Israel's relations with Turkey, which have known ups and downs over the years, have recently taken a positive turn. Six years after the nadir of the crisis in relations, this summer the Israeli and Turkish governments signed a reconciliation agreement. In the past two years, Israel's exports to Turkey have declined by 40%, and there has been a decline in the number of Israel companies exporting to Turkey, alongside a sharp fall in tourist travel between the two countries (from half a million Israeli tourists in Turkey annually, to just 100,000).
Turkey is the world's sixteenth largest economy, and it is a member of the OECD, as is Israel. Despite the regional turmoil, as well as domestic upsets, Turkey's economy has remained stable, even if its growth forecast has fallen to 2.7%.
A series of inter-governmental agreements support economic activity between the two countries: back in 1997, they signed a free trade agreement. Among other agreements are a tax treaty preventing double taxation, mutual protection and encouragement of investments, and a research and development agreement. Turkey is Israel's sixth largest trading partner, but exports to Turkey suffer from a lack of diversity, being mainly chemicals and refined oil products, an industry that has sustained sharp price drops. The depreciation in the Turkish lira and weakness in global trade have also contributed to a decline in demand for Israeli exports in Turkey.
The countries' geographical proximity and complementary needs mean that they have joint areas of interest. The need of Turkish industry for external energy sources has turned Israel's natural gas into one of these areas. With the civil war in Syria and the closing of trade routes across its territory, it was Israel, despite the freeze in diplomatic relations, that offered a "goods corridor" for Turkish exports to Jordan and the Gulf states.
Now, the corridor mainly serves the export of agricultural produce from Jordan to Russia, and Turkey uses a land bridge. There is room for expanding cooperation in agriculture, an area in which Israel has a high reputation, and cooperation in academic research in this field has taken place over the years.
The improvement in diplomatic relations arouses expectations of a new era in economic relations between the two countries. Greater cooperation between Israeli and Turkish companies, and diversification of Israeli exports to provide technological solutions to the needs of the Turkish economy could also yield jobs growth in Israel.
The question is whether, after a long period of hostile exchanges of words, confidence can be rebuilt between the two business communities.
The Ministry of Foreign Affairs and the Ministry of the Economy in Israel have mapped out the points at which needs and capabilities meet, in order to maximize exploitation of the economic growth potential that lies in cooperation between Israel and Turkey. On the agenda are revival of the joint economic committee of the two governments and updating of the economic agreements. Businesspeople will soon be asked to examine the markets anew, to analyze the business situation, and to build the right models for accelerating economic activity between the two countries.
The governments have already given the green light. The time has come to rebuild the trust and mutual recognition of the joint growth potential. Boosting tourism in both directions could contribute greatly towards the confidence so necessary in order to encourage not just economic ties between the two countries, but also political moderation and regional stability.
The writer is Deputy Director General of the Economic Affairs Division at Israel's Ministry of Foreign Affairs. She will participate in a session on resetting relations with Turkey at the Globes Israel Business Conference.
Published by Globes [online], Israel business news - www.globes-online.com - on December 6, 2016
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