TURKISH-SYRIAN BUSINESS PARTNERSHIPS

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ETURKISH-SYRIANBUSINESSPARTNERSHIPSA Nascent OpportunityJune 2018BuildingMarketsBuildingMarkets

RTEETETTETEETprefaceThis report has been produced by Building MarketsBuilding Markets, headquartered in New York, Unitedand was made possible due to the generous support ofStates, is a non-profit organization that creates jobsGlobal Affairs Canada. Field research and data collectionand encourages economic growth in crisis-affectedwas led by Guler Kaya. Additional support and writingcountries by connecting local micro, small and medium-was provided by Isik Oguzertem, Kavya Raman and Selensized enterprises (SMEs) and civil society organizationsUcak.(CSOs) to new opportunities. Through its approach, theorganization has built a network of 24,000 local SMEsThe principal objective of this report is to reviewand CSOs, assisted those businesses and organizations inachievements to date and explore opportunities towinning 1.3 billion2 in contracts and helped create overfacilitate increased partnerships between Syrian and69,000 jobs.Turkish businesses. Due to a lack of published data onthe topic, Building Markets prepared this through desk research, semi-structured interviews with 12organizations who contributed their time, experience andstakeholder institutions, and analysis of data individuallyinsights to this report. Building Markets would particularlycollected from several trade associations and provinciallike to thank the contributions of stakeholders whochambers of commerce and industry. Interviews andagreed to be interviewed, as their experience and insightsdata analysis took place between March and April 2018.played a critical role in informing the development of thisreport.According to Turkey’s Foreign Direct Investment law(2003), companies established in Turkey by foreignAny case studies or best practices that would strengthennationals are afforded the same rights and privileges asthis report are welcome and can be submitted alongall other Turkish businesses. This means all businesseswith any questions and comments to reports@in Turkey are, in effect, Turkish businesses. For clarity, thisbuildingmarkets.org.1report will refer to businesses owned by Syrians in Turkeyas “Syrian businesses” and businesses owned by Turkishcitizens as “Turkish businesses,” though they are the samebefore the law.

Ttable of contentsPREFACE 1EXECUTIVE SUMMARY 31. SYRIAN BUSINESSES IN TURKEY42. TURKISH BUSINESS STAKEHOLDERS’ VIEWSON SYRIAN BUSINESSES 62.1 Recognizing Syrian Business Contributions72.2 Overcoming Perceived Challenges to Partnership82.3 The Future of Syrian Businesses83. RECOMMENDATIONS 9ANNEX 11BIBLIOGRAPHY 12ENDNOTES 13TEETETTETEET

Qexecutive summarySyrian-Turkish business partnerships offer the potentialThis report recommends the following to cultivatefor mutual growth opportunities, economic benefits togreaterrefugee and host communities, investment in Syria’sbetween Turkish and Syrian businesses for mutualeventual reconstruction, and growth and stability inbenefits:interactionandeventuallypartnershipsthe region. This report explores successes to date, and how to further leverage this potential.Provide Syrian businesses with resources tonavigate the Turkish market and regulatoryenvironment.The story of Syrian businesses in Turkey is one of success and promise. With very little guidance, thousands ofInvest in training and capacity developmentSyrian entrepreneurs have bootstrapped their wayopportunities for Syrian and Turkish businesses,to successful businesses that are reinvesting in localas well as public agencies serving businesses andeconomies and operational capacity. Since 2011,foreign investors. Syrians have established over 7,000 formal businessesOffer networking opportunities and platforms forin Turkey with at least 381 million in capital, andSyrians businesses to demonstrate their productsemploy nine individuals on average.and services.3ReducepolicyDespite their success, Syrian entrepreneurs struggle burdenstowithinvestment in Turkey and facilitate formalization.anunfamiliareconomyandregulatory environment, limited customer base and torylong-termSyrianIncrease outreach and equitable access nbusinesses,especiallyPartnerships with Turkish businesses can help easeto realize their export potential and brandsome of these challenges. Syrian businesses bringdevelopment. unique competencies, including familiarity withCollect and provide access to detailed data onSyrian businesses for further analysis.Turkey’s Arabic-speaking consumers and existing linkswith businesses across Syria, the greater Middle East,and North Africa. Leveraging these competencies canmean new growth opportunities for Turkish businesses.Essentially, while Syrian businesses can offer accessto new markets abroad, Turkish businesses can helpSyrians crack the market within. The good news isthat most Turkish stakeholders interviewed for thisreport recognize the positive contributions of Syrianbusinesses and indicate an openness to partner withSyrian businesses.3

