Turkey- Cost of Russian crisis continues to rise

(MENAFN- The Journal Of Turkish Weekly) >After Turkey shot down aRussianwar plane along the Syrian border on Nov. 24 2015 theRussianadministration decided on a series of economic sanctions against Turkey. Just three months on this package is already starting to bite Turkey. In a decree issued by the Kremlin toward the end of November 2015 certain goods from Turkey were restricted and all touristic trips to Turkey were suspended. Mega energy projects in the energy sector were also mentioned among the economic sanctions but no official decisions have yet been made. Exports
The first wave of economic sanctions was expected to affect Turkey’s exports toRussiaand the tourism revenue fromRussiantourists – expectations that were born out by reality. The losses from these sectors have started affecting Turkey’s economy. Tourism inAntalyaand certain Aegean provinces as well as agricultural produce earmarked for export have all been negatively affected by the embargo. Russia’s share in Turkish exports was increasing until 2008; it decreased during the crisis but caught up again. In 2013 it reached $7 billion 4.6 percent of Turkey’s total exports. In 2014 it had fallen to 3.8 percent and $5.9 billion. In 2015 it went down to 2.5 percent at $3.9 billion. Overall during this period Turkish exports toRussiadropped almost 40 percent. In 2014 at $25.2 billion imports fromRussiacorresponded to 10.6 percent of total imports. In 2015 the share went down to 10 percent with $20.4 billion. In this the fall in world energy prices played an important role. Drop in suitcase trading
Suitcase trading is a type of trade that emerged to allow citizens to bring goods from other countries as hand baggage. The citizens of such countries can purchase goods at their destinations for up to $2000 for instance and carry them in their suitcases or send them by cargo to their own countries. This practice has been identified withRussiantourists in Istanbul’s Laleli district for a long time. At the beginning theRussiangovernment facilitated the practice but later it became difficult; the decision-making belongs entirely to theRussiangovernment. Other alternatives such asIranand Libya also emerged butRussiahas always maintained its importance. With the embargo a radical fall is expected in suitcase trading. In 2014 suitcase exports added up to $8.6 billion but decreased 36 percent in 2015 to $5.5 billion.

Fall in tourism
The share ofRussiantourists visiting Turkey constantly increased after 2009 reaching 4482000 in 2014 corresponding to 12.5 percent of incoming tourists. In 2015 this figure plummeted in November and December reducing the annual figure to 3652000 or a fall of 18.5 percent. Russia’s share in annual tourism revenues had a horizontal course of around 6 percent during the period between 2003 and 2008. After the 2008 crisis it rose to reach 8.6 percent in 2014. However the tourist inflow dropped nearly 19 percent in 2015 while tourism revenues originating fromRussiamay have dropped 33 percent. Turkey’s tourism hub Antalya has been greatly impacted by the fall with observers saying the negative effect will especially be felt in 2016. After Antalya Istanbul is the next destination mostly affected by the crisis. In addition to tourism facilities inAntalyawhich were designed forRussiantourists the drop in fresh vegetables and fruits exports toRussiahas harmed the province as small- and medium-sized enterprises have begun experiencing tough times. Unemployment has begun but the real impact will be seen in coming months. Moreover property sales have dropped in Antalya which was prioritized by Russians in terms of property purchases. There is activity in the region though with property-owning Russians putting their properties up for sale. Direct investments
Both countries have companies operating in the other’s nation. InRussiathere are about 500 Turkish firms; 150 of them are contracting companies. Some of the Turkish companies operating inRussiainclude Zorlu Enerji Enka Anadolu Grubu Koç ie Cam Erolu Giyim Denizbank Arçelik (Beko) Vestel Ant Yap Rönesans Gama Soyak naat Tepe naat and the Alarko Group of Companies. Russia has more direct investments in Turkey including the Akkuyu Nuclear Power Plant and some energy investments. Russia’s direct investment stock in Turkey was $6.9 billion in 2006 constituting 7.4 percent of all direct investments. Even though they fell in the following years they began climbing once more in 2012 reaching $9.2 billion or a 5 percent share in October 2015 with investments in the banking sector. The direct investments of Turkish entrepreneurs inRussiawas $367 million as of October 2015. In 2014 Turkish contractors undertook $27.1 billion in international contracts $6.5 billion or which was in Turkmenistan.Russiafollowed at $3.9 billion then came Algeria and Qatar. The tension withRussiaand the resultant economic sanctions are expected to negatively affect the international contracting sector. It will also mean fewer jobs and fewer exports of construction materials. Loans are a part of the economic relations of both countries.Russialooks as if it has mostly exported capital in the form of loans to Turkey. As of October 2015 the credit stock of Turkey fromRussiawas $2.1 billion constituting 1 percent of the total. On the other hand the credit stock of Turkish banks inRussiawas $252 million as of October 2015. In short when 2015 data is compared with the data year-on-year there are falling trends in the main items such as exports imports the suitcase trade and travel income – all phenomena that are expected to continue in the coming months. Losses for 2016
How much of an impact will the economic sanctions that began in December 2015 have on Turkey in 2016?In an Economic Policy Research Foundation of Turkey (TEPAV) study it was calculated that Russia’s economic sanctions on Turkey will cost Turkey’s economy a (real) loss of $2.3 billion to $8.3 billion in 2016.In this context theRussianshock will pull down the economic growth of 2016 by 0.15 points to 0.90. The sanctions are expected to have indirect effects also. While the direct effect in exports tourism and the suitcase trade is expected to be $2.5 billion (real) the loss in incomes will be double economists have said. State subsidies will be needed to compensate for the losses in exports and the tourism sector entailing a burden on the budget. The government is announcing certain support measures one by one but it is a big question as to what degree these steps will cover the losses.