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Turkey, an Energy Hub or drowned in Economical crisis?

Shahriar Sheikhlar

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Turkish Economy have experienced great developments during last six decades, more than most of countries around the world. Accelerating Turkish economic growth made mainly by export-led policy (after 1980) and the economical reforms (after 2003) when current president Recep Tayyip Erdoğan started his role as PM.

Some of the achievements have been reached as a result of Turkey’s geopolitical position, where is a connection node between producers and consumers of energy and industrial goods and some could be awarded to the government’s plans, mainly for free international trade, developing tourism industry, privatization, earning income and accessing the chip energy sources via it’s energy transiting plans.

Turkish economic growth analysis in a glance

Turkish GDP was increased to $ 875.748 billion at 2016 where it was just $ 13.995 billion at 1960 (from worldbank.com), a wonderful raising by more than 60 times that is faster than world average but not enough uninterrupted to be compared with some pioneer economies such as Korea republic.

The sharpest rate of Turkish economical growth was experienced in 1970s decade (%223.08), mostly resulted by boosting governmental spending after 1971 military intervention. The biggest growth in amount was in 2010s decade that experienced increasing $ 411.92 billion during 6 years. Comparing Turkey’s achievement with Korea Republic’s shows lack of harmony and Continuity in Turkish economical growth, while Korea’s economy moved from $ 4.23 billion (32% of Turkish) in 1960s decade to $ 1,290 billion (1.48 of Turkish) in 2010s duration.

Main growth areas

Ruling party’s economical reforms, such as strong domestic consumption, cheap credit and large financial inflows, enhancing the flexibility of the labour market and boosting the competitiveness of the manufacturing sector through greater competition, could enhance it’s rank to world’s 17th in 2015.Some sectors are playing main role in this economic leap, such as Tourism while could attract more than 36 million tourists In 2015 that raised Turkey’s revenues to 31 billion USD per year (from: www.mfa.gov.tr), as well as Privatization that it’s earning was increased significantly from 8 billion USD in the period of 1986-2003 to 58 billion USD between 2004-2015 (from the same source). Turkish contracting services abroad have successfully completed 8693 projects in 107 countries across the globe between 1972-2015, with a total value of 276 billion USD between 2002-2015  (from the same source). As well as Turkish economy could host more than 46,000 foreign active firms and 916 liaison offices of foreign firms, as well as the total amount of foreign direct investments exceeded 165 billion USD as of the end of 2015.

The same sharp raising could be traced in Turkey’s foreign trade during last decades, too, when Turkey’s export was raised to $142.53 billion at 2016 from $12.96 billion at 1990 (%1100) that is sharper than growth in it’s importing, where it was changed from $22.30 billion to $198.62 billion during the same period of time (%891) but the balance of Turkey’s trade is negative yet and extended to $56.09 billion.

An Energy Hub

Turkey’s plan for rolling as the hub of energy between main producers in middle east, Caspian and Russia to main customers in Europe entered to a new phase by signing the Turkish Stream contract with Russia in 2014. Now 4 operating natural gas pipelines through Turkey with capacity of more than 2.3 Tcf are supplying Turkey’s demand and transiting gas to the Europe customers. Also 3 projects in the construction phase and 3 new proposed projects with total capacity of more than 4.8 Tcf could make Turkey one of the main Energy transiting hubs in the world that could powering it’s geopolitical plans as well as giving significant economical advantages.

As well as, 3 Crude oil pipelines from Baku, Kirkuk (Iraq) and Kurdistan Government of Iraq with capacity of more than 3.4 million barrels of oil per day are transiting Azerbaijan, Kazakhstan and Iraq’s crude oil to/via Turkey. Turkey’s Ceyhan oil port covers 1.44 sq.km, storage capacity of about 7 million barrels of oil and annual export capacity of more than 50 million tones of oil annually (from: bp.com).

Increasing demands in European countries for energy carriers, mainly the natural gas as a cleaner and chipper product and on the other the natural gas producers’ need for chipper and operational solution to reach the Europe market, make Turkish ways more highlighted and Turkey’s governments are trying to catch this opportunity, economically and politically.

