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RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHDA #0244/01 3241402
ZNR UUUUU ZZH
R 201402Z NOV 06 ZDK
FM AMCONSUL ADANA
TO RUEHC/SECSTATE WASHDC 4356
INFO RUEHAK/AMEMBASSY ANKARA 0902
RHMFIUU/39OS INCIRLIK AB TU
RUEHIT/AMCONSUL ISTANBUL 0778
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHGB/AMEMBASSY BAGHDAD 0111
RUEHDM/AMEMBASSY DAMASCUS 0179
RUEHDA/AMCONSUL ADANA 0958

UNCLAS SECTION 01 OF 03 ADANA 000244 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON PREL TU CH
SUBJECT: GAZIANTEP: TURKEY'S SOUTHEASTERN ENGINE KEEPS CHUGGING; 
NEIGHBORING PROVINCES STILL WAITING THEIR TURN 
 
ADANA 00000244  001.5 OF 003 
 
 
Summary 
----------- 
 
¶1.  The Southeastern Turkish city of Gaziantep is the region's 
model child for economic development, with a diverse, 
internationally competitive industrial base.  Locals attribute 
the success to an entrepreneurial tradition, a light touch by 
government as well as above-average levels of smuggling and 
off-book activity.  By contrast, the neighboring provinces of 
Urfa and Adiyaman are heavily dependent on the suffering 
agriculture sector, though they have hopes of developing more 
tourism.  The GOT's massive SE Anatolian Project (GAP) also 
plays a bigger role in these provinces.   There is no 
one-size-fits-all answer to Turkey's development needs, but it 
appears that in these three provinces government policy was far 
more effective when focused on creating stability for investors 
than on disruptive mega-projects.  End summary. 
 
Small - and Big - Businesses Thrive in Antep 
--------------------------------------------- ---------- 
 
¶2.  On a November 8-10 visit to Gaziantep, Urfa and Adiyaman 
provinces, Adana PO met with a variety of government, 
private-sector and NGO contacts.  Gaziantep's diverse, 
trade-focused economy is continuing to generate growth and 
export numbers that are the envy of southeastern Turkey.  In the 
first three quarters of this year, Gaziantep's exports increased 
by 38 percent, led by its food processing and machine-woven 
carpet industries.  Four Organized Industrial Zones and its Free 
Trade Zone are engines of the success, housing about 30 percent 
of the city's output.  Exports from the Free Trade Zone have 
been increasing at about 25 percent annually and now exceed 
$250m. 
 
¶3.  We also visited Gaziantep's biggest company, Sanko, which 
generates about $500m in annual income.  It is a family-owned 
conglomerate that has one of the largest cotton-weaving plants 
in the world as well as joint-ventures in heavy equipment, 
cement, food-processing and financial services.  Sanko is one of 
only a few foreign companies authorized by Levi's to produce its 
"501" denim fabric. 
 
What Makes Gaziantep Tick? 
----------------------------------- 
 
¶4.  Asked why the local economy is so robust, particularly in 
contrast with neighboring provinces, our contacts offered a 
range of explanations.  Sanko CEO Abdulkadir Konukoglu 
attributed Gaziantep's success to the city's entrepreneurial, 
small-business culture in which Turks, Arabs, Jews and Armenians 
all lived harmoniously (at least until the last century).  He 
added that the government's role in the region has been 
traditionally light.  Otherwise, he noted, "the best and 
brightest would have aspired to be bureaucrats or to run 
state-owned companies.  Instead they had to fend for 
themselves." 
 
¶5.  An Adana businessman noted that Gaziantep's businessmen have 
a strong sense of civic loyalty, always reinvesting their 
earnings locally rather than moving west to Istanbul (which the 
Sabanci family did after early successes in Adana).  Sanko is 
the exemplar; despite doing business throughout the world, it 
has kept its headquarters and most of its investments in 
Gaziantep and the surrounding provinces. 
 
¶6.  A Gaziantep businessman and newspaper publisher, Aykut 
Tuzcu, said many local fortunes were ill-gotten, with 
black-market activity accounting for as much as 60 percent of 
Gaziantep's trade turnover.  Tea, sugar and cigarettes are 
smuggled in to avoid Turkey's protectionist tariffs.  Crude oil 
is also smuggled from Iraq and processed at small makeshift 
refineries.  During our meeting with Gaziantep's mayor, an aide 
appeared with a document for his signature.  He refused to sign 
and told us it was a bid from a local company that was clearly 
corrupt as it was seeking to supply fuel to the municipality for 
five percent below the wholesale price.  Tuzcu said that a few 
days earlier one of the illegal refineries in the city blew up, 
killing three people.  Tuzcu added that, though neighboring 
businesses and the authorities certainly know who ran the plant, 
its ownership is now a mystery that no one is willing to talk 
about. 
 
