Turkey and Germany: a close relationship

By James Wilson
Published: December 1 2010 17:42 | Last updated: December 1 2010 17:42
More than 30 years ago, Ahmet Lokurlu moved to Germany from his native
Turkey to study. It was a route travelled by thousands of his
countrymen, mainly providing their labour as “guest workers” who
helped power the German economy.

Now Lokurlu, who built a career in Germany as an academic and
entrepreneur, is following another increasingly well-trodden route:
exporting capital earned in Germany to be invested in Turkey, one of
Europe’s fastest-growing economies.

On an industrial estate outside Ankara, Lokurlu’s German-based
company, Solitem, is manufacturing innovative, solar-powered heating
and cooling systems with a keen eye on sales to Turkey, where high
energy costs can make a company’s investment in renewable energy more
viable.

“No matter what feasibility studies we did, all the results pointed to
Turkey,” says Lokurlu, who adds it has been easier to recruit
technically capable staff in Turkey than in Germany. “This is a
critically important market.”

Thousands of other German businesses are discovering the same of
Turkey, which has gone from low-cost supplier to an important market
in its own right, as well as a gateway for investors and exporters to
reach parts of the Middle East and the Mediterranean. Bilateral trade
between Turkey and Germany more than doubled after 1996, when a
customs union with the EU gave Turkey most of the trading privileges
of a fully fledged EU state. In 2008, Turkey exported $13bn-worth of
goods to Germany – 10 per cent of all its exports – while Turkish
imports from Germany were even higher at $18.7bn. Only Russia – source
of large quantities of oil and gas for energy-poor Turkey – was a more
important supplier.

Fifty years of substantial migration from Turkey to Germany have also
helped build a thriving social and economic relationship between
Europe’s two most populous countries. Turks are Germany’s most
important immigrant group, making up roughly 3m of the population. But
contacts are in both directions: more than 4m Germans visit Turkey
each year.

Trade and personal contact brings more substantial investment
relationships. According to the Cologne-based Turkish-German Chamber
of Commerce and Industry, more than 3,700 German companies have been
established in Turkey – two-thirds of them in the past six years.
Germany is the biggest foreign investor in Turkey.

But as Reçep Tayyip Erdogan, Turkey’s prime minister, pointed out in
October at a meeting with Angela Merkel, the German chancellor, there
are also 350,000 people employed in Germany at companies owned by more
than 70,000 Turkish entrepreneurs. Also in October, Christian Wulff,
Germany’s president, made a week-long visit to Turkey. As well as
showing the political importance of the relationship, Wulff was
accompanied by a delegation of German business people, including
Lokurlu. Their itinerary conspicuously encompassed not just Ankara and
Istanbul, the political and commercial capitals, but also Kayseri, a
city that is a growing economic power-house in central Turkey.

Turkish exports to Germany used to be overwhelmingly agricultural
produce or textiles. Now, cars and electronic goods are important
exports, while Turkey’s fast growth is helping German companies to
deepen their ties.

Reinhardt Freiherr von Leoprechting, president of the Turkish-German
Chamber of Commerce and Industry, works for Metro, the
Dusseldorf-based group that is one of Europe’s three biggest retail
chains.

“We always did a lot of procurement in Turkey, but over time the
country became a much more important market in its own right,” he
says.

In spite of the economic crisis, Metro doubled the number of its Media
Markt electronics stores in Turkey in 2009 from eight to 16, and now
has 44 stores in Turkey.

Another example is the experience of Hugo Boss, the German fashion
house. Turkey is one of Hugo Boss’s most important production centres:
3,500 people are employed at clothing factories in Izmir. But this
year the country has become a more important retail market, with the
first three directly operated Hugo Boss stores in the country in
Istanbul and Ankara.

The relationship between two of Europe’s most populous nations faces
frequent political tests, including German angst at Turkish
immigration and integration, relations with third countries such as
Iran, and Berlin’s lukewarm attitude towards Turkey’s long-standing
wish to join the EU.

In the trade arena, the financial crisis caused bilateral trade to
plummet by almost a quarter to below $24bn. According to the
Organisation for Economic Co-operation and Development, Turkey’s gross
domestic product had the worst peak-to-trough decline – nearly 14 per
cent – among the organisation’s member states.

But both countries have enjoyed a revival. The strength of Germany’s
export-led recovery has surprised the world, while Turkey’s GDP grew
more than 10 per cent from the crisis to the first quarter of this
year, the best in the OECD. Turkish exports grew by 12 per cent in the
first nine months of 2010, while imports rose 30 per cent.

With a rebound under way, Turkish and German business leaders now
focus on long-term projects – such as German investments in pipeline
routes through Turkey to supply Europe with gas – as well as continued
irritants in the trade relationship. One concern is a bilateral double
taxation agreement that is due to lapse at the end of the year. Most
observers think it will be renewed, but the lack of legal certainty is
adding unnecessary insecurity, business leaders say.

Another irksome impediment to business, from the Turkish point of
view, is Germany’s strict requirement for Turks to apply for visas to
visit Germany. Michael Maasmeier, the representative in Germany for
the Investment Support and Promotion Agency of Turkey (Ispat), says:
“It cannot be that the Turkish head of a German company needs to plan
a business trip to Germany several days in advance because he has to
struggle with about 15 forms and a long wait for a visa application.
It makes quick business decisions impossible and is simply no longer
up to date. Turkish companies wanting to invest in Germany are also
deterred by the strict rules.”

Acknowledging the importance of the visa issue, the chamber of
commerce’s von Leoprechting says that, from the German point of view,
some Turkish import procedures need reform. “The relationship is not
always heavenly. There are some protectionist issues. But overall,
Turkey offers legal security and an active political will to encourage
foreign investment. Ispat is very quick,” he says.

Hanging over Turkey’s relationship with Germany – and the rest of the
EU – is the question of EU accession, a process that has stalled and,
in the eyes of many observers, is unlikely to proceed further.
Maasmeier is still optimistic that the EU will eventually take the key
political decision to allow Turkey full membership.

“The whole European economy would benefit,” he says. “Turkey, as a
growth market and strategic partner, is too important for the European
economy to make do with a privileged partnership … over the long
term this is an extremely important market that the EU economy cannot
do without.”

Copyright The Financial Times Limited 2010.