Transiting 7.1 Tcf of natural gas and 3.4 million barrels of oil could make Turkey one of the main energy transition hubs around the world that not only make significant economical benefits but also could support it’s political plans such as accession of Turkey to the European Union, the desire is sometimes closed and sometime far.

Turkey’s in economical crisis

Despite all the longterm growth in indictors, Turkey’s economy is facing new crisis during last 3 years, especially after some internal clashes and tensions with with Russia, united states and European countries. Turkish Liras’ exchange rate to foreign currencies is dropped sharply and reached to 3.88 to USD (at 2017, December) from 1.8 in 2012 (less than half, just during 5 years).

Also inflation rate is raised to more than % 10.9 at 2017, when it was decreased to 7.7% at 2015 (from IMF).

The GDP per capita that was raised to about $ 12,500 at 2013 is declined again to $ 10,800 at 2016 for three consequently years (the same level at 2008).

The situation in some other indicators such as “population below poverty line” are showing more shortages or crisis, when it was raised to more than %21 at 2016.

Continuing this conditions could abduct the chances of improvements for Turkish government and people while it’s most needed for both to hold over the dreams.

Future of Turkey’s economy – Short term provision

The short term provisions of Turkish economy are not optimistic enough, especially after several diplomatic and economical clashes between Turkey and it’s main partners during last  three years.

Russia imposed sanctions against Turkey at 2015, November that affected Turkish economy quickly but it couldn’t get rid of them even after 7 months of removing most of these sanctions.

Turkey – Russia clashes on downing of a Russian fighter jet in 2015 led to sanctions

Turkish economy that has been affected quickly by sanctions imposed by Russia (at 2015, November) doesn’t get rid of them completely, even after more than 7 months of easing tensions and lifting the most of sanctions. In the case of removing all Russian sanctions, it couldn’t bring relief to Turkey’s struggling economy as it’s faced to a bigger crisis arising by political clashes with European countries, especially Netherland, Germany and Belgium and next with USA.

Furthermore, effects of internal clashes (especially after failed coup in 2016) and hosting million refugees from Syrian internal war made the Turkey’s economy battered which was one of the best – performing until 2014.

The Turkey’s economy could experience new small growths by easing the internal and international conflicts before next elections on 2019 but not as was before 2014.

Now it’s time for Turkey to select it’s ambitious plans for being one of the main energy hubs in the world that could affect on global energy markets and having rapid growing economies or drowned in diverse economical crisis.

Independent Energy Economy Analyst and Energy Development Consultant Managing Director of ARDO Consultancy center http://ardoconsultancy.co/

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Economy

The impact of US-China Trade war

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It is highly unlikely, that any tangible solution to the Trade war between Beijing and Washington will emerge in the short run. In May 2019, Trump increased the tariffs on commodities worth 200 Billion USD, from 10% to a whopping 25%. So far, US has imposed tariffs of about 250 Billion USD on China. While China, has retaliated with tariffs on US goods estimated at well over 100 Billion USD (110 Billion.)

It would be pertinent to point out, that trade disputes have not been restricted only to Washington and Beijing.  Imposition of tariffs has been a bone of contention with US allies including Japan.

Off late, trade issues have resulted in major differences between New Delhi and Washington. Even though there are convergences between both countries on numerous strategic issues, resolving the differences between both sides on trade related matters is likely to be an onerous responsibility.

 In response to tariffs imposed by Washington, New Delhi retaliated, and has imposed tariffs, estimated at 200 Million USD, on 29 commodities (including Apples, Almonds and Chickpeas). India’s decision was a response to US’ decision to impose tariffs, of 10% and 25% on Aluminium and Steel in May 2018. Last year, New Delhi refrained from imposing tariffs, but did raise import taxes on a number of US goods to 120%, after Washington declined to exempt New Delhi from higher steel and aluminium tariffs. The key propelling factor for India’s recent imposition of tariffs was the US decision to  scrap the Generalized System of Preferences (GSP) for India from June 5, 2019. India benefitted immensely from this scheme, as it allowed duty-free exports of upto $5.6 billion from the country.

Pressure on Trump

Even though no solution is in sight, there are a number of lobbies in the US, especially Trade groups and US businesses which have been repeatedly urging the Trump Administration to find a solution to the current impasse with China.

