Will Turkiye Become an Alternative Trading Base for Foreign Companies Withdrawing From Russia?

After the outbreak of the war between Russia and Ukraine, many foreign companies operating on Russian soil began to think of transferring their investments and factories to Turkiye, which has made itself during the past two decades an important strategic center in the world in the industrial and commercial fields, according to Turkish media.

These companies withdrawing from the Russian market constitute a source of temptation to many countries aspiring to American investments on their soil, including Turkiye, which seems to be in need of this kind of trade movement, in light of the fluctuation of the exchange rate of the Turkish lira, and the high rates of inflation and unemployment.

 

Safe Business Haven

As part of its efforts to search for safe and stable options, while at the same time close to the European and Asian market, many Western investment companies operating in Russia and affected by the war are considering moving their headquarters to Turkiye, according to information published by Anadolu Agency on March 17, 2022.

The outbreak of the Corona pandemic around the world and the political and economic changes that it left behind, and the Russian war on Ukraine prompted a number of foreign companies operating in Russia to shift their investment weight towards Turkiye, taking into account several motivating factors on that step.

In particular, American companies, which occupy second place in international capital investments, have focused on conducting business visits to Turkiye in order to learn about cooperation potentials and evaluate investment opportunities in the country.

In turn, the US ambassador to Ankara, Jeffry Flick, asked more than 5,000 American companies preparing to leave the Russian market to discuss the possibility of moving to the Turkish market, according to Anadolu Agency.

This comes immediately after a 45-minute phone call between Turkish President Recep Tayyip Erdogan and his American counterpart Joe Biden, during which the two sides discussed bilateral relations, regional developments and the Russian attack on Ukraine.

In turn, Tankut Turnaoglu, the Chair of the American Business Forum in Turkiye, said: “As the American Chamber of Trade in Turkiye, representing 110 US-based companies with investments of nearly $50 billion in Turkiye, we continue our efforts to make Turkiye a regional hub.”

Observers believe that Turkiye expects the United States to lift the sanctions that it has described as unfair, especially in the field of industry.

One of the most prominent indications that Turkiye is the most likely alternative is the crowding of the Turkish agenda with meetings with members of Congress and the US Trade Ministry and institutions.

According to Anadolu Agency, “Commercial Diplomacy” activities were held in New York and Washington during the period from 14-18 March, organized by Turkiye, within the framework of achieving the goal of $100 billion in bilateral trade volume between Turkiye and the United States.

In the context of discussing prospects for new economic cooperation between Ankara and Washington, a delegation of senior Turkish officials, members of parliament and businessmen visited the US State Department in Washington.

By the end of 2021, the net international investment flow to Turkiye was estimated at $240 billion, and the number of foreign companies operating in Turkiye reached nearly 77,000, including 2030 American companies, according to data from the Ministry of Industry and Technology and the Presidential Investment Office.

The American company, Ford Motors, announced that it is preparing to open a huge battery factory in Turkiye, in cooperation with the South Korean battery manufacturer SK Innovation Co. and Turkiye's KOC Holding AS, according to a Bloomberg report on March 14.

The factory, the first of its kind in Turkiye, is part of Ford's plan to produce 2 million electric cars annually by 2026.

After Russia's attack on Ukraine, giant companies such as: Ford, Boeing, General Motors, ExxonMobil, FedEx, Visa, MasterCard, American Express, and Apple suspended their activities in Russia. These companies are reviewing investment opportunities in Turkiye as they are in different countries in the region.

Earlier, several international companies, led by the Swedish Ikea for furniture, the Polish LLP for ready-made clothes, the German Boehringer Ingelheim for medicines, and the Belgian DW Reusables for packaging, announced plans to transfer their investments to Turkiye, in order to reduce the damage caused to it during the Corona pandemic phase.

 

US-Turkish Business Diplomacy

According to a statement made by the President of the US-Turkish Business Council of the Council on Foreign Economic Relations, Mehmet Ali Yalcindag to the Turkish newspaper Cumhuriyet on March 11, “there are 5,000 American companies looking for new markets outside Russia.”

He pointed out that “the US embassy had invited representatives of companies to visit Turkiye, which would be a safe haven for them.”

