“$30Bn Trade Prospective between Iran and Turkey Is Possible,” Says Cengiz Gursel.

The Chief Commercial Counsellor of the Turkish Embassy in Tehran believes the Turkish Trade Center in Tehran can be a hub for Turkish and Iranian businessmen to gather and know one another. Also, the Iranian Trade Center in Turkey can effectively contribute to the bilateral trade ties, while the two countries have supplementary economies, and at some points, Turkey may need what Iran can offer and the other way around. Considering the potentials the two countries enjoy, hopes are there for the 30-billion-dollar perspective the President of the Republic of Turkey depicted for trade ties to Iran to become real in due time.

AVA Diplomatic’s Exclusive Interview with Cengiz Gursel,

Chief Commercial Counsellor, Tehran Embassy of the Republic of Turkey

Interview by Mohammadreza Nazari 

What potentials do Iran and Turkey possess to enhance their economic relations with one another?

I think that two countries such as Turkey and Iran who should be well motivated to cooperate with each other by common history, geography and culture, have not been good enough at taking the advantage of their neighborhood of centuries to realize the economic potential that they represent.

Statistics show that bilateral trade volume between the two countries was around 10 billion $ in recent years. However, we can easily see in details of the two countries’ economies that the level of 30 billion $ in bilateral trade volume which was set by the Presidents of Turkey and Iran is not a difficult target to reach in fact.

Because both countries have complementary economies in such a way that we are in a period in which Turkey needs the facilities offered by Iran where Iran is in need of the facilities that Turkey has. At this point, I would like to underline the rightfulness of the view on the fact that, beyond the bilateral trade, economic relations will go deeper with the increase in joint investments.

Turkey, who followed an export oriented, liberal policy since 1980s, has an economy integrated into the world markets in several sectors. A considerable amount of direct foreign investment has been attracted to the country especially during the last 15 years. Moreover, Turkish economy has a strong connection with the world finance system. She has a dynamic private sector that made a great progress in keeping up with the tough competition both in domestic and international markets in time thanks to the membership of World Trade Organization (WTO), Customs Union with the European Union (EU) and the Free Trade Agreements (FTA) concluded with many countries in all over the world. She has also made a good progress in terms of creating a well-qualified labor force for her economy. However, she imports the great portion of raw materials and semi products which are used in production. Additionally, energy costs are comparatively high. Therefore, Turkey is in need of secure resources in terms of provision of energy and raw materials.

As for Iran, we observe that she has made ambitious efforts towards the integration into the world economy especially after the Joint Comprehensive Plan of Action (JCPOA) concluded in 2016. In this context, Iran is taking measures to attract foreign investments in order to decrease the unemployment rate, to bring modern technologies to the manufacturing sector, to shift her export commodity composition from the traditional items such as natural gas and crude oil to new items. Therefore, Iran needs foreign investors who can bring new technologies and “know how” to the country, trustworthy financial partners who can enable the economic integration into the world finance system and dynamic entrepreneurs to make partnerships to help in having a smooth transition period in achieving these goals.

The picture comprising of these needs and opportunities tell us that economic and commercial convergence of the two countries promises a great synergy. You can see the magnitude of the potential much better when you take into consideration the fact that Turkey and Iran themselves are a giant market together with a 160 million population.

How dependent is the expansion of Iran-Turkey economic relations on the two countries’ political progress?

We observe that there is an artificial curtain between the two countries stemming from the political turmoil of decades in the region which blocks Turkish and Iranian business circles to build a confidence among themselves, to recognize each other better and to create an awareness about the business they can do together. I believe this curtain is the main reason behind the fact that both countries cannot realize the economic and commercial potential they have.

We also observe that there is not a lack of will of the two countries’ people to do business together; on the contrary, Iranian businessmen are aware of Turkey as the best resource where they can obtain anything they need for expanding their business internationally.

However, the most vital structural steps towards the development of commercial and economic relations will be increasing of awareness between Turkish and Iranian business circles, intensification of information exchange and building trust among the businessmen of both countries. A suitable business culture exist in both Turkey and Iran to add stores on this robust base. I evaluate that the most important achievement in our efforts would be establishment a relationship between Turkey and Iran in which economic developments are followed by political developments instead of the other way around.

What fields of interests are there for the two countries to invest in?

As I mentioned before, both countries stand on a position that they can provide each other with the economic facilities they need. In long term, this may reflect itself in joint investments made by two countries’ entrepreneurs in Turkey, Iran and even in third countries.

When it comes to joint investments, there are vast cooperation opportunities in several fields such as energy, petrochemicals, automotive, textile & garment, foodstuff, construction materials, cosmetic, machinery, medical equipment.

