May 17 2018

France remains a major trade player in Turkey - Ahval series: "Business as usual" (3)

France is Turkey's third largest trading partner in the European Union. In 2017, France was Turkey’s seventh customer, with 4.2 percent of market share, and its 6th largest supplier, with 3.5 percent. The volume of trade between Paris and Ankara has been relatively stable for some years, around $15 billion, despite the turmoil in Turkey. These exchanges rely on a few strong economic sectors and particularly, transport industry.

Automotives, the number one French export sector for Turkey (worth $ 24 billion in 2017) is a pillar of the Franco-Turkish economic partnership. Central to this relationship is the Renault group, which has had a plant in the Turkish city of Bursa since 1969 and has attracted dozens of automotive subcontractors in the region of Marmara Sea. Every year tens of thousands of passenger cars and commercial vehicles are manufactured in Bursa. For 25 years, the iconic Renault 12 Toros, still found in rural Anatolia, was assembled on its lines, using imported spare parts. Today, Renault produces mainly Clio versions for European markets. But it is now the number one brand sold on the Turkish market. Like Ford, Toyota and other manufacturers, Renault benefits from a qualified and inexpensive workforce in Turkey. Its high-tech Bursa plant is one of the most efficient in the world, thanks to low wages and flexible working conditions. In 2016, 4,000 Renault Bursa workers protested against violations of their right to join a union and against unfair dismissals.

To settle in Turkey, Renault signed an agreement, a half-century ago with Oyak, a private pension fund that belongs to the Turkish armed forces. The "Solidarity and Mutual Aid Fund of the Army", Oyak enjoys a favourable status and tax rates, has about 60 companies in Turkey and employs about 30,000 people. Renault owns 51 percent of the joint venture. The Oyak Fund also finances the Turkish arms industry. In addition to Renault, Oyak has long been linked to the insurer Axa, another very political pillar of the Franco-Turkish relationship, before the latter bought its 50 percent in 2008.

The former CEO of Axa, Henri de Castries (2000-2016), a very active supporter of Turkey's accession to the European Union, is the founder of the Bosporus Institute. This lobbying group is the main relay of Franco-Turkish interests, created to support bilateral relations and in particular to lobby against the French laws against denial of the Armenian genocide.

“Trade relations between France and Turkey have long been marked by political disagreements, at least since Sarkozy presidency. Until recently, France has never considered Turkey as a priority. Former Foreign Minister Laurent Fabius tried to change this with the implementation of real economic diplomacy, but France has long been dismissed from public infrastructure tenders that drove Turkish growth,” said Deniz Ünal, an economist at CEPII (Center for Economic Prospect and International Information) in Paris. This new target led to a slight change in French politics towards Turkey. The economy became a priority in bilateral relations.

Like Renault, the pioneer of French companies present in Turkey, it is mainly the large CAC 40 companies that have established themselves on the Turkish market. Such companies see the Turkish domestic market of 80 million people is a strategic target, or who see Turkey as a regional production base. In the late 1980s and early 1990s, with the opening of the Turkish economy, several large groups jumped into this market: Rhône-Poulenc, Saint-Gobain, Sanofi-Aventis, L'Oreal, Groupama , Total, Lafarge, Sodexho, Danone or Carrefour ... The supermarket giant is now firmly established in the country, after buying small competing groups.

The rail and air transport industry has not been left behind. Aviation, and in particular Airbus orders by Turkish airlines account for more than 20 percent of total exports. France, including the public sector, has invested heavily in recent years. ADP (Aéroports de Paris), whose majority shareholder is the French state with 50.6 percent, concluded in 2012 the purchase of 38 percent of the shares of TAV airports, a share increased to 46 percent in 2016. TAV manages 16 airports (including Atatürk and Esenboga airports) in six countries and is a fast-growing economic player. The next privatisation of TAV was announced by the French government in early March.

French companies are also very active in supporting the development of rail transport. Major public infrastructure contracts, metro, tramway networks, the Marmaray, a tunnel under the Bosporus, but also the Istanbul-Ankara high-speed line, have been targets for French investors. Most recently example, Alstom announced in April the signing of a contract with the Istanbul municipality for the installation of a power supply system for trams on the new Haliç line. The French group has an old relation with Turkey. Alstom is present on railway projects and has invested in energy, including an electrical transformers factory, turbines for Atatürk hydroelectric dam, and wind farms.

Nuclear energy, another flagship of the French economy, is awaiting the completion of the Black Sea nuclear power plant project in Sinop. The contract was awarded to a Franco-Japanese consortium in which Areva and GDF Suez are well represented, thought the project has been much delayed. Chemistry and pharmacy, textile, agribusiness are other important sectors.

But what is noteworthy is that unlike Germany, where small and medium-sized companies are very active, the French companies that have invested in the Turkish market are essentially the heavyweights of the economy, internationally oriented groups, sometimes backed by the state. These companies that compete for public contracts are more easily exposed to political turmoil and therefore to the state of Franco-Turkish political relations.

Turkish President Recep Tayyip “Erdoğan often slams foreign investors for conspiring against Turkey. Every market related to infrastructure has a high profitability, but also a high political risk. They are strategic markets in the perspective of the centennial of the Turkish Republic, but their funding is opaque and there are suspicions of corruption,” said Sylvain Bellefontaine, a Turkey analyst for BNP Paribas bank, owner of Türk Ekonomi Bankasi (TEB).