Taufiq Agarzaevich, how would you assess the period following the imposition of sanctions by the West against Russia? Turkey had decided not to join in the sanctions, and economic relations and the balance of trade between our countries has changed. What concretely have these changes been?
Taufiq Melikov: Following the decision by the Russian government to invoke [countersanctions] on the supply of food products from a number of countries in Europe and the United States, the task came about to gradually reorient imports from countries which did not support Western sanctions.
The Turkish authorities, as you rightly mentioned, did not join in the sanctions against Russia. As a result, attention to Turkey as one of the traditional leading suppliers of certain food and agricultural goods has increased considerably. Russia's Trade Mission [to Turkey], together with the Ministry of Economic Development, are in constant contact with Russian grocery chains and are assisting them in finding new suppliers for seasonal vegetables, fruits, meat and meat products, fish and seafood.
Under conditions of sanctions it has become necessary to work at a more intensive pace. Official bilateral contacts have become more common as well. For example, since July, the heads of the economic departments of our countries have held four meetings in various formats.
Has there been significant growth in demand for Turkish production in Russia, and if so, in which sectors?
Taufiq Melikov: We already have positive results, yes. With the direct assistance of the Trade Mission, seven contracts for the supply of food products were signed in August. Through our joint efforts with Russian and Turkish companies it was possible to increase the export of Turkish foodstuffs to Russia. For example, the delivery of fish products delivered to Russia has almost doubled (up to $51.2 million worth), while the supply of meat and meat products has seen more than a six-fold increase (up to $14.4 million).
At present our colleagues from Rosselkhoznadzor [Russia's food goods inspection agency] and the Turkish Ministry of Agriculture are working together on adding to the list of exporters whose products are to be allowed onto the Russian market.
In this way, while it is still necessary to solve a number of technical issues, on the whole we assess the trends in the supply of Turkish goods [to the Russian market] with a great sense of optimism. And this applies not just to the food sector. It's clear that the withdrawal of foreign companies from the Russian market is an opportunity for Turkish investors.
What niches might Turkish companies seek to take up on the Russian market?
Taufiq Melikov: Currently, Turkish investments in Russia are directed mainly to the textiles, food, chemical, wood processing, electronic and electrotechnical industries, as well as into building materials, automotive manufacturing, the services industry, trade, tourism and the banking sector.
At present, investment activity by Turkish companies is shifting from large cities to the regions, from Moscow to cities in the Moscow Region, to Tatarstan, to the Vladimir and Penza regions. Turkish business has shown considerable attention in the development of investment cooperation with regions in Russia's Southern Federal District, as well as investment in the country's special economic zones (SEZ). We are also actively working to attract Turkish companies to work in Crimea. At present we are working with several companies on a number of projects on the peninsula.
The widespread presence of Turkish construction contracting companies in the Russian market has also been preserved. There are about 100 Turkish construction companies working on projects in Moscow and the Moscow Region, in St. Petersburg, in Tatarstan, Bashkortostan, and the regions of Sverdlovsk, Vladimir, Rostov and Krasnodar. From the late 1980s up to the present, Turkish firms have built over 800 projects in Russia.
Could you tell us about the structure of exports of Russian goods to Turkey?
Taufiq Melikov: Turkey is an important trade partner for Russia. In 2013, bilateral trade between the two countries amounted to $32.7 billion. After the EU, Russia is Turkey's second-largest trade partner, while Turkey is Russia's eighth-largest overall trade partner. Data for the first ten months of 2014 shows that Turkey [now] ranks seventh among Russia's leading trade partners, fifth in exports and 13th by imports. The country's share in Russia's foreign trade is 3.9 percent.
Among Russian exports to Turkey, mineral products account for the main share, at 65.1 percent, with metal and metallurgy-based products accounting for 19 percent. Imports from Turkey include machinery, equipment and vehicles (33 percent), food goods and agricultural commodities (27 percent), textiles, clothing and shoes (16.3 percent), and chemical products (10.6 percent).
Between January and October 2014, there has been minor growth (+.3 percent) in bilateral trade, based on an increase in the deliveries of Russian exports. First and foremost this was the result of an increase in the supply of metallurgy products (+37.2 percent from the same period in 2013), as well as in food and agricultural products (+3.5 percent). At the same time the supply of energy has declined by 10 percent.
Despite an overall balance of trade in Russia's favor in the amount of $16.1 billion at the end of 2013, the imbalance in trade from the Turkish side is compensated by a certain extent via tourism, shuttle trade, remittances from citizens and from construction and other firms working in Russia (which according to expert estimates amounts to about $10 billion annually).
