This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 ADANA 000037 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL ENRG IZ TU ADANA
SUBJECT: TURKEY'S 2004 TRADE WITH IRAQ SURPASSES 2003 LEVELS 
 
1.(SBU)  Summary:  Determining export totals by region is an 
inexact science, but data from local business groups indicates 
trade between southeast Turkey and Iraq reached approximately 
$586 million in 2004.  (Note:  Total Turkish exports to Iraq in 
2004 were $1.8 billion.  End note.)  Moreover, since April 2003, 
some $2.5 billion in refined petroleum, related transportation 
services and sustainment commodities, like water, have been 
delivered or are en route to Iraq through the region's Habur 
Gate in support of Operation Iraqi Freedom (OIF).  Contacts 
claim that revenue from this increase in economic activity is 
not having a significant impact on employment and investment in 
southeast Turkey.  Despite those claims, to the extent more 
truckers are contracted to go to Iraq, common sense suggests 
there should be additional income and employment in the region. 
However there is a shortage of reliable statistics and anecdotal 
evidence to confirm that assumption.  End summary. 
 
Southeast Turkey's Exports to Iraq 
---------------------------------- 
 
2.(U)  Southeast Turkey accounts for roughly 30 percent of 
Turkey's population, and 15 percent of its GDP.  The 
Gaziantep-based Southeast Anatolian Exporters Union (SAEU) 
reports its members' 2004 exports to Iraq were $237.5 million, 
close to two times the previous year's amount (Note: SAEU 
includes exporters from Gaziantep, Kilis, Sanliurfa, Diyarbakir, 
Sirnak, Siirt and Mardin provinces.  According to the Gaziantep 
Chamber of Commerce, Gaziantep alone accounted for $178 million 
of the union's exports to Iraq in 2004, up from $99 million in 
¶2003.  End note.)  Statistics from the Adana Chamber of Commerce 
show Adana province's 2004 exports to Iraq coming in at $96 
million, almost four times the 2003 total.  Adding to these 
figures information from the Mersin-based Mediterranean 
Exporters Union (MEU), we get a snapshot of the southeast 
region's exports as a whole for 2004: 
 
2003            2004 
(in millions of USD) 
 
SAEU:           122.5   237.5 
Adana CoC:       24.5      96.0 
Sub-Total:      147.0   333.5 
MEU:                    ----            252.6 
Total:          ----            586.1 
 
(Note:  Unfortunately, and somewhat strangely, neither MEU nor 
other business contacts in Mersin, including the Chamber of 
Commerce, have data on 2003 exports to Iraq.  End note.) 
 
What is being exported? 
----------------------- 
 
3.(U)  Adana exporters sent $27.7 million worth of machinery and 
mechanical equipment (e.g. agricultural-related machinery, 
portable welding, some medical equipment, pre-manufactured steel 
elements, pre-cast concrete infrastructure material), as well as 
food products, and assorted manufactured goods to Iraq.   As for 
exporters of the SAEU, a representative citing Gaziantep 
statistics stated ready-to-wear apparel, machine-made carpets, 
grains, chemical products, dry fruits, and edible oils companies 
are doing particularly well.  Statistics for SAEU as a whole are 
as follows (millions of dollars): 
 
                                2003            2004 
 
Cereals/Legumes 22.1            52.2 
Chemicals                       21.9            29.1 
Rugs                            14.7            28.1 
Ready to wear           14.4            25.3 
Cement                  9.7             17.9 
Steel                   6.9             17.4 
Electronics             8.0             16.0 
Dryfruit/ed oils        5.2             14.5 
Wood                            6.2             11.9 
Transport vehicles      2.4             8.1 
Raw textiles            3.6             7.9 
Leather products        5.5             7.1 
Fish/Livestock          1.1             1.1 
Fresh fruits/Veg        0.6             0.3 
Minerals                        0.4             0.6 
 
As an aside, a partner in one of Mersin's largest exporters of 
cereals and legumes told us that, while the food sector in 
general is doing quite well now, his Mersin company's sales to 
Iraq were actually higher in 2003 than in 2004.  He attributed 
this to purchases by Saddam's regime, as well as food assistance 
programs, stocking up prior to the war. 
 
Sustainment 
----------- 
 
¶4.  (SBU)  Since April 2003, some $2.5 billion in refined 
petroleum, related transportation services and sustainment 
commodities, like water, have been delivered or are en route to 
Iraq through the Habur Gate in support of Operation Iraqi 
Freedom (OIF).  It is difficult to specify just what portion of 
that amount has benefited Turkish companies directly; of the 
benefits that have accrued to Turkey, it is even more difficult 
to ascertain the portion that ends up in southeastern Turkey. 
Petrol Ofisi, for example, said to AMCON ADANA in December 2004 
that it has been making 3 to 5 percent profit on sales of some 
$1.6 billion during this period, and local water sales for OIF 
sustainment have grossed approximately $90 million. 
 
