Can Balkans become a new manufacturing center for Turkey? Synthesis Workshop of the research project “Strengthening the Connectivity and Business Synergies in the South East Europe” was held in Sarajevo  

Sarajevo –Initial findings of the “Strengthening the Connectivity and Business Synergies in the South East Europe” research project commissioned to TEPAV by the Regional Cooperation Council (RCC) was shared with participants at a workshop held in Sarajevo on July 21. Stakeholders from public and private sectors as well as academics from seven economies, namely Turkey, Albania, Bosnia-Herzegovina, Kosovo, Macedonia, Montenegro and Serbia attended the workshop.

Hosted at the RCC’s Headquarters in Sarajevo, the workshop commenced with keynote speeches by RCC Deputy Secretary General Gazmend Turdiu and TEPAV Deputy Managing Director Esen Çağlar.

“Today, instead of commodities, Balkan economies export their youth to the world…”

The first session of the meeting started with Esen Çağlar’s presentation titled “Dynamics of Transformation in the Economies of South Eastern Europe and Turkey.” Çağlar stressed that within the current conjuncture the Balkan economies, rather than exporting goods and services to the global market, increasingly export their young labour force, underlining that the structural reform agendas in these economies may have the potential to halt and even reverse this trend. “Eastern Europe has developed rapidly over the past 15 years. In countries like Poland, Hungary and Czech Republic, which were able to attract significant levels of investments from the EU countries, the cost of doing business has inevitably converged towards the EU average as well. In an era where Eastern Europe seeks new stepping stones to continue its transformation, the Balkans can become an important alternative centre of production.  Balkan economies, especially when their EU membership horizon is taken into consideration, may also provide significant opportunities for especially the Turkish companies that predominantly export to the EU market. Considering that labour costs are almost half of those in Turkey and the price of industrial land is as low as five percent of the Industrial Zones in the Marmara region, we may get a glimpse of the untapped opportunities,” Çağlar said.

“The Balkans can become a springboard for Turkish companies seeking to go global …”

Topic of the workshop’s second session was the current status of bilateral economic relations between Turkey and the Balkan economies. At the session where bilateral export and investment trends were discussed, TEPAV Research Associate Timur Kaymaz elaborated on the findings of over 100 in-depth interviews conducted with Turkish and other foreign investors active in the Balkans. It was stressed that Turkey, which increasingly became an important source of investments in its immediate region within the past decade, also has considerable investments in the Balkan economies as well. Yet another positive development emphasized in this session was the accelerating and expansionary activities of Turkish banks such as Halkbank, Ziraat Bank, TEB and BTK in the Balkan economies in the recent years. Stressing that this is a strong signal for Turkish companies considering investing in the region, Kaymaz noted that, apart from serving as conventional financial support mechanisms for investors, these banks have become the most important source of information for both the sector specific developments and the business cultures of these economies. The positive impact of significant Turkish investments by companies already active in the region, including Şişecam, Natron Hayat (Kastamonu Entegre) and Kürüm Holding, on the export performances of the region’s economies was discussed at the session, where it was highlighted that these three companies alone contribute $400mn to the region’s exports as indicated by analyses of the trade data. Kaymaz noted that in the field of bilateral trade relations, Turkey exports medium-technology products to and imports resource-based products from the Balkans. Participants also contributed to the Q&A session, noting that the primary requisite of further enhancement of trade relations is acceleration of the structural transformation processes on both sides with rapid and effective measures as well as simultaneous enhancement of medium- and high-technology production capabilities.

“Countless opportunities in sectors such as textiles, automotive, agriculture and energy...”

