Normalization of Turkey-Egypt relations may create new opportunities in the economy

Although the normalization process between the two countries will not be able to revive the economic relations in a short time, an important step will have been taken to increase the bilateral trade and investments, which continue in a stable course.

Turkey’s relations with Egypt were disrupted by the military coup that resulted in the overthrow of President Mohammed Morsi in July 2013, and the tension between the two countries in the political sphere had a negative impact on economic relations, including bilateral trade. The normalization efforts that started with the steps taken by both sides recently and the political will put forward in this direction will be official with the visit of the Turkish Foreign Affairs Delegation to Cairo this month.

Although the start of the normalization process between the two countries will not be able to revive the economic relations in a short time, an important step will have been taken to increase the bilateral trade and investments, which continue in a stable course. As a matter of fact, even though problems such as customs barriers, bureaucratic regulations and long visa application periods were experienced between Turkey and Egypt in the said 7.5 years, economic relations never came to a standstill. On the contrary, Egypt remained one of Turkey’s important trade partners in North Africa.

According to World Bank data, with the ongoing impact of the epidemic in Egypt and the increase in Kovid-19 cases, it is estimated that the growth will decrease from 3.6 percent in 2019-2020 to 2.3 percent in 2020-2021. The 2.3 percent growth compared to many countries around the world shows that the country’s economy can survive in growth despite the epidemic. However, if the vaccination rate rises enough by early 2022, Egypt is expected to gradually accelerate its growth momentum again in 2021 and the years that follow.

According to the data of the Turkish Statistical Institute (TUIK) and the Ministry of Trade, 21.9 billion dollars of exports were made to Egypt from Turkey between 2014 and 2020, while imports from Egypt were worth 12.1 billion dollars in the same period. When we look at the mentioned 7-year period, it is seen that Turkey maintains its economic relations with Egypt, to which it exports an average of 3 billion dollars each year. In this period, it is noteworthy that iron and steel products, motor vehicles, plastics and products, and petroleum oils were in the majority of products exported from Turkey.

On the other hand, plastic and its products, chemical industry products, gold and textile products are the leading products imported from Egypt. In addition, Turkish companies have direct investments in many fields such as automotive, banking, glass industry, construction and energy in Egypt. It is an inevitable fact that these investments will increase in the coming period, especially for Egypt, which has an employment problem and a young population surplus.

Turkey’s long-standing business partner

Today, Egypt is one of the most critical economies of the region with its population of over 100 million, strategic trade routes, being the center of different business lines in the Middle East, energy investments and tourism.

The history of strategic partnership between Egypt and Anatolia goes back to ancient times. In the Roman, Byzantine and Ottoman periods, Egypt has always been one of the most important markets for the products produced in Anatolia. Turkey has always been in close economic relations with Egypt as the maintainer of this deep-rooted relationship. Egypt has become one of the most stable countries in the Middle East and North Africa in terms of using the potential in its geography to its economic partners. As a matter of fact, Egypt’s strategic location, historical and economic ties and the importance it carries for Turkey are also valid for global trade today.

The fact that Egypt is a large commercial market in Africa for Turkey with its large population means that many opportunities can be created for Turkish exporters in the new period. In addition to being a big market by itself, Egypt also has the potential to seek new doors for Turkish exporters to open up to Africa and other Arab countries with its strategic position. Although Egypt is not a country to be discovered for the first time for Turkish companies, the approaches that will change with the normalization of relations and the incentives that may follow will provide mutual gains for the business people of the two countries despite the epidemic crisis. While the raw materials and intermediate goods needed by the Egyptian industry can be procured from Turkey, the dynamic workforce in the region with sectoral initiatives can also be evaluated with joint investments.

Considering the exploration of gas reserves in the Eastern Mediterranean and Egyptian investments in other energy transmission lines, it can be thought that rapprochement may give Turkey opportunities in many new areas. The steps taken by Egypt with the claim of “becoming a regional center in energy trade” still exist today with various infrastructure projects.

