It has been more than a decade since Ukraine and Turkey sowed the idea of a free trade agreement, or FTA, with the first negotations taking place in 2011. Since then the two countries have held 10 rounds of talks. The last time was in May, but the negotiations remain unfinished.
Ukrainian Minister for Economic Development Stepan Kubiv has visited Turkey three times this year, most recently in September, and announced that the talks on the free trade deal are near completion.
In the meantime, Ukraine has successfully concluded FTAs with the European Union and Canada and, besides Turkey, is trying to complete one with Israel.
Kubiv called Turkey a strategic partner of Ukraine, and with good reason: In 2017, the Black Sea neighbor was the third largest buyer of Ukrainian exports. Despite the absence of a free trade deal, Ukrainian exports to Turkey amounted to $2.7 billion last year, almost $500 million more than in 2016. That continues to move in the right direction. According to the Ukrainian Ministry for Economic Development, in the first seven months of 2018, Ukraine exported goods worth $1.7 billion to Turkey.
The goal is to boost trade turnover between two countries to $10 billion by 2023, but such a lofty goal will only be possible if the free trade deal is in place. It is realistic however, considering that bilateral trade peaked at $8 billion in 2013 before falling off.
Burak Pehlivan, the chairman of the Turkish-Ukrainian Business Association, believes that Turkey comes next after Israel. He speculated that the FTA could be signed during the next visit of President Petro Poroshenko to Turkey.
“There is political will on both sides,” he said. “The Turkish market is 10 times larger than the Ukrainian one, and the demand for Ukrainian products is high. But without the free trade deal, the two nations are losing markets.”
He cited visa-free travel between Turkey and Ukraine as another advantage for developing relations between investors.
Promising sectors
Pehlivan said that the inflow of Turkish investment to Ukraine was particularly large after 2014, when many European businesses were wary of coming to a politically volatile market in deep crisis.
Since then, Turks have invested some $800 million into the Ukrainian economy.
This year, Ukraine’s renewables and information technology sectors have seen a big surge of interest from Turkish investors.
One of them is HepsiBurada, Turkey’s largest e-commerce site, often dubbed the Turkish Amazon. A month ago the company announced its partnership with Russia’s Yandex.Market. Now it is sizing up the Ukrainian market.
“Currently, we are looking into logistics options and talking with marketing agencies. We don’t know yet whether we will cooperate with a local partner, like we do in Russia, or launch independently,” Yaman Alpata, international group director at HepsiBurada, told the Kyiv Post.
Historically, he said, there has been major demand for Turkish goods in Ukraine. Over the last few years, Ukraine has boosted its logistics capacity. Moreover, the country is developing ties with the western world.
“We don’t see many risks in Ukraine. The credit card penetration is low, but with a good partner in distribution and logistics, cash-on-delivery won’t be a problem,” he said.
Another Turkish tech giant, taxi-hailing mobile application BiTaksi, and its sister company Getir, an on-demand delivery app, are considering opening a research and development center in Ukraine.
“This year we hired two Ukrainians,” said Ozlem Salur, head of the HR department at BiTaksi and Getir. “At the moment we are studying the possibility of creating an R&D center in Ukraine, but it’s early to talk about an opening. The importance given to technology in Ukraine and the willingness of young people to study make us believe that there might be an opportunity in the future.”
Pehlivan says the interest is so high that they are contemplating organizing a special event for Turkish investors dedicated to Ukraine’s tech and e-commerce sectors.
Turkish investors cannot miss Ukraine’s hottest sector: renewables. Like many European companies, they are trying to reap the benefits from Ukraine’s attractive feed-in tariff on electricity generated from renewable sources. But the window of opportunity may be closing soon as the government has devised a plan to switch to an auction scheme.
To name a few, Turkish Guris Holding is currently building a 32 megawatt wind farm in Odesa. Kocaeli-based Smart Energy, the largest solar panel factory in Europe, installs solar modules in Ukraine.
Headquartered in Istanbul, the private investment firm Emsolt boasts a portfolio of 10 solar projects in Dnipro, Khmelnytskyi, and Zhytomir with a total capacity of 160 megawatt and $160 million of investment.
“We have been watching Ukraine closely after 2014. We saw it was changing in a positive way: integration with the EU, legislative improvements, a green tariff, a growing economy. And it’s so close to Istanbul,” Omer Ozkan, chairman for Emsolt told the Kyiv Post.
Turkey’s traditionally strong sectors, such as retail and construction, keep rebounding too. This year, major clothing brands Koton and Defacto opened their first store in Kyiv. Footwear retailer FLO is reportedly in talks to enter Ukraine.
Turkish constructıon companies welcomed a new law on concessions in road construction adopted by the Ukrainian parliament in April and are waiting for the launch of public-private partnership in big infrastructure projects.
According to Pehlivan, Turkish construction companies have already carried out projects worth $6 billion in Ukraine. One of the largest companies, Onur Group, gained prominence for building a number of highways such as Kyiv-Chop, Kyiv-Kharkiv-Dovzhanskiy, Kyiv-Odesa, Kyiv-Yahotyn, and others.
Besides a new law on concessions in road construction, this year, for the first time, the Ukrainian government established the State Road Fund with $1.2 billion to guarantee stable and long-term financing of road construction and repair works.
Local administrations were granted more autonomy in managing regional and municipal roads. In the meantime, Ukraine’s state authority focused its efforts on international highways, one of the priorities is Go Highway, a 1,746-kilometer road to connect the port cities of Odesa and Mykolayiv with Poland. In June, the Infrastructure Ministry signed French company Bouygues Travaux Publics SAS to do a feasibility study for the construction of the first toll road: Kyiv-Bila Tserkva.
Turkey has a lot of experience in public-private partnership. The country ranked third in the world with the largest number of roads, railways, airports, real estate built under public-private partnership from 1990 to 2015 with a total value of $165 billion.
