Turkey diversifies exports, improves foreign trade balance
Turkey’s export diversification strategy is paying off as its terms of trade improve despite global economic uncertainty, particularly in Europe.
By Erisa Dautaj Şenerdem for SES Türkiye in Istanbul -- 25/05/12
Turkey maintained export growth and improved its foreign trade balance -- the difference between exports and imports -- during the first quarter of 2012, despite the worsening situation in the eurozone. The country’s strategy of diversifying its export destinations is positive and will be sustained in the coming years as well, economists said.
Turkish exports grew by 12.6% in the first quarter of 2012, compared to the same period last year, while imports contracted by 0.7% for the same period, according to figures published by the Turkish Statistical Institute (TUIK).
Turkey has managed to diversify its export destinations since 2009, mainly pushed by the global financial and economic crises.
Exports to the EU made up 42.3% of total Turkish exports during the first quarter, compared to 48.3% last year. Meanwhile, the share of exports to Africa increased from 7 to 9.8% and the share of exports to Asia from 27.3 to 29.1% year-on-year in the first quarter, TUIK data shows.
The share of Turkish exports to members of the Organisation of Islamic Conference increased to 31.3% from 26.6% during the first quarter compared to the same period in 2011.
"As the global trend implies that world economic growth will continue to be led by so-called emerging markets in the coming period, maintaining convergence with advanced economies, Turkey’s approach is certainly a good strategy," Sengul Dagdeviren, chief economist at ING Bank, told SES Türkiye.
Noting that diversification is driven by the worsening economic situation in the eurozone and more rapid growth in Middle Eastern countries, Zumrut Imamoglu, an economist at Bahcesehir University’s Economic and Social Research Centre (BETAM), told SES Türkiye the situation could change in favour of the EU after an improvement in European economies, given that the EU is Turkey’s nearest and largest economic region.
Economic relations with the Middle East and neighbouring countries is improving in part due to a number of free trade and visa liberalisation agreements Turkey concluded with these countries.
Hakan Aklar, chief economist at AK Invest, said there is a high possibility the trend in diversification would be maintained in the future as well.
Neighbouring countries such as Iraq, Iran, Libya and Egypt are not new markets for Turkey, but their purchasing power has significantly increased in recent years -- while Turkish products have room to grow in the unsaturated marketplace.
According to Aklar, Turkey's currency weakened during the previous year and domestic demand also started to contract following policies that aim at a soft-landing of the economy and preventing overheating.
In the first quarter of 2012, Turkish exports to Iraq and Iran increased by 40.8% and 31%, respectively, compared to the same period last year. Exports to Libya and Egypt increased 99.2% and 85%, respectively.
Behind the growth is also the eurozone crisis as Turkish exporters look for new markets. "Turkish exporters are good entrepreneurs: once a certain market weakens, they manage to be orientated to other markets," Aklar said.
Rating agency S&P cut Turkey’s sovereign credit rating outlook from positive to stable at the beginning of this month. The agency’s main arguments were a "less-buoyant external demand and worsening terms of trade," that have according to S&P made economic rebalancing more difficult, and have increased the risks to Turkey's creditworthiness. The rating agency also said Turkey’s high current account deficit and net external debt in the financial sector made the country vulnerable to shocks.
"As we have left the peak in the current account deficit behind in 2011 and the economy is already on a healthy soft landing path, the timing was surprising and seems to be more related to the weak eurozone outlook and risk of higher oil prices than rising systemic risk in the country," Dagdeviren said of the S&P decision.
About 75% of the foreign direct investment that flows into Turkey comes from the EU and the bloc's 42% export share remains still substantial, which according to Aklar makes Turkey vulnerable to any shocks that might come from the EU.
However, he noted that there is a slow and gradual improvement in the current account deficit, which is positive for Turkey. There seem to be no concerns with the state budget and the banking system is still strong, he added.
Turkey’s current account deficit stood at 10% of GDP last year and is expected to be 8% this year. Energy imports are a key contributor to the deficit, however, intermediary goods imports make up the largest share in imports. The government announced recently an investment and savings incentive package to encourage the production of intermediary goods and increase the domestic saving rates.