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As economy tanks, Turkish companies eye Egypt

Elmas Topcu | Aram Ekin Duran
December 2, 2023

Rampant inflation and economic uncertainty have pushed many companies in Turkey to relocate to Egypt, which offers far lower labor costs and better access to international markets.

https://p.dw.com/p/4ZfSI
A TOGG EV plant near Bursa, Turkey
The Turkish EV manufacturer TOGG is based in Bursa but it is also eyeing EgyptImage: DHA

Relations between Turkish President Recep Tayyip Erdogan and his Egyptian counterpart, Abdel Fattah el-Sissi, have been icy for years.

When democratically elected Egyptian President Mohammed Morsi was removed from office by then General Abdel Fattah el-Sissi in 2013, Erdogan immediately sided with the jailed Muslim Brotherhood-affiliated leader, calling el-Sissi a putschist, murderer and tyrant.

Erdogan adopted the Muslim Brotherhood's signature hand gesture and often dismissively referred to Turkish opposition politicians as el-Sissis in an expression of loathing for the new Egyptian president.

Egypt, in turn, accused Turkey of supporting the Islamist Muslim Brotherhood and granting safe haven to its members.

The countries supported opposing sides in the Libya conflict.

Egypt and Turkey were also in disagreement over the extraction of gas in the Mediterranean Sea.

But, despite these differences, a thaw in Egyptian-Turkish ties is now happening as the world endures multiple crises and both countries' economies continue to struggle.

Turkish President Recep Tayyip Erdogan (left) and his Egyptian counterpart Abdel Fattah el-Sissi shaking hands in September 2023
Turkish President Recep Tayyip Erdogan (left) and his Egyptian counterpart Abdel Fattah el-Sissi used to be on bad terms, hard times have brought them togetherImage: Murat Cetinmuhurdar/TUR Presidency/AA/picture alliance

Turkish-Egyptian ties improve

A year ago, Egyptian and Turkish business delegations met for the first time in nine years. Since then, ties have been growing ever stronger.

Turkish companies have been unhappy with the state of the Turkish economy for years, as President Erdogan's low interest rate policies have continued to drive up inflation, which is officially 61.5% right now. High fuel costs and uncertainty over central bank interest rate policies have compounded the problem.

Turkey's new finance minister, Mehmet Simsek; and the new head of the Central Bank of the Turkish Republic, Hafize Gaye Erkan, have also been unable to create stability — despite initiating a return to conventional economic policy. Both say the Turkish economy will regain stability and return to single-digit inflation rates in 2025 or 2026. Many companies, however, are unwilling to put up with such uncertainty.

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Turkish companies face growing production costs, high fuel prices, and unpredictable foreign exchange and interest rate policies. Quite a few are therefore thinking about relocating abroad.

Egypt, for example, offers far lower labor and production costs than Turkey. What's more, in April, Egypt removed the need for Turkish citizens to acquire a visa before entering the country.

So far, Turkish investments in Egypt this year have totaled $2.5 billion (€2.2 billion). It is estimated they could grow to $3 billion (€2.7 billion) by the end of 2023.

Turkish companies operating in Egypt also have the opportunity to engage in tariff-free trade with third-party countries, allowing them to tap into new markets.

"Egypt was already an attractive country for doing business, but lifting the visa requirement for Turkish citizens marked a real turning point," the chairman of the Turkish-Egyptian Business Council, Mustafa Denizer, told DW. Turkish companies had been looking to move to other countries for many years in a bid to remain competitive, said Denizer, adding, "With the [Egyptian] visa-free regime in place, there is now great momentum [for them to move there]."

Today, 35 Turkish industrial enterprises are operating out of Egypt and generating an annual turnover of more than $1.5 billion (€1.3 billion), the expert said.

Turkish companies based in Egypt could tap into a range of different markets, thanks to free-trade deals with US, EU, South America and some African countries, according to Denizer.

Sheets of uncut Turkish 100 lira notes
Rampant Turkish inflation is putting companies under pressureImage: DesignIt/Zoonar/picture alliance

Egypt's labor costs one-third that of Turkey's

In Turkey, average monthly labor costs are around $500 (€459) per worker — in Egypt, labor costs are a pittance of that at a mere $150 (€137). Fuel costs are also far lower in Egypt. That is why major Turkish companies like Arcelik, Sisecam, Temsa and Yildiz Holding have already moved production there.

Temsa, for example, makes buses and vans in Egypt and exports them to the rest of the world, according to the company. Yildiz Holding's local confectionery brand Pladis is enjoying great success on the Egyptian market, the second largest in the Middle East/North Africa (MENA) region. Yesim Textil, in turn, operates apparel factories in Cairo, Alexandria and Ismailia, supplying its goods to many world-famous sports brands. Electrical giant Arcelik, known in Europe for its Beko brand, recently invested $100 million (€91 million) in a new Egyptian factory slated to begin operating by the end of the year. Iskefe Holding, LC Waikiki, Eroglu Group and many others have also announced additional investments.

Some 70,000 people in Egypt already work for Turkish companies, not counting those employed by suppliers. A third of all textiles and clothes in Egypt are now produced in Turkish factories.

Turkish companies welcome in Egypt

Denizer, who works in the textile industry, says Turkish companies are receiving a warm welcome in Egypt. "Our companies are very well received and looked after there."

Turkish companies do, however, face a foreign currency shortage in Egypt. This shortage of dollars means Turkish companies producing goods for Egypt's domestic market often receive delayed payments. The Turkish and Egyptian central banks are currently negotiating a resolution to the problem, Denizer told DW.

In October, Turkish Minister of Trade Ömer Polat and a business delegation traveled to Egypt. Ibrahim Burkay, the chairman of the Chamber of Commerce and Industry in the economically potent city of Bursa, accompanied him.

"Our goal is to increase Egyptian-Turkish trade volume to $15 billion (€13.7 billion) in the next five years," Burkay said. Last year, it totaled $7 billion (€6.4 billion).

Bursa companies are focusing on two sectors in particular: the automotive and textile industries, according to Burkay. "We also have the opportunity to cooperate with Egyptian companies in other countries," he added. Burkay said he sees great potential in Egyptian trade fairs, too. "We can benefit from many years of experience in this field," said Burkay, adding that plans for a large textiles and fabric trade fair were already in the works.

Winemakers in Turkey fighting to survive

This article was originally written in German.