27 June 2018

Tomorrow’s trade routes lead to Turkey

Riding high on stronger-than-expected growth in 2017, Turkey is now positioning itself to prosper further from China’s plan to revive ancient trading routes.

In 2023, Turkey will mark the centenary of the modern state. The country is aiming to have more to celebrate than a birthday, however: its Vision 2023 strategy has set important economic targets, including Turkey’s ascent to the top 10 global economies.1

Famously poised between East and West, Turkey offers a large and youthful consumer market of 80m people.2 The economy had 7.4% growth in 2017, partly driven by strong export performance.

A further lure for investors is Turkey’s access to markets in Asia and the Middle East – access that is set to become even smoother as Turkey establishes itself as a key point on China’s evolving Belt and Road initiative.

Expanding connections

Turkey’s connections are already second to none. With Istanbul as its hub, Turkish Airlines3 flies to 120 countries – more than any other airline – and recently added Phuket and a string of African destinations to its itinerary.4 Istanbul’s third airport, including the world’s biggest terminal under one roof, is set to open in 2018, taking the strain off the overstretched Ataturk International.5

Turkey’s close relations with China in developing its proposed Belt and Road links will add a new dimension of connectivity. Turkey is a founding member of the Silk Road Fund and the Asian Infrastructure Investment Bank, which will be key to driving the initiative, and the two countries have signed a memorandum of understanding to develop the new framework.

This partnership is symbolised by the opening of a new 500-mile train line in 2017 connecting Turkey with Georgia and Azerbaijan. The link halves the travel time for goods from China to 15 days, with an annual freight capacity of 6.5m tonnes, rising to 17m by 2034.6

Infrastructure partners

The project is part of a rapidly developing infrastructure in Turkey. The new line will link with a fast-expanding high-speed rail network founded on Chinese technology.7

And China’s investment doesn’t stop at transport: other collaborations include a new agreement to build Turkey’s third nuclear plant, and major investment in its telecommunications sector. China’s FDI flow into Turkey seems certain to grow quickly beyond current levels of around US$2bn.8

European presence

Over the last decade, Turkey has invested US$90bn in infrastructure projects, and a further US$64bn of investments will be made through 3,400 projects in the pipeline.

If it is to maintain growth, however, Turkey needs to continue to boost trade with western partners too. EU businesses have long been the dominant investors and currently account for around two-thirds of foreign direct investment.9

Among recent activity, Siemens outbid Chinese competition to win a US$1bn contract for a 1,000MW power plant and wind turbines10. And Marriott plans to open at least 11 new hotels in Turkey over the next three years, reflecting confidence in tourism prospects.11

Last year Petrol Ofisi, the Turkish market leader in fuel supply and distribution, was sold to Vitol Investment Partnership, managed by the Swiss-based commodities firm Vitol for US$1.45 billion.12

Major UK players with a Turkish presence include Diageo, Rolls Royce and Vodafone. Total trade in goods and services between the two countries amounts to £14.5bn, a figure that both countries’ administrations are keen to expand.13

Businesses exploring Turkish links will find a range of investment incentives and free zones. Meanwhile, regulatory reforms enabled Turkey to improve its global ranking for ease of doing business by nine places in 2017.14

Global network

The country also offers a highly regulated, resilient and internationalized banking sector, with a level of technology to rival that of most advanced nations.

HSBC Turkey, operating in the country since 1990, is recognised as a leading international bank with a strong value proposition for corporates, financial institutions, public sector and premium retail clients alike. It offers access to many of the world’s most dynamic and innovative capital markets to help clients achieve their international ambitions.

Of particular help to foreign investors entering the Turkish market is HSBC’s International Banking Team, formed in 2012. It is made up of relationship managers with strong language skills and experience in international operations and handling the requirements of subsidiaries, from start-ups to large corporates.

Firsts in the capital markets

Over the next few years, more corporates are expected to enter the international capital market scene, historically dominated by Turkish Treasury and financial institutions.

