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Peace at home, peace in the world

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Interview of H.E. Mr. Mevlüt Çavuşoğlu to WirtschaftsForum – Nah- und Mittelost (EconomicForum – Near- and Middle East) Magazine, May 2018

Your Excellency, for more than 15 years the Turkish economy can be considered a shining star in the region and world-wide, with extraordinary growth figures, high-volume investments, and countless international business partnerships. What do you think are the major reasons for this and what are the next steps you see for the country?

Turkey has structural advantages, like a strong tradition of statehood, favourable demographic dynamics, an able private sector, a qualified workforce and a strategic geographical location. The Turkish government has taken important steps on fiscal adjustment and price stability. It initiated effective reforms in the public finance, banking, social security and healthcare prior to the 2008-2009 global financial crisis. The government continued afterwards with fiscal discipline, an innovative monetary policy and legislative reform. Stability and confidence led to high growth and employment. Our economy grew around 7% in 2017. During the third quarter alone, our growth was 11%. Today Turkey is the world’s 13th and Europe’s 5th largest economy by purchasing power parity according to World Bank figures. Turkey aims to maintain macro-economic stability, gradually reduce the current account deficit and inflation.

As an open market economy, Turkey offers necessary legal infrastructure where foreign investors enjoy equal and full rights with their Turkish counterparts. Thus, Turkey managed to attract USD 194.15bn in foreign direct investments in the last decade. The amount of foreign direct investment to Turkey in 2017 was nearly USD 11bn. Turkey plans to implement megaprojects in the upcoming period. We plan to invest about USD 23bn until 2020 in transportation infrastructure. The new airport in Istanbul is designed to accommodate 90m passengers on an annual basis. New seaport, highway and railroad projects are also in the pipeline.

The economic relations between Germany and Turkey are traditionally very close and robust, full of intensive exchange and mutual investments. Where do you see business relations headed?

Turkey and Germany have very close commercial ties. The two countries historically cooperated on large-scale investment projects like the construction of the legendary Baghdad Railway. German companies, some of which are still active in Turkey over a century later, played an important role in the early stages of industrialisation in Turkey. In the 1930s, Turkey provided shelter for Germans of Jewish descent, academics and engineers. These intellectuals contributed greatly to the reorganisation of universities and the foundation of new industrial plants and companies in Turkey.

Today Germany is the leading trade partner of Turkey and the largest export market for Turkish products. The bilateral trade volume exceeds EUR 37bn. More than 7,000 German companies, from giants such as Bosch, Siemens, and Volkswagen to tiny importers of textiles and food, are active in almost every sector in Turkey. Last year, German investments in Turkey amounted to USD 430m. This made Germany the fifth largest investor in Turkey. On the other side of the coin, there are about 80,000 Turkish- German businesses operating in Germany. Their annual turnover is around EUR 50bn and they employ 500,000 people in 50 different sectors. Despite these figures, the bilateral trade and investment volumes still do not reflect the full potential. We aim to increase our bilateral trade volume to over EUR 40bn in the next five years. We should also promote mutual investments and joint ventures. The convening of the Joint Economic and Trade Commission would be a good step in this direction. We hope to have this meeting at the earliest date.

There is also strong human bond between the two countries. A great number of Turkish citizens immigrated to Germany in the 1960s with the signing of a labour recruitment agreement. Today, more than three million Turkish citizens and German citizens of Turkish descent live in Germany. Strong economic and commercial links, the accession process of Turkey to the EU as well as the millions of German tourists visiting Turkey each year are among the other building blocks of our relations. Beyond the bilateral scope, Germany is among our significant partners in the international security and political structures, including NATO, OSCE as well as the Council of Europe.

What do you consider as the most promising fields of mutual business interaction and investment in the economic relations between Turkey and Germany? How do you assess cooperation in the fields of research and development (R&D) or scientific education?

The dynamism of our countries is complementary. Market and investment opportunities in Turkey provide strong incentives for German entrepreneurs. Turkey’s geostrategic location offers easy access opportunities to a market of 1.5 billion by a four-hour flight from Istanbul. Turkey has one of the most effective investment promotion systems in the world. Companies that position themselves in our country today will be the winners of tomorrow. We look forward to sustaining and expanding our traditional cooperation in the automotive industry with Germany. Renewable energy and ecological issues have immense potential for further cooperation.

Machinery, chemistry, electronics, IT, aeronautics and pharmaceuticals will always remain as crucial areas of cooperation. Biotechnology and nanotechnology are among the newly emerging promising fields. We should also further promote our relations in the fields of R&D and scientific education. In this area, the Turkish-German University in Istanbul stands out as the token project of our cooperation. Tourism is another area for win-win co-operation. Last year, the total number of tourists visiting Turkey increased by 23%. Overall 32.4 million foreign nationals chose to visit Turkey for their holidays in 2017. Out of this figure, 3,585,000 tourists were from Germany. When compared to previous years, this is not satisfactory. However, tourism industry representatives indicate that there is a strong upward trend in reservations from Germany for the year 2018. Turkish and German companies and institutions should also work together in other regions, such as Africa and the Middle East, where we have a common interest in promoting stability and development.