¶7.  While the structural, cultural and criminal explanations 
probably all play roles in Gaziantep's success, a business 
contact in Urfa offered a more straightforward analysis: "The 
people there are hard-working and they elect responsible, 
 
ADANA 00000244  002.5 OF 003 
 
 
pro-business public officials." 
 
China: The New Threat? 
----------------------------- 
 
¶8.  Despite their affluence, successful businessmen in Gaziantep 
were alarmist in discussing China's growing role.  Sanko's 
Konukoglu said China's government is systematically 
under-cutting all potential competitors in order to secure 
market share and put them out of business.  Chinese companies 
use prison labor and benefit from state subsidies, he claimed. 
In a complaint echoed by many in the cotton trade, Konukoglu 
said Chinese firms routinely import cotton and then sell 
finished textiles for below the price they pay for the raw 
inputs.  He noted that manufacturing sectors such as textiles 
take 20 years to build up and that China's goal is to destroy 
established industries in Turkey, the U.S. and elsewhere, 
leaving them dependent on China.  Konukoglu urged the U.S. to 
restrict Chinese imports and prop up its own textile industry 
lest it become too dependent on Beijing.  China, he and others 
noted, is also now entering the Turkish furniture market with 
extremely low priced products using European designs. 
 
Urfa and Adiyaman: Agricuture and Top-Down Development 
--------------------------------------------- -------------- 
--------------- 
 
¶9.  Sanliurfa (Urfa), an agricultural province east of the 
Euphrates, has not experienced much spillover from Gaziantep's 
success.  The head of the local Chamber of Commerce, an 
appliance dealer, complained that his profits had been higher 
during the inflationary 1990's, because he was able to get away 
with bigger mark-ups; now consumers have a greater expectation 
of price stability.  A local builder, however, said that lower 
interest rates have benefited his industry, which appeared quite 
healthy with extensive residential construction in Urfa's 
suburbs.  Local leaders also touted Urfa's tourism potential, 
which is focused on the ancient city of Harran and the Rizvaniye 
Mosque.  They are particularly interested in a new international 
project (in which Harvard is participating), "Abraham's Path," 
which plans to restore ancient sites from Urfa (Abraham's 
birthplace) to Syria and then to Lebanon and Israel while 
promoting inter-faith dialogue. 
 
¶10.  Urfa also hosts the regional headquarters of GAP (the 
Southeast Anatolian Project).  The GAP's centrally planned, 
mega-project approach to development contrasts with the 
hands-off role that Konukoglu said accounted for Gaziantep's 
success.  In their briefing with us, GAP representatives 
emphasized that, in addition to the headline hydropower 
projects, GAP also focuses on other sectors including highways, 
health and education.  They noted, however, that the project's 
plans to use the new reservoirs to irrigate 1.8 million hectares 
of farmland are well behind schedule. 
 
¶11.  Zafer Ersoy, The President of the Chamber of Commerce in 
Adiyaman (near the GAP's biggest project, the Ataturk dam) said 
that, while the hydropower was helpful for local development, 
the social costs of the project were exorbitant.  The dam 
displaced about 50,000 people, most of whom were farmers 
clustered near the Euphrates.  After leaving their homes, most 
moved to Adiyaman city.  They received compensation in five 
installment (making it harder to buy property) and did not 
receive assistance in making the transition to urban life or 
alternative employment.  The promises to provide irrigated land 
to them have not been fulfilled.  Ersoy said that, based on his 
community's experience, he opposes additional hydropower 
projects that involve large-scale resettlement, such as the 
Ilusu dam proposal. 
 
¶12.  Perhaps recognizing GAP's failings in addressing 
micro-level development needs, the current AK Party government 
is devoting considerable resources to building and improving 
roads connecting even the smallest villages with the outside 
world and providing villages with potable water.  The Adiyaman 
governor said that this program has benefited 500 Adiyaman 
villages in recent years and that all villages are expected to 
have water service next year. 
 
Comment 
----------- 
 
¶13.  Gaziantep, with its entrepreneurial energy and diversified 
economy, is well-positioned to benefit from the market 
liberalization policies being pursued by the current government. 
 Its proximity to Syria and contacts with Iraq also serve as a 
 
ADANA 00000244  003.7 OF 003 
 
 
strong engine for business - legal and otherwise.  Moving east, 
however, regions such as Urfa and Adiyaman are suffering from 
the worsening terms of agricultural trade brought on by market 
reforms as well as the continuing social disruptions associated 
with the movement of people caused by GAP-sponsored dam 
construction; the evacuation of thousands of villages in 
connection with the fight against the PKK in the 1990s has added 
to the strains on Turkey's SE cities.  While there is certainly 
a need for large-scale infrastructure projects in SE Turkey 
(particularly to ease transport bottlenecks and ensure adequate 
energy), a more efficient focus for government may be to follow 
the Gaziantep model of creating stable conditions for small and 
medium sized manufacturers to develop.GREEN