Only recently for instance, 600 companies, including Walmart in a letter  to the U.S. President Donald Trump urged him to resolve trade disputes with China, stating that tariffs were detrimental to the interests of American businesses and consumers. The letter was sent as part of the ‘Tarriffs Hurt the Heartland’ campaign.

To underscore the detrimental impact of trade wars on the American economy some important estimates were provided. The letter stated that tariffs of upto 25% on 300 billion USD worth of goods, could lead to the loss of 2 million jobs. Costs for an average American family of 4 would also rise to an estimated 2000 USD, if such tariffs were to be imposed.

Reports indicating the challenges to the US economy and FDI from Chinese companies in US

A number of surveys and reports illustrate the profound challenges which the US economy is facing as well as a drop in FDI from China.

The University of Michigan’s consumer sentiment index also revealed a drop in consumer sentiment from 100 in May to 97.9 in June. This was attributed to trade wars between China and the US.

According to a survey released by the China General Chamber of Commerce USA, investment by Chinese companies in the United States has witnessed a significant decline since 2016 ( including a sharp drop in 2018 and early 2019)

A number of important events have been held recently, where efforts were made to draw more Chinese investments to the US. One such event was the Select USA Summit. Speaking at the Summit, US Commerce Secretary Wilbur Ross stated:

‘We welcome investment from any place as long as it’s investment that poses no challenges for national security,”

US states and FDI

What was clearly visible at the Select USA Summit was the fact, that a number of US states pitched for expanding economic ties with China, and drawing greater Foreign Direct Investment.

The state of North Carolina sought to attract investments in areas like IT, Aviation and biotech. The US headquarters of Lenovo are in the state of Carolina. Trump’s trade wars have hit the state in a big way, and one of the sufferers have been Soy bean farmers. As a result of a 25 percent imposition of tariffs the price of a bushel of Soy bean has dropped to 8 USD, from 10 USD in 2018.

 Other US states brought to the fore the impact of tariffs on their respective economies. According to a senior official from the state of Louisiana for instance, Don Pierson, secretary of Louisiana Economic Development the state it has suffered immensely as a consequence of the imposition of tariffs. Agricultural commodities from Middle America to China are imported through export terminals in Louisiana. Pierson said that the agricultural economy of the state, as well as the logistics economy of the state have taken a hard hit as a consequence of the trade wars. Pierson also spoke about the possibility of exporting LNG from Louisiana to China. Major investments in the state of Louisiana include Yuhuang Chemical Group (Shandong’s) decided to invest US$1.85 billion in a methanol production complex (this was one of the largest Chinese direct investments in US). Wanhua Chemical Group invested over 1 Billion (1.2) USD in a chemical manufacturing complex in South Eastern Louisiana

A number of Chinese companies have also begun to realise, that there is need to adopt a nuanced approach too are still tapping certain US states for investment.

Another important event was the Select LA Summit. The Los Angeles Mayor Eric Garcetti, and Lenny Mendonca, chief economic adviser to the California governor assured overseas investors of all possible support from the town of LA, as well as the state of California.

Impact of trade disputes and Washington’s stance vis-à-vis Huawei

US States and Chinese Provinces have been at the forefront of improving economic ties between both countries. Both are likely to suffer as a consequence of not just the trade war between both countries, but also the US ban on Huawei. The tech company, according to a report published in 2016, contributes 7% of the GDP of the town of Shenzhen (Guangdong Province). Affiliates of Huawei provide employment to an estimated 80,000 people while a research facility in a nearby city of Dongguan, provides employment to well over 3,000

Conclusion:

In conclusion, it is important for all stakeholders, not just businesses from both countries, to play their role in resolving economic and technological disputes between China and the US.  It is also important for Chinese Provinces as well as US states to play a pro-active role in reducing tensions. Both governments while realising the importance of federating units have set up official dialogues and set up other mechanisms for sub-national exchanges. It is important that these platforms now contribute towards reducing the divergences between both countries. While all eyes are on the political leadership of both countries, it is important to realise that the stakeholders in the US-China relationship are not restricted to Beijing and Washington DC.

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Economy

The Game of Tariffs

Sabah Aslam

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Adam Smith is considered the father of economics. Back in 18th century, he presented the concept of protectionism, which was given to promote the local industry. Nevertheless, in 21stcentury, the world is facing its repercussions.