A major issue for Turkey’s economy is energy. Where do Turkey’s plans to diversify its energy supply stand today, and how can Germany and the EU intensify their partnership with Turkey in this field?

Turkey is one of the fastest growing energy markets in the world. Economic growth, rising per capita income, positive demographic trends and rapid urbanisation have been the main drivers. Energy demand in Turkey is estimated to increase by 6% a year through 2023. The total investments required to meet Turkey’s expected energy demand in 2023 are estimated to be around USD 110bn. In the long term, Turkey aims to make complete use of its indigenous coal and hydro resources, make maximum use of renewable resources and incorporate nuclear energy into electricity generation. It also plans to increase energy efficiency significantly by decreasing its energy intensity (energy consumed per national income). The target is to reduce the energy intensity of Turkey by 20% by 2023 compared to 2011 levels.

Turkey also occupies a strategic location between a number of major energy consumers and suppliers, and thus serves as a regional energy hub. Energy is an area in which Turkish and EU interests and challenges largely overlap. That is why it is a subject of positive dialogue for the two sides. Secure and commercially viable projects, like the Trans-Anatolian Natural Gas Pipeline Project (TANAP), which is the backbone of the Southern Gas Corridor, are important not just for the energy security of Turkey but also the EU. The gas to be received by Europe through TANAP and then the Trans Adriatic Pipeline (TAP) will be important in terms of diversifying sources and routes. We must work together to multiply such examples of win-win projects.

A milestone in Turkey’s determination to add nuclear into its energy mix was the groundbreaking ceremony of the Akkuyu nuclear power plant on 3rd April, which marked the official start of its construction. The first unit of the power plant is planned to become operational in 2023. There are also abundant opportunities for renewable forms of energy production – hydro, wind, solar, and geothermal – in Turkey. The country offers exceptional potential, particularly in the solar and geothermal sectors. Turkey has the highest geothermal potential in Europe and the second largest solar energy potential on the continent. Turkey ranked fourth in the world for the largest installed geothermal power capacity and ranked third in Europe for the highest increase in solar power installations. Excluding hydro power, renewables’ share in the electricity production in Turkey has risen from 0.3% at the turn of the century to approximately 10% today. The Turkish government plans to increase the share of renewable sources in the country’s total installed power to 30% by 2023.

Our expansion in renewable energy took two giant steps forward in 2017, with a wind and a solar tender each exceeding USD 1bn. Several of the largest renewable energy companies in the world participated in these two tenders. In August 2017, a consortium composed of Siemens and Turkish companies Kalyon and Türkerler won the billion-dollar tender for building wind power projects in five different regions across Turkey, which will produce 1,000 MW in total. The offered price of USD 3.48 per KWh of electricity generation in the 1,000-MW wind tender in Turkey broke a world record as being the lowest cost of electricity per hour. It surpassed the previous record of USD 10.30 per KWh. Renewable energy offers a promising avenue for cooperation with the EU. The European Bank for Reconstruction and Development (EBRD) has a current portfolio of around EUR 1bn invested in energy projects in Turkey. This investment mainly focuses on renewables. Germany is one of the leading nations in renewable energy. Bilateral cooperation in this field would bring mutual benefit. German and Turkish energy companies can also make joint investments in other parts of the world, such as in the Middle East and Africa.

One of the key topics of discussion between Turkey and the EU is the upgrading of the Custom Union. In your opinion, what are the major advantages of an upgrading and what are the major challenges for this ambitious project?

First of all, we have to remember that the Custom Union was established as an integral part of Turkey’s accession process to the EU. It entered into force on 1st January 1996. It has made significant contributions to the economies of both sides. Following the Custom Union, trade volume between Turkey and the EU increased seven-fold and now it amounts to around EUR 140bn annually.

This represents 41% of Turkey's global trade. When we look at the trade figures, the EU has had a trade surplus of more than USD 300bn since 1996. Turkey receives almost 5% of the EU’s exports. This makes us the fourth-largest importer from the EU, ahead of larger economies such as Japan, Russia, South Korea or India. In addition, two thirds of the foreign direct investment to Turkey originates from the EU.

Nonetheless, the Custom Union in its current form is not meeting the expectations of both parties. The main problem is that it is a highly restrictive agreement, covering only industrial goods. Services, e-commerce and public procurement are all excluded, and its application to agricultural goods is extremely limited. Another problem with the agreement is its asymmetry. One provision stipulates that Turkey amend its trade policy to reflect the EU’s trade agreements and external tariff policy. Yet Turkey plays no part in the decision-making bodies that formulate these policies and tariffs. If the EU signs a free-trade agreement with a third country, Turkey must grant the same privileges to that country, even if the country refuses to reciprocate.

The parties agreed on a document forming the negotiation framework on 12th May 2015. The European Commission asked the Council for a mandate to launch talks with Turkey with the aim of modernising the Custom Union. We hope that the Council will instruct the Commission to begin negotiating a new and more equitable partnership. Independent studies show that both the EU and Turkey will gain from modernization of the Custom Union. So, it does not make any sense to present the issue as a favour to Turkey. Mutually beneficial economic integration should not be politicised. We hope that the formal negotiations on the modernisation of the Custom Union will start as soon as possible and proceed swiftly.

