Turkey’s protection trade has been a rising star within the nation’s financial system in recent times, attracting well-established entrepreneurs and novices alike. Pro-government enterprise individuals — particularly these keen to attract near President Recep Tayyip Erdogan — have vied fiercely for a spot in a sector the place political dividends are as excessive as financial ones.
Yet a newly launched report by the Defense and Aerospace Industry Manufacturers Association (SASAD), broadly seen as probably the most dependable and least politically contaminated overview of the sector, exhibits the expansion of the trade stays susceptible to exterior headwinds and political dangers.
The report, which summarizes the sector’s efficiency in 2020, cites the financial fallout of the COVID-19 pandemic as the explanation for downticks in an array of key metrics within the trade. The sector’s turnover fell by 18.6% to some $8.9 billion from $10.Eight billion in 2019. Overseas gross sales revenues totaled about $2.Three billion, dropping 26.1% from nearly $3.1 billion in 2019. Research-and-development spending decreased 25.7% to $1.2 billion from $1.6 billion the earlier yr. Imports have been additionally down, reducing 30% to $Three billion. In sum, figures point out the Turkish protection trade contracted by one-fourth in 2020 from the earlier yr. The trade’s rise had begun in 2015, when its turnover stood at about $5 billion. The sector doubled its turnover by 2019. Last yr’s decline introduced the determine again to the extent of 2018.
The affect of the pandemic might hardly be disputed, however the report omits one other main issue: the sanctions the United States slapped on Turkey over its buy of S-400 air protection techniques from Russia. Washington eliminated Turkey from the joint F-35 fighter program in July 2019 and adopted up with sanctions beneath the Countering America’s Adversaries Through Sanctions Act (CAATSA) in December 2020.
The Turkish protection trade is closely reliant on uncooked supplies and intermediate merchandise from the United States, although ample stockpiles restricted the affect of the sanctions final yr. But Ankara is effectively conscious their affect will irritate the state of affairs as stockpiles proceed to empty. This is among the causes underlying Ankara’s efforts to fix fences and courtroom favor with Washington, together with its heightened profile in Afghanistan.
Despite the cushioning impact of stockpiles, the row over the S-400s and associated sanctions weren’t with out penalties for Turkey’s protection trade final yr. First, the disaster heightened the danger premium of the sector, discouraging international firms from doing enterprise with Turkish counterparts and international lenders from financing Turkish firms. Second, the CAATSA sanctions hit imports for the navy and civil aviation sectors from the United States in addition to their exports to different nations.
The navy and civil aviation sectors, which rely closely on US-made inputs, contributed about $2 billion and $1.Three billion respectively to the turnover of the Turkish protection trade final yr, accounting for 37% of the whole.
Of word, the value of recent orders acquired by Turkish protection firms additionally dropped final yr. They totaled about $6.2 billion, a 42% lower from some $10.7 billion in 2019. In phrases of know-how segments, civil aviation and land techniques topped the checklist, adopted by navy aviation and naval techniques.
By comparability with turnover, producers within the sector seem to have a enterprise potential of lower than a yr, that means they should give attention to securing new orders, particularly from international patrons.
In different phrases, the Turkish protection trade, which is now confronted with the duty of sustaining its improvement after the preliminary increase, dangers stagnation and maybe continued contraction except it manages to increase its international markets. Boosting exports is the one method to overcome final yr’s downturn and make sure the sector’s regular improvement within the coming years.
The trade’s heavy reliance on imported inputs stays the elemental draw back right here, as evidenced by the truth that the value of its imports and exports is kind of equal. This means any effort to extend exports leads to a rise in imports, which is akin to progress on steroids. Such import-reliant progress is, little question, susceptible to political and different dangers.
US and European producers high the checklist of the trade’s international suppliers, with their share reaching as much as 80% in some branches. In the land techniques section, as an illustration, imports from the United States and Europe accounted for 83% of the $451 billion imports on this class in 2020, in line with the report. Similarly, 67% of the $624 million imports destined for navy aviation merchandise have been from the United States.
In a way, the Turkish protection trade’s reliance on US and European suppliers had served as an anchor preserving Turkey within the Western safety bloc, regardless of how prepared Erdogan’s authorities is likely to be to show to the East and speak in confidence to Asian markets. Hit each by the pandemic and the CAATSA sanctions, Turkish protection firms are already sounding the alarm over depleting inventory of key inputs. To proceed manufacturing, they want uncooked supplies and intermediate merchandise from the United States and Europe. Ankara could also be very a lot disturbed by this dependency, however it stands almost no likelihood of shrugging it off for a minimum of a decade. Erdogan’s latest efforts to make up with the United States and different NATO members resonate as an acknowledgment of this actuality, amongst different international coverage predicaments.
The decline in research-and-development spending within the Turkish protection trade is one other troubling signal for Ankara with regard to the way forward for the sector.
Nevertheless, trade actors stay upbeat about their prospects regardless of the setback in 2020. According to a survey referenced within the SASAD report, nearly 79% of firm managers within the sector are optimistic their companies will develop and develop within the subsequent two years. More than 90% say they plan new investments to additional develop their firms, and nearly 32% envision research-and-development budgets amounting to greater than 10% of firm turnovers.