The global disruption experienced by the closure of the Suez Canal in March as a result of the accident of the tanker Ever Given turned the eyes all over the world on whether new infrastructure steps could be found here. Considering that approximately 12 percent of the global commercial shipping passes through the 193 kilometer long canal, it can be seen that this route needs new alternatives or reinforcement of the road with each passing day. Numerous steps are already being taken or projected to improve, accelerate and renew other commercial routes that feed the region, as it is clear that building a new canal will not be immediately possible for many reasons.

The project that will connect 9 African countries

The recent railway accidents in Egypt caused heavy losses and the goal of improving the roads led to the implementation of many transportation network projects.

According to Arab News, Egypt will build a railroad with a length of more than 450 kilometers that will make it possible to merge with Sudan. Visiting Sudan in mid-April, Egyptian Transport Minister Kamel Al-Wazir reported that the project will cost $ 254.6-318.7 million. On the other hand, Egypt is planning a major infrastructure project that will connect the country to nine African countries. Also announced by Al Wazir in February, the project includes the development of road and rail systems.

He also stated that Egypt is working on a comprehensive plan that will enable the establishment of 13 ports and a logistics center. Accordingly, 35 projects worth $ 953 million will be implemented in the coming months. Al Wazir stated that 9 different projects with a total of 19 million dollars have been completed. Considering the size of many infrastructure and transportation works planned to be carried out in Egypt, experienced Turkish contractors in this field can very easily fill the areas needed by Egypt. However, it may be possible for Turkey and Egypt to make joint investments in third countries in Africa in the light of these projects.

Considering the exploration of gas reserves in the Eastern Mediterranean and Egyptian investments in other energy transmission lines, it can be thought that rapprochement may lead to opportunities in many new areas for Turkey. The steps taken by Egypt with the claim of “becoming a regional center in energy trade” still exist today with various infrastructure projects. Egypt, which has built renewable energy and natural gas plants for this purpose, is also building a nuclear power plant in the city of Dabaa on the Mediterranean coast. Egypt cooperates and carries out projects on transmission lines with its region and neighboring countries. For this reason, it is possible for Turkey to move its efforts in the field of energy to the next level with potential new initiatives after improving relations.

Many opportunities can be created for these critical sectors in the new period for Turkey. Especially the intensity of construction work required for infrastructure projects can turn into investment for experienced Turkish contractors in the region and employment for Egyptians.

Effects of the epidemic on Egypt’s economy

According to World Bank data, with the ongoing impact of the epidemic in Egypt and the increase in Kovid-19 cases, it is estimated that the growth will decrease from 3.6 percent in 2019-2020 to 2.3 percent in 2020-2021. The 2.3 percent growth compared to many countries around the world shows that the country’s economy can survive in growth despite the epidemic. However, if the vaccination rate rises enough by early 2022, Egypt is expected to gradually accelerate its growth momentum again in 2021 and the years that follow.

Growth accelerated upward, although it remained low at 0.7 percent and 2 percent, respectively, with the lifting of restrictions and loosening of social distancing measures. Unemployment fell to 7.2 percent this year (after a 9.6 percent increase) as the initial decline in total employment reversed at the outbreak and both labor force participation and employment rates have recovered.

On the other hand, as a result of the agreement reached between Cairo and the International Monetary Fund (IMF) last year, the loan of 2.7 billion dollars was approved by Egypt and the foreign currency needs of the country during the epidemic were met. At the beginning of the outbreak, the Egyptian government designed an emergency response package worth 100 billion Egyptian pounds. Key measures here included exceptional monetary grants for irregular workers and the expansion of existing cash transfer programs. The Central Bank of Egypt lowered policy rates to relieve liquidity and allow individuals to access loans on favorable terms. This step was taken to reduce inflation, which was recorded as 5.7 percent in the 2019-2020 financial year.

As a result, key sectors such as tourism, manufacturing, the Suez Canal, oil and gas extractors, which the Egyptian government primarily subsidizes, continue to be affected by travel restrictions, demand declines and trade cuts. Many opportunities can be created for these critical sectors in the new period for Turkey. Especially the intensity of construction work required for infrastructure projects can turn into investment for experienced Turkish contractors in the region and employment for Egyptians. Achieving results that will carry the economic balances in the Eastern Mediterranean to a different dimension for the two countries by taking the right steps mutually in the new period is more than a win-win situation, and it is convenient to have positive results for the whole geography.

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