1. SYRIAN BUSINESSES IN TURKEYSince the onset of the Syrian crisis in 2011, over 3.5Table 1: Percentage of New Syrian Businesses by Province(January 2017 - April 2018)million Syrians have come to Turkey and now resideunder temporary protection.4 That same year, SyrianProvincesbusinesses constituted only two per cent of companieswith foreign investment and one per cent of totalforeign capital in Turkey.Over the next seven years, Syrians went on to formallyestablish over 7,000 enterprises across Turkey.5 Thisnumber continues to grow, with over one thousandbusinesses formally registered by Syrians in the lastSyrian Capital 119.1Istanbul53.249.4Total of 5 Provinces93.793.4Table 2: Percentage of New Syrian Businesses by Sector(January 2017 - April 2018)twelve months alone, or almost four Syrian businessesestablished every working day.6 Syrian businesses nowSectorsconstitute 20 per cent of all foreign-owned companiesand hold nearly seven per cent of all foreign capital,estimated at 1.2 billion7 (over 381 million when datawas reported)8. Syrian businesses now represent onefifth of all foreign-owned companies in Turkey.New Companies (%)9New Companies (%)Syrian Capital (%)Manufacturing810Construction1118Wholesale andRetail Trade4947Real Estate Activities1210Total of 4 Sectors8084Comparing pre-crisis export data from 2010 withfigures from 2017 across seven Turkish provinceswith the highest concentration of Syrians and Syrianbusinesses, there appears to be a link with an increasein exports. However, Turkey’s export regulations“Syrian businesses nowrepresent one-fifthof all foreign-ownedcompanies in Turkey.”require that the value of all cross-border shipments,even if untaxed humanitarian aid, be included inaggregate export figures. While this can partiallyexplain the notable increase in exports from Kilis, aborder province home to the key Öncüpınar crossing,other provinces hosting large numbers of Syrians havegenerally seen an increase in their export figures aswell. The only sizable exception is Şanlıurfa, where theborder has effectively been closed for years (see Table3). This decrease stems primarily from the reduction ofexports to Syria, whereas the province has increasedexports to other markets (see Graph 1).Data on the provincial and sectoral distribution ofSyrian businesses is only available from early 2017.Prior to leaving Syria, many Syrian businesses exportedSince then, nearly 94 per cent of all businesses formallyto clients across the Middle East and North Africaestablished by Syrians were registered in Istanbul,(MENA) region. After 2010, there is a significant increaseBursa, Mersin, Hatay and Gaziantep (see Table 1). Ofin exports from Turkey to markets traditionally favoredthese, 80 per cent operate in four sectors (see Table 2).by Syrian businesses (see Graph 1).104

Table 3: Export Data in 8 provinces with highest number of syrian residentsRegistered Syrian Population11ProvincesPercentage Increase in Annual Export Rate Compared to 2010 (%)April 20182010 to 2011122010 to .0-113,588,87718.038Turkey (Total)After 2010, businesses in Turkey began exporting tomarket. Syrian micro-sized businesses have operatedspecific new markets:in Turkey for 2.2 years, while small-sized businesses Businesses in Hatay began exporting to Chad Businesses in Mersin and Gaziantep beganhave operated for 3.4 years, and medium-sizedbusinesses for 4 years on average.14 Building Markets’research has found that navigating a new operatingexporting to Chad and South Sudan environment poses unique and significant challengesBusinesses in Şanlıurfa began exporting to Algeria,for existing and aspiring Syrian entrepreneurs. SyrianQatar, Sudan and Yemen business owners note difficulties understandingBusinesses in Kilis began exporting to Algeria,TurkishEgypt, Kuwait, Libya, Morocco, Oman, Qatar,laws,bankingregulations,andmarketdynamics. Compounded by other factors related toSudan, Tunisia, United Arab Emirates, and Yementhe status of Syrians in Turkey and despite their trackrecord of positive contributions, the future of manyDespite their rapid growth, it is worth rememberingSyrian businesses in Turkey remains uncertain.that Syrian businesses are relatively new to the TurkishGraph 1: Annual Export Change Rate to MENA region from select cities in 2017 compared to 20105

