KAYSERI'S BOOM SHOWS TURKEY'S PROMISE, POLITICS PERMITTING

UNCLAS SECTION 01 OF 02 ANKARA 000038 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN BEXP SOCI TU SUBJECT: KAYSERI'S BOOM SHOWS TURKEY'S PROMISE, POLITICS PERMITTING Ref: 2006 Adana 244 ¶1. (SBU) A recent visit to the thriving central Anatolian city of Kayseri showed the potential for expanding the geographical base of U.S.-Turkey trade beyond the megalopolis of Istanbul and how economic stability and openness are spreading growth in Turkey's regional cities, creating opportunities for entrepreneurs, and expanding prosperity. Kayseri has a long entrepreneurial history, but had mostly been known for the businesspeople it exported to other Turkish cities, especially Istanbul and Adana. The Sabanci family, which owns the country's second largest industrial group, is the most prominent example. Other Kayserians who made a name for themselves elsewhere include Rifat Hisarciklioglu, the head of the national business federation TOBB, and economist turned politician Foreign Minister Abdullah Gul. ¶2. (SBU) Over the past decade, however, Kayseri's entrepreneurs have begun staying put and investing and growing at home. Meeting with economic and commercial officers in December, Kayseri's business leaders attributed their success to traditional values of religion, work and family. Kayseri's success in combining traditional values and business acumen was also highlighted in a January 2006 report by the European Stability Initiative called "Islamic Calvinists" (http://www.esiweb.org). But the business leaders also emphasized that the business-friendly policies of the AKP government, particularly monetary stability following decades of high and volatile inflation, have made it possible for them to plan for the future and expand through investment. Board members who produce in the textile, home appliance, food processing and furniture sectors for the domestic market and export told us they can no longer finance their companies' growth out of their family or local resources. They are increasingly turning to Istanbul banks and financial markets for funding, something that would have been unthinkable just a few years ago. ¶3. (SBU) Since the 2001 financial crisis through 2006, exports from Kayseri more than doubled, from $327 million to over $700 million and the number of export oriented firms increased from 342 to 572. The Boydak Group, headed by Mustafa Boydak, who is also chairman of the Chamber of Industry, is an example of the city's success. The company has grown beyond its roots in the local textile industry to furniture production and higher tech industries like making fiber optic cable. Boydak said he has made two investments in the United States, in small companies in Florida and New Jersey. He is selling the cables in Central America. Other successful companies are producing bedding and home textiles, medium and high-quality furniture, and small appliances. The head of another company told us that in addition to his Kayseri factories, he had purchased factories in Algeria and Russia. ¶4. (SBU) Chamber members told us that this growth has led to a shortage of both skilled and unskilled labor in the city, which has a population of over 600,000. (This contrasts with an official unemployment rate of 9%, which the businessmen said must be wrong.) The panorama from the roof of the Chamber of Industry shows the physical impact of the city's transformation. Former agricultural fields are covered with new housing development, and a busy downtown bisected by broad boulevards was covered in winter smog. Located at the base of snow-covered 3000 meter Mount Erciyes and close to the historical region of Cappadocia, the Chamber leaders also envision the city's future as a tourism destination. The region is known for its foods, especially a cured-beef called pastirma, local cheese, and a ravioli-like dish called manti, as well as fruits and vegetables and even wine. ¶5. (SBU) About 65 representatives of Kayseri's business community turned out for a presentation by visiting Exim Bank regional officer. They asked sharp, business-oriented questions, and stayed afterwards to pepper the Exim officer with specific questions related to their own business problems. It seems likely that some new business for Exim may result. This was a follow-up to the July seminar on doing business with the United States that was co-sponsored by the U.S. Chamber of Commerce and the Turkish national business federation TOBB, and financed in part by USAID. As in the other regional cities in which the seminar was held (Gaziantep, Ankara, and Izmir),Kayseri businesspeople were very interested in doing business with U.S. companies (both for import and export),but had little knowledge about how U.S. markets work. As knowledge spreads, and if good economic policies and regional growth continue, trade with Turkey's regions promises to be an important source of growth in overall U.S.-Turkey trade. ¶6. (SBU) Comment: Kayseri is not alone in its dramatic transformation as a commercial center. Like the success of the Southeastern city of Gaziantep (reftel),Kayseri shows what Turkish entrepreneurship can accomplish when government provides a stable framework for growth and then gets out of the way and lets companies and businesspeople do their jobs. The growth of small and medium-sized business in cities like Kayseri will help Turkey grow ANKARA 00000038 002 OF 002 out of its employment problems and vast income disparities and ease the transition from an antiquated agricultural sector that currently accounts for 27% of the workforce. But this will not happen if the sound monetary and fiscal policies implemented by the AKP government since 2003 with the support of the IMF do not continue. Furthermore, the World Bank and OECD argue that economic growth cannot be sustained and spread unless there are deeper reforms, including in the education and judicial sectors. Such reforms take time and demand political will. That's why this year's elections are so critical for Turkey's economic, as much as its political future. More to follow. MCELDOWNEY