Burak Pehlivan: Turkey is an important partner for economic development of Ukraine
Ukraine is changing, evolving rapidly, that the depth and scope of structural reforms achieved in last three and a half years, is more than what has been done in the first 23 years of independent Ukraine. As the result of said reforms, Ukraine’s ranking in the World Bank’s ease of doing business index, has increased from 157th to 80th, by advancing 77 ranks, in the last 7 years. During this term, there is no other country that could make the breakthrough realized by Ukraine. However, all positive developments are not reflected to economic growth at the desired scale unfortunately.
At the time when EuroMaidan Revolution happened, there has been an expectation in the public opinion in Ukraine, that the country would experience a change similar to what has been succeeded in Poland during 90’s and at the beginning of 2000’s, and that by strong economic growth and development, country’s economy would adapt to the West. During said term, Poland has been shown as a precedent country for Ukraine. However, expected scenario could not realize due to some internal and external factors. Along with collapse of Iron Curtain in central and eastern Europe, there was no alternative other than integration with the West, transition to the free market economy. With the expectation that two German states would unite and perpetual peace would prevail all across Europe, the European countries, mainly Germany, have supported changes in the countries in that region, in particular in Poland, by vast economic sources. During that time, as depicted in the Scorpions song, “Wind of Change”, winds of change have dominated Europe. These countries have first entered the security umbrella provided by NATO, and then have become members of the EU. During the process both before and after membership, Poland has benefited from extensive financial support and opportunities provided by EU. And, Russia has no power to prevent, or even affect this change.
Today, external factors are extremely different. Europe is dealing with the pains caused by rapid expansion of EU, binding up the wounds of 2008 economic crises and the refugee problem. More enlargement is considered with caution and there is a thrifty approach regarding foreign aids. ‘’Wind of populism’’ surrounded the old continent. Although EU is supporting Ukraine by both direct aids and through the assistance of international financial institutions, when compared to past precedents, quantity of this aid is quite modest. Besides, Russia has a different position today, after having no power and influence during the first fifteen, twenty years period following collapse of the Soviet Union.
Different from the situation of Poland in 90’s, there is a strong oligarchy, and correspondingly monopolisation on different sectors, in Ukraine. And, these monopolies appear to be the internal barriers before change. Western capital is reluctant to invest in Ukraine, other than agriculture, due to prevalent corruption perception, concerns regarding rule of law and geopolitical risks. In the first half of 2017, Ukraine has almost received no actual investment from EU. Oligarchy is trying, with all its strength, to block reforms required to be made in legal system and I relation to combating against corruption. Therefore, Ukraine is neither able to benefit from aids of foreign countries and international financial institutions enough, nor from the private capital investments of the West. However, the expectation was that, by the Free Trade Agreements made with EU and Canada, not only the trade would flourish, but as a result of investment agreements, Western capital was expected to flow in the country swiftly.
Therefore, the relations of Ukraine with EU and its parameters in the development process, is more like the situation of Turkey, rather than Poland. In Turkey, when the Customs Union (CU) Agreement has been signed with the EU in 1996, representatives of big businesses in the country were against this agreement. According to them, before the competitive capacity of EU, Turkish companies would go down one after another and Turkey would become a one-way market for EU. During the first years of the agreement, Turkish companies had difficulties in reaching EU standards, compliance with certification. In that period, Turkey had geopolitical risks similar to those of Ukraine today, had problems with its legal system and had a weak combat against corruption; thereafter, in five, six years after the Customs Union (CU) Agreement, Western capital was not sufficiently interested in Turkey. However, as Turkey has solved its internal problems, provided political and economic stability over the years, Western capital has in fact flowed in the country. In the meantime, Turkish companies, with their increasing production standards, have gained competitive power and exports of Turkey to EU increased to 5 folds in 20 years. Furthermore, quality and standards of Turkish products have increased in other markets and they could reach to a wide group of buyers. EU investments in Turkey have surpassed 100 billion euros.
Today, as Ukraine is not candidate country for EU membership, Turkey has been accepted as a candidate member for EU, only in 2004, hardly 8 years after the CU agreement. Candidacy has not returned to membership yet, however, by the EU anchor and implemented structural reforms, Turkey has enlarged its economy 4 times over the last 15 years. Even recents months, when Turkey does not have constructive relations with some EU members, direct foreign investments from EU to Turkey have increased 61 percent and the Turkish economy has grown 5 percent, in the first half of 2017, compared to the same period of preceding year.
