Turkish traders cash in on Iraq while the politicians squabble

Turkey's leaders and Iraq's central government are hardly on speaking terms - but for Turkish businessmen, money talks. Thomas Seibert reports from Istanbul

Thomas Seibert

March 25, 2013

ISTANBUL // Ten years after the US-led invasion of Iraq, Turkey's leaders and Iraq's central government are hardly on speaking terms - but for Turkish businessmen, money is talking all the louder.

Experts predict that Iraq, which has become the second-biggest market for Turkish exports, will soon surpass Germany to reach the top spot.

"It is going up day by day," Saim Yavas of Taha Group, an Istanbul-based logistics company specialising in Iraq, said this month about his firm's business with their south-eastern neighbour.

He said demand was so high at times that Taha had to rent additional vehicles to cope.

Meanwhile, the Turkish construction industry said it was aiming for foreign projects worth US$30billion (Dh110bn) this year, a record high it hopes to reach with the help of ventures in Iraq.

The Turks have penetrated Iraqi markets to the extent that in 2011, a company from Istanbul landed a contract to collect rubbish from households in Baghdad and keep half a dozen important religious sites in the Iraqi capital clean.

Mehmet Sahin, a Middle East specialist at Ankara's Gazi University, said one of the reasons behind the success of Turkish companies was the fact that Turkey was the only country in Iraq's vicinity with enough economic power, know-how and regional knowledge to provide the kind of services and investments needed to rebuild the country.

"With the civil war going on in Syria, Turkey is the only source" for many goods that are in short supply in Iraq, Mr Sahin said.

The boom stands in stark contrast to the political tensions between Recep Tayyip Erdogan, the Turkish prime minister, and Nouri Al Maliki, his Iraqi counterpart.

While Turkey's ties with the Kurdish-ruled north of Iraq have been improving in recent years, its relations with Baghdad have suffered.

Turkey has accused Mr Al Maliki, a Shiite, of trying to centralise power in his hands.

In turn, the Iraqi leader has said that predominantly Sunni Turkey was meddling in Iraq's internal affairs and had become a "hostile state".

But despite the political crisis, Turkish companies flood the neighbouring country with everything from food and clothes to television sets and industrial goods.

Last year, Iraq received Turkish goods worth about $10.8bn, up from $8.3bn in 2011.

In the same period, Turkey's exports to Germany fell from $13.9bn to $12.9bn.

Oil-rich northern Iraq is the main destination for Turkish exports and investments in the country. Hundreds of Turkish entrepreneurs have set up shop in the area of the Kurdish Regional Government (KRG) in northern Iraq, said Nevaf Kilic, the president of the Association of Turkish-Iraqi Industrialists and Businessmen (Tisiad), this month.

Northern Iraq accounted for 90 per cent of Turkey's total trade with Iraq, he said. Two new border crossings, in addition to an existing one at Habur, were needed to make trade flow more quickly, he added.

While machines and consumer goods from Turkey cross the border into Iraq, the KRG was exporting oil to Turkey.

"We want to overtake Germany" to make Iraq Turkey's top trading partner, said Mr Kilic. "There is a huge interest [from the Turkish] business world in Iraq, because it is a big and virgin market."

The export of Turkish goods to Iraq is followed by workers. Of the roughly 60,000 Turkish workers who left the country last year for jobs abroad, about 10,600 went to Iraq, according to figures of the Turkish Employment Organisation (ISKUR), the state employment agency.

An estimated 12,000 Turks were working in the KRG area alone, according to Mr Kilic, adding that many of them work for Turkish construction companies.

But other sectors have sent representatives to Iraq, as well. Taha Group, the logistics company, has expanded to open 20 offices in Iraq.

Given the booming trade with Iraq, Turkey's leaders have been trying to contain the political tensions with Baghdad.

"Baghdad is important for us," Abdullah Gul, Turkey's president, said last month.

Ankara's close ties with Kurdish authorities in northern Iraq did not contradict Turkey's commitment to Iraq's territorial integrity, he insisted.

Mr Sahin, the Iraq expert in Ankara, said that Iraq was also keen to limit the effects of the political tensions on trade relations, because the government in Baghdad needed Turkish companies operating in the country.

If they withdrew and the Iraqi people suffered, "the Al Maliki government would be hurting itself," Mr Sahin said.

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Director: Hwang Dong-hyuk 

Stars:  Lee Jung-jae, Wi Ha-joon and Lee Byung-hun

Rating: 4.5/5

The biog

Name: Abeer Al Shahi

Emirate: Sharjah – Khor Fakkan

Education: Master’s degree in special education, preparing for a PhD in philosophy.

Favourite activities: Bungee jumping

Favourite quote: “My people and I will not settle for anything less than first place” – Sheikh Mohammed bin Rashid.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”