ANKARA: Turkey Is An Important Energy Partner For Caspian

Caspian Energy


Exclusive interview of the State Minister of Turkey for foreign commerce Mr.
Gulshat Tuzmen

Caspian Energy: Mr. Minister could you please explain of today’s main
priorities of foreign economy course of Turkey, which countries’ relations
are major to Turkey?

Gulshat Tuzmen: – During the last decade, Turkey has diversified its exports
not only in products but also in terms of markets. Turkey’s main trading
partners du- ring the last decade have been the EU countries. Turkey’s
exports to the central and eastern European countries and the CIS countries
have also been increasing stea- dily.

In 2004, Turkey’s exports reached a record-high level of 63.01 billion USD
with an increase of 40,4% while our imports increased by 55,4% compared to
the previous year reaching 97.34 billion USD (SIS Figures).

It is worthy to note that bilateral trade relations with EU countries have
always been of utmost importance for Turkey. While the trade volume between
Turkey and EU countries realized as 79.8 billion USD in 2004, our exports to
EU countries have reached to 34.4 billion USD and the imports of Turkey from
these countries were realized as 45.4 billion USD.

At this point, it should be pointed out that Germany, as being one of the EU
countries, ranks the first place in Turkey’s foreign trade. The volume of
trade between Turkey and Germany has displayed an increasing trend during
the last decade and reached its highest level in 2004 with a value of 21.3
billion USD. In 2004, Turkey’s exports to Germany were 8.4 billion USD,
reflecting an increase of 17% as compared to the previous year, while our
imports from Germany were 12.5 billion USD showing an annual increase of

The U.S. has always been one of the major trading partners of Turkey ranking
the third in our exports and the fifth in imports. Bilateral trade volume
increased more than 30% in 2004. But the figures from US side indicate that
Turkey is not an important trade partner for US: However Turkey’s share of
the US foreign trade is less than 0,5 %. Turkey’s exports to the U.S were
3.75 billion USD and our imports from the US were about 3.5 billion USD in
the year of 2003. Turkey’s exports to the U.S reached to 4.8 billion and our
imports from the U.S. were about 4.7 billion level in 2004. According to
these figures Turkey’s exports to the USA increased to 28% and imports from
the USA increased 34%. Nevertheless the trade figures have been below the
real potentialities of both economies and there is a wide room to utilize
the economic potentials of both countries.

In addition to the traditional markets, Turkey’s aim is to focus on
improving the trade relations with the neighboring and surrounding
countries. In line with this objective, the “Trade Development Strategy with
Neighboring and Surrounding Countries” was initiated in 2000.

This strategy involves Azerbaijan, Bulgaria, Georgia, Greece, Iran, Iraq,
Romania, the Russian Federation, Syria and Ukraine as the neighboring
countries, and Moldova, Albania, Algeria, Egypt, Hungary, Israel, Jordan,
Kazakhstan, Kyrgyz Republic, Lebanon, Macedonia, Saudi Arabia, Tajikistan,
Turkmenistan and Uzbekistan as the surrounding countries. In 2003, Hungary,
Slovenia, Croatia, Bosnia-Herzegovina, Morocco, Algeria, Tunisia,
Yugoslavia, Sudan, Eritrea, Ethiopia, Djibouti, Somali, Lebanon, Kuwait,
Bahrain, Qatar, U.A.E, Oman, Yemen, Afghanistan, Pakistan and Belarus were
added to this strategy.

Thanks to this strategy, the share of these countries in Turkey’s total
trade volume increased from 7% to 21% within three years. Our main aim is to
raise the share of the neighboring and surrounding countries in our total
trade volume to 30% in the short run.

On the other hand, the Middle East has a crucial place in Turkey’s foreign
relations within political and economic spheres. In 2004, the trade between
Turkey and the region was recorded as 12.3 billion USD with an increase of
32% compared to 2003.