In addition, there are possible joint investment areas in services sector that our countries can cooperate. There are many services sectors offering cooperation opportunities which are mainly contracting, tourism and logistics. Today, there is no region left in the world that Turkish contractors did not undertake projects. Our contracting companies successfully completed many infrastructure and superstructure projects with various scales in many countries.

Tourism is an important service sector in which Turkey made a great progress since 1980s and started generating an increasing level of revenues. There is a great cooperation potential in this field waiting for the realization.

I believe that there are possible fields for cooperation even in the field of transportation and logistics where both countries are competing with each other in the region. In transportation, I consider that Turkey and Iran who seem to need each other in terms of their geographical position, can ensure having further benefits obtained from this sector by liberalization and cooperation in their relations instead of putting bans and restrictions.

At this point, I would like to state that realization of this entire investment potential depends directly on the economic policy that Iran will follow in such a way that Iran is now in an effort of further opening the economy to the world on one hand and performing this transformation process without harming the internal balances of the country considering the existing economic and politic system, on the other.

In this process, we observe that Iran takes encouraging steps towards the attraction of foreign capital to the country. However, on the other hand, high level protective measures taken arbitrarily in her foreign trade may bring about a hesitation among the entrepreneurs and investors in matters of both transparency and long-run confidence.

For instance, we have been facing problems in accessing the Iranian market for Turkish originated cosmetic, foodstuff and pharmaceutical products for the last two years.

However, investors are naturally willing to know about the dominant mentality and market conditions in the country that they plan to invest in as a prerequisite. As you appreciate, the most practical way to do so is to trade with that country. However, you cannot have enough information about a market that you can hardly trade with or even you can’t trade at all. Besides, we should bear in mind that some negative experiences faced by Turkish companies in Iran in past effect the decisions of the companies today.

Thus, I think that it is important for Iran to take some radical steps from the membership of WTO to the integration process into international finance system in terms of receding of this protective reflex and increasing the interest for the country.

We observe that the wrong perception about the Turkish private sector which is believed to invade the Iranian market is a problem that is specific to the Turkish entrepreneurs. This wrong perception showed up especially in textile and garment sector. We need to explain that we are in favor of Iranian businessmen to act in cooperation with their Turkish counterparts, not despite them, and that acting together on the basis of common interest will result in taking advantage of the abovementioned potential by the two sides.

Lastly, it is obvious that unofficial trade which Iranian Government is struggling with is effecting trade and investments between Turkey and Iran in a negative way. Let me emphasize that it is important to consider the fact that existing protective reflexes are triggering the unofficial trade as much as taking effective measures in custom points in the process of diminishing the unofficial trade.

What can Iran and Turkey accomplish in the field of knowledge exchanges in tourism?

Visit of many Iranians to Turkey is a well-known fact. We observe that Turkish people are showing an increasing interest for Iran in recent years. However, the potential of cooperation in the field of tourism is much beyond these facts.

In fact, tourism is a symbolic example that can be taken for putting forward the complementarity of the two countries’ economies.

In the result of the policies followed during decades, Turkey became a country attracting a considerable amount of visitors from all over the world in every year, recording the tourism revenues as an important item in her balance of payments and is a country where every kind of tourism can be performed. In this process, Turkey also became one of the prominent tourism destinations of the world in terms of infrastructure, qualified labor force, promotion, education system and the level of service quality.

As for Iran, it is known that she has all the factors that tourism needs with her historical and cultural heritage, geographical location, cities and human resources. It is possible to realize several kinds of activities such as mountain, sun & sea, desert, history, religion, conference and culture tourism. However, I would like to underline the lack of infrastructure and information in this field.

Turkey and Iran meets at this point. Turkey is the nearest country that can be the real partner for Iran in realization of her potential in this field as well. We see that Iran has a strong will in this area. I think, tourism is one of the very first fields in which we can observe a stir as Iran becomes a more transparent and stable country for trade and investment circles.

What role does Turkey’s commercial office in Iran play in expanding economic ties between the two countries?

I think that, as the Commercial Consulate of the Embassy of the Republic of Turkey in Tehran, the most significant function of our office is to direct the increasing interest of Turkish private sector for Iran in a correct manner.

We observe that our companies are increasingly applying to our office with request of information on the key factors of doing business in Iran in various sectors. The most frequently demanded matters are how to set up a company, how to establish partnerships as well as financial and legal issues, business culture, incentives and degree of suitability of political and economic environment for investments.

I find the Consulate’s efforts of matching and informing both countries’ economic actors in a correct manner important in having more knowledge about each other as well as elimination of the lack of confidence between them. On the other hand, we should keep in mind that the Commercial Office of the Embassy of Islamic Republic of Iran in Ankara undertakes the same function.

Moreover, our office is maintaining its support to the possible extent for the companies to make the visits of trade delegations more effective and to make the participation of Turkish companies in fairs organized in Iran more fruitful.

