- Turkey is climbing the list of Britain’s biggest export markets
- UK is courting Turkey with an eye on post-Brexit trade
- Turkey accounts for 1 per cent of UK goods and services exports
As Recep Tayyip Erdogan, the Turkish president, arrives in London this week, trade and investment is top of the agenda.
Turkey is the 13th largest economy in the world, its economy is growing about twice as fast as that of the EU and it is geographically the closest big non-EU market.
As a result, the UK has focused on improving relations over the past two years. Last year it doubled its export finance programme to Turkey to £3.5bn.
“Brexit Britain is desperately seeking to boost trade and investment with Turkey to compensate for the expected loss of trade within the UK-EU once barriers rise between them,” said Fadi Hakura, manager of the Turkey Project at Chatham House.
While trade is growing, Turkey is not currently a large market for the UK, accounting for about 1 per cent of UK’s goods and services exports and for a marginally higher proportion of its imports. The EU makes up 43 per cent of UK’s exports of goods and services.
But in 2016, Turkey climbed three positions to be the 19th largest UK’s goods exports destination.
Last year, it overtook Canada. At the current rate of growth, it will soon overtake Japan.
The UK has a traditional trade structure with Turkey. It exports high-value added goods and imports basic goods. By contrast, trade flows with EU countries are largely composed of the same types of goods, flowing as part of extended supply chains.
The UK sees Turkey “as a fast-growing market for exactly the kind of exports that British governments are always trying to encourage, namely cars, machinery and pharmaceuticals, all of which generate jobs in areas where elections are won,” said Marcus Chenevix, an analyst at TS Lombard.
But he added that Turkey could become “a bigger part the UK’s supply chain, especially in terms of machinery and parts”, mainly thanks to being cheaper and a “very able supplier of manufactured goods”.
But Turkey is in a custom union with the EU. That means the trade relationship between the UK and Turkey after Brexit will “depend on the final UK-EU future relationship”, said Mr Hakura.
If the UK leaves the single market and custom union, “the UK’s trade with Turkey will be curtailed by rising trade barriers”, he added.
The UK is Turkey’s second largest exports destination after Germany but it is relatively small compared with the EU27. Despite the recent rise in trade between the UK and Turkey, the EU will “always be much more strategically important to Turkey than Brexit Britain”, said Mr Hakura.
Stronger UK-Turkey investment also depends on maintaining “EU-UK post-Brexit frictionless trade ties”, he added.
The UK has made the third largest number of greenfield investment projects in Turkey since 2003 after the US and Germany, according to fDi Markets. Those have largely focused on real estate.
The UK “needs Turkey more than ever as an economic and geopolitical partner”, said Mr Chenevix. That could mean fewer “vocal complaints about deteriorating standards for democracy, freedom, human rights and the rule of law in Turkey”, added Mr Hakura.
While the government is courting Turkey, Britons have fallen out of love with the country as a tourist destination.
In 2014, the UK was the third largest source of foreign tourist arrivals after Germany and Russia, with about 2.6m tourists visiting Turkey. Last year, the number of Britons visiting dropped by 36 per cent.