The long-term health of Syrian businesses is essentialLOST INVESTMENTfor both Turkey’s and Syria’s long-term prosperity.When the conflict in Syria subsides, the bulk ofAs of May 2017, 12,000 Syrians have been naturalized asreconstruction and development work will fall onTurkish citizens.16 For the remaining majority of SyriansSyrian suppliers. These businesses will need to quicklyin Turkey, a mix of temporary protection cards, annuallysource quality goods and services from a range ofdomesticandinternationalsources.renewed residency, travel restrictions and employer-boundEventually,work permits creates an elaborate web of uncertainty thatTurkish and Syrian businesses will need to jointlyplaces extra pressure on potential Syrian entrepreneurs.contribute to meeting needs in Syria. Failing in theFurthermore, Syrians are not permitted to purchase realTurkish market now will impede the ability of Syrianestate as individuals in Turkey and can only do so in the namebusinesses to contribute to relief and recovery effortsof a business.17 Such policies have been cited as push factorsfor Syrians, with cases of entrepreneurs leaving Turkey toinside Syria later. Investing in these business ownersestablish businesses in other countries in the MENA region.18now is an investment in Syria’s future.Since the onset of the crisis, according to some estimates,Syrians have invested between 1 – 1.15 billion into theTurkish economy, or between 290-330 per capita. In Egypt’srelatively smaller but more Syrian-friendly market, the“Syrian businesses canoffer access to newmarkets abroad,while Turkish businessescan help Syrians crack themarket within.”presence of only 120,000 registered Syrians has resulted inover 6,500 of investment per capita.192. TURKISH BUSINESS STAKEHOLDERS’VIEWS ON SYRIAN BUSINESSESInterviewed stakeholders with membership structuresdemonstrated a willingness to engage in partnershipswith Syrian businesses. None of the interviewees rejectedthe possibility of partnering, while half indicated aninterest on behalf of their members and half only notedCultivating partnerships between Syrian and Turkishtheir members made independent decisions based onbusinesses could offer immense benefits for bothindividual commercial preferences20.sides. The contributions of Syrian businesses togrowing export numbers and their ability to absorbTheformal and informal labor have already had a positivebusinesses to pitch their ideas for business opportunitiesimpact on the Turkish economy. Syrian businessesto Turkish enterprises. They recommended each sectorcan offer access to new markets abroad, while Turkishestablish regular business network meetings organizedbusinesses can help Syrians crack the market within.by mutually trusted parties for Syrian business ownersWhile the number of partnerships between Syrianto present information related to their operations. Theyand Turkish businesses are limited, Syrian businessessuggested targeted networking events can facilitatewith Turkish co-owners or strategic partners reportcommon ground where Syrian and Turkish businessesexpanding and hiring at higher rates, along with fewercan develop fruitful dialogue that leads to productivechallenges accessing information. Facilitating Syrian-partnerships. Stakeholders expressed a desire thatTurkish business partnerships will not only create newSyrian businesses not shy away from engaging andopportunities in Turkey, but will also contribute to theapproaching Turkish counterparts to demonstrate thecontinued growth of the region’s economies.profitability of partnership Syrian

