Photo: Turkish President Recep Tayyip Erdogan and President of the United Arab Emirates Sheikh Mohammed bin Zayed Al Nahyan meet in Abu Dhabi on July 19, 2023. (Source: MohamedBinZayed/Twitter)
The United Arab Emirates (UAE) and Türkiye are central to Middle Eastern politics, as the UAE is known as the economic hub of the region and Türkiye is the military power and a key NATO ally. With the intention of restoring the economic structure of the Turkish economy, Erdogan visited the UAE on July 18-19, 2023. This visit has brought new opportunities to the economic partnership between both countries.
In recent years, there has been a notable improvement in the relationship between Türkiye and the United Arab Emirates (UAE). This positive development is attributed to Türkiye’s diplomatic efforts aimed at repairing ties with former regional adversaries, such as the UAE, Saudi Arabia, Egypt, and Israel. The primary objective of the push was to attract international capital in response to Türkiye’s current economic difficulties. In 2022, the respective governments of the two nations entered into a Comprehensive Economic Partnership Agreement (CEPA) to achieve a total value of USD 40 billion over the next five years.
The agreement, which was formally approved by Abu Dhabi in May 2023 after Erdogan’s reelection. It is anticipated to significantly enhance the UAE exports to Türkiye by a notable margin of 21.7%. From January to May 2023, Türkiye experienced a notable surge in its exports to the UAE, with a substantial growth rate of 24% compared to 2022. This resulted in a total export value of $2.5 billion. Furthermore, Türkiye’s imports from the UAE also witnessed a significant upswing, exhibiting a remarkable increase of 162% and reaching a total import value of $4.1 billion. In 2022, a currency swap agreement worth approximately $5 billion was established between the two nations to enhance Ankara’s depleted foreign currency reserves. On July 19, 2023, Turkish President Recep Tayyip Erdogan met President Sheikh Mohamed bin Zayed Al Nahyan of the UAE. Both parties signed multiple strategic agreements and memoranda of understanding (MOUs) with a combined value of USD 50.7 billion. The objective of these agreements was to enhance economic ties between the two nations. The measures encompassed the provision of financial assistance amounting to $8.5 billion for earthquake relief bonds as well as the extension of loan facilities totaling $3 billion to bolster Turkish exports.
During this visit, President Erdogan of Türkiye and President Mohammed bin Zayed of the Emirates expressed their commitment to a collaborative agreement and the establishment of a higher strategic committee between the two nations. The UAE Ministry of Investment and the Ministry of Energy and Natural Resources of Türkiye have entered into a strategic partnership agreement. This agreement highlights the UAE’s aim to facilitate substantial investments that align with the comprehensive national energy transition strategy of Türkiye. In collaboration with their Turkish counterparts, well-known UAE businesses and industry experts will lead these investments. These investments encompass a range of initiatives in the field of sustainable energy, such as projects involving renewable energy sources, green hydrogen and ammonia, hydropower plants, transmission infrastructure, battery storage systems, collaborations in nuclear energy, as well as advancements in emerging technologies like hydrogen utilization, carbon capture, and storage.
During this visit, a collaborative partnership has been established between the Turkish Petroleum Corporation and the Abu Dhabi National Oil Company to conduct research and development activities in the fields of petrochemical projects. In addition, a MoU was signed for the establishment of a strategic collaboration in the domain of defense industries. It involved the UAE Tawazun Council and the Turkish Defense Industries Agency. The MoU pertains to the collaborative efforts between the UAE Space Agency, the Turkish Ministry of Science, Industry, and Technology, and the Turkish Space Agency. The objective of this MoU is to facilitate the development of joint launch vehicle capabilities for commercial purposes. Also, another MoU has been established within the export credit financing sector between Abu Dhabi Developmental Holding Company (ADQ) and Turkish Exim-Bank. The primary objective of this MoU is to facilitate and enhance the promotion of export-import and trade activities between the two countries. Further, an agreement has been established between ADQ and the Turkish Ministry of Treasury and Finance to invest in sukuk to reconstruct the earthquake-affected regions of Türkiye.
According to data from the UAE’s Federal Competitiveness and Statistics Centre (FCSC), Türkiye holds a significant position as one of the United Arab Emirates’ primary trading partners. Türkiye possesses significant economic potential for ensuring macroeconomic stability, as well as the current rapid growth and prosperity that make Türkiye an appealing investment destination. The period from 2013 to 2022 witnessed substantial non-oil intra-trade between the two countries, amounting to USD 103 billion. In 2022, the bilateral non-oil trade volume between the UAE and Türkiye amounted to $18.9 billion, exhibiting a notable growth of 40% compared to the previous year. Furthermore, this figure represents a substantial increase of 112% when compared to the non-oil trade volume recorded between the two countries in the years 2020 and 2021.
But with the ongoing economic crisis, Türkiye is currently facing a pressing need for foreign investors, such as hedge funds and foreign direct investment, to bolster its foreign reserves, which have been significantly depleted and have fallen below zero. Since the end of 2022, an amount exceeding $27 billion from the foreign currency reserves of the central bank has been depleted. The government undertook this depletion to strengthen its currency and address its sizable account deficit. Over the past decade, the value of the lira has experienced a significant decline, amounting to a reduction of over 90%. This depreciation can be attributed to the adverse effects of escalating inflation, which have additionally resulted in the departure of foreign investors from the country. With this visit, President Erdogan carried a comprehensive list of assets that Türkiye intends to divest to raise foreign currency, address the significant depletion of reserves, and manage the widening current account deficit.
In recent years, the UAE has served as a prominent center for trade and finance in the Gulf region, and it has undergone a notable transition in its foreign policy approach. The primary driving force behind this change is the increasing competition with Saudi Arabia. Also, the UAE is purportedly interested in procuring armed unmanned aerial vehicles and establishing domestic production partnerships with Türkiye. Simultaneously, the UAE has initiated ambitious initiatives aimed at diversifying its economies beyond oil dependency. In this pursuit, the UAE has sought assistance from Türkiye to foster the growth of domestic industries manufacturing drones.
In concluding remarks, it can be added that the Persian Gulf region, known for hosting the world’s most prominent sovereign investment funds, presented a logical starting point for Erdogan’s endeavor to garner support for the weak economy. With this visit, Erdogan and the UAE have reiterated their dedication to fostering stability, both regionally and globally. They expressed a mutual conviction in the significance of dialogue and economic diplomacy to establish robust bilateral relations.
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About the author:
Aishwarya Sanjukta Roy Proma is a Research Associate at BRAC Institute of Governance and Development (BIGD). She is a research analyst in security studies. She obtained her Master's and Bachelor’s in International Relations from the University of Dhaka, Bangladesh. She can be reached at email@example.com