Let me underline the Turkish Trade Center (TTC) in Tehran which is another platform where Turkish and Iranian businessmen can meet. The Center, officially opened on 9^th of July, 2017 with the participation of Mr. Nihat Zeybekci, Minister of Economy of Turkey and Mr. Mücteba Hosrotac, Deputy Minister of Industry, Mine and Trade of Iran, was established entirely by private sector initiative and is now operating with the conception of promotion instead of selling. Tehran TTC is not only a ground for partnerships in trade and investment between Turkish and Iranian businessmen but also has the potential of supporting Iranian Government in its struggle with unofficial trade.

Similarly, I believe that an Iranian Trade Center in Turkey would have an important contribution to the bilateral commercial relations.

How much do Iran and Turkey welcome each other’s exported items and products?

As it is very well known, Preferential Trade Agreement (PTA) between Turkey and Iran was signed in 2015 and subsequently went into force. Negotiations are going on for expansion of its content at the moment.

The PTA is appreciated as a very suitable starting point although it generates limited trade opportunities for both countries due to the different positions of Turkey and Iran in world trade. Turkey can act in framework of her international liabilities stemming from both her WTO membership and the Customs Union with the EU.

At this point, I think that the main barrier in front of the development of bilateral trade is the negative impression of Iranian public opinion about the imports from Turkey. That impression, which shows up especially in textile and garment sector, can sometimes cause an unrest even about the participation of Turkish companies in international fairs and exhibitions organized in Iran. On the contrary to this wrong perception, we have a vital duty to explain that our companies are targeting the cooperation with their Iranian counterparts and a great significance has been attached to this cooperation in terms of Iran’s reaching her economic goals.

What we learnt from the practices of near past in Turkey and other countries is that protective policies did not help economies in having an expected breakthrough, on the contrary, the key was competition which pushed productive units in an economy to be better and triggered the real development. Therefore, I believe that a gradual opening of the economy to competition in critical sectors will add much to utilizing the economic potential between the two countries to the maximum extent possible as we observe in both PTAs and FTAs that has a much more diversified content.

On the other hand, I consider that Iranian commodities will be able to obtain a higher level of market share in Turkey in time depending on the efforts of Iranian Government to diversify the composition of country’s export items which is already based on energy today.

How do you assess the role of the private sector in developing economic relations between the two countries?

As you know, history of economy showed in several cases that some effective initiatives can be achieved provided that they are done by private sector.

In this framework, I think that only private sectors can make the steps raised above for the enhancement of bilateral economic relations possible in an effective and rapid manner.

In Turkey, as a result of the economic liberalization policies followed since 1980s, state reduced its share in economy and rather attached the importance to its directing, supportive and policy making role. We see that a similar process is partly adopted by the Government in charge in Iran today.

I think it would not be wrong to accept that private sectors of both countries will increasingly be in cooperation and will be the main motivator of development of economic relations depending on the pace and improvement of that process.

On the other hand, we should not overlook the advantages of SMSEs in utilizing the potential in bilateral economic relations. As the Commercial Consulate, we observe that too many SMSEs from Turkey are coming to Iran to investigate the possibility of operation in industrial zones and that some of them start their operations.

It is obvious that common industrial zones to be established in both countries should again be realized by private sector. Because, after the completion of the phase of state’s role (i.e., establishing the legal framework and supporting the preparation the physical infrastructure), operation of these zones by private sector working on the basis of cost-profit is of vital importance in achieving the productivity.

How do you evaluate the current status of banking relations between the two countries?

It is known that the lack of integration into the world finance system including restrictions in money transfer is the most urgent problem which needs to be solved in Iran’s trade relations not only with Turkey but also with the rest of the world as a whole.

Although Turkey is, in this issue as well, in a position that she can support Iran in integration into the world finance system, the reason behind the fact that we have failed to have the expected developments so far is obviously arising from the disallowance of international conjuncture to make it possible.

Nevertheless, negotiations held in recent time on trading with the local currencies and agreements concluded are other important developments on this matter. Outcomes of studies done in financial issues are followed very closely by the two countries’ entrepreneurs and investors.

What steps have been taken to resolve banking problems between Iran and Turkey by the two countries’ officials?

One of the most important legs of an infrastructure needed for a developed and sustainable foreign trade is a robust banking system. Cooperation in the field of banking between the two countries in order to make sure that exporter and importer companies can work in an environment where they can make money transfer in a reliable, transparent and cheap system has been one of the few items in the agenda of all meetings with an economic and commercial content for a long time.

In this context, Turkey and Iran are going on their cooperation in framework of the obligations stemming from the international rules. We know that the most significant step taken in this field recently is the Swap Agreement concluded between the both countries’ Central Banks in October, 2017.

