Russia’s ban on EU imports may benefit Turkey

Originally appeared on Bosphorus Consulting on 19 August 2014

With Russia banning imports of food from the EU and the USA, Reuters (“Turkey, Latin America will reap the rewards of Russia’s imports ban”, 8 August, 2014) recently claimed that Turkey and Latin America are set to profit, taking the place of European countries. One thing that this highlights is the potential for flexibility and careful orientation that Turkey’s geo-political positioning allows its market. This sort of innovative approach to sudden changes on the world stage is the sort of action that can keep Turkey interesting to investors.

However, at the same time, a potential increase in exports to Russia places the spotlight on Turkey’s troubled export regime more generally. For one thing, with ongoing unrest in trade-friendly neighbors Iraq, Syria and Egypt, Turkey is losing out on export revenue in a big way – especially as Iraq has been Turkey’s second largest export market until recently (see our previous post). Moreover, while Turkey may look to clean up in the food export market, in other areas its exports to both Russia and the Ukraine have declined significantly, decreasing in July by 12.6% to Russia and 24.5% to the Ukraine. In July 2013, Turkey’s exports to Russia reached $613.3 million, while this July they were at $536 million (Al-Monitor “Turkey’s exports decrease amid regional tension”, 10 August, 2014). It seems that the overall effect of the unrest in Ukraine and the effects on Russia has so far not been markedly positive for Turkey.

With Turkey’s current account deficit looming over the economy, a decrease in exports is a worrying trend. Turkey ranks 41st on the index produced by the Observatory of Economic Complexity, despite having the world’s 17th largest nominal GDP. Increases in exports of food products are of course positive but growth in this sector will not lead to greater economic complexity or diversification. In a worsening economic climate, innovative strategies are required, as is capital to implement these. After years of plenty, Turkish businesses may soon be facing a much tougher struggle to survive. New approaches to doing business and raising capital will be needed.

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