Ramifications of a deadly earthquake on Egypt-Turkey trade


Listen to the article

 

The Turkish earthquake last February caused thousands to lose their lives and homes, and the country’s already struggling economy was hit hard. But the economic damage went beyond the Turkish borders. Following this deadly earthquake, Turkey saw a drop of $1.5 billion in its exports to the world, causing its trade deficit to surge 52.8 percent, which indicates that countries importing from or exporting to Turkey, including Egypt as one of its top trade partners, could be dealing with a new situation where supply chains are even more disrupted, and some Turkish goods are scarce.

Despite the challenges that came with a soaring inflation, the Turkish economy has been on a path of relative growth for the past few years, with some exceptions seen near the end of 2018 (extending to early 2019). The Turkish Gross Domestic Product (GDP) then received a serious hit in the second quarter of 2020, mostly because of the pandemic. However, it recovered and showed an all-time high in 2021. Later, “the Turkish economy advanced 3.5 percent year-on-year in the fourth quarter of 2022,” according to Trading Economics data.

But in February 2023, Turkey had a nightmare brought upon its unsuspecting people after the earthquake of magnitude 7.8 hit 10 provinces, followed by numerous aftershocks, leading to over 50,000 casualties. Turkey has been dealing with the hefty economic burden and undertook efforts to get back on its feet since then. It continues the attempts to maintain its foreign trade on the one hand and recover domestically on the other.

Turkey’s economy in limbo

The two colossal quakes of February 6 caused about $34.2 billion worth direct physical damages in Turkey. That equals almost 4 percent of the country’s 2021 GDP, according to a World Bank rapid damage assessment report released in February.

The Turkish Enterprise and Business Confederation estimates the total cost of the quake at $84.1 billion. The lion’s share of these costs went to housing at $70.8 billion. Lost national income was estimated at $10.4 billion, while the working days lost were worth $2.91 billion.

In an attempt to forecast the situation in the coming months, the European Bank for Reconstruction and Development’s (EBRD) report on the initial impact of the earthquake on the Turkish economy revealed that the potential economic effects of the earthquake in Turkey could cause “a loss of up to 1 percent of the country’s GDP this year [2023].”

The report further explains that while GDP growth in Turkey slowed down significantly in 2022, there are expectations of another decline down the road to 3 percent, in 2023 and 2024. “The growing external financing requirements and political uncertainty associated with elections in 2023 create significant economic vulnerabilities,” reads the report.

Buildings were not the only thing to collapse in Turkey’s earthquake. The country’s exports also dropped 6.4 percent to $18.64 billion, while imports increased 10.6 percent to $30.83 billion, Reuters reported. “The rise in imports was mainly due to an 858.7 percent rise in unprocessed gold imports, while the earthquakes led to a drop of $1.5 billion in exports,” Reuters said, citing the Turkish Ministry of Trade.

The natural consequence of this imbalance in exports and imports could only be a deficit in foreign trade. In Turkey’s case, that deficit amounted to $12.9 billion in February, an annual increase of 52.8 percent.

The provinces most affected by the February 6 quake represent some 15 percent of Turkey’s population. According to the Turkish Enterprise and Business Confederation, they account for 9 percent of the nation’s GDP, 11 percent of income tax and 14 percent of income from agriculture and fisheries.

That said, there is a slight silver lining. EBRD’s aforementioned report foresees an expected boost in reconstruction efforts in the later months of 2023, which could partially offset the negative effect of the damage to supply chains and infrastructure.

Disruptions and concerns

This disruption in Turkish exports can only make you wonder whether an impact on Egypt-Turkey trade relations, specifically on Turkish exports to Egypt, could be seen soon. The volume of trade between the two countries suggests it is not unlikely.

Turkish exports to Egypt reached a record level of $2.8 billion, during the period from January to August 2022, according to data from the Turkey Exporters Assembly. This put Egypt in the 15th place on the list of the most importing countries from Turkey during that period.

The Turkish Ministry of Foreign Affairs states that Egypt’s main imports from Turkey include crude petroleum-derived products, textile fiber and textile products, iron and steel, metal products, as well as a variety of other goods.

