UAE-Turkey Cepa deal to boost non-oil trade to $40bn

Reuters/Umit Bektas

• Deal could support 25,000 new jobs by 2031
• Trade between UAE and Turkey surged by 40% in 2022
• Agreement will remove tariffs on 70% of products

The UAE and Turkey have signed a comprehensive economic partnership agreement that is expected to boost the value of non-oil bilateral trade between the two countries to $40 billion in the next five years.

Signed by Turkey’s minister of trade Mehmet Muş and Abdulla bin Touq Al Marri, minister of economy of the UAE, the deal will also see 25,000 new jobs created across both countries by 2031.

The comprehensive economic partnership agreement (Cepa) will remove tariffs for over 70 percent of product lines, representing more than 85 percent of the value of bilateral trade.

• Turkey’s earthquakes revive concerns over industrial heartland
• Turkish firms pledge to invest $500m in Egypt
• Turkey’s exports to Middle East rose 16.1% in January 2023

Sheikh Mohamed bin Zayed Al Nahyan, president of the UAE, said: “Turkey has been one of our most trusted and highly valued partners for five decades.

“It is one of the region’s most important economies and is now emerging on the global stage as a high-growth, entrepreneurial nation with a future-focused outlook that very much mirrors our own.”

As well as promoting trade, the agreement will have a special emphasis on small and medium-sized enterprises, while also making it easier to complete investments between the two countries and bringing in strict rules governing intellectual property rights.

Turkey’s president Recep Tayyip Erdogan, said: “Our efforts, which are empowered from our shared history, culture, and traditional values are not only contributing to our bilateral economic ties, but also significantly contributing to the prosperity, welfare and stability of our region as well as the globe.”

Trade between the UAE and Turkey jumped 40 percent in 2022, the fastest rate of growth among the former’s top ten export markets. 

“Turkey is already an important trading partner for the UAE and a gateway to parts of Europe, and a CEPA is likely to generate opportunities for businesses and investors across a range of sectors,” Scott Livermore, chief economist at Oxford Economics Middle East, told AGBI.

Under an economic programme unveiled in 2021, Turkey aims to shift to a current account surplus through stronger exports and low interest rates, despite soaring inflation and a currency that has tumbled in recent years.

Turkey’s foreign trade deficit widened 38.4 percent year-on-year to $14.24 billion in January, with imports surging 20.7 percent and exports up 10.3 percent.

The Turkish Statistical Institute said imports climbed to $33.61 billion in January, while exports rose to $19.37 billion.

Meanwhile, inflation hit a 24-year high of 85.51 percent in October last year, stoked by a series of unorthodox interest rate cuts, sought by Erdogan, that began in September 2021 and caused a currency crash late that year.

Economists expect annual inflation to dip to around 40 percent by the time of the May presidential and parliamentary elections, which are expected to be tight according to polls.

Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington, said: “The Cepa deal will not address the underlying economic issues facing Turkey, but it could serve as a small vote of confidence in the Turkish economy.”

The two major earthquakes which hit Turkey last month caused about $34.2 billion in direct physical damage, but total reconstruction and recovery costs facing the country could be twice as high, the World Bank said.

The bank estimates that the earthquakes would also shave at least half a percentage point off Turkey’s forecast gross domestic product growth of 3.5 percent to four percent in 2023, Humberto Lopez, World Bank country director for Turkey, said.

The UAE concluded a wide-ranging free trade agreement with India last year with plans to increase bilateral non-oil trade to $100 billion in the next five years.

Cepas were also signed in 2022 with Israel and Indonesia.

The Ministry of Economy previously announced its aim to finalise Cepas with Georgia and Cambodia in the first quarter, as well as targeting deals with Kenya and Ukraine by the middle of the year.

Speaking earlier this week, Dr Thani Al Zeyoudi, the UAE’s trade minister, said trade agreements such that with Turkey will play a crucial role in helping the Gulf state reach its “ultimate” goal of accessing 90 percent of global trade flows.

Justin Alexander, director of Khalij Economics and Gulf analyst for GlobalSource Partners, said: “A possible future Cepa would be with the UK. A third round of talks in Riyadh on a UK-GCC free trade agreement is pending shortly, but if this encounters too many obstacles, the UK might go for bilateral deals and the UAE would likely be the easiest of these to conclude.”