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Five ways Russian sanctions can hurt Turkey economy

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Russia's economic sanctions against Turkey over its downing of a Russian warplane could hurt the Turkish economy in several areas from fruit to tourism, even if the initial impact is likely to be limited.

Turkey and Russia have enjoyed burgeoning trade ties in recent years despite disagreements on a number of political issues from Moscow's annexation of Crimea from Ukraine to the more than four-year old civil war in Syria.

But ties hit a low when Turkish jets shot down last week a Russian warplane on the Syrian border which Ankara said had violated its air space.

Moscow put forward a raft of economic sanctions against Ankara while demanding an official apology from the Turkish leadership.

But Moscow is keeping some of its powder dry and the effect may be limited for now, with tourism and agriculture the most immediate casualties.

"The impact... will, in general, probably be limited," said William Jackson Senior Emerging Markets Economist at Capital Economics in London, putting the maximum cost to the Turkish economy at 0.5 percent of GDP annually.

Here are five sectors of the Turkish economy that could be hurt by the Russian action:

TOURISM:

Shortly after the crisis erupted, Russia swiftly called on its citizens to scrap any travel plans to Turkey, dealing an immediate blow to the Turkish tourism industry.

Russian tour firms promptly halted the sale of holidays to Turkey, in line with a directive from the federal tourism agency.

The move dealt a huge blow to tourism in Turkey, where every eighth tourist is Russian and Russians dominate resorts on the Mediterranean like Antalya and Alanya.

According to Turkish tourism ministry statistics, 3.5 million Russian tourists visited Turkey in 2015 from January to October, down from 4.1 million in 2013 and 4.3 million in 2014.

"Perhaps the most damaging impact to Turkey from the sanctions will come via tourism," said Jackson.

ENERGY

Russian Economy Minister Alexei Ulyukayev did not rule out that the measures could hit two major projects with Turkey -- the planned Turk Stream gas pipeline under the Black Sea and the Akkuyu nuclear power plant.

Meanwhile, energy-hungry Turkey relies on Russia for 55 percent of its natural gas and 30 percent of its oil as it searches for greater self-sufficiency.

However while the Turk Stream and Akkuyu projects may be at risk, no Russian energy official has seriously suggested cutting off energy supplies to Turkey, a move that would severely hurt Russian gas giant Gazprom.

TRADE

Turkish President Recep Tayyip Erdogan and Russian counterpart Vladimir Putin had ambitiously aimed at reaching a trade volume of $100 billion in 2023, up from from $32 billion in 2013.

According to the Russian state statistics office, in 2014 Russia exported $24.5 billion of goods, mainly natural gas, oil, steel and grain to Turkey, while imports from Turkey totalled at $6.7 billion.

The $100 billion target now looks like a pipe dream.

Lilit Gevorgyan, senior economist at IHS Global Insight, said the confrontation was "a major setback of more than a decade long efforts to build commercial and energy partnership between Russia and Turkey, despite their geopolitical and historic differences."

FOOD

Turkey was a major beneficiary of the Russian trade embargo on EU foodstuffs imposed as a retaliation measure with bilateral trade in agricultural goods rising 19 percent to $4 billion in 2014 due to imports of Turkish fruits, vegetables and nuts.

However Russian Deputy Prime Minister Arkady Dvorkovich said Monday that Turkish fruit and vegetables would be banned, albeit after a certain lag to stop inflation.

Russian Agriculture Minister Alexander Tkachev warned Ankara that Turkey's agricultural exports could be replaced by Russia within a week, with suppliers from countries ranging from Iran to South Africa.

CONSTRUCTION

Some 35 percent of Russian imported construction services were from Turkey in 2014, according to central bank data. Turkish companies had also benefited hugely from the Winter Olympic Games in Sochi that year.

But Russian Deputy Prime Minister Igor Shuvalov said Monday that while contracts with Turkish companies signed before December 31 would be honoured any new deal would require government approval.

Shuvalov emphasised however that no measures were planned "for the moment" against Turkish industrial goods.