Due to explained internal and external factors, Ukraine’s relation with EU and its development story, are more like what Turkey has experienced, rather than Poland. Positive and negative experiences of Turkey during this process, may be guiding for Ukraine. Additionally, different from the Western capital, Turkish businesses have increased their investments after the Euro Maidan Revolution, in sectors other than agriculture as well. Turkey is one of the three countries that have made most real investments in Ukraine during last three years. There are 600 Turkish companies operating in Ukraine and the amount of Turkish capital amounts to approximately $2,5 billion. Turkish construction companies have completed contracting works in the amount of $6 billion until now. Some factors startling foreign capital in Ukraine, is not such a big problem for Turkish company, because many successful Turkish companies have been doing business in Ukraine for many years and this provides confidence to Turkish companies. Since 2012, citizens of both countries are able to make their visits without visa and since July this year, it is now possible to travel by identity card. Turkish airline companies not only fly to Kyiv, the capital of Ukraine, but to six other cities as well. Turkish businessmen are able to travel to cities like Zaporizhia, Kherson, by some alternative flights every day. Ease of travel provides a huge competitive advantage to Turkish businessmen in the neighbouring Ukraine and likewise, Turkish businessmen associations are establishing a strong infrastructure for new Turkish investments, with their branches in cities like Kharkiv, Odesa, Zaporizhia, Kherson, Vinnytsya and Lviv.
Currently, Turkish investments are mainly in the services sector. The only impediment to attract more Turkish capital to Ukraine, especially for export oriented manufacturing, is the fact that the Turkish-Ukrainian Free Trade Agreement (FTA) has not been signed yet, although it has been brought to agenda in 1998 for the first time, and the negotiations are continuing since 2007. This agreement, different from the FTA’s with EU and Canada due to reasons we have explained before, will provide attraction of Turkish capital in high volumes to Ukraine, in sectors such as textile, food and automotive supply industry, in which the Turkish SME’s are very successful. Turkish capital will play a catalyst role for Ukraine’s attraction of more capital from the West. Therefore, in the visit of our president Mr. Erdoğan, to Ukraine planned to be made in few days, the most important issue on the agenda regarding economy, will be the Turkish-Ukrainian Free Trade Agreement. By this agreement, it shall be possible to increase the mutual trade volume between two countries which is around $4 billion today, to the targets set by the presidents of two countries, up to 15 billion at first phase, and to 20 billion subsequently.
According to Ukrainian Ministry of Infrastructure, there are problems in 97 percent of the highways in the country. Transportation and public infrastructure of Ukraine is outworn, insufficient. It is not possible for the country to make infrastructure investments needed for rapid development and economic growth process, by public sources in the near future. At this point, Public Private Partnership, a model by which Turkey constructed airports, hospitals, highways, bridges and many other infrastructure investments during last 30 years, and especially in the last 15 years; is an issue required to be evaluated for Ukraine. In Turkey has been carried out under PPP method in the amount of $150 billion infrastructure projects. As a matter of fact, studies by ACC and USAID in 2014, that Turkey should be considered as a model for Ukraine in these fields, have started produce fruits. As funded by EBRD, Ukraine is preparing its PPP legislation and many technical meetings have been made between Turkish and Ukrainian delegations regarding this issue. By the PPP model, Ukraine will be able to overcome its infrastructure deficiencies quickly.
Relations between two neighbouring countries of Black Sea, are so good, as they have never been before in the history. Turkey and Ukraine are in the pace of swift convergence and cooperation, as if compensating the years lost in the past. President Erdoğan will visit Ukraine, with seven ministers and the High Level Strategic Cooperation Council shall also convene between two countries which are strategic partners. At the summit, expected to address many issues like energy, trade, education, culture, transportation and defence industry, we hope that a decision will also be taken regarding the signing date of the Turkish Ukrainian Free Trade Agreement and thereby, the most important obstacle for Turkish businessmen to invest more in Ukraine, will be removed. A prosperous and developed country, will be in the interest of its neighbours like Turkey and Poland, at most.