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TURKISH SMEs SLOW TO ARRIVE
BY RÉHAB EL-BAKRY
Nearly three years since Egypt and Turkey signed a free trade agreement (FTA), industrial zones near Cairo are brimming with Turkish companies that have moved operations here to benefit from Egypt’s cheap labor, lower overhead and bilateral trade agreements. Turkish textile firms in particular have been able to capitalize on the “accumulation of origin” clause in the Egypt-EU Association Agreement, as well as the quota- and duty-free access to the US market afforded by Egypt’s Qualifying Industrial Zones (QIZ) Agreement.
Within months of the FTA, some of the biggest names in Turkish industry – including textile firms Kibas, Atatex and Abalioglu – had set up bases in Egypt. The foundations have also been laid for a 2-million-square-meter Turkish industrial zone in Sixth of October City expected to attract more than 100 Turkish firms spanning textiles, chemicals and machinery, with $2 billion in investment.
But while large Turkish firms have been quick to respond to the opportunities created by Egypt’s bilateral trade agreements, the same cannot be said for small and medium-sized enterprises (SMEs). Their absence from the pool of FDI flowing between Turkey and Egypt is conspicuous, leading some Turkish business leaders to suggest that the FTA diminishes their role. “We have a lot of agreements with a lot of countries, but we, as smaller businesses, do not always have the chance to benefit from the agreements because larger companies are often the focus,” says Cavidan Demirag, president of the Association of Enterprising Business Women (GISKAD), a Turkish NGO that supports female entrepreneurs.
Turkey’s minister of state for foreign trade, Kursad Tuzman, points out frankly that whenever two countries sign bilateral agreements or FTAs, large companies are among the first to feel the benefits. These companies are ready to respond quickly to new opportunities abroad, whereas SMEs often need more time to assess the market. “In the case of [Turkey and] Egypt, the large companies were already prepared for this
opportunity,” he told Business Monthly. “They knew what they were looking for, how much they needed to invest in this expansion and the model they wanted to follow – and they had the finances to implement all this. SMEs still need time to explore what is out there to determine what it is that they want and, after that, they begin the process of identifying the details.”
Tuzman denies that the needs of SMEs were overlooked when the FTA was drafted. On the contrary, he says, their interests were very much in his mind when he worked with his Egyptian counterpart to establish the first Turkish industrial zone in Egypt. The factories that will operate in the zone require a large number of small suppliers to provide components for their products, he says. The industrial zone’s management also acts on behalf of companies operating in the zone to secure permits and obtain services from the Egyptian government, reducing the bureaucratic hurdles that can torpedo attempts by SMEs to establish operations on foreign soil.
Egypt’s minister of trade and industry, Rachid Mohamed Rachid, agrees. He says industrial parks are well suited to supporting SMEs in their startup phase – the most critical time for these small businesses. “From the day they decide to [implement] a project, acquire the land, construct a building and acquire the machines, 50 or 60 percent of [SMEs fail during this] phase because they are not experts in setting up factories... So the concept of setting up these private zones provides a short cut [these SMEs can use to solve] all their difficulties from day one.”
Rachid says assuredly that SMEs stand to gain from the Egypt-Turkey FTA, though it may take some time to realize the opportunities presented. “SMEs usually benefit more from trade agreements than larger companies because SMEs need the advantage of being relieved from customs, or paying taxes, for a period of time,” he says. “They also have the advantage that once a government signs an FTA, there are always programs [to increase] awareness, education, knowledge of [how to] access these markets. That period of extra effort of both governments to [maximize] the benefit of the FTA will have a direct impact on SMEs – it is something that they will benefit from more than the larger companies that already know the way.”
Rachid explains that SMEs usually find it difficult to compete with large companies coming from other parts of the world, and hence require additional support to improve their competitiveness. He says it is the role of the government, upon signing bilateral trade agreements, to identify which markets hold the most potential for SMEs and then to identify the best ways for them to engage these markets.
Tuzman agrees. He points out that SMEs are usually cautious about venturing into overseas markets, especially untested waters. But with dozens of large Turkish firms now in Egypt, smaller firms may feel more confident in launching operations. “A Turkish SME would find it easier to take a risk and venture into a country where Turkish companies have already [operated] for some time as opposed to a new market altogether,” he says. “Three years ago, only a handful of Turkish companies had ventured into Egypt. At this point in time, it would have been almost [impossible] for a small Turkish company to venture into Egypt. But now that there is a free trade agreement in place and Turkish companies have already set up operations in Egypt, SMEs can venture there with a lot more ease.”
That’s the theory at least. Turkish SMEs that Business Monthly spoke to during a recent business matchmaking conference for SMEs in the southern Turkish port of Mersin claim they are eager to establish new operations in Egypt, but need more government support to establish connections here. “We are a textile company here [in Mersin] and an SME with around 800 employees,” explains Layla Emiroglu, a textile company owner in Mersin. “Egypt has a strong textile industry. So this is a perfect opportunity for both of us to work together. The problem is, I don’t know where to start if I am looking for a partner in Egypt. We have not had the opportunity to meet with other companies like us in Egypt.”
She says matchmaking conferences, such as the one in Mersin, which attracted over 100 entrepreneurs from around the region, provide a great opportunity for smaller businesses to explore potential opportunities in foreign markets. The conference itself was the initiative of local SMEs, mostly run by women, who sought the support of their trade ministry to organize a matchmaking session with other regional SMEs. “We had to become creative, capitalizing on the fact that we are an association for women entrepreneurs,” says GISKAD’s Demirag. “We are trying to leverage these [contacts] and the contacts of other associations like ours to create our own business opportunities. The fact is, as SMEs we have been excluded from bilateral missions between Turkey and Egypt thus far.
Rachid and Tuzman admit that the high-level trade missions between their countries have comprised mainly large companies, but insist that the smaller players have not been sidelined from the game. “No one could ignore SMEs; they are simply too important,” says Tuzman. “It is simply that, initially, big companies were more ready to take part and that is why they were included in the original delegations.”
Similar challenges await Egyptian companies seeking potential partners or export opportunities in Turkey. Unfortunately, explains one member of the Ministry of Trade & Industry’s Turkey team, local SMEs are often unwilling to do the legwork required to find new business opportunities abroad. “The fact remains that the best way to find partners and investments is thro ugh matchmaking conferences, but the opportunities are not always going to be sponsored by governments,” the team member noted. “Governments can [take steps to facilitate] the participation [of SMEs], but it will not always be possible for governments to facilitate everything. This is perhaps the biggest challenge. We will support them, but they have to be willing to do their own legwork as well.”
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