Russia’s economic sanctions against Turkey over its downing of a Russian warplane could hurt the Turkish economy in several areas from fruit to tourism, even if the initial impact is likely to be limited.

Turkey and Russia have enjoyed burgeoning trade ties in recent years despite disagreements on a number of political issues from Moscow’s annexation of Crimea from Ukraine to the more than four-year old civil war in Syria.

But ties hit a low when Turkish jets shot down last week a Russian warplane on the Syrian border which Ankara said had violated its air space.

Moscow put forward a raft of economic sanctions against Ankara while demanding an official apology from the Turkish leadership.

But Moscow is keeping some of its powder dry and the effect may be limited for now, with tourism and agriculture the most immediate casualties.

“The impact… will, in general, probably be limited,” said William Jackson Senior Emerging Markets Economist at Capital Economics in London, putting the maximum cost to the Turkish economy at 0.5 percent of GDP annually.

Here are five sectors of the Turkish economy that could be hurt by the Russian action:

TOURISM:

Shortly after the crisis erupted, Russia swiftly called on its citizens to scrap any travel plans to Turkey, dealing an immediate blow to the Turkish tourism industry.

Russian tour firms promptly halted the sale of holidays to Turkey, in line with a directive from the federal tourism agency.

The move dealt a huge blow to tourism in Turkey, where every eighth tourist is Russian and Russians dominate resorts on the Mediterranean like Antalya and Alanya.

According to Turkish tourism ministry statistics, 3.5 million Russian tourists visited Turkey in 2015 from January to October, down from 4.1 million in 2013 and 4.3 million in 2014.

“Perhaps the most damaging impact to Turkey from the sanctions will come via tourism,” said Jackson.

ENERGY

Russian Economy Minister Alexei Ulyukayev did not rule out that the measures could hit two major projects with Turkey — the planned Turk Stream gas pipeline under the Black Sea and the Akkuyu nuclear power plant.

Meanwhile, energy-hungry Turkey relies on Russia for 55 percent of its natural gas and 30 percent of its oil as it searches for greater self-sufficiency.

However while the Turk Stream and Akkuyu projects may be at risk, no Russian energy official has seriously suggested cutting off energy supplies to Turkey, a move that would severely hurt Russian gas giant Gazprom.

TRADE

Turkish President Recep Tayyip Erdogan and Russian counterpart Vladimir Putin had ambitiously aimed at reaching a trade volume of $100 billion in 2023, up from from $32 billion in 2013.

According to the Russian state statistics office, in 2014 Russia exported $24.5 billion of goods, mainly natural gas, oil, steel and grain to Turkey, while imports from Turkey totalled at $6.7 billion.

The $100 billion target now looks like a pipe dream.

Lilit Gevorgyan, senior economist at IHS Global Insight, said the confrontation was “a major setback of more than a decade long efforts to build commercial and energy partnership between Russia and Turkey, despite their geopolitical and historic differences.”

FOOD

Turkey was a major beneficiary of the Russian trade embargo on EU foodstuffs imposed as a retaliation measure with bilateral trade in agricultural goods rising 19 percent to $4 billion in 2014 due to imports of Turkish fruits, vegetables and nuts.

However Russian Deputy Prime Minister Arkady Dvorkovich said Monday that Turkish fruit and vegetables would be banned, albeit after a certain lag to stop inflation.

Russian Agriculture Minister Alexander Tkachev warned Ankara that Turkey’s agricultural exports could be replaced by Russia within a week, with suppliers from countries ranging from Iran to South Africa.

CONSTRUCTION

Some 35 percent of Russian imported construction services were from Turkey in 2014, according to central bank data. Turkish companies had also benefited hugely from the Winter Olympic Games in Sochi that year.

But Russian Deputy Prime Minister Igor Shuvalov said Monday that while contracts with Turkish companies signed before December 31 would be honoured any new deal would require government approval.

Shuvalov emphasised however that no measures were planned “for the moment” against Turkish industrial goods.

AFP
Written By

With 2,400 staff representing 100 different nationalities, AFP covers the world as a leading global news agency. AFP provides fast, comprehensive and verified coverage of the issues affecting our daily lives.

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