HSBC acted as joint lead manager and bookrunner for 12 of 21 Turkish bond issuances during the first nine months of 2017. Among them were TSKB’s US$300m green tier 2 Eurobond – the first-ever structure of its kind – as well as the Republic’s first euro-denominated bond issuance since 2014. HSBC also played a role in being one of the only banks to have been mandated for all five bond issuances in the Islamic Sukuk format, by the Republic of Turkey’s Undersecretariat of Treasury.

Belt and Road knowledge

HSBC is already supporting clients to make the most of opportunities generated by the Belt and Road initiative: in 2017 the bank recognised by Asiamoney magazine for its expertise in the programme.

More widely, with a presence in 67 countries and access to more than 90% of world trade flows, HSBC makes best use of its worldwide network to act as a bridge between customers and help ensure their success on the global stage.

Turkey seems on course to toast its 100th anniversary from a powerful economic position – and given the potential rewards on offer, businesses across the globe will want to be sure of their place at the party.

Untitled Document

1 Center for American Progress, July 2016,
https://www.americanprogress.org/issues/security/reports/2016/07/20/141568/turkeys-path-to-prosperityin-2023/
http://databank.worldbank.org/data/download/GDP.pdf

2 CIA Factbook,
https://www.cia.gov/library/publications/the-world-factbook/geos/tu.html

3 Turks Media, July 2017,
https://turksemedia.nl/turkish-airlines-flies-to-120-countries-more-than-any-other-airline/;

4 Turkish Airlines, July 2017,
https://www.prnewswire.com/news-releases/300th-flight-destination-of-turkish-airlines-isphuket-635148173.html

5 Anadolou Agency, Oct 2017,
http://aa.com.tr/en/economy/istanbul-s-3rd-airport-to-welcome-1st-plane-by-feb-2018/928527

6 Reuters, October 2017,
https://www.reuters.com/article/azerbaijan-railway/azerbaijan-georgia-turkey-launch-silk-road-rail-link-idUSL8N1N52XR

7 Daily Sabah, June 2017,
https://www.dailysabah.com/business/2017/06/07/plan-for-new-high-speed-rail-in-istanbul-waiting-for-approval

8 Daily Sabah, October 2017
https://www.dailysabah.com/economy/2017/10/28/close-cooperation-on-belt-and-road-to-fuel-chinese-investments-in-turkey

9 Hurriyet Daily News, August 2017
http://www.hurriyetdailynews.com/turkeys-foreign-direct-investment-close-to-5-bln-with-eu-being-top-investor-117090

10 Reuters, August 2017
https://uk.reuters.com/article/uk-turkey-energy-windpower/germanys-siemenswins-tender-for-turkish-wind-power-project-idUKKBN1AJ1ZR

11 Hurriyet Daily News, October 2017,
www.hurriyetdailynews.com/marriott-plans-to-open-at-least-11-new-hotels-in-turkey-in-next-three-years-121056

12 Reuters, March 2017
https://www.reuters.com/article/us-omv-m-a-turkey/omv-agrees-to-sell-turkish-unitpetrol-ofisi-to-vitol-for-1-45-billion-idUSKBN16A2KI

13 UK government,
https://www.gov.uk/government/news/international-trade-secretary-travels-to-turkey-to-promote-trade-ties

14 World Bank, Ease of Doing Business 2018,
http://www.doingbusiness.org/data/exploreeconomies/turkey

Turkey back in prime position (PDF, 153KB)

Issued by HSBC and approved for use of HSBC Turkey.

HSBC operates in various jurisdictions through its affiliates, including, but not limited to HSBC Bank A.Ş. and HSBC Yatırım Menkul Değerler A.Ş.HSBC Bank A.Ş. is a Turkish BDDK (Banking Regulation and Supervision Agency) Authorized Bank and HSBC Yatırım Menkul Değerler A.Ş. is a SPK (Capital Markets Board of Turkey) Authorized broker-dealer and a member of the Istanbul Stock Exchange. All kinds of transactions shall be subject to business conduct of HSBC Bank A.Ş. and compliance to local legislation. No information in this document is provided by HSBC for the purpose of offering, cross border marketing and sale by any means of any banking services outside of Republic of Turkey.

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