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Wednesday, August 5, 2015

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Israeli-Turkish trade booming

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Israel’s bilateral relations with Turkey have been adversely affected by a succession of jolting events since 2009, yet Israel’s commercial relationship with Turkey has never been better.

The Israeli invasion of the Gaza Strip drew condemnation from the Islamist Turkish government, as did the Mavi Marmara incident, which resulted in the deaths of nine Turks after Israeli commandos intercepted a Turkish ship in a pro-Palestinian flotilla trying to break Israel’s naval siege of Gaza.

This maritime clash prompted Turkey’s prime minister, Recep Tayyip Erdogan, to expel Israel’s ambassador in Ankara, downgrade the level of diplomatic ties and cancel all military agreements.

Despite these crushing events, Israel’s mercantile ties with Turkey – the sole Muslim member of the NATO alliance –are booming. “On the economic side, we’re reached record high levels,” said an Israeli diplomat based in Istanbul, Turkey’s cosmopolitan hub.

Two-way trade, having surpassed the $4-billion mark in 2011, far exceeds the level of Israel’s commercial relations with Canada. By 2013, he noted, the figure is expected to reach $5 billion.

Since the tumultuous Mavi Marmara affair, the volume of trade has increased by a whopping 35 per cent, said Ertan Tezgor, a senior Turkish diplomat who works out of Ankara, Turkey’s capital. “Trade will not be affected by political differences,” he declared.

 Tezgor’s colleague, a diplomat who asked to remain anonymous but was once stationed in Jerusalem and now tends to Turkey’s relations with Israel and the Palestinians, sounded an identical theme. As he put it, “Trade relations can develop in spite of political problems. Why not?”

In the final analysis, pragmatism trumps politics, says Menashe Carmon, the chair of the Israel Turkey Business Council, an organization with a membership of more than 100 companies.

Israel signed a free trade agreement with Turkey in 2000. It was a historic accord, Israel’s first such agreement with a Muslim country. Since then, there has been a remarkably steady progression in trade and investment.

For Israeli entrepreneurs, Turkey, with a population of 75 million, is a key market. Boasting the 15th-largest economy in the world and a $1-trillion GDP, Turkey has a vibrant industrial base. It is particularly strong in construction, electronics, food, machinery, ships, textiles and mining. And its banking and automobile sectors are also thriving.

Stanley Fischer, the governor of the Bank of Israel, does not underestimate the economic importance of Turkey to Israel. Shortly after Turkey expelled Israel’s ambassador, he said, “In terms of the sophisticated economies in the region, which is where we export most successfully, Turkey is the most important.”

Turkey’s chief exports to Israel are vehicles, construction materials, metals, electronic devices, textiles and accessories. Israel’s exports to Turkey are high-tech manufacturing machinery and parts, refined petroleum and agricultural products, water irrigation systems, plastics and chemicals.

Last year, Turkey exported roughly $2.3 billion worth of goods to Israel, while the comparable figure for Israel was about $2 billion.

At last count, Turkey was Israel’s sixth-most-important trading partner, after such countries as the United States, Germany, China and India.

The automobile sector is especially crucial. In 2011, approximately 10 per cent of Israeli car imports were from Turkey, with U.S. Fords, French Renaults and South Korean Hyundais leading the pack. By all accounts, Israel’s $330-million car market was Turkey’s biggest outside Europe.

According to Turkey’s foreign ministry, 232 Israeli companies, ranging from Israel Chemicals to Netafim Crop, have invested $400 million in Turkey, mostly in real estate, banking, telecommunications and tourism and in joint ventures with Turkish companies.

Reports suggest that Israeli businesses use their Turkish partners to sell to Arab countries, while Turkish companies use their Israeli counterparts to penetrate markets in the United States.

Turkish companies are active in Israel.

Yilmazlar Holding, a construction firm, has completed projects to the tune of $667 million since 1995. Cimsa Holding invested $10 million in a cement filling facility. Guney Yildiz Petrol has been working as a sub-contractor for an American company. Zorlu Holding built a natural gas power plant in partnership with a U.S. company and sold its shares in 2008.

Turkey’s political estrangement from Israel, however, has had a negative impact on tourism and defence-related products.

Prior to the Gaza war, 560,000 Israeli tourists flocked to Turkey, only a 90-minute flight from Tel Aviv. But in response to Turkey’s sharp condemnation of Israel’s invasion of Gaza, Israel’s minister of tourism urged Israelis to boycott Turkey. His advice was heeded. During the period from January to August 2011, only 62,000 Israelis, the majority of whom were Israeli Arabs, visited Turkey.

Israelis thereby accounted for 0.05 per cent of Turkey’s foreign tourists, compared to three per cent during the heyday of Israel’s honeymoon with Turkey. The slack was filled by Arabs, with 1.4 million visiting Turkey in the first half of 2011.

Few Turkish tourists venture to Israel, considering it too expensive.

Turkish Airlines – a member of the Star Alliance, along with Air Canada – still flies to Tel Aviv. But El Al Airlines, Israel’s flagship carrier, cancelled its service to Turkey due to security problems.

When Israel’s political bonds with Turkey were at their apex, Israel was one of Turkey’s most reliable suppliers of weaponry. Whether such sales were included in overall trade figures is uncertain. But when times were good, Israel modernized Turkey’s fleet of F-4 Phantoms and F-5 aircraft for $900 million, upgraded Turkish M60 tanks for $687 million and sold Turkey Popeye missiles.

But after September 2011, Turkey froze more than a dozen defence contracts with Israel valued in the billions of dollars. Late last year, as part of a reassessment of its strategic relations with Turkey, Israel cancelled a $141-million contract to supply Turkey with an aerial intelligence system.

Israel’s former ambassador to Turkey, Alon Liel, claims that Turkey began cutting back on big arms deals with Israel as early as 2003, when Erdogan took office. But in virtually all other respects, Israel’s economic relations with Turkey are on an upward trajectory.

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