Turkish defense industry set to boost economy

May 27, 2012, Sunday/ 13:18:00

The Turkish defense industry has been experiencing rapid growth in recent years, nourishing hopes that it can help to significantly decrease Turkey’s infamous current account deficit.

“The industry has been developing by leaps and bounds. We may be one of the driving forces behind the Turkish economy in a couple of years,” Nail Kurt, vice chairman of the Defense and Aviation Industry Exporters Union, has told Sunday’s Zaman.

His prediction would seem to be confirmed by the latest developments in the defense industry. In a bold initiative Otokar, a private defense firm, has been engaging foreign technological assistance to design Turkey’s first tank, an advance prototype of which is expected to be ready by the end of the year. The first aircraft modernized by Turkish Aerospace Industries, Inc. (TAI), which has also started to produce combat helicopters with foreign technological assistance, was delivered to Pakistan in February.

Turkey is now among 10 countries in the world with the capacity to design and build warships, the first ship having entered into service in September of last year. Last but not least, FNSS, a Turkish-American joint venture, of which Kurt is also the CEO, last year finalized an agreement worth nearly $550 million to provide armored vehicles to Malaysia. It is Turkey’s biggest defense contract yet.

Export figures are also encouraging: In 2011 Turkey’s defense exports amounted to nearly $1 billion, the previous two years’ figures being only around $650 million. As per the strategic plan of the Undersecretariat for the Defense Industry (SSM) for 2012-16 the industry aims to increase revenue to $8 billion, having yielded around $3 billion last year, and exports to $2 billion by 2016.

The establishment of the Defense and Aviation Industry Exporters Union at the end of last year, as a result of the strategic importance attributed to the industry, is another indication of its growing importance. It now claims to meet 52 percent of the needs of the Turkish Armed Forces (TSK) through domestic sources, a rate which stood at a mere 25 percent roughly a decade ago. The domestic supply figure is, however, much debated. In a recent news piece published in Today’s Zaman it was reported, quoting a former high-ranking official from the SSM, that the real figure for domestic supply would stand at less than 35 percent. The story claimed the difference in estimates was the result of the inclusion of some weapons systems provided by Turkish defense contractors that are actually imports manufactured by foreign firms.

Whatever the correct figure, given that the defense industry also exported small unmanned aircraft to Qatar recently in a joint venture with Kale-Baykar, it can be safely concluded that considerable headway has been made over the last 10 years. ASELSAN, an industry giant ranked in the top 100 global defense corporations, has recently finalized joint ventures in Kazakhstan for the production of avionics systems to be integrated into choppers, and in Jordan for night vision and thermal imaging devices.

Yet the industry, for the moment at least, still looks far from being a major contributor to the domestic economy in terms of export revenue. Turkey’s export figure last year was $136 billion. The figure the defense industry has set as its export target is a modest $2 billion by the year 2016, by which time Turkey’s total exports are expected to reach around $200 billion. That means only a 1 percent share of total export revenue, a figure far from representing a significant contribution to the elimination of Turkey’s current account deficit.

Kurt admits the industry’s export figure is relatively modest, but notes that in the defense market things progress slowly, and that it takes time for products to be in demand. “We may be lagging a little behind in terms of export figures, given that defense industry products don’t sell like hotcakes, but the industry’s exports may increase exponentially in the following years,” he maintains.

In fact, he is hopeful that the target figure for exports in 2016 may be exceeded. Any potential new contract in the aviation industry -- for example by TAI, which has also produced an unmanned aircraft named Anka -- or warship category may carry the export figure well over expectations. Kurt suggests that FNSS may also be a major contributor, telling Sunday’s Zaman in an exclusive interview: “We have a yearly export figure of $100 million to $150 million on average, but we expect to double the figure after 2014.”

Kurt’s remarks make sense as in the defense industry it is difficult to break into new markets, which are already shared by major arms producers that have been active in those markets for years. You not only need to offer high-quality products but also better prices to be competitive. Moreover, notes Kurt, Turkey needs to be on good terms politically with the potential buyer.

Middle Eastern nations -- in particular Saudi Arabia, which is said to have allocated a budget of $86.9 billion for arms purchases until the year 2015 -- are among the major customers for Turkish defense products. Other prospective markets in the coming years are Turkic republics, South Asia and Africa. South America may also emerge as a potential market.

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