There is a growing tendency in some parts of world economy towards protectionism. What is the position of Turkey in this respect?

A liberal trading system is ultimately in the interest of everybody. Unilateral steps towards protectionism will be counterproductive. Protectionism hinders free competition; it will inevitably lead to a decrease in the quality of goods and services provided. Tariffs also increase costs for domestic consumers. We should avoid protectionist policies, which will negatively affect the global economic growth. The Turkish economy is open to the global markets and well integrated into the global economy. Around 55,000 international companies are operating in Turkey. Any tendency towards protectionism would certainly harm the Turkish economy. We should keep in mind that protectionism cannot be the answer to challenges of the world economy.

In Germany, ecological issues, combatting climate change, and preserving sustainability are considered not only as socially respectable, but also as important sectors for business and innovation. What is Turkey’s experience in this business field?

Sustainability is an important topic of our global agenda. By adopting “Agenda 2030: Sustainable Development Goals (SDG)”, we confirmed that environmental protection is an important pillar of sustainable development, along with economic growth and social development. It is essential to integrate sustainable development perspective and SDG targets into the national development plans and policies. Turkey is one of the 22 volunteering countries that presented their National Reviews at the 2016 High Level Political Forum. We are determined to take necessary actions for the effective implementation of the 2030 Agenda. We consider that climate change and the related phenomena such as drought, food and water scarcity, loss of biodiversity are interlinked. They need to be handled with a holistic approach. Such an approach will complement the implementation of the 2030 Agenda. Interactive implementation of the three UN Rio Conventions, namely the UN Framework Convention for Climate Change, the UN Convention to Combat Desertification and the UN Convention for Biological Diversity will yield fruitful results.

Turkey is located in a region vulnerable to the adverse impacts of climate change. We think that this challenge can only be overcome by regional and global efforts, based on the principle of ‘Common but Differentiated Responsibilities and Respective Capabilities’ in the light of different national circumstances. Turkey’s National Climate Change Strategy & Action Plan and Climate Change Adaptation Strategy & Action Plan constitute our roadmap to effectively tackle climate change. Turkey will continue to involve regional and global cooperation efforts actively to address environment-related challenges effectively. To name a few, Turkey hosted the 12th Conference of the Parties to the UN Convention to Combat Desertification. During our presidency, Turkey carried out the Presidency of the 12th Conference of the Parties to the UN Convention on Combatting Desertification (2015-2017) with this understanding and shared her knowledge and experience in the preparation of drought, desertification and land degradation neutrality targets with the countries in need.

Turkey is also a member of the Friends of the Group on Desertification, Land Degradation and Drought and actively supports its activities. We intend to host the 16th Conference of the Parties to the Convention on Biological Diversity in 2022. We also intend to contribute to the scientific studies on environmental issues. In 2017, Turkey developed a National Antarctic Program. This year the Second National Antarctic Expedition has been conducted. We look forward to enhancing our cooperation with Germany and the EU in these areas.

The socio-economic situation in many countries in the MENA region, including southern European ones, is still problematic. How should Turkey and Germany, together with others, address effectively the problems of social instabilities, unemployment and missing perspectives especially for the young populations, which often lead to migration?

The MENA region is facing various challenges. Since many of the countries in the MENA region have been our partners for centuries, we feel responsible for assisting them in solving their problems. Stability in this region is vital for all of us. The first priority for the region is to guarantee lasting stability. This requires a legitimate and inclusive system of governance. The second priority is to resolve the structural problems of their economies. Turkey works in part with these countries in a long-term perspective, displaying support and solidarity. Turkey provides wide-ranging credit and/or development assistance as well. Activities of Turkish companies in the region promote investment, trade and their integration into the world economy. Let me mention Turkey’s specific efforts to address the challenges in the region. Turkey has been following an “open door policy” for Syrians fleeing from violence. We have been strictly implementing the principle of non-refoulement. We continue to provide temporary protection to Syrians without discrimination. The total number of Syrians in Turkey exceeded 3.5 million in 2017. Our government is taking care of the needs of more than 250,000 Syrians living in 23 temporary protection centres – and other Syrians outside these centres. Turkey has also been facilitating the crossborder humanitarian aid deliveries of UN aid agencies into Syria.

We are also hosting thousands of refugees from Iraq and Afghanistan. Turkey is the biggest host country according to UNHCR figures. In line with Turkey’s active role in the humanitarian action, Turkey hosted the firstever World Humanitarian Summit in May 2016. According to the Global Humanitarian Assistance Report of March 2017, Turkey ranked the second largest donor country worldwide with its USD 6bn in humanitarian assistance. When the ratio of official humanitarian assistance to national income is taken into consideration, Turkey ranks the first. In conclusion, we need to find comprehensive political solutions that address the root causes of social instability and unemployment, which are the drivers of mass migration. We need to liberalise and promote trade with and in between MENA countries and increase investments in the region. Turkey and Germany can work together to promote stability, prosperity and peace in the region. We are not competing. We have same aims. This is in our common interest.