In the wake of Recep Tayyip Erdogan’s victory in the Turkish presidential election, the United Arab Emirates (UAE) is poised to bolster its trade relations with Ankara. Analysts suggest that Erdogan’s win ensures continuity in planned economic and trade cooperation between the two countries. This development comes after the signing of a Comprehensive Economic Partnership Agreement (CEPA) in March, which seeks to significantly increase bilateral trade to $40 billion over the next five years, up from the current $19 billion. The UAE, in its pursuit of diversification, views Turkey as a crucial market to tap into.
With a GDP of $1.131 trillion in 2021, surpassing that of Saudi Arabia ($672 billion), Turkey stands as the largest economy in the region. The removal of trade barriers through the CEPA will open up a vast market for the UAE. To underscore the warming relations between the two nations, the UAE established a $10 billion investment fund in 2021 to support investments in Turkey. The CEPA, expected to be ratified later this year, will concentrate on strategic sectors such as AgriTech, food security, clean energy, and cooperation on construction and real estate projects.
The CEPA is anticipated to support the UAE’s diversification efforts, enabling the country to expand into emerging markets and focus on the non-oil sector. Analysts believe that the UAE will seek greater collaboration with Turkey in promising areas such as clean energy, digital technologies including AgriTech, alongside traditional sectors like real estate and construction. This partnership aligns with the UAE’s commitment to diversify revenue streams and transition to a circular economy for sustainable economic development.
Despite the positive outlook, Erdogan’s economic policy of maintaining low interest rates to stimulate growth has led to the significant depreciation of the Turkish lira, losing over 90% of its value in the past decade. In the wake of Erdogan’s victory, the lira plummeted to a fresh record low of 20.10 to the dollar, raising concerns among potential foreign investors. Experts stress the need for Turkey to take concerted measures, including raising interest rates, to instill confidence in foreign investors. Otherwise, the currency’s further depreciation could have adverse consequences.
In 2022, the UAE and Turkey signed a currency swap agreement worth 18 billion dirhams ($4.9 billion) or 64 billion lira to improve trade. However, if Erdogan’s policy of low interest rates continues and the lira continues to depreciate, the consequences could be significant unless a pre-determined exchange rate has been agreed upon for a reverse swap. While the swap transaction allows Turkey to pay for imports from the UAE in dirhams, it is important to note that a depreciation of the local currency ultimately makes imports more expensive. When the swap is eventually reversed, Turkey will need to raise a much higher amount in lira to return the dirham equivalent to the UAE.
Amid these developments, the President of the UAE, Sheikh Mohamed bin Zayed Al Nahyan, congratulated Erdogan on his victory, expressing the desire to further enhance the strategic partnership between the two nations. The UAE looks forward to collaborating with Turkey to achieve ongoing progress and prosperity for both countries and their people.
