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Ambitions and obstacles for Turkey’s mining sector

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A stronger economic base has enabled Turkey to start investing more in its mining sector, which contributes around 4% of its national income.

But, despite having extensive geological wealth – 70 of the 90 main minerals traded worldwide can be found in Turkey – the country is relatively new and undeveloped as a mining centre.

From an industrial minerals perspective, Turkey is home to some global titans – including Ciner Group, a multinational conglomerate with one of the largest soda ash production capacities worldwide, and Eczacibași Esan, a major producer of clays and feldspar. It also has a number of international miners and smaller local producers of bentonite, borates, magnesite, graphite and perlite.

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The Turkish government has recognised the potential of its mining sector and has started to reform legislation that it hopes will allow the industry to grow.

Measures include attractive initiatives for private investment in resources development, in conjunction with modifications to mining legislation to eradicate discrimination against foreign companies – provisions which it hopes will encourage an inflow of capital.

Efforts to shift Turkey’s mineral wealth out of government ownership and into private hands have already yielded progress.

“Today just 10-15% of Turkey’s mining operations belong to public bodies, such as Turkish Coal Enterprises (TKI), Turkish Hard Coal Enterprises (TTK) and Eti Maden,” Nevzat Kavaklı, Deputy Undersecretary of the Minister of Energy and Natural resources, said recently.

“In the future, this ratio will be even smaller. We are ready to increase foreign mining companies’ share in our country. To encourage these foreign companies, the Ministry of Economy has established new incentive schemes for strategic investments.”

Although investors have broadly welcomed the amendments to date, further government reform is needed to keep growth at a consistent level. Among the changes that still need to be implemented are a process to streamline applications for mining licences. Under the current system, bureaucratic bottlenecks mean that some companies can wait years to receive permits to conduct exploration and construct mines and plants.

Notwithstanding the weakness in global financial markets, the Turkish government has set ambitious targets for its economy, including a goal of reaching $500bn in export revenue, $15bn of which is slated to come from the mineral sector, by 2020.

These targets rely heavily on the consistent development of both the Turkish economy and foreign investment, however.

“The Turkish Republic is in need of financial direct investment, because of the large deficit in the national budget,” said Zeynep Dereli, managing director of APCO Worldwide Turkey, a global strategic communications and advisory firm. “The financing of this deficit, given the volatility with the Turkish lira, and lower GDP growth, will have an effect on the country,” he added.

Turkey is also facing wider political challenges. Its longstanding trading relationship with Iran has allowed it to benefit as a vehicle for investing in the formerly isolated Middle Eastern state. The lifting of international sanctions against Iran this year, following the implementation of the July 2015 joint comprehensive plan of action (JPCOA), is likely to increase the flow of trade between the two countries, but also means that Turkey will now have to compete with its neighbour for foreign investment.

“Good opportunities will open up for Turkish businesses, particularly in the service and retail sectors, but we can’t afford laxity since, even during the term of [former Iranian president Mahmoud] Ahmadinejad at the height of sanctions, flights from Istanbul to Tehran were packed with Westerners seeking out future business opportunities there,” Kerem Alkin, a macroeconomist and professor at Turkey’s Istanbul Medipol University, told regional news service, Middle East Eye .

Heightened political tensions with Russia over the shooting down of a Russian fighter jet in Turkish airspace in November last year are likewise a concern, as is personal security in the country, which has come under scrutiny following recent terror attacks in Istanbul and Ankara.

The Syrian crisis spilling over Turkey’s southern border has also contributed to recommendations against travel to the country by the US and German foreign offices – a blow for Turkish investor relations with these two powerful countries.

The two general elections held in Turkey in 2015 meanwhile illustrated deep divisions within the country and have raised questions over its political stability, with negative economic consequences.

Turkish inflation is forecast to rise by 7% this year, unnerving investors and echoing the high rates of the past.

Moreover, foreign investment in the wider Turkish economy has slowed down. The country reported a drop in exports in January 2016 to $9.2bn, down 14.4% compared with the same month of 2015, according to data from the Exporter’s Assembly of Turkey.

Turkey emerged relatively unscathed from the global recession of 2008, but with a depreciation of the currency and political uncertainty, the country needs to find a suitable strategy to underpin future growth.

One way in which the country’s government can potentially improve its economic prospects is by implementing more legislative reform in the country’s trade laws – particularly with respect to the EU and the US, where Turkish exporters see opportunities to tap lucrative markets.

The question now for Turkey is whether the government can re-capture the growth it saw post-2009 with a serious re-evaluation of its foreign investment laws. If it succeeds, the Turkish mining industry will have a chance to flourish and hit its ambitious 2020 targets.

source; indmin.com

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