Testing the waters: The economic factor in Turkey-UAE ties

Fog over Istanbul (Anadolu)
7 min read
16 September, 2021
Analysis: While political differences still run deep, economic incentives could be key to turning a new page in relations between Ankara and Abu Dhabi.

On the 9th of September, Reuters reported that Dubai-listed courier Aramex was mulling a half a billion-dollar deal to buy Turkey's MNG Kargo delivery company.

Aramex is partly owned by Abu Dhabi state investor ADQ, one of the largest holding companies chaired by Sheikh Tahnoun bin Zayed Al Nahyan in the UAE. According to the Global SWF tracker, ADQ is estimated to be worth $110 billion.

This development came after a breakthrough in UAE-Turkey relations. In August, Sheikh Tahnoun bin Zayed made an unprecedented trip to Ankara, during which he met Turkey's President Recep Tayyip Erdogan.

After the meeting, Erdogan hinted that Abu Dhabi had serious plans to invest in Turkey. Erdogan and the UAE's de facto ruler Mohammed bin Zayed (MBZ) then had a phone call to discuss bilateral and regional issues.

"In the era before the Arab revolutions, the UAE had aimed to develop strong economic and investment ties with Turkey"

In an interview with Anwar Gargash in January 2021 on the Abu Dhabi-based Sky News Arabia channel, the UAE's state minister of foreign affairs at the time said that the "UAE has no good reason to have problems or conflicts or disagreements with Turkey." Unsurprisingly, the economic factor seemed convenient for both sides to advance rapprochement efforts. 

In the era before the Arab revolutions, the UAE had aimed to develop strong economic and investment ties with Turkey. Ankara facilitated Emirati investments and engaged with them in several serious negotiations on mega projects. 

As a result, bilateral trade increased from $445 million in 2001 to around $4 billion within a decade. Abu Dhabi emerged as Turkey's number one trade partner in the Gulf region. The accumulative Foreign Direct Investment (FDI) of the UAE in Turkey over the same period reached around $3.7 billion, putting Abu Dhabi in first place compared to its GCC peers.

In 2012, bilateral trade hit a record $11.8 billion. Abu Dhabi entered negotiations with Ankara over some serious investments, leading to the signing of a $12 billion deal that involved lignite mining and power generation in the Afsin-Elbistan mega project. 

However, Abu Dhabi later cancelled the deal, citing financial priorities. Despite the economic pretext, many observers interpreted the decision as a political message, especially since it came directly after Abu Dhabi supported a 2013 military coup in Egypt against the late Mohamed Morsi, the first democratically elected president of Egypt.

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Failed rapprochement 

Relations between the two states then took a downturn. Bilateral trade decreased sharply to $6.6 billion by the end of 2015. However, as the two states tried to contain their differences over Egypt in 2016, they adopted an approach that built on possible common interests and prioritised economic calculations.

At the time, Erdogan urged for a resolution of differences through diplomatic means, while Anwar Gargash, the UAE's then state minister of foreign affairs, affirmed the necessity of ending the dispute with Ankara and the importance of Turkish-Emirati relations to the region.

Accordingly, Turkey and the UAE re-activated their diplomatic channels. The UAE invited Turkey's foreign minister to visit Abu Dhabi on 25 April 2016. It was the first visit by a Turkish official to the Gulf country in almost three years.

Moreover, an Emirati ambassador was appointed to Ankara, and the UAE's Foreign Minister Abdullah bin Zayed Al Nahyan paid an official visit to Turkey, where he met president Erdogan. As a result, bilateral trade increased again, reaching an all-time high of $14.7 billion in 2017.

Tahnoun bin Zayed met Erdogan in Ankara [Getty]
Turkish President Recep Tayyip Erdogan meets the UAE's national security adviser Sheikh Tahnoon bin Zayed al-Nahyan at the Presidential Complex in Ankara on 18 August 2021. [Getty]

Lost opportunity

However, the rapprochement between Turkey and the UAE did not last long. It was interrupted by the 2017 GCC crisis and the blockade of Qatar by a quartet of countries consisting of Saudi Arabia, the UAE, Bahrain, and Egypt.

The crisis severely damaged fragile relations between the two countries and ended the normalisation process. In one of his leaked e-mails in 2017, the UAE's Ambassador to Washington Yousef al Otaiba told a New York Times columnist, "we don't want Turkey or Qatar to be able to shape a dinner menu much less a country".

After Ankara chose to defend Qatar against the blockade, bilateral trade between Turkey and the UAE declined sharply from $14.7 to $8.4 billion in 2018. From Libya to Iraq, Syria, Somalia, Sudan, and Yemen, the UAE did everything in its power to undermine Turkey.

