Issues hampering business between Turkey and Saudi Arabia

Jeddah — If we are to be sincere in our efforts to bring Turkey and Saudi Arabia together in a real sense, not just because of conjecture or the imposition of changing regional dynamics, then we have a duty to be very frank with ourselves. Granted that there are a lot of good things happening right now between these two important regional players, it follows nonetheless the painstaking argument that there is a lack of progress on a number of fronts that needs to be addressed shortly to promote the Turkish-Saudi alliance on solid ground.

I was with Economy Minister Zafer Çağlayan during his three-day tour of Saudi Arabia with over 100 businessmen, which took us from Jeddah to Riyadh for a number of business meetings. It was obvious that the Saudis had attached great importance to this visit, as the Turkish delegation was given the royal treatment from landing at the airport to meetings with high-level Saudi officials. It was certainly more than usual for a Turkish minister, or for any minister for that matter, to meet five Saudi ministers with different portfolios.

What can and should be done to improve relations at the business level to support shared political goals? For one, it is a shame that the Saudi embassy in Ankara has been without an ambassador for almost a year now. The last Saudi ambassador, Mohammed Raja al-Hussaini, bid farewell to his post in February last year after five-and-a-half years of distinguished service. Though the deputy chief of mission at the Saudi embassy can take care of the daily routine, it is not the same as having an ambassador lobby Turkish officials on a number of issues.

Just to put it in a contrasting perspective, I must tell you that I see the Iranian ambassador to Turkey, Bahman Hosseinpour, in almost all venues in the Turkish capital, actively engaging with his partners in the diplomatic corps as well as attending meetings with officials from the Turkish government. I remember last year when I was following the Gulf Cooperation Council (GCC) Summit in Abu Dhabi, where the host country — the United Arab Emirates (UAE), Iran’s major trading partner — feeling the heat from UN and US-imposed sanctions against Iran had imposed crippling trade restrictions with Iran. Hosseinpour toured Turkey the same week of the GCC Summit to inspect the port facilities along Turkey’s Mediterranean coast and the Black Sea ports that are to replace Dubai trade routes with the ones in Turkey. In a nutshell, having an ambassador on the ground should not be discounted and really does matter at crunch time.

On the second sour note, I still do not understand what the hold up is with the years-long stalled Free Trade Agreement (FTA) talks between Turkey and the GCC. I’ve heard all the reasons for the freeze on the FTA, from ongoing technical discussions to never-completed impact studies, from apprehension over GCC market stability amid the crisis to an intense lobbying from specific industries. Considering that FTA talks began in 2005 and four rounds of negotiations were held until 2009 before the freeze, I fail to see why there is still no movement on that front at the end of 2011. It can be explained only by the lack of political will on the part of GCC leadership, something GCC heavyweights like Saudi Arabia, Qatar and the UAE vehemently deny. Turkey deserves to be treated fairly and needs to see actions back up the goodwill talk we often hear from our friends in the Gulf.

The third area that needs further attention is the current trade volume between the two countries. The $6 billion trade volume does not suit well the two major economies that are members of the influential G-20 and that are not parted by geographical distance. It is like a peanut in the overall combined trade volume of $650 billion. Saudis can certainly outsource many products from Turkey. I was surprised, for example, to learn during business meetings in Riyadh that Turkish poultry producers were having a tough time getting into the Saudi market, while Brazilians can easily sell chicken there. In a cynical way, Mr. Çağlayan made his point to his counterpart, saying Turkish halal chicken tastes much better and Saudis should resolve the problems that prevent the sale of Turkish poultry products in the Saudi market.

Similarly, Turkey can and should also reduce its oil supply from Iran and replace the shortage with the supply from Saudi Arabia, possibly for a much more competitive rate as Chinese recently did. But, more importantly, Ankara should work on a backup plan for the Iranian supply of crude oil out of concern that looming sanctions, unilateral ones or UN-sponsored ones, on the horizon of the Iranian gas and oil industry may end up hurting Turkish industry. If we look at the crude oil supply to Turkey, the Iranian share has increased from 36 percent in 2008 to 43 percent in 2010, while the Saudi share has dropped from 14 percent to 12 percent in the same period. I asked Mr. Çağlayan about Turkey’s contingency planning as to the security of its energy supply while we were in Riyadh. He is tight-lipped on this issue, understandably so considering not only our oil but also our natural gas is heavily dependent on Iran. In terms of its gas supply, Turkey can diversify its portfolio of sources if and when Qatar is connected to Turkey by a pipeline, albeit despite geographical difficulties.

Last but not the least is the lackluster performance in the foreign direct investment (FDI) flows and the amounts awarded for government contracts. Saudi companies have $1.4 billion in investments in Turkey, while Turkish companies have $600 million in investments in Saudi Arabia. This is a laughable figure. Again, as of December 2011, the total value of contracting projects undertaken by Turkish companies in Saudi Arabia was almost $10 billion. This is a dismal figure when we see that with almost $700 billion, Saudi Arabia leads the fastest-growing construction industry in the Gulf region, which is estimated to have a total $1.9 trillion market value.

Unless both countries address these shortcomings in the medium term and strengthen their diplomatic interaction with their economic one, the political alliance will remain on shaky ground, will not be sustainable and may even be susceptible to changing regional and global dynamics.

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