As a result of the Trade Development Strategy with the Neighboring and
Surrounding Countries, Turkey is looking for new ways to enhance its trade
and support a fair trading environment in the Middle East, the South Eastern
Europe, the Black Sea region, the Caucasus and the Central Asia.

Turkey also initiated a strategy towards enhancing the economic relations
with Africa in 2003. In line with this strategy, the trade volume between
Turkey and the African countries reached 7.7 billion USD indicating an
increase of 92% within two years.

What’s your estimation concerning internal figures of Turkish economy

– Leaving the 2001 economic crises far behind, 2004 has been another
flourishing year for Turkish economy.

One of the most remarkable achievements has been in the battle against
inflation. The rate of increase in Consumer Price Index (PPI), which was
68,5% in year 2001, was successfully reduced to 9,3% in 2004. As for the
rate of increase in Producer Price Index (PPI), which was nearly 90% in the
year 2001, it was also reduced to 13,8% in 2004. The rates of increase in
the indices are expected to be 8% in 2005. Turkey has welcomed New Turkish
Lira, relieved from six zeros, in the beginning of 2005.

The main indicator reflecting the improvement in 2004 is interest rates.
Real interest rate of domestic debt has decreased to 10,7% by December 2004
from 16,5% in December 2003. Industrial production, which increased by 9.1%
in 2003 and by 9.8% in 2004, also reflects the improvement in the economy.
Increase in the manufactured goods was 10.4% in 2004.

Capacity utilization rates were 78.6% in 2003 and it rose to 83.5% by June
2004. Average rate for 2004 was 81,5% that reflects the need for new
investments in order to carry on the high rate of growth in the economy.

2004 is a year in which the budget performance has improved substantially.
Primary surplus was 30% higher than expected. On the other hand, domestic
and foreign debts continued to increase at a high rate. Foreign debt has
increased to 153.2 billion dollars in the third quarter of 2004 from 145.8
billion USD in 2003.

One of the greatest impacts to the economic growth has come from exports.
Compared to the previous year, exports reached a value of 62,8 billion USD
by 32,8% increase.

Especially “transport vehicles and its subsidiary industries” has brought
enormous dynamism to Turkey. Exports of this sector increased by nearly 60%
both in two adjacent recent years and approached a value of 8.3 billion USD
in 2004.

Another important sector for Turkey is undoubtedly “textiles and
ready-wear”, which is under growing threat of Chinese competition. The value
of the exports for the sector was high at about 18 billion USD in 2004. The
rate of increase, though lower than the average rate of increase, was still
good for a mature industry at 15,4% and the share of the sector in total
exports was 28%.

75% of “transport vehicles and its subsidiary industries” exports and 55% of
total exports were to the European Union countries. Other than EU; Middle
East, Commonwealth of Independent States, NAFTA and North Africa are also
among the regions, to which Turkish exports rose more than 30% in 2004.
England, Italy, Germany, USA, Iraq, France, Spain, Netherlands and Russia
are listed in the top in the Turkish export value increases.

According to the calculations of the Undersecretariat for Foreign Trade,
Turkish Lira in real terms appreciated by 10% against USD and 4% against
Euro in 2004. The cumulative appreciation against USD between 1999 and 2004
has been 36,6%. It is obvious that the exchange rates have not been in favor
of Turkish exporters. However, exports have increased from 27 billion USD to
63 billion USD, meaning a 136% increase, in the last five years.

There are various reasons underlying the phenomenon. Quality, customer
relations and geographical advantages are among the most crucial factors.
Also, as about 55% of Turkish imports are valued in dollars, cheap dollar
enabled Turkish exporters to access low-priced intermediary and capital

In 2004, despite the 32,8% rise in export income, current account deficit
increased by 93,8% and became 15,5 billion USD. The increase mainly stems
from imports.