The Turkey quakes caused massive destruction in a core industrial region in Turkey, affecting the cities of Kahramanmaras, Gaziantep, Adiyaman, Hatay, and Malatya.

These cities comprise a large number of factories that contribute to exporting Turkish goods, from clothing and jewelry to pots, pans, and iron. As a result, a significant decline in the exports from the affected Turkish provinces was observed, according to the Kahramanmaras and Hatay earthquakes report. The Turkish Ekonomi newspaper also reported that hundreds of textile plants in Kahramanmaras have halted operations, adding that it may take as long as six months to restart production.

Economic expert Mokhlis Al Nazir told Sky News Arabia that the Turkish trade balance has been witnessing an ongoing deficit from last year and the country is in dire need of increasing exports. He added that maintaining a balance in trade can only be helpful if both imports and exports grow. Al Nazir also explained that it is crucial not to lose the percentage of exports that the 10 affected cities contribute.

The Turkish automotive sector is another one that Turkey excels in, and that Egypt greatly relies on. Turkish vehicles were completely exempted from customs in Egypt since 2020. This quickly made Turkey the fifth largest supplier of vehicles to Egypt. In 2021, Turkey became Egypt’s fourth trading partner after China, Saudi Arabia and the United States.

Data from Resilinc, a provider of AI-based supply chain data monitoring, show that the automotive and general manufacturing suppliers in Turkey have been hit the hardest in the wake of the earthquake. “Automotive is Turkey’s largest export — with vehicle models by Renault and Fiat covering 15.2 percent of total exports, totaling $23.9 billion — while machinery exports total $13.8 billion, and electrical equipment totals $8.1 billion. Outside of Renault and Fiat, Indian auto firms Mahindra & Mahindra (M&M), Bajaj Auto, Hero, MotoCorp, and TVS Motor Company with operations in Turkey may experience challenges,” Resilinc reports.

Turkey exports to the Egyptian market Japanese car brands like Toyota and Honda, Italian Fiat and French Renault.

The Turkish clothing industry is the fourth largest exporter in the world, according to Statista, making the impact of the halted manufacturing in vital industrial areas highly significant. Major fashion companies in Turkey, according to Reuters, which have sought to diversify their supply chains into Turkey are facing negative ramifications, too. Around 500 apparel factories were in the earthquake region, handling manufacturing for several high-profile clothing brands including Levi Strauss, Mango, Hugo Boss and Zara.

Exploring horizons of rapprochement

Despite the concerns surrounding the impact of the earthquake on Turkey’s trade relations with Egypt, on other levels, Egypt and Turkey have made good use of the crisis. In the wake of the earthquake, sympathizing countries rallied to aid the troubled republic, and Egypt was one of the first countries that rushed to provide aid to Turkey, breaking the ice in strained diplomatic ties between the two countries On February 6, the day of the devastating earthquake, Egyptian President Abdel-Fattah El-Sisi called his Turkish counterpart Erdogan to extend condolences.

Shortly after his visit to Turkey (the first visit by Egypt’s top diplomat in a decade) to show solidarity in February, Egyptian Minister of Foreign Affairs Sameh Shoukry met with Turkish delegations in Cairo, headed by Shoukry’s Turkish counterpart, Mevlut Cavusoglu, in March. The talks aimed to tackle aspects of bilateral relations. That is another step further towards what looks like a rapprochement between Egypt and Turkey, which could open doors for many more long-awaited positive changes, whether economic, political or diplomatic.

    Knowledge Partners

    CONTACT US

    School of Business
    American University in Cairo
    AUC Avenue – P.O. Box 74
    New Cairo 11835
    Egypt
    Email: BusinessForward@aucegypt.edu

    Copyrights © 2017 The American University in Cairo School of Business • All Rights Reserved

    Copyrights © 2017 The American University in Cairo School of Business • All Rights Reserved. Designed by Indigo.

    Copyrights © 2022 The American University in Cairo School of Business • All Rights Reserved.  Designed by Indigo.

    You have successfully subscribed to the newsletter

    There was an error while trying to send your request. Please try again.

    Business Forward AUC will use the information you provide on this form to be in touch with you and to provide updates and marketing.