Promising Prospects for Turkish-Arab Relations: Opportunities and Challenges Ahead

1. Prospects for Turkish-Arab Relations are Promising Ibrahim S. DabdoubGroup CEONational Bank of Kuwait 6th Turkish-Arab Economic Forum (TAF'11) Turkish-Arab Relations Are On The Right Path Four Seasons Hotel, Istanbul April 26-27, 2011 April 2011

2. Overview • Turkey and the Arab world enjoy a solid and growing relationship on several fronts • Prospects for the futurelook good for further cooperation and improved ties • Still, some difficulties remain

3. Solid relationship on several fronts • Share long standing historic and cultural ties • Common history, though not always a positive one • Common religious tradition despite some differences • Shared geo-political and demographic concerns • Turkey attractive for Arab investment and trade • Stable economy with an improved macroeconomic management (IMF) • Welcoming political environment • Solid infrastructure • Openness to investment from the Arab world

4. Rising investment and trade flows • Over 2,000 Arab companies have $10.6 bn in direct investments in Turkey, most occurring since 2006 • Turkish businesses have a growing interest in Arab countries (factories, railroad, contracting, etc.) • Trade flows have grown on average by 18% p.a. since 2002 ($24 bn in 2010; 14% of Turkey’s exports are to Arab countries)

5. Trade ties on the rise

6. Exports and imports are geographically diversified

7. Political relations have warmed since 2002 • AKP desire to expand ties with the Islamic and Arab world • Growing sympathies with the Arab side of the Arab-Israeli dispute • Recent support to Bahrain’s government • Medical relief to the rebels in Libya; offer to mediate a resolution to the conflict

8. Cultural ties are solid • Turkish serials are popular in Arab world • Popular destination for Arab tourists • Cultural affinity and geographical proximity • Over 2 million Arab tourists visited Turkey last year.

9. Prospects for the future look good • Global financial crisis and the Arab uprisings have created an opportunity for expanded Arab-Turkish engagement. • Arab world sees Turkey as a viable economic and political partner. • Promising and safe opportunities for GCC investors in Turkey’s agricultural, real estate, tourism, infrastructure, financial services and construction sectors. • GCC construction projects present a unique opportunity for Turkish contractors • Planned and underway projects total $1.9 billion • Projects in Kuwait exceed $150 billion

10. Arab uprising impact is temporary • Short term drop in exports to Arab world in 2011 is likely to be temporary • In the first two months of 2011, Turkish exports to Egypt, Libya, Syria and Tunisia have all declined compared with the same period last year. • Exports to Egypt fell by 21 percent and to Tunisia by 38 percent • Compelling opportunities to keep Arab countries as attractive partners • GCC: stable socio-political structure; available resources to meet needs • New fiscal measures (housing, employment, salaries increases, services) • Government legitimacy; tribal patriarchal culture; social contract • Long term prospects for Egypt, Syria, Iraq, Tunisia and Libya are positive • Egypt’s size (population: 83 million) • Syria’s push to open its economy • Iraq and Libya’s need to rebuild • Tunisia’s well developed economic base

11. Turkey must also tackle challenges • High currentaccount deficit heightens fears of inflation and currency instability in the long term. • WEF’s Global Competitiveness Report 2010-2011 ranks Turkey as 61, far below the UAE, Saudi Arabia and Kuwait and just above Jordan. • Transparency remains a concern. • Cost of doing business including high energy prices • FDI has not recovered to pre-2008 crisis levels as of yet

12. Thank you

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14. Arab investment has been rising • Arab countries accounted for roughly 10% of FDI inflows between 2006 and 2010 ($6.3 bn) • Accumulated Arab FDI in Turkey was $10.6 billion at the end of 2010 • > 95% of from the GCC • UAE (59%); KSA (19%); Kuwait (7%) • Over 2,000 Arab companies have investments in Turkey in various sectors • UAE: mainly in the tourism and energy sectors. • Kuwait: in retail, hospitals, finance, real estate, automobiles and construction • Qatar: agricultural, healthcare, prospective cooperation in energy and infrastructure.

15. Turkish interest is growing • Factories opened in Egypt and Bahrain • Railroad reopened between Turkey, Syria and Iraq in early 2010 • High level Turkish business delegations have visited several Arab states in the last few years

16. Trade ties are rising • Total trade with the Arab world stood at $24 billion in 2010, up 14% from the year before • Trade has grown by an annual average of 18% since 2002 vs. 13% p.a. with the EU • Growth in trade with the GCC was even more rapid at 21% since 2002 to $9.3 billion • About 14% of Turkey’s exports are to Arab countries