Many of the stakeholders interviewed for this report Revival of sectors in decline: Gaziantep’s shoehave already established dedicated units or helpmanufacturing industry was in decline for manydesks for Syrian entrepreneurs looking to invest inyears due to rising costs and falling demand.But recently, the sector has witnessed a surgeTurkey. Turkey’s Foreign Economic Relations Board,in production and trade volume. According toor Dış Ekonomik İlişkiler Konseyi (DEİK), establishedthe city’s Chamber of Commerce records, therethe Turkey-Syria Business Council, and the Gaziantepwere 201 registered shoe and related productChamber of Commerce runs a dedicated Syrian Helpmanufacturers in Gaziantep in 2016, with 81Desk to help Syrian businesses find solutions to theof these owned by Syrians.23 According to thechallenges they experience operating in Turkey.Chamber, Syrian businesses have played the largestrole in reviving the sector and have re-establishedRecognizing Syrian Business ContributionsGaziantep as an important hub for this industry.24All stakeholders interviewed expressed a firm belief that Syrian businesses in Turkey will provide neware reinvesting profits into the Turkish economyopportunities to the Turkish market and demonstratedthrough purchases of goods and services froma specific interest in their contributions to the food,the domestic market, and through taxes andtextile and construction sectors. These anecdotes havepremiums paid into social security. Syrian businessbeen summarized below as: owners who contribute to local economies byhiring Turkish citizens are doing their part to fosterIncreased exports to the MENA region: Beforesocial cohesion and bridge cultural divides.25coming to Turkey, many Syrian businesses were exporting across the MENA region. After uilding Markets’ market assessment found SyrianTurkey’sbusinesses on average employ approximately nineexport economy, while language accessibility byindividuals.26 These employees are often Syrian.Syrian entrepreneurs continues to create furtherAcross 7,000 formal Syrian-owned businesses,growth opportunities for Turkish partners. Thedirect and indirect employment numbers quicklyaforementioned increase in export figures to theadd up and may be in the hundreds of thousands.27MENA region was achieved without any concerted effort and indicates significant potential for furtherEase of access inside Syria after the conflict ends:Fleeing a worsening conflict exacts a seriousgrowth if supported and catalyzed.21 opportunitieslabor supply of working-age Syrians in Turkey.pre-existing customer base. This has alreadyaLivelihoodsbusinesses are playing a key role in absorbing excessSyria, many have continued exporting to theirmadeContributors to social cohesion: Syrian businessesfinancial toll on entrepreneurs. Syrian businessesreport having to leave behind millions of dollars’New sectors and products for the Turkish market:worth of heavy machinery and assets when comingMost Syrian business owners operated a similarto Turkey. When conditions in Syria become suitablebusiness in Syria, and therefore have alreadyfor accelerated stabilization and reconstructionaccumulated years of knowledge and sector-work, Syrian businesses operating in Turkey will bespecific expertise. Some of these products andamongst the first able to quickly return to workservices did not previously exist in the Turkishacross the border, with 76% intending to keep theirmarket. The introduction of Syrian food productsbusiness in Turkey while they do so.28 Having a basein Turkey enables Syrian businesses to retain accessinto the domestic market generates fresh demandto assets, capital and know-how, while positioningfrom consumers Syrian and Turkish alike. In -themselves to re-enter the Syrian market when theaddition, Syrian software developers, engineerstime is right. Further, Syrian businesses will also beand programmers can help Turkey ‘s growingable to function as a guide and potential partnerstechnology sector progress further.22for Turkish businesses looking to later contribute torecovery efforts inside Syria.297

Overcoming Perceived Challenges to PartnershipThe Future of Syrian BusinessesHalf of the stakeholders expressed a belief that certainStakeholders suggested that large Syrian businesseschallenges must be overcome before establishingand exporters have proven better able to adapt tomutually beneficial partnerships between Syrian andoperating in Turkey and would continue to do so inTurkish businesses. These were summarized as:the future.39 This appears to be the case, particularly1.for businesses that maintained links with theirPrejudices and an absence of trust betweeninternational clients from previous operations in Syria.parties302.particularly the Turkish Commercial Code313.However, such retention is not easy in a new operatingLack of working knowledge of Turkish regulations,environment. One stakeholder noted anecdotally32that the increased cost of production in Turkey hadLanguage barriers preventing organic introductionsslimmed original profit margins for Syrian businesses,and fluent communication 334.pushing firms like his to relocate their operations toAbsence of data reflecting the potential offree zones like in Mersin and incentivized regions likeSyrian businesses made available to TurkishKilis to compensate and remain competitive.40enterprises looking for investment and partnershipopportunities34Half of the interviewed stakeholders did not thinkInterviewed institutions reported prejudices couldSyrian businesses were in competition with existingbe partly addressed by advocacy and awarenessTurkish businesses, agreeing with the finding that 56%raising campaigns that contribute to dismantlingof Syrian businesses experience more competitionpreconceived notions and facilitating trust betweenfrom other Syrian businesses.41 Understanding thatSyrian and Turkish businesses. 35StakeholdersnotedthataSyrian businesses contribute through exports and arelackofinvesting in the Turkish economy without stealingoperationaldomestic market share establishes an important value-understanding can be addressed by governmentbased foundation for potential partnerships.42incentives to foster a culture of cooperation betweendevelopment agencies, social enterprises, and civilInterviewed stakeholders also noted that Syriansociety operating in the sector.36 Targeted languagetraining can also be integrated into business curricula.37businesses had the opportunity to enter new EuropeanWith regards to the absence of data, nearly allEuropean Un

Turkish market now will impede the ability of Syrian businesses to contribute to relief and recovery efforts inside Syria later. Investing in these business owners now is an investment in Syria’s future. Cultivating partnerships between Syrian and Turkish

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