About 85-90% of Turkish imports are composed of capital goods and
intermediary goods. The composition of the imports highlights the fact that
the increasing imports boosted production for domestic and foreign markets.
Turkish economy grew by 9.7% in the first three quarters of 2004 after a
7.9% growth in 2002 and 5.9% in 2003. Capacity utilization ratio of the
manufacturing industry supports this view, as well. Capacity utilization was
on average 80% in 2004, whereas it was 72% and 75% in 2002 and 2003,

What’s the perspective of development of the economy mutual relations with
Caspian countries, could you please make known us about the largest pro-
jects with Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran?

– In all economically developed regions, intra-regional trade plays a
pivotal role in economic development, which has been missing for a long time
in the Caspian region.

We are aiming to alter this structure and enhance the intra regional trade
and economic links. In this respect, the main objective of our policies has
been to improve the trade relations with our neighbors and surrounding
countries since 2000. Our immediate neighborhood comes as the natural trade
and economic partners.

Believing that enhanced trade links in the region will also contribute to
the economic and political stability in its region, Turkey attaches great
importance to the bilateral and regional initiatives, for facilitating trade
and for creating a fair and predictable trading environment in the Black Sea
region, the Caucasus and the Caspian Sea basin.

Focus point of Turkey’s trade strategy is, of course, to improve our
performance and competitiveness in the fields of exports of goods and
services in the immediate neighboring countries, in this regard, to our
east, including but not limited to, Iran, Azerbaijan, Kazakhstan, and

We achieved quite progress in reaching out to the consumers in these
countries. Let me dwell upon Iran first.

Our exports to Iran which was recorded as 158 million USD in 1999 quadrupled
in 2004 and reached 803 million USD which indicates 50% increase compared to

Our imports on the other hand were rea- lized as 1.9 billion USD in 2004,
increasing by 5% compared to the same period of 2003. The trade volume was
realized as 2.7 billion USD in 2004.

We set the target for bilateral trade as 4.5 million dollars for this year
and 10 billion USD in the medium term.

However, I have to underline the trade deficit against Turkey in trade
between Turkey and Iran. As of 2004, the trade deficit was around 1.1
billion USD. We consider our natural gas importation from Iran as the major
source of the deficit. We are working on some projects to enhance our
bilateral trade relations.

To achieve our medium term target in trade, we initiated negotiations with
Iran on a Preferential Trade Agreement aiming at progressive reduction of
tariffs and elimination of the non-tariff barriers.

We have been doing our utmost to improve infrastructure of border gates and
its connecting ways. The modernization of Kapikoy Border Gate under BOT was
completed in 2003. Now, we have been doing rehabilitation of Van/Kapikoy and
HakkariEsendere border gates.

On the other hand, we have recently established Border Trade Centers on the
border between Turkey and Iran namely in Sarisu, Kapikoy/Razi, and
Esendere/Serow region in order to foster, support and boost the economic
activities of the border and peripheral cities of both countries.

Direct investments realized by Turkish companies in Iran have increased
considerably during last two years. Today, Turkey, which have invested in
Iran 150 million USD, are ranked the second biggest investor country in Iran
after Germany.

Similarly, during the last two years we observed also considerable increase
in the activities of the Turkish contracting companies in Iran. By the end
of 2004, the total amount of the projects undertaken by Turkish contracting
companies in Iran reached 370 million USD.

Energy constitutes one of the significant sectors for the improvement of
economic relations between Turkey and Iran. In 2002, Iran and Turkey
inaugurated the natural gas pipeline link between the two countries. Now,
new project on transmission of Iranian natural gas via Turkey to the
European countries is on our agenda.

Now, let me turn to our relations with the Caucasus and the Central Asia.

Compared with 2003, our exports to the Caucasus and Central Asia (except
Armenia) increased by almost 35% by the end of 2004 and reached 826 millions

In 2000, the share of the Central Asia in our total exports was 0.9%. In
2004, it reached 1.32%. Since 2000 until 2004, our exports to Azerbaijan and
Turkmenistan increased two times while in Kazakhstan, our exports grew by
three times.

