South of the Border

Turkey

Economic News

22 Jul 2010
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Cross the Turkish frontier into Northern Iraq and you will never be far from a "Made in Turkey" stamp. The fridge in your hotel room will likely be Arcelik, the TV a Vestel and even the butter you spread on your morning toast will be Pinar. Turkish companies are active both above and below the ground outside too, building tower blocks and airports, or drilling for oil and gas.



Earlier this month Turkish Trade Minister Kursad Tuzmen said the government is looking to increase the bilateral trade volume with Iraq to $3.5-4bn this year. Currently, Turkish-Iraqi business volume, which includes construction and other services, is around $7bn, with the lion's share of this going to the three governorates of Northern Iraq - Dohuk, Erbil and Suleymaniye. Tuzmen said Turkey was aiming to raise this figure to $10bn. Most insiders see these as easily achievable numbers.



Turkey is Northern Iraq's most important overseas trade partner, and not just in terms of the sheer volume of business. Turkey has enormous influence over Iraq's trade, partly due to the fact that it holds the keys to the strategic Harbur border gate, the frontier post between Turkey and Iraq just next to the Tigris River.



"Because Turkey is so near, we have a lot of contact with Turkish companies. All their trade with us, and the rest of Iraq, passes through here," Dara Jalil al-Khayat, president of the chamber of commerce and industry in Erbil, the region's capital, told OBG.



The landlocked provinces of Northern Iraq have no other safe exit route with quick access to both Turkey and Europe. There is also a great deal of shared history between the two neighbours, with Turkish goods enjoying a good reputation in the region.



Not only is there usually a long line of trucks at the border waiting to cross into Iraq, but since 2003, some 70% of all contracts issued by the regional government have gone to Turkish companies.



Turkish businesses have also been quick to see the opportunities presented by Northern Iraq's particular circumstances. Since Saddam Hussein's troops pulled out of the region in 1991, it has enjoyed a stability not seen elsewhere in the country. This has pulled in investment from many Iraqi citizens overseas, as well as, since 2003, investors from the rest of Iraq looking for a safe haven. A new investment law passed by the regional government in July 2006 gives foreign investors the right to own property, take the full returns of their projects out of the region and be eligible for tax holidays for strategic projects.



Meanwhile, the region is rich in resources. The most well known of these is hydrocarbons, with fields up near the Turkish border and down around the currently disputed city of Kirkuk.



A new oil law has been introduced would give regional authorities a great deal of power, enabling them to sign production-sharing contracts independently of Baghdad. Annexes to the legislation that specify who controls which oil fields and how money will be collected and distributed are being widely disputed. The legislation is expected to open the door to foreign investment.



Turkish energy companies have been among the first to take advantage of this, with Cukurova Holding's Genel Enerji and Pet Oil active in the region. In addition, Turkish Petroleum Corporation came to an agreement with Royal Dutch Shell in early April 2007 to jointly build a new gas pipeline from the oil fields near Kirkuk to the Turkish port of Ceyhan. While a line between these two points already exists, the new line is expected to take a more direct route. The region is thought to hold between 12-45bn barrels of gas and 100trn cu ft of gas.



Construction is a huge sector for Turkish involvement. The new airport at Erbil is being built by Turkey's Mak-Yol Cengiz Common Enterprise while other construction sector outfits - from materials suppliers to architects - are also hard at work there. The price for construction materials is high, as little of the pre-war infrastructure for manufacturing them remains and almost everything has to be brought in by road. Nonetheless, the margins are still good, as a glance around the building crane-dotted skylines of Dohuk, Erbil and Sulemaniye will testify.

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