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Thursday, December 8, 2016

Economic losses have made Turkey a much more tractable


After a week Vladimir Putin will meet with Erdogan, then, it is expected that Russia will withdraw from Turkey’s previously imposed sanctions. For Ankara a priority in this sense are tourism and import of fruits and vegetables. The question is, what conditions can bargain for Russia. It seems that the economic confrontation has made Ankara much more accommodating partner than it has been recently.

A few months of the conflict with Turkey has particularly affected the state of the Russian economy, but was a serious challenge for a number of sectors of the Turkish economy, especially tourism and agribusiness. But now, when reconciliation took place, the Turkish business will have to solve relatively simple in the new conditions, the task of returning to the Russian market. But Russian companies will have to make considerable efforts to properly dispose of it received for the short term benefits of import substitution.

Gas compensation

“The Turkish side has taken a very strong negotiating position, demanding completely unaffordable and unprofitable for Russia discounts, believing that Russia is in a bind”

According to the Federal customs service, in the first five months of this year the trade turnover between Russia and Turkey amounted to 6,129 billion, which is 42.8% less than in the same period last year. In connection with the entered Russia restrictions is particularly strong during this period fell imports from Turkey – to 754,1 million dollars, it is only 44,2% from 2015 from January to may. Russian exports to Turkey during the same period declined slightly less – 40.4%, to 5,375 billion dollars.

Turkey’s share in Russian foreign trade decreased, respectively, from 4.8 to 3.6%. However, despite such a serious recession, Turkey still ranks in the top ten most important trade partners of Russia, conceding only to China, Germany, the Netherlands, Italy and the United States.

Immediately after the beginning of the Russo-Turkish conflict many analysts have suggested that this situation may cause serious damage to the export of Russian gas, one of the most important buyers which is Turkey. In part, these predictions have come true. At the end of January, the Turkish sources reported that Gazprom has decided to cancel previously granted to its counterparts in Turkey, a discount of 10.25%, which was considered as a bonus with the upcoming construction of “Turkish stream”. After that, the supply of Russian gas to Turkey through the country’s Northern and Western black sea region fell sharply: in the report of Gazprom for the first quarter it was said that gas exports to Turkey fell by 18% compared to the same period in 2015. However, freezing of Turkey had, since the winter was exceptionally warm.

The world’s largest consumers and exporters as well as countries possessing the largest inventories of hasadna even if the conflict between Russia and Turkey ended, the reduction of gas exports to this country are unlikely to be influenced by its total volume is critical. In late February, Gazprom said that since the beginning of the year, the export of gas to Europe managed to increase by 37.5%. In early may, before the end of the conflict with Ankara, the economic development Ministry presented the forecast, which stated that the reduction of gas export to far abroad by the end of 2016 will amount to only 0.8%.

Quite another matter – the price of Russian gas exports, which dropped sharply due to the fall in world energy prices. According to Rosstat, in January – may Russia exported gas to 12.9 billion dollars, representing only 69.2% in comparison with the same period of 2015. In this situation, the main “gas” end of the conflict was the reaffirmation by the Turkish side ready to construction of the first branch of the “Turkish stream”.

According to the Professor, higher school of Economics, member of the Zinoviev club MIA “Russia today” Pavel Rodkina, talks on Turkish stream” and a number of other major and strategically important projects led out of the deadlock situation of political instability in Turkey, which may result in a civil war and chaos: “before the start of all events the Turkish side has taken a very strong negotiating position, demanding a completely disadvantageous for Russia discounts, believing that the Russian side is in a hopeless situation. Today these claims are removed from the agenda, and at least one of the three branches of the gas pipeline will be built. The same can generally be said about the construction of NPP “Akkuyu.”

Grain is gone to Egypt

Another fundamental for Russian exports to Turkey commodity is grain, and here in times of conflict has also been a marked decline in turnover. However, the main reason for this were not political events, but a record crop in Turkey. In September 2015 the Turks have reduced purchases of Russian grain by 44%, and by the end of the year in first place in the structure of domestic grain exports out of Egypt (over 4.6 million tons of wheat worth over 862,4 million dollars in Turkish 3.1 million tons to 568 million dollars).

