In the Zone

Turkey

Economic News

22 Jul 2010
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President Abdullah Gul's visit to Egypt this week drew something of a mixed response from Turkey's business community. The president's large business entourage has been the subject of debate, with certain Turkish industrialists complaining that the government should be investing more in Anatolia - which remains underdeveloped compared to western Turkey - rather than abroad. The criticism has not detracted from Turkey's commercial ambitions on the southern shore of the Mediterranean Sea. Nor has it reduced the drive of Turkish companies looking to set up shop in Egypt.



One purpose of the president's visit was to attend a ceremony at the Turkish Industrial Zone located 30 km outside of Cairo. The industrial area covers 2m square metres and is eventually expected to draw in 125 Turkish businesses of various sizes, providing employment for 25,000 people and on-the-ground investment worth $1.5bn. It is hoped the zone will generate a trade volume of up to $4bn per annum when fully occupied.



The Turkish Industrial Zone partly accounts for the increased interest of Turkish textile manufacturers in Egypt over recent years, drawn as they are by local incentives and favorable business conditions. The Qualified Industrial Zones (QIZ) agreement between Egypt, the US and Israel also has a role to play - the terms of which extend to the Turkish industrial Zone itself. The protocol grants manufactured products duty-free access to the US market on the condition that 8% of the raw material input comes from Israel or Israeli companies.



Turkish textile manufacturers enjoy tax-free access to Europe from Turkey under the Customs Union, but there is no such equivalent agreement with the US, where textile imports are still subject to restrictions. Europe will always constitute the main market for Turkish textile exporters due, in no small part, to geographic proximity and fast delivery times. But Turkish manufacturers are also keen to tap the spending power of America's quality-conscious consumers, while also looking for a gateway into Africa and the Arab world. Egypt has clearly benefited from its strategic position as a point of entry into the two regions.



The chief advantages for Turkish textile manufacturers that operate in Egypt are clear. Insiders say that Egyptian labour costs are one-fifth those of Turkey, while natural gas costs one-eighth and electricity one-third. The quality of Egyptian cotton also has pulling power, despite the level of underdevelopment and the years of neglect experienced by the upstream segment of the local textile industry. It is no surprise then that 79% of all companies investing in Egypt's QIZs are textile manufacturers, according to 2006 figures by Egypt's ministry of trade and industry.



This is not to deny certain frustrations among Turkish and Egyptian companies. "The Egyptians do not like making investment decisions quickly, whereas the Turks do," according to one leading Turkish textile manufacturer. An Egyptian counterpart complains that the Turks are tough negotiators in business and inflexible by Egyptian standards.



Grumbles aside, textiles alone are not the only beneficiaries of the increased trade and commercial links between the two countries. The coming into force of the free trade agreement (FTA) between Turkey and Egypt in March 2007 was a landmark event. Figures from the Turkish government show that Turkish exports to Egypt amounted to $700m in 2006, while imports from Egypt notched $388m that same year. Cairo and Ankara have set their sights on $2bn worth of bilateral trade in the near future. Figures from 2007 show that there were 70 Turkish companies operating in Egypt, with total investments (excluding construction and retail) valued at $150m.



The Turkish government should not be blamed for the size of President Gul's entourage during his visit to Cairo, particularly given the growth potential of business and trade between Egypt and Turkey.

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