Bloomberg News

Turkey-Israel Booming Trade Obscured in Erdogan Political Rants

September 22, 2011

Sept. 23 (Bloomberg) -- Turkish television star Kivanc Tatlitug made his debut on Israeli screens last month in a sign that commercial ties are surviving the political rift between the two countries.

As Tatlitug’s soap opera, “Menekse and Halil,” airs in Israel, business between the two countries is booming. Trade has risen 30 percent since January and sales of Turkish-made cars such as Ford Motor Co.’s Connect vans and Renault SA’s Clio doubled in Israel last year. Flowing in the opposite direction, refined fuels and industrial machinery powered a 40 percent jump in Israel exports to Turkey last year.

Trade is rising even after a diplomatic furor sparked by the killing of Turkish activists by Israeli commandoes during a May 2010 raid on an aid ship bound for the Gaza Strip. While Turkish Prime Minister Recep Tayyip Erdogan downgraded relations this month after Israel refused to apologize for the incident, ministers and business leaders in both nations lined up to argue that trade ties should be shielded from the fallout.

“Both countries need each other,” said Menashe Carmon, president of the Israel-Turkey Business Council. Business ties “are long-term and in private sector hands. Those are continuing without any change,” said Carmon, who’s a director of Turkey’s Bank Pozitif Kredi & Kalkinma Bankasi AS, which is owned by Bank Hapoalim Ltd., Israel’s second-biggest bank by assets.

Losing Turkey

Israel and Turkey forged close relations over four decades as key U.S. allies in the Middle East. While that military alliance has ruptured, executives need to keep trade flowing as the threat of a U.S. recession and the euro region’s worsening debt crisis dim their growth prospects.

Turkey’s central bank cut interest rates to a record low of 5.75 percent on Aug. 4 citing the risk of recession in the European Union, the destination of half of Turkey’s exports. In Israel, sales to the U.S., which buys about one-third of its exports, dropped an annual 29 percent in the three months through August.

Losing Turkey as a trade partner would hurt, Stanley Fischer, governor of the Bank of Israel, said Sept. 6.

“In terms of the sophisticated economies in the region, which is where we export most successfully, it is the most important,” he said.

‘More Careful’

For now, trade across the Mediterranean between the two countries may help soften the blow from a global slowdown. Turkey bought 3 percent of all Israel’s exports in the year to August, making the market worth $1.3 billion. That’s 40 percent higher than a year earlier. Refined petroleum products from companies such as Haifa-based Oil Refineries Ltd., the country’s largest refiner, made up almost a quarter of Israeli sales in Turkey last year, according to the Turkish Economy Ministry.

Turkey relied on Israel for 1.8 percent of its total exports in the first seven months of the year, led by autos, metals and machinery, according to Turkey’s statistics agency. At $1.4 billion, the total was 20 percent higher than a year ago.

‘At this stage, we shouldn’t expect anything to change in the private sector,” said Nilufer Sezgin, chief economist at Ekspres Invest, an Istanbul-based brokerage owned by Belgian bank Dexia SA. “The important thing is whether this situation will last or not. If the political tension with Israel is here to stay, then, naturally, the private sector will be more careful about deepening economic relations, though that is not the same thing as severing existing ties.”

‘Separate Issue’

About 10 percent of Israeli car imports in the eight months through August were made in Turkey, with models by Hyundai Motor Co. and Renault the top sellers, according to the Israeli Vehicle Importers Association. Israel’s $330 million car market was Turkey’s biggest outside Europe, according to Turkey’s auto industry association.

Billionaire Ahmet Nazif Zorlu may be the Turk with the most at stake in Israel, and he says politics and business shouldn’t mix. Zorlu, whose Vestel Elektronik Sanayi & Ticaret AS can make 15 million television sets a year, said he doesn’t intend to abandon the $1.3 billion his companies have invested in power generation in Israel.

“The Turkish government has its justified reasons but that’s a separate issue and doesn’t bind investors,” he told Dunya newspaper on Sept. 7. “We don’t have the luxury to just pack up and leave.”

The diplomatic breakdown is nevertheless rattling some investors. Oil Refineries shares have fallen 13 percent since Erdogan announced the break in relations on Sept. 2, while Bank Hapoalim, Israel’s second-biggest bank by assets, dropped 11 percent. The benchmark TA-25 index fell 8.2 percent.

Gaza Blockade

Erdogan suspended military ties with Israel and downgraded diplomatic relations, saying there will be no rapprochement until Israel apologizes for last year’s killings, pays compensation and lifts the embargo on Gaza. A United Nations report into the events said Israel’s naval blockade is legal and the country is entitled to enforce it, though its effort to stop the aid flotilla was “excessive and unreasonable.”

As political relations deteriorate both countries have the cushion of growth rates surpassing those of their western trading partners. Turkish output is set to grow 6.6 percent this year and Israel’s by 4.8 percent, the International Monetary Fund forecast this week. That compares with the fund’s prediction of 1.6 percent overall growth in developed economies.

‘Spoiled Child’

While Erdogan was calling Israel a “spoiled child,” Zafer Caglayan, his minister responsible for trade, said Israel is a good commercial partner and Turkey isn’t considering trade sanctions. Both have said Turkey’s quarrel is with the Israeli government, not individuals or businesses.

“We have to make a serious attempt to improve the relationship with Turkey,” Israeli Finance Minister Yuval Steinitz said in a Sept. 20 interview. It’s “very important for us, for the Turks, and actually for the entire region.”

Ozlem Ozsumbul, foreign and domestic sales manager at Dogan Yayin’s Kanal D, which is the broadcaster of “Menekse and Halil,” says its story of lovers separated by borders resonates with audiences across the Middle East.

“There are a lot of commonalities with Israel, Turkey isn’t in a different place,” she said in a telephone interview from Istanbul. “In the end, we too fall in love, get sad, cry and die like everyone else.”

--With assistance from Lara Setrakian in Dubai and Gwen Ackerman and Alisa Odenheimer in Jerusalem. Editors: Ben Holland, John Fraher, Andrew J. Barden

To contact the reporters on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net; Emre Peker in Ankara at epeker2@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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