What areas of Russian-Turkish economic relations do you believe are priority areas?
Taufiq Melikov: We consider the key areas to include energy, industry, agriculture, banking and tourism.
Investment cooperation is an important component of economic relations between our countries. However, in our view, the potential for this type of cooperation is far from being reached. According to Russian statistics, Russian direct investment into Turkey in 2013 amounted to $953.9 million, while $526.4 million came to Russia from Turkey. We hope that Turkish investors will be more actively present on the Russian market with capital investments given the opening of new investment opportunities.
Can you give some specific examples of Russian investments in Turkey?
Taufiq Melikov: There are many. For example, Sberbank's purchase of Denizbank, the construction of the Akkuyu nuclear power plant, the acquisition by Lukoil of the Akpet gas station network in April 2013, the acquisition by the Inter RAO energy company of assets in Trakya Elektrik.
I believe that we need to continue to strive to create the conditions for the implementation of investment projects in both countries in the future.
How likely do you believe is the possibility of a transition to a free trade regime between Russia and Turkey in certain sectors?
Taufiq Melikov: In view of Turkey's existing obligations to the European Union [Turkey has been in a customs union with the EU since 1996], this is not possible for the present. For all industrial goods and the industrial component of processed agricultural goods, Turkey must comply with the EU's common trade policy.
The Russian side also has a number of restrictions on preferential arrangements in trade with third countries in the form of its obligations to the other states participating in the Customs Union –Belarus and Kazakhstan. However, both parties believe that it's necessary to develop our relations by all the means at our disposal. Therefore, at a meeting in Moscow on November 28, 2014, Russia's Minister of Economic Development Alexei Ulyukayev and Turkey's Economy Minister Nihat Zeybekchi agreed to start negotiations on a bilateral agreement on free trade in the areas of services and investment.
An agreement has already been reached on the formation of a joint expert group. We assume that after the approval of the concept for the agreement, the two sides will be able to negotiate the content of the future document itself. At the same time, the ministers from the two sides have agreed to make every effort to alleviate those issues which hinder the further development of cooperation between our countries. A list of these barriers to trade has been affixed to the appendix of the Joint Statement on the Promotion of Trade, Economic and Investment Cooperation between Russia and Turkey. This statement was signed December 1 at the fifth meeting of the Russian-Turkish High Level Cooperation Council in Ankara. The barriers themselves are known and discussed at the interagency level. They [have now been] summarized in a single document, which gives new insight into the overall picture.
Is existing transport infrastructure sufficient for the hoped-for increase in trade between Russia and Turkey in the future?
Taufiq Melikov: The volume of freight traffic between our countries is high and diverse in terms of its forms. Transport occurs by rail and by ferry, by sea, air and road links. Of course, the intensity in this area poses some problems and limitations.
Since most of the volume of Russian exports to Turkey is carried by sea and by rail-ferry service, we have focused on the problems in this sphere. For example, we note that the volume of cargo transported by ship has declined by 3.9 percent (to 31.7 million tons) compared with 2012.
We believe that the rail-ferry line "Caucasus-Samsun" is not presently being used to its full potential. According to our transport operators, terminal services at the port of Samsun are overpriced and not competitive. Additionally, the depth of the Samsun port dock allows it to accept ships with a shallow draught of only 4.5 meters, while available data shows that other nearby docks are deeper. There are a lot of nuances, and here a closer interaction is necessary between our countries' maritime transport experts. Given the importance of this ferry line, at each bilateral meeting we have been trying to attract the attention of our Turkish colleagues to this issue.
What is the present ratio of Russian-Turkish truck-based transport in foreign trade?
Taufiq Melikov: We are agreed in the opinion that we need to strive to increase the share of national [Russian] carriers in the total volume of truck transport. The Russian side is similarly interested in achieving parity in the volume of road transport between Russian and Turkish truckers.
However, at present an imbalance exists in favor of Turkish transport carriers. Turkish companies have been granted 15,600 permits for bilateral cargo and transit, while Russian carriers in the same period used only 7,000 Turkish permits. Compared with 2009, the number of permits granted to Turkish carriers has grown over three times, from 5,000 to 15,600.
This subject has been discussed a long time in the framework of bilateral consultations at different levels. The harmonization of positions in this sphere is very difficult and laborious. We have observed that recent dialogue on the subject has become more intense. There is interest and goodwill, and we are moving in the right direction.