¶5.  (SBU) These profits probably make a substantial difference 
to the profits of Petrol Ofisi - a nationwide company quoted on 
the Istanbul Stock Exchange - but have little local impact on 
the Southeast.  On the other hand, to the extent Petrol Ofisi is 
contracting more drivers to go to Iraq there should be 
additional income and employment for the truckers concerned. 
However there is a shortage of reliable statistics and anecdotal 
evidence, especially regarding employment figures, to confirm 
that assumption.  In the infrastructure materiel business, for 
example, one local employer of almost 400 workers said he hired 
approximately 15 percent more workers in 2004 over 2003.  But 
the largest construction firm in town (employing close to 2000), 
which is very active in Iraq, reports no increase in employment: 
 "our sector is still in crisis," says the company's CEO.  The 
region relies heavily on day labor that is often not recorded on 
the books, thus a  true picture of the impact of increased trade 
with Iraq is difficult to measure. 
 
¶6.  (SBU) The sector break-down of MEU members' 2004 exports may 
provide some additional insight into the local impact of U.S. 
buying for sustainment.  (Note: MEU is the union which covers 
exporters mostly from Mersin and Adana.  End note).  The 
following figures are MEU exports for 2004, in millions of 
dollars (no 2003 figures available): 
 
LPG                     $85.1 
Diesel          $34.9 
Gas                     $25.3 
Pre-fab steel   $17.3 
Red lentils     $10.9 
Edible oils     $ 8.1 
Soaps           $ 8.0 
Cleaning prod   $ 7.9 
Beans           $ 7.7 
Soft drinks     $ 6.6 
Beer            $ 6.4 
Alumin/cables   $ 5.3 
(All others categories of exports fall below $5.0 million) 
 
Informal sector 
--------------- 
 
7.(SBU)  Informal - including black market - trade between 
Turkey and Iraq is almost impossible to measure.  Developments 
in the last two years may have moved some, especially truckers, 
from the informal sector (e.g. smuggling of fuel during Saddam's 
regime) to the formal sector, as they enter into transportation 
contracts for sustainment fuel providers.  For these truckers, 
there may be a decrease in the standard of living, as a result 
of costs associated with participating in the formal economy, 
such as taxes and social security payments.  Many truckers, as 
seen in December's strikes, even claim to be breaking even or 
actually losing money.  Until three months ago, only the Turkish 
side was combating fuel smuggling out of Iraq by truckers. 
(Note:  Fuel in Iraq costs 5-10 cents per liter, while in Turkey 
it sells for approximately $1.50 per liter.  End note.)  In 
response to GoT complaints, Iraqi officials have now implemented 
regulations that have greatly decreased the amount of fuel 
truckers are able to smuggle, though the practice has not ended 
altogether.  Additionally, local smuggling by day traders occurs 
in commodities such as sugar and tea, which are far less 
expensive in Iraq than in Turkey. 
 
Trade may be up, but minimal macro impact so far 
--------------------------------------------- --- 
 
8.(SBU)  Contacts assert that everyone is getting a small piece 
of the modest benefits of this trade.  Exporting companies see 
some revenues, workers feel a bit of job security with the 
re-emergence of this market, and -- to the extent that companies 
are actually paying taxes and/or social security -- government 
gains some benefit from the trade. 
 
9.(SBU)  However interlocutors from Diyarbakir to Mersin to 
Mardin claim that the increased exports to Iraq over the last 
year are not resulting in any significant increase in investment 
or job creation in southeast Turkey, be it from domestic or 
foreign sources.  (Note:  They further assert that few Turks, 
aside from some smaller ethnic Kurdish Turks doing informal 
sector investment, which is difficult to track, are making 
significant investments in Iraq.  End note.)  One or two 
transportation companies based in southeast Turkey have told us 
they have constructed warehouses near Habur Gate, and one 
reinvested in its trucking fleet, but this does not appear to be 
an across-the-board phenomenon.  Several factors are mentioned 
to explain why trade with Iraq has resulted in little investment 
in Turkey. 
 
10.(SBU)  First, the lack of security in Iraq currently leaves 
the business community in a "wait-and-see" posture, especially 
as some businesses are also still paying down debts incurred in 
the wake of the 2000-01 financial crisis.  Second, excess 
capacity in the region, and in plants elsewhere Turkey, seems to 
be filling the rising demands of this relatively small market 
without new investments.  (Note:  While it seems hard to believe 
that there was so much unused capacity in the southeast that 
exports could double with such a minimal impact on employment 
and investment, it is hard to find contrary evidence.  The 
region had been very depressed in 2002-03 in the wake of the 
financial crisis.  End note.) 
 
¶11. (SBU) Finally, business contacts claim that despite the 
increased level of exports, their profit margins are still quite 
thin.  Some claim to be staying in business with almost no 
profit, just hoping for more opportunities when the security 
situation improves.  Representatives of international businesses 
have recently been visiting industrial zones in Adana, Mersin 
and Gaziantep, according to local contacts, in order to "see 
what we do and do not have," but no major investments have yet 
been forthcoming from such visits.  One area that could use 
investment in Mersin, for example, is cold storage capacity, 
which is currently strained by a significant amount of American 
chicken parts moving to Iraq. 
 
¶12.  (SBU) As for investment in Iraq, several larger Turkish 
players with southeast presence say they are awaiting 
privatization there.  We hear that Sabanci group is interested 
in the water and cement sectors in Iraq, for example. 
Gaziantep-based SANKO is taking a wait-and-see approach, mulling 
possible opportunities in Syria (septel) for the moment and 
shipping textile products, edible oil and water to Iraq from 
existing plant in southeast Turkey. 
 
13.(U) Baghdad minimize considered. 
 
 
 
REID