The third session of the workshop started with a presentation titled “Business Opportunities in the Southeast Europe.” Sectors with potential for further development in the region such as textiles, automotive and energy, was discussed both from a meso-level perspective of regional capabilities and opportunities and from a macro-level perspective of global growth trends and market shifts. The diminishing share of Chinese textile exports, which is one of the former Yugoslavia economies’ traditional manufacturing sectors, in the European market was indicated as a significant opportunity for the near future. In the field of automotive, the discussion focused on the lessons to be drawn for the Balkans from the experiences of countries like Poland, Czech Republic, Slovakia and Romania, each of which has become an important automotive production base following their EU membership. Both major investments like the 500L production plant established by Fiat in Serbia with an investment of over €1bn, and the SMEs for operating in the value chain that may cluster around such major investments were cited as being critical for the future transformation of the economies. Finally, TEPAV Programme Director Ozan Acar made a presentation at the session titled “The Energy Sector in the Region and Areas of Opportunity.” Here, Acar noted that South Eastern European countries hold a critical position for European energy security and underlined the importance of effective utilization of the region’s natural resources and of attracting the right Turkish investors to the region in the field of energy.

“We cannot perfect the region’s investment climate overnight. But we can design policies to establish micro investment havens through implementing an industrial zone model.”

The fourth and final session of the workshop witnessed discussions on policy recommendations and project ideas to improve economic cooperation between Turkey and the Balkans with the involvement of the participants.  Çağlar noted that the investment climate of the region is far from being competitive as of today and continued: “According to OECD analyses, the investment climate of the region can only get 2 points in a scale of 1-5. It is obvious that this signals the need for rapid improvements. That said, reform processes that will cater for all economies and will take years to design, approve and implement can be initiated on the one hand, whereas micro-regions where the investment climate is on par with EU countries can be realized through smaller scale pilot projects. For instance, it may take years for the entire Bosnia Herzegovina to score 5 out of 5 from the OECD investment scorecard. However, special economic regions to be set up with a governance mechanism and legal structure akin to the industrial zones in Turkey can act as catalysers for the economic transformation process of the country.” Other significant project ideas included the improvement of the interaction between the region’s economies and Turkey in the field of information technologies, and the enhancement of cooperation amongst development agencies. Officials from the Thrace and Eastern Marmara Development Agencies elaborated on the existing cooperation mechanisms between their own jurisdictions and the Balkans, as well as the potential projects that may be implemented in the future. Finally, vitalization of the entrepreneurship and innovation ecosystems of the Balkans and possible areas and modes of cooperation with the Turkish ecosystem was discussed at the session, where Ece İdil Kasap, founder of Viveka, Turkey’s first private incubation centre, made a presentation titled “Connecting the Entrepreneurship Ecosystems of Turkey and the Balkans.” Kasap discussed in her presentation the ways in which building and strengthening connections among the young entrepreneurs from both sides would contribute to the revival of the entrepreneurial ecosystems of both Turkey and the Balkans. Kasap made suggestions on measures to be taken with a view to making improvements at the short-term t, including the organization of joint “start-up weekends”.

The workshop concluded with an overall discussion of the findings by the stakeholders.

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“Final report to be launched on September 4 at the B-20 Summit …”

TEPAV Deputy Managing Director Esen Çağlar noted that the primary goal of the project is to identify the opportunities for Turkish companies in the Balkans and vice versa. Another goal of the study was set as developing technical and sound policy proposals and tangible project ideas for the RCC, public organizations, chambers and non-governmental organizations in the region. As part of the methodology developed for the project, along with data analyses and research, more than 100 stakeholders (decision makers, companies and experts) from seven countries were interviewed in person. At the synthesis workshop held on July 21 in Sarajevo, the aim was to discuss and shape the preliminary findings of the study together with the stakeholders. The final report of the research project will be launched at the B-20 Summit in Ankara on September 4, 2015. RCC Deputy Secretary General Gazmend Turdiu expressed his pleasure that the study will be launched at the B-20 Summit, a global gathering attended by  executives of numerous large companies both from Turkey and abroad, adding that the panel will be a significant step forward to strengthen the ties between Turkish and Balkan business circles and decision makers.

The presentations made at the Synthesis Workshop held on July 21 in Sarajevo can be accessed via: