agreed upon.



Such issues however have failed to overshadow the positive momentum accompanying Putin’s December visit. With economy-related issues topping the agenda, and efforts to improve military and defence-oriented co-operation at the fore of discussion, both Moscow and Ankara continue to build bridges. But Russia’s continued sensitivity over the “near abroad” and Chechen militants may yet resurface, allowing new overtures to falter. Some way then before Moscow and Ankara can truly march hand in hand.

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