VZCZCXRO3896
RR RUEHDA
DE RUEHDA #0016/01 1231059
ZNR UUUUU ZZH
R 021059Z MAY 08
FM AMCONSUL ADANA
TO RUEHC/SECSTATE WASHDC 4649
INFO RUEHAK/AMEMBASSY ANKARA 1192
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUCPDOC/USDOC WASHINGTON DC
RUEHDA/AMCONSUL ADANA 1253

UNCLAS SECTION 01 OF 02 ADANA 000016 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAGR EFIN TU
SUBJECT: TURKEY: DESPITE BOOMING ENERGY AND COMMODITY PRICES, 
CUKUROVA REGION SHARES GLOOMY ECONOMIC OUTLOOK 
 
REF: A) ISTANBUL 187;   B) ANKARA 834 
 
Summary and Comment 
----------------------------- 
 
¶1.  (SBU) Business leaders in the Cukurova region of southern 
Turkey share the nation-wide pessimism about economic prospects 
for 2008.  The textile industry's steady decline will likely 
accelerate when the GOT revises its regional incentive scheme, 
and plans for investments in other sectors such as tourism, 
medical services and energy are developing too slowly to provide 
any near-term relief.  On the bright side, Cukurova's 
traditionally strong agricultural sector is expected to benefit 
from high commodity prices, though citrus exporters are trying 
to recover from a hard frost early in the year.  If energy and 
commodity prices remain high in the mid- to long-term, the Adana 
region should logically hold a winning hand, but this promise 
has thus far not delivered the level of job creation needed for 
a city whose population is now 1.3 million and growing.  End 
summary and comment. 
 
The Gathering Gloom 
-------------------------- 
 
¶2.  (SBU) Businessmen in Adana and Kahramanmaras in recent weeks 
have provided a micro-level perspective on the pessimism 
Istanbul-based financial analysts expressed in ref a.  Koral 
Cepni, a former textile executive who is now a university 
lecturer, told us that residential construction has sagged in 
recent months due to increasing interest rates and middle class 
economic insecurity.  Unlike deep-pocketed Istanbul developers, 
he said that Adana contractors cannot afford to provide 
favorable financing to purchasers, who must then rely on bank 
loans.  Adana lost a prestigious project in February when an 
American luxury condo investor pulled out of a $75 million deal 
due to the mortgage crisis in the U.S. and corruption issues 
with one of the Turkish partners. 
 
¶3.  (SBU) Similarly, Cepni said that car sales have slumped 
since January and that retailers and the textile industry have 
been particularly hard-hit.  Only one of dozens of textile 
companies remains profitable, he said, and the number of 
shuttered store-fronts (based on his admittedly unscientific 
survey) has more than doubled in the last nine months.  He said 
poor market research results in a high level of small-business 
failure.  Some aspiring businessmen, he said, "think they can 
start making kebab and toast and the customers will come.  It's 
not that easy."  Low-cost mega-stores such as Carrefour, 
meanwhile, are proving successful at luring shoppers away from 
traditional vendors in the city center. 
 
¶4.  (SBU) Adana's priority growth sectors - medical services, 
tourism and energy - are each experiencing problems.  Cepni 
noted Adana is well-positioned to serve as a "medical tourism" 
destination for the Middle East and some local clinics are 
trying to market to Syria as well as southeastern Turkey. 
Unfortunately, neighboring Gaziantep - which has closer links to 
both Syria and the southeast - is trying to develop the same 
sector.  In addition, the GOT is changing the rules that permit 
physicians to work for both state hospitals and private clinics, 
making it more difficult for private health providers to recruit 
doctors.  Similarly, the Adana tourism sector is competing with 
its western neighbor Mersin, which already has a head start in 
developing its (more attractive) oceanfront and in attracting 
foreigners, 2500 of whom have purchased vacation properties in 
the past 18 months.  Finally, while there has been a continuous 
drip-feed of press releases about companies interested in making 
large-scale investments in oil refineries or ship-building in 
the Ceyhan region, no big projects have actually been started 
since the BTC pipeline was opened two years ago. 
 
Textile Death Watch 
------------------------- 
 
¶5.  (SBU) In Kahramanmaras, an agriculture and textile hub about 
90 miles northeast of Adana, the local Chamber of Commerce 
president, Mehmet Balduk, worried that the crisis now developing 
could be worse than the 2001 crash because the current problems 
are not solely based in the financial sector.  Thanks to a 
central government incentive program, the textile industry in 
Kahramanmaras now employs 25,000 people.  He said that if the 
incentives are discontinued this year, as expected, he predicts 
factories using older, more labor-intensive machinery will close 
down or relocate, resulting in about 15,000 lost jobs.  Buldak, 
who is in the textile industry himself, is following many of his 
competitors and studying the opportunities in Egypt's Qualified 
Industrial Zone, which has attracted a number of Turkish 
companies because of lower labor costs and tariff-free access to 
U.S. markets. 
 
ADANA 00000016  002 OF 002 
 
 
 
¶6.  (SBU) Balduk also noted that, unlike in 2001, consumer 
indebtedness is now widespread and unsustainable.  It is 
commonplace now for blue-collar workers to have debts ten times 
higher than their monthly salaries, so when people lose their 
jobs they also end up defaulting on their loans and going 
bankrupt.  After a local textile company laid off 3,000 workers 
recently, there was a spike in court cases because so many of 
them were unable to pay their debts.  He noted that people in 
the Kahramanmaras region still have strong links to their 
relatives in the villages so they will not suffer from hunger, 
but they will not be able to pay their debts. 
 
Agriculture: Citrus Growers Angst, Grain Producers Fat and Happy 
--------------------------------------------- -------------- 
---------------------- 
 
¶7.  (SBU) Cukurova's agricultural sector presents a mixed 
picture.  Ali Kavak, president of a local trade group, said that 
freezing conditions early in the year reduced the citrus yield 
by 21% which caused a comparable decrease in exports.  Cepni 
told us that higher prices will partially compensate for the 
lower output, though some citrus farmers get into trouble by 
holding their crop too long in hopes of getting higher prices 
(futures markets are underdeveloped for many commodities in 
Turkey).  The reduction in exports has hit ancillary industries 
especially hard: the head of an Adana-based joint venture with 
International Paper, Olmuksa, which specializes in cartons for 
citrus exporters, reported in February that his business was 
down 60%.  Transport companies are also feeling the pinch - a 
transport/logistics official in Mersin told the media that 
citrus export volume is down about 60% and local truck companies 
have redeployed parts of their fleet to western Turkey. 
 
¶8.  (SBU) Grain producers in the Cukurova region, meanwhile, 
appear well positioned for 2008.  Compared with the severe 
drought conditions in southeastern Turkey there has been 
sufficient rain in the Adana region and winter snows were 
adequate to fill the irrigation reservoirs.  Although high oil 
prices have increased operating expenses and the price of 
inputs, analysts expect local wheat, corn and soy farmers to 
benefit from the run-up in world grain prices.  Cepni said that 
in markets where the GOT plays a strong role, such as wheat, he 
also expects high prices as the ruling party will want to win 
support in the run-up to local elections next March. 
GREEN