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Cablegate: Turkey: Adana's Stagnant Economy Still Awaiting Btc-Fueled

VZCZCXRO3951
RR RUEHDA
DE RUEHDA #0123/01 3041016
ZNR UUUUU ZZH
R 311016Z OCT 07
FM AMCONSUL ADANA
TO RUEHC/SECSTATE WASHDC 4624
INFO RUEHAK/AMEMBASSY ANKARA 1167
RUEHKB/AMEMBASSY BAKU 0011
RUEHGB/AMEMBASSY BAGHDAD 0124
RUEHIT/AMCONSUL ISTANBUL 1008
RUEHSI/AMEMBASSY TBILISI 0009
RUEHDA/AMCONSUL ADANA 1227

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

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