Compared with 2003, the Turkish companies’ exports to Azerbaijan grew by
28%, reaching 400 millions USD in 2004.

Our aim is to reach 1,5 billion dollars of exports to Central Asia (except
Armenia) in the next two years. But, we are striving to accomplish that in

For this purpose, I have been to Azerbaijan very recently in November. I had
the opportunity to meet with Mr. Ilham Aliyev and members of the Azeri
government. We set forth several proposals to increase the trade turnover,
including but not limited to off-set arrangements, establishment of joint
transportation companies, improving railway transportation facilities by
construction of Kars-Tbilisi railroad. Accordingly, we also agreed with
Azerbaijan on the development of an Economic Development Strategy.

We should also point out that our performance in the fields of construction
and direct investments has been even more impressing.

Today, Turkish companies invested more than 1.6 billion dollars in various
sectors of the Azerbaijani economy. There are more than 800 Turkish
companies operating in Azerbaijan, and they are the biggest foreign investor
in the sectors other than oil extraction and processing. Similarly, our
direct investments in Kazakhstan and Turkmenistan is around 2,5 billions

Concerning the construction and contracting services, the total amount of
projects undertaken in Central Asia reached 12 billion dollars at the end of
2004. The Turkish companies have completed 5.5 billions USD worth of
projects in Turkmenistan, 3.5 billions dollars worth of project in
Kazakhstan and 1.6 billions USD worth of projects in Azerbaijan.

What does mean for Turkey the rea- lization of mega-projects
Baku-Tbilisi-Ceyhan named after Heydar Aliyev and Baku-Tbilisi-Erzurum?

– Turkey stands as an important energy partner for Caspian Sea countries,
Europe and the projects being developed in the region opens a new area for
cooperation for the countries.

Located at a crucial geopolitical region, Turkey will become a natural
bridge between the energy rich countries of the Caspian region, Central
Asia, the Middle East and the European markets. In other words, the Turkish
route could be the fourth artery of natural gas for Europe after Russia,
Norway and North Africa. It should be noted that EU gas demand is expected
to increase by around 40% until 2020. This is a new area of cooperation
between Turkey and the rest of Europe, which is looking for ways to expand
and diversify its energy sources.

This is no coincidence because the gap in world’s energy supply and demand
is one of the key elements, which determines energy policies. With its
emerging and rapidly growing economy, Turkey is facing a rising growth of
its demand for energy by 8% per annum whereas the world average is 1.8%. On
the other hand, the Caspian region’s oil and gas potential has attracted
much attention. The potential of the Caspian basin is estimated to be
179-195 billion barrels of oil and 157-186 trillion cubic meters of natural

The landlocked countries of the Caspian basin aim at ensuring sustainable
and continuous flow of revenues from exporting oil and gas to finance their
economic and social development. Moreover, oil consuming countries and
foreign investors are searching for viable export routes for the projec- ted

Turkey, straddling the Caspian basin and Europe, forms a natural energy
bridge between the source-rich countries of the Caspian basin and the
energy-hungry world markets. Due to its geographical location and being the
biggest energy importer of the area, Turkey casts itself as an energy hub in
its region. As one of the biggest investors in the region and having close
historical, cultural and economic ties with the countries of the region,
Turkey acts not only along with its commercial interest but also bears the
responsibility for supporting these nations in their social and economic

The EU Commission published on November 2000 the Green Paper titled “Working
towards a European strategy for the security of energy supply”, which put
emphasis on uninterrupted flow of gas through secured and diversified
external energy. It underlined Turkey’s role in this respect. Indeed, the
Turkish energy strategy is to transform Turkey into a major consumption and
transport terminal in the Mediterranean.

