{UAH} Turkish Investment in Uganda on the rise.

Turkey Comes to East Africa

 

By JACOB KUSHNER

 

Turkey, which already straddles both Europe and Asia, is now making inroads into a third continent: Africa. East Africa is poised to become the new frontier market for Turkish construction, textiles and hospitality firms as they position themselves to become major stakeholders in the region's rapidly growing industries.

Meanwhile, the Turkish government is forging ties with its African counterparts to negotiate tax agreements, regional security cooperation and foreign aid packages.

"The total value of projects undertaken by Turkish contractors in African countries exceeded $47bn dollars" in 2011, according to the most recent available figures from Turkey's Ministry of Economy. At the same time, Turkey's exports to Africa reached $13.3bn that year – a fivefold increase since 2003. The relationship does not only go one way: Turkey imported $9.6bn worth of goods from Africa in 2011, primarily mineral fuels, precious stones and cacao.

In addition to an increase in commodities trading, African nations have been the recipients of a sharp increase in Official Development Assistance from Turkey. The continent now receives 25 per cent of the $1bn Turkey spends annually on global assistance. Turkish development aid to Africa jumped from $31m in 2009 to $71m the following year.

Befriending Uganda

Uganda is one of the foremost recipients of both Turkish investment and aid. Lokman Çinar, who heads the Uganda Global Business Association, says bilateral trade between the two countries reached $24m in 2012, and is expected to double by 2015.Turkey recently opened an embassy in Kampala, and delegations of investors have been flying between the two countries on newTurkish Airlines routes that have opened to accommodate increased cross-continental demand.

As is frequently the case, this upgraded relationship can be traced back, in large part, to oil interests. The Turkish exploration company PetOil is inaugurating its Africa exploration in Uganda, where 1.7bn barrels discovered by a UK-based company in 2006 have yet to be tapped. Uganda's president Yoweri Museveni visited Turkey in 2012, where he met with officials from PetOil's parent company.

However, the Ugandan government is also keen for Turkish businesses to enter its commodities sector - particularly in the trade of construction materials, specialty foods and hospitality industry items.

"We do not necessarily need mega industries because of the size and absorptive capacity of our economy," says Mike Nsereko, head of policy and advocacy at the Uganda Chamber of Commerce and Industry. "Turkish investment has come to fill in the gaps that exist in the SME sector."

In a country where Chinese products have become ubiquitous, Turkish companies are filling a niche but growing market for businesses that need higher quality or custom products.

"The business people I know, some are really after quality and those are the ones that go for Turkish goods," Mr Çinar says. "It could be food stuff, definitely garments, textiles, spare parts. Even construction materials some people get from Turkey because of quality."

For Uganda's government, Turkish business relationships offer some advantages over Western and other nations, according to Mr Nsereko.

"Some investments that come from Europe and maybe America have certain strings attached to them. You find them asking for tax incentives, asking for land to be free…their investments come with conditionalities which make those investments a little uncomfortable to accommodate," says Mr Nsereko.

"The difference with Turkish investment is you have the same understanding, the same common treatment. You don't have special considerations, you don't want to ask for special provisions."

Smoothing the way

Uganda is not the only east African country keen to court Turkey. Kenya's leaders seem intent on creating entryways for Turkish investment as well. Kenya's president Uhuru Kenyatta visited Ankara and Istanbul in April to tour the city's new underground rail system. Like Turkey, Kenya is in the midst of an infrastructure boom, investing heavily in roads and ports.

"We look positively toward Turkish investments; we are actually here to try to promote even more Turkish companies and investors to look toward not just the Kenyan market but the regional market," President Kenyatta said at a press conference during the trip.

In an encouraging sign, Turkey and Kenya formalized nine separate investment agreements during the Kenyan president's visit, and Turkey's state-owned Eximbank announced last month said it would grant "unlimited access to concessionary financing for infrastructure projects in Kenya," according to Kenya's Ministry of Foreign Affairs and International Trade. Among the agreements is a partnership meant to bolster Kenya's police force and improve its peacekeeping work in Somalia. Meanwhile, Turkish businessmen assured the President they would be investing in Kenya's hotel and tourism industry.

"Kenya has a lot to offer Turkey, and products in demand include processed and semi-processed products such as tea, coffee, hides and skins, leather products, vegetables, cut flowers," and more, according to the Kenyan Ministry.

Unfair tenders?

Still, Turkish firms seeking to expand their business in East Africa face several hurdles. In Kenya, bilateral trade with Turkey reached $156m in 2012 but is at risk of stagnating, some investors claim.

After serving as Turkish Ambassador to Saudi Arabia in the 1980s, where he helped furnish government tenders for major Turkish construction companies and banks, Fikret Bereket moved to Kenya in 201. He now fills only small contracts for electrical generators, cables and laboratory equipment.

Mr Bereket says he has been unsuccessful at facilitating larger contracts between Turkish companies and the Kenyan state. Chief among the challenges is the fact that Kenya's government pays tenders in installments. Unlike many Chinese companies that receive full financing from Chinese state-owned banks, Turkish companies have no such luxury. As a result,  they are sometimes unable to bid on major infrastructure projects.

Kenya's tender process for government contracts remains difficult to navigate for some Turkish firms. Accusations of corruption that surfaced this year after Kenyan officials awarded a $5bn contract to the China Road and Bridge Corporation to renovate Kenya's railway system underscore the need for transparency in bidding on major infrastructure projects.

Mr Bereket says he recently advised one major Turkish construction firm as it considered bidding on a major oil pipeline. But he said the company backed out when it saw that the language of the official tender seemed to target one specific, Chinese company.

"When they read the tender conditions they said to me, 'this is for some (particular) company they've prepared it, so whoever enters will fail," Mr Bereket claims.

He goes on: "The Turkish construction companies are doing very well in the whole Middle East, the whole of Asia, Moscow, and Europe—and they are very happy. They don't want to come here and face difficulties."