Studies under this Agreement still continue at technical level. At the end of this process, we expect both countries’ companies are going to be able to have a transparent, reliable and cheap mechanism in which they can make their payments in local currencies for their commercial transactions.

What stage is the process of building Turkey’s industrial districts in Iran in?

As you know, there was a series of meetings held and visits organized in Iran in this field. There is a strong will in this matter in Turkey. However, realization of such an investment is directly connected to the necessity of making a couple of issues clear.

As a prerequisite, investors should be convinced that there is a suitable investment environment to invest in and we know that Iranian Government are exerting intensive efforts to this end. We inform our relevant individuals and institutions about the potential advantages and risks in Iran as an investment environment and about all developments in the country to make their assessment in a proper manner.

On the other hand, adopting a suitable and efficient operation model for these zones has a vital importance in terms of achieving a considerable success. It is needed to designate what administration model will be performed, i.e. whether by the companies having operations in the zone or by a private company who is operating in this field. Specifying of several details in advance such as the relationship between that administration and the Government, the legal framework in which it will conduct its operations and promotion facilities needed to be carried out to attract companies to the zone effects the level of success directly in this regard.

Which Iranian industrial cities have you visited and assessed thus so far?

I have been to industrial zones in Shamsabad, Ahmadabad and Qazvin so far. I plan to visit Zanjan and Arak Industrial Zones as well as the others.

How large was the trade between Iran and Turkey? What prospective is depicted for 2018?

Turkey’s exports to Iran was 3.3 billion $ with a decrease of 34% and imports from Iran was 7.5 billion $ with an increase of 59% for the year 2017. Thus, trade volume between Turkey and Iran was recorded as 10.7 billion $ with an increase of 11%.

Unfortunately, we observe that those figures account for only one third of the trade volume target of 30 billion $ set by the top level of both countries.

It is very well known by everybody that the biggest obstacles in this issue are banking problems and political developments experienced in the region effecting not only Turkey and Iran but also other countries. Additionally, I need to express that the recent protectionist policies adopted by Iran started gradually to play a negative role in reaching our targets.

We understand and support the reasons behind the measures taken and efforts exerted by Iran in order to attract the foreign investors and to protect domestic industry. However, as you appreciate, those measures are needed to be designed in framework of economically rational criteria and final aim should be increasing of the level of global competitiveness of domestic industry to have some benefits for the national economy. Therefore, I believe that policies for protecting domestic industries should be adopted to serve the ideas of supporting the structural transformation of domestic production in a manner that they can compete based on international standards on one hand and forming the reliability that attracts foreign companies to invest in the country on the other.

When we evaluate the issue under current conditions, I think one it seems difficult to achieve the target of 30 billion $ for bilateral trade volume in a short time.

One of the important means of realizing economic potentials between two countries is to hold joint economic commissions. When will the upcoming meeting be held and what will be on its agenda?

There is a quite deep history and stable structure of Turkey-Iran Joint Economic Commission (JEC) meetings. The last meeting was the 26th session and held in November 25-26, 2017 in Tehran. Date of the next session depends on the potential commercial and economic developments between two countries in the near future. However, I don’t think there will be a delay about the next session since both sides activate this mechanism in a prompt manner as soon as they feel a need in his field.

As you know, there are several items in the agenda of JEC meetings from establishing joint industrial zones to standardization procedures in foreign trade. I think the top items of the next session are going to be Preferential Trade Agreement, banking regulations and cooperation in the field of customs.

Movie industry has given life to vast developments in Turkey’s economy in such a way that some 2 billion $ is anticipated to be earned by 2035 from this area. What possible cooperation can be conducted between the two countries in this regard?

Turkey has taken steps in the last 7-8 years towards developing her export capacity in some more service sectors other than her traditional service sectors, i.e. overseas contracting and tourism services. Movie and series industry is one of those sectors as well as education, software, health tourism and technical engineering.

When we look at the increase in ratings of Turkish movies and series in other countries, we observe that this policy made a considerable success.

We know that there is a developed and internationally successful movie industry in Iran as well. Therefore, movie industry can be deemed as a field with a great potential for our countries to cooperate in.

Smuggling hits the economies of the two countries hard. What has Turkey come up with to work out this problem?

It’s obvious that non-official trade is severely harming Iranian economy. After all, the most important measure to be taken by a country in this regard is to make her custom points effective. Turkey has taken significant steps in recent years to modernize and automatize her existing custom points. Enabling the custom points in a smooth, transparent and swift manner contributes much to the struggle with smuggling.

On the other hand, we should bear in mind that non-official trade has some discouraging effects on entrepreneurs working official in making new investment decisions and keeping their business as well as having some disruptive effects on domestic market.

At this point, I would like to underline that the high level of custom duties and the measures taken frequently to restrict the imports have an increasing impact on non-official trade.