Ottoman business empire

Turkish Prime Minister Ahmet Davutoglu made an official visit to Hungary on Tuesday and Wednesday aimed at strengthening trade, energy and business co-operation. Turkey and Hungary share a long-standing common history. Here’s a look at the relationship of the two countries.

After the change of regime in Hungary in 1989, political relations between the two countries quickly improved. Bilateral relations continue to flourish on the basis of friendship, cooperation and common interests.

There are no outstanding political problems between Turkey and Hungary. The accession of Hungary to NATO and the EU has brought a multilateral dimension to the relations between the two countries. Indeed, Hungarian aspiration to join NATO was strongly supported by Turkey. Hungary, which became an EU member in May 2004, likewise supports Turkey’s hope of EU membership.

In the economic and commercial domains, relations are also developing between them, yet still do not reflect the true potential the two economies have. Bilateral trade volume reached USD 1.879 billion in 2013 (Turkey’s exports were USD 652 million and its imports USD 1.227 billion). Turkey-Hungary trade volume was USD 1.9 billion in 2014, according to Turkish government data.

Both sides have the will to further enhance economic cooperation and aim to bring the bilateral trade volume to USD 5 billion in 2015.

A great supporter of Hungary comes to town

An international relations expert, academic and former minister of foreign affairs, Ahmet Davutoglu is Prime Minister of Turkey. Davutoglu always criticises the idea of implying that the West is immanent to the world, which means Western civilisation holds the intrinsic values of the world by itself.

This idea led, for instance, the American political scientist and political economist Francis Fukuyama to the notorious concept of “the end of history”, to which Davutoglu gave a clear answer affirming that history, on the contrary, would gain acceleration and the end of history assumption was just an illusion of power. His authority rests on an impressive mastery and blending of history, politics, law, ethics and culture as providing the necessary components for a coherent strategic outlook. That’s why he understands the importance of Hungary better than many European leaders.

Davutoglu’s visit follows up the first meeting of the High Level Strategic Council, an inter-governmental conference set up in December 2013 accompanied by a large business delegation that took part in a Business Council meeting in Budapest. Hungary is interested in discussions with new energy routes, and Turkey and Hungary set up a joint committee on energy cooperation in January.

Hungarian Eximbank is in the process of opening a new branch in Istanbul to support businesses with a credit line of USD 170 million earmarked for Hungarian small- and medium-sized enterprises that are active in the Turkish market. Although 1567 kilometres away from Turkey on the map, Davutoglu has the vision and the will to keep Hungary as close as a neighbouring country.

Turkey at a glance

In recent years Turkey has overcome a series of political and economic challenges and is now enjoying a period of stable and solid economic growth. The country still has great untapped potential, with its economy set to grow.

Turkey is now a regional and a global power. It aims to become one of the top 10 economies in the world by 2023. To do this, it is targeting export volume of USD 500 billion, GDP of USD 2 trillion and GDP per capita of USD 25,000.

To reach these goals, investment of USD 250 billion is planned in the fields of energy and transportation. Today, Turkey is one of the most attractive investment destinations for foreign investors. It benefits from a unique strategic location; a young, dynamic and skilled workforce; and a stable political and economic environment.

Turkey received foreign direct investment (FDI) inflows of only USD 18 million 33 years ago when it started to host foreign investors. The cumulative value of foreign investments surged to USD 138.3 billion as of 2012. Turkey received USD 12.6 billion of FDI in 2013 and USD 8.6 billion in the first eight months of 2014. We are talking about a total figure reaching almost USD 200 billion as of today.

FDI projects in Turkey cover the entire value chain. The country receives both industrial and services projects. Though services activity accounts for the most investment decisions, Turkey’s vast, cost-competitive labour force adds to its appeal as a manufacturing destination. Strengths such as its location and large domestic market are helping Turkey to become a centre of operations for multinational companies.

The world has realised that the concept of emerging markets is not limited to the four large BRIC economies: Brazil, Russia, India and China. Turkey, along with others such as Indonesia, Vietnam and Mexico, has all the fundamental economic characteristics to lead the next wave of rapid-growth markets.

Turkey as an investor

The asset value of Turkey’s direct investments abroad at the end of the first quarter of 2013 reached USD 31 billion, and the value of companies in Turkey that are direct foreign investments is measured as USD 185 billion. This shows that Turkey’s direct investments abroad constitute 17% of those active inside the country.

Three-quarters of Turkey’s investments abroad are in Europe and the United States, the rest are in Asia. Sectoral breakdown explains why this is so: 22% of direct investments of Turkey abroad are related to finance. In other words, Turkish banks invest in financial centres such as Holland and Luxembourg to find money; they make money by brokering foreign trade. Also, they operate at tax havens at off-shore banking regions such as Ireland and Malta. This is the essence of the investment abroad in finance.

Sectoral-wise, second place is occupied by food and textiles, those industries Turkey has become specialised in, with 35%. This is understandable that they have exceeded borders. State investments abroad in oil countries such as Azerbaijan, Kazakhstan and Iraq have a share near to 15%.

Turkcell’s investments abroad are noteworthy. Turkish Airlines seems to have made investments abroad by opening offices in several countries. Indeed, there are also companies formed abroad to undertake construction work abroad. They reach to Russia, Ukraine and other peripheral, neighbouring countries and have a share of nearly 8% in total investments abroad.

Turkey is an active and attractive player, with even more investment being most welcome. A Promotion and Protection of Mutual Investment Treaty between Turkey and Hungary was signed on 14 January 1992 and came into force on 1 April 1995. To reinforce the previous initiative a Double Taxation Treaty came into force on 1 January 1995.

The volume of bilateral trading reached USD 2.1 billion in 2012. In terms of bilateral sales of goods, Turkey is ranking one of the top among the business partners from outside the EU. Reported Turkish direct investment in Hungary is led by the airport ground services (Celebi Holding) and telecommunication sectors (Türk Telekom).

Turkey is enhancing direct investment to Hungary in the sectors of environment, automotive, energy, life-science, medical technology, and pharmacy and health tourism.

Ali Serim is a distinguished and internationally recognised entrepreneur and a development professional with a proven record of both private sector engagement and advocacy in new market entry, strategic growth and overall stimulation of economic growth in the Turkish market. He has published books and is a contributor to various newspapers in Turkey.