It is with these considerations that the East-West Energy Corridor project
was ela- borated. The East-West Energy Corridor concept is mainly based on
the construction of trans-Caspian and trans-Caucasian oil and gas pipelines
traversing Georgia and ending in Turkey. The East-West Energy Corridor
essentially aims at transporting the Caucasian and Central Asian energy
resources to the Western markets through safe and alternative routes. The
East-West Energy Corridor project mainly comprises the Baku-Tbilisi-Ceyhan
(BTC) Crude Oil Pipeline, South Caucasian Natural Gas Pipeline
(Baku-Tbilisi-Erzurum Natural Gas Pipeline) and Turkmenistan-Turkey-Europe
Gas Pipeline projects.

The third and last phase, namely the construction stage of the BTC project
was launched on 10 September 2002 and the groundbreaking ceremony took place
on 18 September 2002 at Sangachal, Azerbaijan.

Another project, which constitutes an important part of the East-West Energy
Corridor, is the South Caucasian Pipeline project, which is to ship
Azerbaijani natural gas from the Shah Deniz field to Turkey via the
Baku-Tbilisi-Erzurum route. The construction has started and natural gas
will flow in 2006.

The participation of Kazakhstan and Turkmenistan to the East-West-Energy
Corridor will assist the trans-Caspian states in their integration to
Western economies and further contribute to regional cooperation. Turkey
will in the long term become a junction for the natural gas pipelines
originating from all neighboring countries. We are already delivering
natural gas from Russia and Iran. Projects from Iraq, Syria and Egypt are
also under consideration.

How do you see the future of Turkey’s economy? What’s the relations with
EU’s countries, which projects are fulfilled, what about their realization?

– Turkey’s economic performance targets for year 2005 are as follows:

– Expected GDP growth rate is 4,8% and expected GNP growth rate is 5%. GNP
is expected to reach 298,4 billion dollars and GNP per capita 4.128 dollars.

– By the end of 2005, increasing rates of both Production Price Index (PPI)
and Consumer Price Index (CPI) are expected to fall to 8%.

About the foreign trade performance; exports are expected to reach 75
billion dollars while the value of expected imports are 104 billion dollars.
Hence, trade volume would be about 180 billion dollars and foreign trade
deficit would be about 29 billion dollars. It is expected that the ratio of
current account deficit to GNP would be 3,6% in absolute value.

Turkey’s economy will be one of the ten biggest economies in the world in
the next 15-20 years. If Turkey grows by 6% per year, Turkey’s GDP is
estimated to be 1,3 trillion dollars by 2023. This target is realistic
because Turkey has proved in the last 3 years that as long as structural
reforms are established, the growth rate can be quite high (average growth
rate for the last 20 years was 4,5%). This growth is the key to low
unemployment and equal income distribution.

Foreign trade is one of the main contributors to job creation and growth.
Turkey’s export is estimated to be 500 billion dollars and import is
estimated to be 600 billion dollars by 2023. Turkey has achieved a better
performance in the last 3 years. We have many advantages to achieve this

These advantages can be summarized as follows:

– The production process in Turkey has been transforming through more
productive and competitive techniques. This transformation is valid also for
the export of Turkey. Turkey’s industrial structure is highly flexible and
can easily adapt to new technologies.

– With the stabilization of the economy and the accession to the EU, foreign
direct investment inflow will increase substantially.

– Turkey’s young and highly educated labor force is another key for high
growth and structural transformation.

– Turkey is cooperating with many regional countries through regional
agreements (such as Black Sea Region Economic Cooperation) and bilateral

– Turkey is geographically close to the high-income countries of EU.

– Turkey’s domestic market is likely to create high demand for both domestic
and foreign goods.

– Turkey is a gateway for goods and energy trade between West and East.

When it comes to EU, relations with the EU are inevitably high on our
agenda. Turkey is passing through an important period in its relations with
the EU. The EU has recently decided on the launch of accession negotiations
with Turkey in October 2005. We expect the screening process that will
precede the negotiations to start soon.