In February of this year, shortly after the introduction of Russia’s anti-Turkish restrictions, the agriculture Minister of Turkey Faruk Celik said that in case of failure of his country from the import of Russian wheat damage to the Russian economy may be on the order of a billion dollars. To bring this threat into execution, the Turks did not, but even in the face of continued decline of exports to Turkey without Russian grain buyers in foreign markets left. In the spring Russia came in first place in the world in terms of wheat exports.

Future prospects of Russian grain to Turkey, industry experts highly appreciated. In June, according to analysts of the portal Agro2b, Turkey has almost caught up with Egypt on the volume of imports of wheat from Azov sea ports respectively, and 103,1 of 113.7 thousand tons.

The fruit and vegetable lobby

As for imports of Turkish agricultural products to Russia, the damage from the sanctions was much more serious – of course, for Turkey. During a recent meeting in Moscow of the Minister of economy of Turkey Nihat Zeybekci, Minister of economic development of Russia Alexei Ulyukayev cited the following statistics: of the total volume of food imports from Turkey to Russia 1.37 billion in 2015 on sanctions products accounted for 1 billion Especially got vegetables: according to Rosstat, in the first five months of the import of tomatoes was reduced by 32.1%, potatoes – by 57,8%, onion – by 49.5%, cucumbers – by 31%: this particular product is usually supplied to the Russian market for Turkish producers.

Because from the first day after Recep Tayyip Erdogan apologized for the downed Russian plane, the Turkish side is seeking the lifting of sanctions. It is expected that a final decision on this matter will be taken on 9 August during the meeting of Erdogan with President Vladimir Putin.

Turkish expert at the Jamestown Foundation Orhan Gafarli says that a return to the Russian fruit and vegetable market is for Turkish business priority – along with the recovery of the tourist flow from Russia: “In Turkey, there are various lobbying groups that actively influence the government, and the government considered their interests. Especially in the top leadership of Turkey there are conductors of interests of business – for example, the Minister of foreign Affairs Mevlut Cavusoglu, a native of the resort region of Antalya. In connection with the Russian sanctions in Turkey was serious pressure on the authorities from business – I think it was one of the main factors which led to the compromise. The main issues for Turkish companies at the moment is restoring supply to the Russian market of agricultural products, Charter flights and a visa-free regime for citizens of Turkey. Against this background, the construction of “Turkish stream” and NPP “Akkuyu” do not look so hot.”

Meanwhile, the anti-limitations were to become an additional incentive for the Russian import substitution, and to a certain extent this problem was solved. A few days ago the Ministry of agriculture with reference to regional management of agriculture reported that in mid-July the gross harvest of greenhouse vegetables in Russia increased by 21.5% to 413,6 thousand tons. The rise came on the tomatoes – they are from the beginning of year have collected 92,2 thousand tons, while a year earlier over the same period, the harvest was only 55.4 thousand tons. The greenhouse industry is now definitely on the rise. According to fresh research Agency InfoLine, the total investment in the construction and reconstruction of winter greenhouses, announced for implementation in 2016-2019, will be approximately $ 5 billion.

However, in case Russia will cancel the anti-sanctions in the near future, initiators of new greenhouse projects in the agricultural sector will have to compete with the Turks, who will certainly try to compensate for several months of absence on the Russian market by dumping.

“Sanctions against Turkish producers once again reduced the burden of importations of the model on the Russian manufacturer, – says Pavel Rodkin. – However, a year is very little time for system adjustment. Now it all depends on market regulation by the state, otherwise the lack of a serious competitor could have a negative impact on end users. Russian sanctions on the one hand, and the situation inside Turkey on the other doing the Turkish authorities and the business is much more accommodating partner. The problem is how the Russian government will use this situation for the systematic development of their own industries.

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