Ironically, while Abu Dhabi and its media outlets were pitting Saudi Arabia against Ankara and encouraging the Saudis to boycott Turkey-made products, Abu Dhabi continued to invest in Turkey, albeit at a low level. In one of the exceptions in 2018, Abu Dhabi bought Turkey's fifth-biggest bank, Denizbank, for $3.2 billion.

"After Ankara chose to defend Qatar against the blockade, bilateral trade between Turkey and the UAE declined sharply"

A new page?

In 2020, and as the GCC crisis was coming to an end, bilateral trade between Turkey and the UAE stood at around $8.5 billion. The balance of trade was tilted towards Abu Dhabi with a $2.5 billion surplus, which means there is both room and interest to increase trade with Ankara.

Following Anwar Gargash's positive statements towards Turkey at the beginning of 2021, in April Ankara named Tugay Tuncer as Turkey's new ambassador to the UAE, thus prompting diplomatic interactions between high-level officials in both countries.

In parallel to these positive developments, Abu Dhabi's Sovereign Wealth Fund has made significant investments in rising Turkish companies in the e-commerce and delivery sectors. Other smaller investments have also continued to exist on both sides.

In June, the Emirati state-owned fund Mubadala, an arm of Abu Dhabi's Sovereign Wealth Fund, invested in expanding Turkey's online grocery delivery service Getir, which saw its value triple in three months (March-June) to $7.5 billion. Two months later, Turkey's e-commerce giant Trendyol raised $1.5 billion from several high-profile investors, including Abu Dhabi’s sovereign fund ADQ, increasing its value to $16.5 billion.

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In August 2021, chief executive of Abu Dhabi's conglomerate International Holding Co. (IHC), Syed Basar Shueb, announced that IHC was seeking investment opportunities in Turkey in healthcare, industry, and food processing among other sectors. Recently, IHC became Abu Dhabi's most valuable stock. Unsurprisingly, IHC is also chaired by Tahnoun bin Zayed.

Following Tahnoun's visit to Turkey, Ankara planned to send officials from its Wealth Fund and Investment Support Agency to Abu Dhabi to conduct talks with Emirati officials on possible investment opportunities and the prospects for bilateral cooperation on economic and investment matters.

Furthermore, Turkey's Deputy Minister of Energy and Natural Resources, Alparslan Bayraktar, was invited by the Emiratis and is scheduled to speak at the Gastech conference at the Dubai World Trade Centre.

Underlying motives

Although the Turkish economy has been outperforming most of its peers on the global stage in terms of growth, several problems related to other economic indicators have hindered its capacity, creating serious challenges for the government and the public.

However, Turkey gives special attention to mainly three things: a production to export-oriented policy, empowering the value-added industry, and attracting more Foreign Direct Investments (FDI) to the country. Turkish officials are aware that a stable, well-connected, and open market region is needed to meet these requirements.

As a result, the government has recently focused on addressing such challenges, giving more importance to conflict resolution mechanisms and de-escalation measures that could help protect Turkey's economic interests in other countries from political disputes, including with countries such as the UAE.

In this sense, Ankara views an increase in trade and investments with the UAE as a welcome step, especially in the post-Covid-19 era where Turkey aims to occupy a leading economic role on the world stage.

"Some suggest that Abu Dhabi is trying to increase its economic clout in Turkey and leverage the Turkish government ahead of very sensitive and probably decisive elections in 2023"

Furthermore, the UAE is also interested in diversifying its economy away from oil. Such investment efforts will eventually serve this goal. From this perspective, the decision to invest in the most significant regional economy, Turkey, stems from economic logic and commercial calculations.

Turkey remains a perfect place for foreign investors looking to maximise their profits. This explains - to a large extent - why Abu Dhabi kept investing, at different levels, in Turkey despite political and ideological hostility towards Ankara.

While acknowledging the validity of an economic interests-based approach, one should not completely rule out other considerations or ulterior motives. Some suggest that Abu Dhabi is trying to increase its economic clout in Turkey and leverage the Turkish government ahead of very sensitive and probably decisive elections in 2023.

Others, meanwhile, view Emirati efforts as an attempt to economically balance Qatar's role inside Turkey. Such considerations - if proved to be true – could be aimed at influencing the calculations and positions of any new future government in Turkey in the long run.

Ali Bakir is a research assistant Professor at Ibn Khaldon Center for Humanities and Social
Sciences, a political risk analyst, and consultant. 

He follows geopolitical and security trends in the Middle East, with a special focus on Turkey's foreign and defence policies, Turkey-Arab and Turkey-Gulf relations.

Follow him on Twitter: @alibakeer