Ukraine’s trade volume with Turkey could double to $10 billion per year if the details on a long-awaited free trade deal are ironed out after years of negotiations.
This is the prediction of Burak Pehlivan, the chairman of the Turkish-Ukrainian Business Association.
Turkey is Ukraine’s fifth-largest trade partner and business ties between the two countries are growing every year.
Even though 2021 is not over yet, it has already seen a trade volume of $5 billion, which has exceeded the total for the last pre-pandemic year of 2019.President Volodymyr Zelensky wants it to hit $6 billion.
Both countries are seeking European Union membership, but their attempts to join the bloc have been sidelined for years. This has encouraged them to explore opportunities for deeper cooperation with each other.
Ukraine is one of only five countries in the world that have reciprocal passport-free travel arrangements with Turkey. According to Pehlivan, this is Turkey’s “mini-Schengen zone.”
However, commercial exchanges between the two countries are still hampered by the lack of a free trade agreement.
Talks have been ongoing since 2007, although Ukraine’s trade volumes with Turkey are much higher than some nations with which it has a free trade agreement, such as Canada.
After Turkey sold 12 Bayraktar TB2 military drones to Ukraine, which plans to buy even more, diplomatic relations between the two countries are now closer than ever, creating a golden opportunity to get the trade deal finalized.
Optimistic visit
Ukraine consistently runs a large trade surplus with Turkey. According to Pehlivan, since independence, Ukraine has exported $40 billion more to Turkey than it imported.
As a result, some Turkish businesses are reluctant to give Ukrainian goods unfettered market access.
Ukraine has a poor negotiating position because it joined the World Trade Organization in 2008 on unfavorable terms. On average, tariffs permitted by the WTO’s conditions for Ukraine are much lower than those for Turkey, meaning Ukraine can offer fewer concessions.
Agriculture is a sensitive negotiation topic. It represented nearly 45% of Ukraine’s exports to Turkey in 2019. Soybeans and corn alone made up over 70% of agricultural exports.
“Ukraine wants a full liberalization in agriculture. This is impossible for Turkey,” Pehlivan said.
In fact, agriculture sank a previous attempt to negotiate a free trade agreement in 2013, Ukraine’s former ambassador to Turkey, Sergiy Korsunsky, told the Kyiv Post in 2019.
Traditionally, Ukraine’s largest exports to Turkey have been iron and steel. Some Turkish steel producers are uneasy about giving their Ukrainian competitors even more access to their market, but Pehlivan insists that a wide-ranging trade deal will be good for everyone.
“The investment cake will be bigger and better, and for Turkish businesses it’s not a problem that our Ukrainian friends will eat the biggest part of that cake.”
At the beginning of October, Pehlivan met with Ukrainian Foreign Minister Dmytro Kuleba and his Turkish counterpart Mevlut Cavusoglu. The business association head said that both sides are optimistic about tying up a deal soon.
“I think and hope it will be signed in the first quarter of 2022.”
Key partner
There is a reason for optimism: Despite the global pandemic, the Turkish-Ukrainian Business Association gained 30 new members last year.
In 2020, Turkish companies invested $400 million into Ukraine, making Turkey the largest investor into the country that year.
According to Pehlivan, there are now over 700 Turkish businesses operating in Ukraine, with $4.1 billion invested so far.
Lifecell, the third-largest phone network operator in Ukraine, which is wholly owned by telecom giant Turkcell, is also the largest Turkish business in Ukraine.
Turkish companies also do well in construction: Turkish firms have already built over 200 projects in the country, with a total value of over $8 billion.
The assets include highways, tram lines, luxury hotels, and shopping centers.
Road builder Onur is the most prominent Turkish construction firm in Ukraine. Onur has the second-highest turnover of all road construction companies in the country and worked on large sections of the rebuilt Kyiv-Odesa highway.
Pehlivan thinks that Turkish businesses could build their own production lines in Ukraine.
“We don’t see enough Turkish greenfield manufacturing investments,” he said, adding that he hopes to see investment in food processing, textiles, and car manufacturing.
Pehlivan also pointed out that Ukraine’s trade with Turkey has not recovered to its 2008 peak of $8 billion, but insisted that a comprehensive free trade deal will push trade far above the current level.
Building transport links
Transport links also need to be bolstered to boost trade between the two countries. “I don’t think the Black Sea’s potential is utilized enough,” said Pehlivan.
While Ukraine’s large seaports are reasonably well-run, there are many small seaports on the Black Sea coast which are inefficient and could provide many more opportunities for cargo transit, if they were properly run.
A solution is on the horizon: Ukraine’s State Property Fund intends to privatize most of the country’s small ports.
For the first time in Ukraine’s history, three state-owned ports will be put up for auction in 2021: UstDunaysk, Bilhorod-Dnistrovsky and Skadovsk.
If these sales are successful, nine of the other ten ports will also be privatized.
Turkey also holds great potential as a transit country for Ukrainian goods to enter Asian markets.
The Kars-Tbilisi-Baku railroad completed in 2017 gives Ukrainian stocks a direct access to Central Asia and China.
Before 2017, Ukraine’s only rail connection to China was through Russia, which placed heavy restrictions on Ukrainian freight.
“Now, the government of Azerbaijan is investing heavily to connect ports in the Caspian Sea to facilitate more trade,” said Pehlivan.
The business association head also stressed the importance of Ukraine’s recent attempts to increase trade with Asia, stating that Asian investors were more interested in Ukraine than Western ones.
“The world is bigger than just (Ukraine’s) neighbors, or the West, or the EU,” he said.