We are definitely aware of the fact that the negotiating process will be a
long and challenging one. However, I can assure you that political
leadership and the administration as well as the civil society in Turkey
possesses the determination and ability necessary to reach the end of this

A great degree of the EU experience has already been accumulated in Turkey
during the course of the 41-year association relationship. I believe,
Turkey’s achievements as a Customs Union partner and a candidate country in
the past ten years prove that Turkey is able to properly conduct the
accession negotiations and successfully reach the ultimate aim of accession.

We are very pleased with what has been achieved in economic integration on
both sides. The Customs Union was an ambitious target. We achieved it in
1996 without significant financial assistance from the EU. This is an
indication of our ability to compete economically.

Furthermore, economic restructuring program backed by the IMF has been in
place since 1999. It introduced the necessary reforms that pave the way for
complying with the Maastricht criteria. We will see the economic and
political stability consolidated definitively once the accession
negotiations are started and are on their way.

Once accession negotiations are launched, Turkish economy will thrive even
more. Foreign direct investment will improve because of the necessary
implementation of EU standards and the further consolidation of Turkey’s
political and economic stability.

Turkish membership would one day offer tremendous opportunities to countries
in its region. Turkey will be a bridge between Caucasus and Central Asia on
the one part, and Europe on the other.

Ankara Agreement signed in 1963 with the EU drew the framework of Turkey-EU
financial cooperation. Under this legal framework, in order to encourage
Turkey’s economic and social development, between 1964 to 1981, three
subsequent Financial Protocols were signed and an amount of v 680 million
was committed to Turkey from European Investment Bank (EIB) loans and EU
loans at a reduced interest rate.

Financial assistance governed by financial protocols included grants and
credits that constituted mostly of the European Investment Bank resources.
Financial assistance of the EU was directed to the projects related to
infrastructure and industry investments. 63% of the EU assistance was used
in this period.

After the establishment of the Custom Union, EU increased the funds
available considering the needs of Turkey. Within the framework of the
Association Council Decision no 1/95 on Customs Union; EU projected the
financial support to “MEDA, grants and credits mostly from EIB) and EU
budget”. 33% of the EU assistance was used in this period.

In the post-Helsinki period, the European Commission has taken a number of
decisions to increase the financial assistance. In this period, all funds
for Turkey were considered as pre-accession oriented. In this period,
Turkey’s allocation has been doubled and amounts now to 899 million euro in
grant aid (administered by the Commission) and 1.470 million euro in loans
(administered by the EIB).

At the moment, there are several projects that are being financed by the EU
funds. These projects are directed towards the adoption of the EU
legislation and Turkey’s compliance with the economic criteria for
membership. “Development of a clustering policy for the SME’s” and
“Establishing a RAPEX like system for a more safer free movement of goods”
are the most important two projects maintained by the Undersecretariat of
Foreign Trade. Moreover, there exist another clustering project with The
General Secretariat Of Istanbul Textile & Apparel Exporters’ Associations
(ITKIB) focusing on textile sector. The aim of both clustering projects is
to increase the competitiveness of the SME’s in the global world market. We
also arranged for a project namely as “support of the quality
infrastructure” which is coordinated with KalDer – Turkish Society for

Is there enough contract and legal base in Turkish-Azerbaijan economy

– The legal framework of the trade and economic relations between Turkey and
Azerbaijan has been completed. There are numerous agreements covering the
various aspects of our bilateral relations, including trade, customs,
transportation, investments, and taxation among others. We recently signed
the Long Term Economic Cooperation Agreement in May 2004 and in the mean
time, in accordance with this Agreement. We are communicating with the
Azerbaijan government for preparing the Implementation Plan.

In the long term, in accordance with our international obligations, we also
aim to conclude a free trade agreement, liberalizing completely the trade
between our countries.

Therefore, the legal framework is ready and available and it is time to
benefit from this framework.

Thanks for your interview.