TURKEY: ADANA'S STAGNANT ECONOMY STILL AWAITING BTC-FUELED

UNCLAS SECTION 01 OF 02 ADANA 000123 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EPET PREL ENRG TU SUBJECT: TURKEY: ADANA'S STAGNANT ECONOMY STILL AWAITING BTC-FUELED REBOUND ¶1. (U) SUMMARY. Adana's business leaders are starting to develop alternatives to the big business-driven model that characterized the city's early growth. While an overvalued lira, financial mismanagement and removal of textile quotas in 2005 have led to closures of several large textile businesses in the city, the textile sector remains number one, constituting over 30% of the local economy. Adana business leaders envision textiles, the food and agriculture industry, and trade shows to be key growth sectors in the future. Botas International Limited (BIL),Baku-Tblisi-Ceyhan (BTC) pipeline's operating company in Turkey, is keeping apace with ambitious business markers with plans to increase the daily flow of crude oil by 20% in 2008. Despite hope the Ceyhan area, with its neighboring industrial zone, will become an energy hub rivaling Houston or Rotterdam, job growth has not matched expectations. END SUMMARY. ¶2. (U) While Adana has benefited from and contributed to Turkey's six-year-old economic boom, locals complain of chronically high unemployment, heavy dependence on declining industries (especially textiles) and the effects of an overvalued lira. Beyond these ills, which are shared by many cities in Anatolia, Adana is suffering the psychological wounds of falling from the top ranks of Turkish cities even as neighbors such as Kayseri and Gaziantep surge forward. ADANA'S EARLY START PROVIDED NO ADVANTAGE -------------- -------------- -------------- ¶3. (U) Adana Chamber of Commerce (ACC) President Saban Bas noted that Adana's economic evolution has been entirely contrary to the experiences of Istanbul and Ankara, where small and medium enterprises (SMEs) developed a foothold in the economy and were able to evolve naturally into larger corporations. The city's famous entrepreneur, Haci Omer Sabanci, made his fortune - and Adana's - through building megafactories in the industrial, agricultural and textile sectors. During this golden age in the 1950s, very few employment opportunities existed outside Sabanci's companies or unskilled agricultural labor. (Sabanci's first factory, Bossa, was Turkey's largest integrated textile facility and remains one of the largest employers in Adana with over 2800 employees.) Bas argued that after the bulk of Sabanci's business moved to Istanbul in the late 1960s, Adana had to learn how to rebuild its small and medium commercial structures from the ground up, leaving it deeply disadvantaged. ¶4. (U) As the GOT stepped up its fight against PKK militants in the late 1980s, there was a significant spike in migration to Adana, overwhelming the city's infrastructure and job market. Bas added that with the introduction of cotton-picking machines, seasonal agricultural workers were also left without jobs. With few white-collar job opportunities in Adana, the well-educated children of Adana's elite seek education and work opportunities abroad or in Turkey's other major cities, resulting in brain drain. Bas agreed that Adana's present 16% unemployment rate remains one of its biggest problems. THE FUTURE OF ADANA'S ECONOMY -------------- -------------- ¶5. (U) Bas pointed out the change in textile quotas, increasing competition from the Far East, and the overvalued lira has had a negative impact on the sector, forcing many textile companies to fold. Despite its flagging fortunes, he envisions a rebound, as Turkey develops a textile strategy to combat cheap exports such as filling a high-end niche in ready-to-wear fashions or home textiles. Hosting trade shows may also develop into Adana's specialty, Bas said, as the city possesses one of the country's largest covered expo centers. The ACC has started organizing trade fairs - such as agriculture and food stuffs - that he hopes will change conventional ways of doing business. He argues Adana has the potential to become Turkey's center of innovation for the agriculture, food and beverage sectors. ¶6. (U) Umit Ozgumus, Adana Chamber of Industry (ACI) President, was less sanguine about the textile business, but agreed with Bas that Adana shouldn't be afraid of exploiting positive aspects of its traditional economic base - agriculture. Ozgumus said the city should modernize agriculture and capitalize on its strategic geographic location with the next 20 years. He acknowledged Turkey can't compete with developed foreign countries in large-scale farming, but made a strong case for pursuing important market niches such as organics. To exploit these opportunities, Ozgumus said the province is establishing the Adana Organized Agricultural Zone (AOIZ). Ozgumus also ADANA 00000123 002 OF 002 pointed out Adana is on its way to becoming one of the prime packaging centers of Turkey. In addition to the six packaging companies in the AOIZ, two new companies are presently under construction, which, when complete, will increase Adana's share in the national packaging sector to 20%. ADANA-YUMURTALIK FREE ZONE: STILL WAITING FOR INVESTORS, JOBS -------------- -------------- -------------- - ¶7. (U) Built on an area of 4,500,000 square meters and designed to serve heavy industry, AYFZ became operational in ¶1999. Director Muharrem Pusat, who has been managing the zone since its foundation, said that, despite the moribund appearance of the zone, 90% of the unoccupied parcels had been reserved by 30 companies in the chemistry, shipbuilding, iron and steel, and textile sectors. Most investors, however, have not yet begun construction of their facilities. Hay, a Turkish shipbuilding company, had in 2006 announced the launch of the country's largest dockyard, has yet to break ground owing to financial problems. (Akdeniz, another Turkish shipbuilding company, has started the construction of their dockyard.) ¶8. (U) According to Pusat, foreign businesses currently operating in the zone are SABIC of Saudi Arabia, a petrochemical plant; and Kingspan of Ireland, a manufacturer of PVC panels. Pusat said an Italian company is negotiating with Kingspan on panel door production, and a Spanish company has visited the zone to talk about the feasibility of a cement factory. Pusat posits the zone will attract investors because it is the ideal position geographically - and because it is near the Baku-Tbilisi-Ceyhan pipeline. Pusat surmises when the zone becomes fully operational, it will employ approximately 10,000 people. This, he said, will lead to a flurry of other economic opportunities - housing, restaurants, markets and retail shops. BTC PIPELINE RAMPING UP TO PUMP MORE -------------- -------------- -------------- ¶9. (U) In July 2006, BIL became fully operational. BIL President and Chairman Salih Pasaoglu said to date more than 245 vessels had been loaded on tankers, and over 200 million barrels of oil had been pumped to the Ceyhan port since launching in June 2006. Pasaoglu said BIL envisions increasing daily crude oil flow from the present capacity of 1 million barrels a day to 1.2 million by mid-2008, and further to 1.6 million by 2009. The second expansion depends on attracting oil volumes other than those from BP's off-shore Azerbaijan field. To date, BP has not yet found the additional volumes necessary to make the second expansion economically viable. ¶10. (U) BIL employs approximately 550 people, 280 of whom work within Ceyhan Terminal and at BIL's four pump stations in Turkey. The remaining 270 employees are from subcontracting companies providing catering and security services. Terminal Operations Group Manager Selcuk Tufan pointed out that following the closure of the refinery in Mersin, Turkey has only one refinery in Kirikkale to meet domestic oil demand. He posited only one additional refinery in Ceyhan would likely be necessary to meet domestic demand, despite rumors that two or three companies may get the go ahead. COMMENT -------------- ¶11. (SBU) Adana's business community is starting to complain less about the demise of the textile industry and beginning to explore developing new sectors. Expectations that Ceyhan will become a new energy hub, rivaling Rotterdam in scope and importance, remain far-fetched, though local planners appear to be reaching closure on some new investments that will fulfill some of the BTC's job- and revenue-creation promise. END COMMENT. GREEN