Turkey's Governing Party Looks to Boost Trade With Central Asian and Caucasus States

Turkey's governing party, the Islamic-based Justice and Development Party (AKP), is working to boost trade with states in Central Asia and the Caucasus. The new initiatives are driven less by the desire to affirm traditional ethnic and cultural ties, and more by a desire to establish a solid framework for the regulation of commerce.

While relatively small on a global scale, Turkey's trade with former Soviet republics has increased dramatically in the decade-plus since the collapse of the Soviet Union. Turkey traded just over $1 billion during the first 10 months of 2002 with Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Turkmenistan and Uzbekistan. It exported nearly three times as much to the region as it did in 1992.

More than 500 Turkish companies have invested in the region, and the Turkish Eximbank has extended credit worth about $1.2 billion in the region. Experts believe that if Turkey can avoid another financial crisis like the one that struck in 2001, and if Central Asian states solidify the legal framework that protects investments, these numbers could expand meaningfully.

During a mid-January tour of Central Asia, AKP leader Recep Tayyip Erdogan said he hoped to jointly develop "measures to improve bilateral economic relations." As Erdogan's words suggest, Turkish leaders are hoping a new model can power regional trade. The goal is to work with Central Asian governments to develop legal and economic policies that encourage sustained investment. At the same time, Turkey is trying to seize on Russia's relatively lightened touch in the region to become an important financial player in key industries.

Turkey has followed an export-led growth strategy since the early 1990s, and fledgling Central Asian economies have welcomed Turkish goods. Between 1992 and 2002, Turkey's exports to Azerbaijan amounted to over $2 billion. Turkey also sent roughly $1.4 billion each to Uzbekistan and Kazakhstan. Most of this consisted of food products, light machinery and textiles. Since Central Asian economies have not made much progress in developing industry, these exports could grow if Turkish businesses see favorable conditions in the region.

At a broad level, such conditions are starting to become discernible. Kazakhstan and Azerbaijan, for example, are aggressively developing gas and oil resources at a time when Turkish energy consumption appears set to increase. Construction and completion of the Baku-Tbilisi-Ceyhan (BTC) pipeline should substantially increase bilateral trade. [For background information see the Eurasia Insight archive].

The main challenge now for AKP, say experts, may have more to do with building taxable transfers where unofficial trade currently prevails. A brisk "luggage tourism" or "suitcase trade," through which citizens travel across state lines to buy and sell their own products, is believed to be as big as official trade between Turkey and its neighbors. Some Turkish firms also invest in Central Asia through stakes in companies registered in countries like Germany that offer sounder regulations and more experienced leadership. If Turkey can continue to strengthen its financial controls and if its export agency can develop stronger financing packages, meaningful opportunities for intensified trade might develop.

Experts are counting on large-scale projects, in particular the BTC pipeline, to produce a trickle-down effect, creating ancillary jobs and entrepreneurial opportunities that, in turn, boost trade. The AKP will be challenged to ensure that Turkey offers sound financial regulations and a stable currency, while at the same time encouraging Central Asian states, which have much weaker financial frameworks, to do the same. If the AKP succeeds, individual investors are likely to move energetically from idea to business plan to investment. Officials say that trade in the region, broadly measured, can follow a similar path.