It is time that the world should be well concerned by the actions that are being opted by the two economic giants. Trade deadlock between Beijing and Washington is getting intense. U.S. protectionist and unilateral approach is the impetus behind this trade war and hence so far no promising foreseeable future can be anticipated. Moreover, China’s economic and development initiative i.e. BRI and its successful pilot project CPEC is also giving headaches to Oval. This Game of tariffs has engulfed whole of the globe into its chakra.

Trump and his policies have always been scrutinized by the analysts everywhere. Even before the elections, Trump expressed his strong urge to subdue China by means of trade restrictions. It was clearly evident even before the elections that if Mr. Trump will somehow make his path to Oval, he will surely give Chinese a sturdy time.

In Nov 2016, it happened just as it was feared. The heat of July 2018 had resulted into an economic cold war. With the world being the witness, there is no doubt that when Washington says, it knows how to make it happen. Therefore, when Washington flaunted its intentions to put serious tariffs onto Chinese commodities, it actually meant it. What started from a mere USD 34 billion, has crossed over USD 200 billion till-date. So far, Washington has imposed tariffs on USD 250 billion worth of goods coming to United States. Furthermore, it has also threatened to increase the threshold to an approximate value of USD 325 billion. In return, Beijing retaliated with putting tariffs on US$ 110 billion worth of goods.

The latest development that added fuel to the fire was on May 10, when United States raise tariffs to 25% on $200 Billion products coming from China annually. This escalated tensions between the two more as it projected that U.S. is not coming slow. Not only this, China has also banned the trade of rare elements. These elements hold prime importance in making of a number of electronic products such as mobiles and laptops in the United States.

China’s ministry of commerce has shown concern over American intentions regarding the engagement of two in the trade war and had warned that the dispute may even lead to “largest trade war in economic history”. China has repeatedly shared its concerns over the trade stand-off between Beijing and Washington. Whereas, continuous cold responses from Washington are leading situation to worse ends. China, as a responsible state, talks about equality, inclusiveness, and shared future for the globe. It always encouraged openness and cooperation.

Stubbornness of Trump’s Administration is pushing the Globe towards an economic and trade crisis. High tariffs on products will ultimately raise the costs for suppliers, manufacturers, retailers and then eventually affecting the people at tail¬— consumers. The end consumers will have to face large price raises even for the general products. On November 30, 2018, Chief of the World Trade Organization had said that global free trade is facing its worst crisis since 1947 and warned that the current spectrum of conflict will lead to global trade crisis.

These tensions are not restricted between the two; instead, they have led the global market to fluctuations, which has put business persons and investors in a situation of uncertainty. This investment dilemma can halt the economic progress inside of both countries. International Monetary Fund has also warned that a full-blown trade war would weaken the global economy. Earlier in this month, Cristine Lagarde gave remarks on Donald Trump’s intent to tax all trade between two countries that it would “shrink the global Gross Domestic Product (GDP) by one-half of one percent”.

China is the new reality. Washington needs to realize that. There are new players onto the scene. Oval’s actions will be scrutinized now; its ways will be challenged. It will no longer go uncontested.

The world knows that global economic ship today is sailing towards east and Chinese dockyard is where it will anchor. Mutual understanding is beneficiary for both the countries as well as for the world economy. Beijing is determined to meet Washington’s intentions with full capacity. United States is inducing self-inflicting pain to itself and to the world too. Companies inside US have already started showing their grievances regarding the trade stalemate between Beijing and Washington. Over 600 companies including Walmart urged Trump to resolve the dispute with China as it directly affects the business community and customers inside US. Washington needs to comprehend that it will become victim of its own protectionist gambit if it continues to be on the route on which it has maneuvered itself.

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8 facts you don’t know about the money migrants send back home

MD Staff

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Here are eight things you might not know about the transformative power of these often small – yet major – contributions to sustainable development worldwide:

1. About one in nine people globally are supported by funds sent home by migrant workers

Currently, about one billion people in the world – or one in seven – are involved with remittances, either by sending or receiving them. Around 800 million in the world – or one in nine people– are recipients of these flows of money sent by their family members who have migrated for work.

