Turkish Prime Minister Recep Tayyip Erdogan is seeking to limit the economic costs of picking the losing side in the regional power struggle over Egypt.
Turkish officials are courting investors from the oil-rich Arab monarchies that have backed Egypt’s new military rulers with billions of dollars in aid. The push shows how Erdogan’s fury over the ouster of his Islamist ally Mohammed Morsi is balanced by the growing importance of the region for Turkish exporters and companies such as airport operator TAV Havalimanlari Holding AS.
The Abu Dhabi National Energy Co., known as Taqa, froze a $12 billion power project in Turkey after Mursi’s fall, while Turkish exports to Egypt have declined. Efforts to repair the damage include visits to the Gulf by President Abdullah Gul and Finance Minister Mehmet Simsek, as well as a real-estate and energy conference for Arab investors in Istanbul.
The Gulf “is more important to Turkey than the other way around,” Ghanem Nuseibeh, founder of Cornerstone Global Associates, which advises clients on risk in the Middle East, said from Abu Dhabi. “The longer the political tensions remain, the greater the risk will be for business relations.”
The unrest that has spread through the Arab world since 2011 has undermined Erdogan’s efforts to cultivate ties with Muslim Arab countries that had been neglected by more secular-minded Turkish governments in the past.
The region offered an alternative as Turkey’s talks to join the European Union stalled and the euro-zone crisis capped trade growth. By contrast, sales to the Middle East surged eightfold since Erdogan came to power in 2003, reaching $38.6 billion in 2012. While the EU is still Turkey’s biggest market, the Middle East now buys almost quarter of its exports, more than doubling its share during the Erdogan decade.
Turkish companies are also prominent in the race for contracts worth hundreds of billions of dollars, as the six nations of the Gulf Cooperation Council expand infrastructure. TAV is building an airport in the Saudi city of Medina and upgrading another in the capital, Riyadh. Gunal Construction, part of Ankara-based MNG Holding Group, is helping develop a canal in central Dubai.
Erdogan’s regional strategy “seemed to have worked until the Arab Spring started,” said Soner Cagaptay, author of “The Rise of Turkey: the 21st Century’s First Muslim Power,” in a telephone interview from Washington.
Egypt was one of the places where it started coming unstuck. The Middle East was polarized by the revolt that ousted Hosni Mubarak in 2011 and led to the election of the Muslim Brotherhood’s Morsi as president a year later.
During Morsi’s one-year rule, Turkey offered aid to the government, including a $1 billion loan. Qatar was Morsi’s biggest financial supporter, with $8 billion, and it also quarreled with Saudi Arabia and the U.A.E. over Egypt. Yet as the world’s richest country, Qatar was better shielded than Turkey from the financial fallout.
When the army toppled Morsi after mass protests in July, Erdogan railed against what he called a coup. Egypt’s new military rulers recalled their envoys from Ankara, and 43 Turkish investors in Egypt had their business licenses or visas revoked, forcing them to cut ties with the country, Turkey’s Sabah newspaper reported.
Turkish exports to Egypt fell more than 40 percent between July and December from a year earlier, the biggest drop among the Arab country’s main trade partners, according to Egyptian central bank data.
There were signs of a chill with the Saudis too. Saudi Arabia pulled out of talks to buy Turkish Anka drones, which would have been the first overseas sale of the aircraft, Cumhuriyet newspaper reported on March 18.
“Turkey is now left with almost no allies in the Middle East, from Tunisia to Libya to Egypt and the Levant,” said Cagaptay, director of the Turkish Research Program at the Washington Institute.
One unexpected by-product of Turkey’s “deep sense of alienation” is a push by Erdogan to restore ties with Israel, aimed in part at securing gas supplies, said Cagaptay. The relationship ruptured after a deadly Israeli raid on a Turkish ship in 2010. Erdogan said last month that they’re close to “a normalization process.”
The Turkish premier is also seeking to avoid escalating the dispute with the Gulf monarchies and Egypt.
Finance Minister Simsek visited Dubai this month, where he met fund managers to make a pitch for investment in Turkey, according to his office. CNBC-e television said the visit was aimed at changing a negative view of Turkey in the Gulf.
In Kuwait a month earlier, Gul and Simsek focused on Turkey’s stable economy and public finances in a meeting with investors. Turkey also aims to attract $10 billion in Saudi investments in petrochemicals over five years, Saudi-owned Asharq Alawsat reported last month.
Turkish investors are still seeking opportunities in Egypt, too, Egyptian Trade Minister Mounir Fakhry Abdel Nour said last month.
There’s a growing realization of the costs of falling out with the Gulf, and “a willingness on the part of Turkey to fix this in order to attract more foreign direct investment,” said Naz Masraff of political risk consultancy Eurasia Group. It won’t be easy to mend ties, she said, because “the countries continue to hold diverging political views.”
Simsek, in an April 10 interview at a Gulf investment forum in Istanbul, said Erdogan’s condemnation of the military intervention in Egypt reflects his support for democracy, not for the Muslim Brotherhood.
“Turkey’s suffered too in the past from military coups,” Simsek said. “If we condemn military coups abroad, it’s not about the Muslim Brotherhood, it’s our natural reflex.”
Turkey still enjoys profitable ties with Qatar, its fellow Morsi supporter.
Simsek said Qatar may be interested in the project to develop coal mines and power plants which Taqa “seemed to have walked away” from.
Qatar Islamic Bank is in talks to buy a stake in Turkey’s Asya Katilim Bankasi AS. Turkey’s STFA and Yapi Merkezi announced May 6 they were part of a consortium that won a $4.4 billion contract to build a metro line in the Qatari capital. They said it’s the biggest foreign deal ever won by Turkish companies.
For all its per-capita wealth, though, Qatar’s economy is only about half the size of the U.A.E.’s and a quarter of Saudi Arabia’s. Erdogan will eventually need good ties with those countries too, investment adviser Nuseibeh said.
Turkey’s long-term political and economic ambitions rest on expanding eastward, he said. And, “going eastward, the GCC is the first regional bloc that comes to mind.”
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