Turkey and Georgia: Opening the Roads for Trade
Neighboring countries, Turkey and Georgia have long had relatively limited economic ties. But with economic reform now a priority for Georgia, the administration of President Mikheil Saakashvili has recognized that increased economic cooperation with Turkey is a sine qua non for Georgia's own economic development.
Turkey's current direct investment in Georgia is $165 million, a mere sliver of the $2 billion it has placed in Russia and $1.5 billion invested in Azerbaijan, Kazakhstan and Turkmenistan, respectively. Bilateral trade for 2005, though double its size from three years ago, stands at $570 million, a relatively low figure compared with the country's trade with neighbors Azerbaijan ($800 million), Greece ($1.8 billion), Bulgaria ($2.4 billion) and, the largest of all, Russia ($15 billion).
At a February 4 meeting of the Turkish-Georgian Business Council in Istanbul, Georgian Prime Minister Zurab Noghaideli urged Turkish companies to invest more in Georgia. Today's Georgia is sufficiently stable to warrant further investment, the prime minister argued, with several large projects awaiting Turkish participation. In the longer term, Noghaideli also expressed hope that Turkey and Georgia would form a single economic market.
To entice investors, the prime minister, together with Economy Minister Irakli Chogovadze and Energy Minister Nika Gelauri, gave details about Georgia's privatization program, focusing on energy, infrastructure construction, transportation, telecommunications and finance. In response, Turkish Prime Minister Recep Tayyip Erdogan, joining Noghaideli at the Turkish-Georgian Business Council, pledged to increase Turkish-Georgian trade to $2 billion by 2009.
The catch, however, lies in convincing Turkish businesspeople that Georgia is worth the risk.
Turkish businesses are truly interested in what Georgia has to offer because it is a largely untapped market at their doorstep. But their current approach is one of caution.
One important issue mentioned by Turkish business executives is that Georgia has not yet institutionalized a system of investment incentives. "What you can get depends on your dialogue with the government," commented the representative of one Turkish company working in Georgia.
Additionally, Turks also want to be convinced that contracts for Georgian projects are secure. After the 2003 Rose Revolution, some Turkish companies had their contracts annulled on the grounds that they were signed by the government of former President Eduard Shevardnadze. This is discouraging for many companies. Before moving further into Georgia, investors want to see signs that what Prime Minister Noghaideli termed "the four pillars of Georgia's reforms" -- transparency, accountability, private ownership and entrepreneurship -- are truly in place.
Aside from questions of Georgia's political and economic stability, logistics bottlenecks have also long deterred Turkish companies from doing business in Georgia. Border crossings have proven inefficient, highways connecting the two countries are old and obsolete, and railroads simply non-existent. Only by improving transportation infrastructure and simplifying bureaucratic procedures can Prime Minister Erdogan's prediction of a four-fold increase of trade with Georgia be realized.
Much remains to be done in this area, but, already, some positive steps have been taken.
A few days before Noghaideli's visit, the Turkish and Georgian governments agreed to lift their respective visa requirements for Georgian and Turkish citizens, a move which will facilitate business travel between the two countries. The agreement will go into effect as of February 10.
Among the more immediate effects, the agreement is expected to have a positive impact on tourism, according to Sevki Mutevellioglu, the Turkish consul general to Batumi, a popular Georgian Black Sea port town located not far from the border with Turkey.
Cooperation between the two states will be further enhanced when modernization of Batumi's airport a Turkish project is completed. According to Mutevellioglu, lifting the visa regime and possibly opening the Batumi airport to joint use by both Turkey and Georgia could especially benefit the Turkish and Georgian border regions.
Further modernization schemes are also in the works. Rifat Hisarciklioglu, chairman of the Turkish Union of Chambers and Commodity Exchanges, told participants at the Istanbul meeting that his union will upgrade the facilities at the main border crossing between Turkey and Georgia, the Sarp Border Gate, by April 2007. The gate has long been a stumbling block for bilateral trade; on the day Noghaideli traveled to Turkey, a five-kilometer-long queue of more than 300 vehicles waited on the Turkish side of the border to cross into Georgia.
An improved border crossing will be one major hurdle for Georgian-Turkish trade overcome. Building a railroad link between the two countries could prove a longer-term ambition, however. One possible route, from the Turkish city of Kars in Eastern Anatolia to the Georgian capital, Tbilisi, has been under consideration since 1993. The proposed line would require 98 kilometers of new railroad to be built at a cost of $250 million. When completed (with possible extensions to Baku in Azerbaijan and the Turkish port of Trabzon), the line would not only open a new route for bilateral trade, but would also transform Georgia into Turkey's window to the greater market of Eurasia. Currently, Turkey's only railroad access to Central Asia goes through Iran.
Prime Minister Erdogan told meeting participants that a tender for this project will soon be held.
Energy as well provides a fertile field for cooperation. Turkey and Georgia are already partners on the Baku-Tbilisi-Ceyhan crude oil pipeline. A less known, but equally crucial line that will carry gas via Tbilisi from the Caspian Sea's Shah Deniz field to Erzurum in eastern Turkey will be completed by the end of this year.
Turkey provided electricity to Georgia last month when an explosion on a gas line from Russia led to an energy crisis in Georgia. Both countries have concerns about their energy security and know that mutual cooperation is critical. As a step forward in this area, Noghaideli has proposed a joint Turkey-Georgia high voltage power line, a proposal that Turkey has welcomed.
As this summit showed, the avenues for increased Turkish-Georgian trade are being built; the test will be whether Turkish businesses will chose to use them.
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