2. What migrants send back home represents only 15 per cent of what they earn

On average, migrant workers send between US$200 and $300 home every one or two months. Contrary maybe to popular belief, this represents only 15 per cent of what they earn: the rest –85 per cent – stays in the countries where they actually earn the money, and is re-ingested into the local economy, or saved.

3. Remittances remain expensive to send

These international money transfers tend to be costly: on average, globally, currency conversions and fees amount to 7 per cent of the total amounts sent. To ensure that the funds can be put to better purposes, countries are aiming through Sustainable Development Goal (SDG) 10.C to “reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent by 2030”.

Technical innovations, in particular mobile technologies, digitalization and blockchain can fundamentally transform the markets, coupled with a more conducive regulatory environment.

4. The money received is key in helping millions out of poverty

Although the money sent represents only 15 per cent of the money earned by migrants in the host countries, it is often a major part of a household’s total income in the countries of origin and, as such, represents a lifeline for millions of families.

“It is not about the money being sent home, it is about the impact on people’s lives,” explains Gilbert F. Houngbo, President of the International Fund for Agricultural Development, IFAD. “The small amounts of $200 or $300 that each migrant sends home make up about 60 per cent of the family’s household income, and this makes an enormous difference in their lives and the communities in which they live.”

It is estimated that three quarters of remittances are used to cover essential things: put food on the table and cover medical expenses, school fees or housing expenses. In addition, in times of crises, migrant workers tend to send more money home to cover loss of crops or family emergencies.

The rest, about 25 per cent of remittances – representing over $100 billion per year – can be either saved or invested in asset building or activities that generate income, jobs and transform economies, in particular in rural areas.

5. Specifically, remittances can help achieve at least seven of the 17 SDGs

When migrants send money back home, they contribute to several of the goals set in the 2030 Sustainable Development Agenda. In particular: SDG 1, No Poverty; SDG 2, Zero Hunger; SDG 3, Good Health and Well-Being; SDG 4, Quality Education; SDG 6, Clean Water and Sanitation; SDG 8, Decent Work and Economic Growth; and SDG 10, Reduced Inequality.

If current trends continue, between 2015 and 2030, the timeframe of the 2030 Agenda, an estimated $8.5 trillion will be transferred by migrants to their communities of origin in developing countries. Of that amount, more than $2 trillion – a quarter — will either be saved or invested, a key aspect of sustainable development.

“Governments, regulators and the private sector have an important role to play in leveraging the effects of these flows and, in so doing, helping nearly one billion people to reach their own sustainable development goals by 2030,” IFAD’s Gilbert F. Houngbo stressed in a statement.

6. Half of the money sent goes straight to rural areas, where the world’s poorest live

Around half of global remittances go to rural areas, where three quarters of the world’s poor and food insecure live. It is estimated that globally, the accumulated flows to rural areas over the next five years will reach $1 trillion.

7. They are three times more important than international aid, and counting

Remittances are a private source of capital that’s over three times the amount of official development assistance (ODA) and foreign direct investment (FDI) combined.

In 2018, over 200 million migrant workers sent $689 billion back home to remittance reliant countries, of which $529 billion went to developing countries.

In addition, the amount of money sent by international migrant workers to their families in developing countries is expected to rise to over $550 billion in 2019, up some $20 billion from 2018, according to IFAD.

8. The UN is working to facilitate remittances worldwide

“It is fair to say that, in poor rural areas, remittances can help to make migration a choice rather than a necessity for so many young people and for future generations,” explained Mr. Houngbo.

As such, migrant contributions to development – through remittances and investments – is one of the Objectives of the Global Compact on Safe, Orderly and Regular Migration, adopted by the UN General Assembly in December of last year.

With half of all flows going to rural areas in developing countries, IFAD, the UN’s agency mandated with agricultural development, is working to make the development impact of remittances even greater. The organisation’s Financing Facility for Remittances programme (FFR) was designed to promote innovative business models in order to lower transfer costs and provide financial services for migrants and their families. Through partnerships across several sectors, the programme runs initiatives to empower migrants and their families through financial education and inclusion, as well as migrant investment and entrepreneurship.

“Over the past decade, IFAD has invested in over 40 countries, supporting more than 60 projects aimed at leveraging the development impact of remittances for families and communities,” said Paul Winters, IFAD’s Associate Vice-President, in an event held on Friday at UN headquarters in New York.

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