“Turkiye has all the basic ingredients that make it a business center and a safe haven for foreign companies, such as: Lots of investment opportunities, low energy prices, freight and transportation fees, and a strong workforce environment,” according to Mr. Yalcindag.

According to the Turkish newspaper Daily Sabah on March 16, the President of the Union of Turkish Chambers of Commodity and Exchanges (TOBB), M. Rifat Hisarciklioglu, received the representative of the U.S. Chamber of Commerce Myron Brilliant, and signed in Ankara a memorandum of commercial understanding, in the presence of the US Ambassador to Ankara Jeffrey Flick, and Turkish Deputy Minister of Commerce Mustafa Tuzco.

It is noteworthy that Mr. Brilliant's visit to Turkiye was in the context of discussing the facilities that Turkiye can grant to American companies preparing to exit the Russian market, noting that 10 members of the US Congress will visit Turkiye next April.

In turn, Myron Brilliant considered that Turkiye can attract some investments and trade, adding “the number of American companies leaving Russia is increasing at a rapid pace, and Turkiye should think about what it can do for this.”

The US official believed that “Turkiye needs to improve its digital field and infrastructure, and provide a broader investment environment.”

The arrival of world-famous foreign companies would tip the balance of Istanbul at the expense of Moscow and Dubai, which are vying to become a regional center for US companies and global giants, and it is also expected to make a very significant contribution to the Turkish economy, according to a report published by the Turkish newspaper Milliyet on March 12.

In turn, Mustafa Tuncer, a member of the board of directors of MUSIAD in the United States, said in a statement to the newspaper: “The speech of the US ambassador indicates that Turkiye is one of the countries that are being evaluated for American companies if there is a possible boycott with Russia.”

“During the pandemic, we saw logistical difficulties for China, which is a global trading center. With the Russian invasion of Ukraine, Western countries have come to see that they must look for safer places as trading partners,” he explained.

Mr. Tuncer noted that the volume of trade between Turkiye and the United States increased from $20 billion in 2020 to $28 billion last year, believing that reaching $100 billion has become a realistic goal within two or three years.

 

Fast Growing Market

On his part, the researcher in Turkish affairs, Mahmoud Alloush, confirmed in a statement to Al-Estiklal that “Turkiye has succeeded in recent years in attracting the attention of many international investors through its impressive growth performance and the structural reforms it has implemented in the past 10 years.”

“Turkiye's strategic location, which provides great incentives for investors, is one of the most important advantages it offers to international investors, in addition to having a resilient and rapidly growing economy, providing appropriate business policies, and attracting exceptional talent,” he noted.

“In addition, the ease of access from Turkiye to global markets in Europe, North Africa, the Middle East and Central Asia via flight within a period of 4 hours makes Turkiye a very important production and management base,” Mr. Alloush added.

As for the extent to which Turkiye benefits from the transfer of foreign companies to it, the researcher explained that “the opening of new offices and production facilities will create new job opportunities for many people and will increase job opportunities.”

“Turkiye's exports to both the United States and other countries will also increase and will have a positive impact on the current account deficit, in addition to the possibility of implementing joint US-Turkish projects in different markets,” he continued.

“The world-famous American technology brands can also enter the Turkish market, developing Turkiye's digital infrastructure, as well as opening new sales and export channels for small and medium-sized enterprises,” Mr. Alloush added.

In turn, the head of the Presidential Investment Office, Ahmet Burak Daglioglu, explained that “Turkish exports increased in 2021 by 33% on an annual basis to reach $225 billion, and with it, Turkiye’s share in global exports exceeded 1% for the first time,” according to Anadolu Agency reported on March 16.

“Turkiye has proven to be one of the fastest growing markets for investment funds in the past two decades, and has witnessed significant success stories in venture capital investments and start-ups over the past five years,” he added.

“Wholesale and retail trade, manufacturing, information and communication technology, financial services, transportation and warehousing services, which are among the most invested sectors in Turkiye in 2021,” Mr. Burak Daglioglu also said.

It is noteworthy that Turkiye is seeking to benefit from its diplomatic movement, which is trying to return the country to a policy of zero problems and to normalize relations with all countries in the region on the economic level, which is hoped will support the Turkish economy, which has suffered from deep problems in recent years.