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Cablegate: Turkey: Despite Booming Energy and Commodity Prices,

VZCZCXRO3896
RR RUEHDA
DE RUEHDA #0016/01 1231059
ZNR UUUUU ZZH
R 021059Z MAY 08
FM AMCONSUL ADANA
TO RUEHC/SECSTATE WASHDC 4649
INFO RUEHAK/AMEMBASSY ANKARA 1192
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUCPDOC/USDOC WASHINGTON DC
RUEHDA/AMCONSUL ADANA 1253

UNCLAS SECTION 01 OF 02 ADANA 000016

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EAGR EFIN TU
SUBJECT: TURKEY: DESPITE BOOMING ENERGY AND COMMODITY PRICES,
CUKUROVA REGION SHARES GLOOMY ECONOMIC OUTLOOK

REF: A) ISTANBUL 187; B) ANKARA 834

Summary and Comment
-----------------------------

1. (SBU) Business leaders in the Cukurova region of southern
Turkey share the nation-wide pessimism about economic prospects
for 2008. The textile industry's steady decline will likely
accelerate when the GOT revises its regional incentive scheme,
and plans for investments in other sectors such as tourism,
medical services and energy are developing too slowly to provide
any near-term relief. On the bright side, Cukurova's
traditionally strong agricultural sector is expected to benefit
from high commodity prices, though citrus exporters are trying
to recover from a hard frost early in the year. If energy and
commodity prices remain high in the mid- to long-term, the Adana
region should logically hold a winning hand, but this promise
has thus far not delivered the level of job creation needed for
a city whose population is now 1.3 million and growing. End
summary and comment.

The Gathering Gloom
--------------------------

2. (SBU) Businessmen in Adana and Kahramanmaras in recent weeks
have provided a micro-level perspective on the pessimism
Istanbul-based financial analysts expressed in ref a. Koral
Cepni, a former textile executive who is now a university
lecturer, told us that residential construction has sagged in
recent months due to increasing interest rates and middle class
economic insecurity. Unlike deep-pocketed Istanbul developers,
he said that Adana contractors cannot afford to provide
favorable financing to purchasers, who must then rely on bank
loans. Adana lost a prestigious project in February when an
American luxury condo investor pulled out of a $75 million deal
due to the mortgage crisis in the U.S. and corruption issues
with one of the Turkish partners.

3. (SBU) Similarly, Cepni said that car sales have slumped
since January and that retailers and the textile industry have
been particularly hard-hit. Only one of dozens of textile
companies remains profitable, he said, and the number of
shuttered store-fronts (based on his admittedly unscientific
survey) has more than doubled in the last nine months. He said
poor market research results in a high level of small-business
failure. Some aspiring businessmen, he said, "think they can
start making kebab and toast and the customers will come. It's
not that easy." Low-cost mega-stores such as Carrefour,
meanwhile, are proving successful at luring shoppers away from
traditional vendors in the city center.

4. (SBU) Adana's priority growth sectors - medical services,
tourism and energy - are each experiencing problems. Cepni
noted Adana is well-positioned to serve as a "medical tourism"
destination for the Middle East and some local clinics are
trying to market to Syria as well as southeastern Turkey.
Unfortunately, neighboring Gaziantep - which has closer links to
both Syria and the southeast - is trying to develop the same
sector. In addition, the GOT is changing the rules that permit
physicians to work for both state hospitals and private clinics,
making it more difficult for private health providers to recruit
doctors. Similarly, the Adana tourism sector is competing with
its western neighbor Mersin, which already has a head start in
developing its (more attractive) oceanfront and in attracting
foreigners, 2500 of whom have purchased vacation properties in
the past 18 months. Finally, while there has been a continuous
drip-feed of press releases about companies interested in making
large-scale investments in oil refineries or ship-building in
the Ceyhan region, no big projects have actually been started
since the BTC pipeline was opened two years ago.

Textile Death Watch
-------------------------

5. (SBU) In Kahramanmaras, an agriculture and textile hub about
90 miles northeast of Adana, the local Chamber of Commerce
president, Mehmet Balduk, worried that the crisis now developing
could be worse than the 2001 crash because the current problems
are not solely based in the financial sector. Thanks to a
central government incentive program, the textile industry in
Kahramanmaras now employs 25,000 people. He said that if the
incentives are discontinued this year, as expected, he predicts
factories using older, more labor-intensive machinery will close
down or relocate, resulting in about 15,000 lost jobs. Buldak,
who is in the textile industry himself, is following many of his
competitors and studying the opportunities in Egypt's Qualified
Industrial Zone, which has attracted a number of Turkish
companies because of lower labor costs and tariff-free access to
U.S. markets.

ADANA 00000016 002 OF 002

6. (SBU) Balduk also noted that, unlike in 2001, consumer
indebtedness is now widespread and unsustainable. It is
commonplace now for blue-collar workers to have debts ten times
higher than their monthly salaries, so when people lose their
jobs they also end up defaulting on their loans and going
bankrupt. After a local textile company laid off 3,000 workers
recently, there was a spike in court cases because so many of
them were unable to pay their debts. He noted that people in
the Kahramanmaras region still have strong links to their
relatives in the villages so they will not suffer from hunger,
but they will not be able to pay their debts.

Agriculture: Citrus Growers Angst, Grain Producers Fat and Happy
--------------------------------------------- --------------
----------------------

7. (SBU) Cukurova's agricultural sector presents a mixed
picture. Ali Kavak, president of a local trade group, said that
freezing conditions early in the year reduced the citrus yield
by 21% which caused a comparable decrease in exports. Cepni
told us that higher prices will partially compensate for the
lower output, though some citrus farmers get into trouble by
holding their crop too long in hopes of getting higher prices
(futures markets are underdeveloped for many commodities in
Turkey). The reduction in exports has hit ancillary industries
especially hard: the head of an Adana-based joint venture with
International Paper, Olmuksa, which specializes in cartons for
citrus exporters, reported in February that his business was
down 60%. Transport companies are also feeling the pinch - a
transport/logistics official in Mersin told the media that
citrus export volume is down about 60% and local truck companies
have redeployed parts of their fleet to western Turkey.

8. (SBU) Grain producers in the Cukurova region, meanwhile,
appear well positioned for 2008. Compared with the severe
drought conditions in southeastern Turkey there has been
sufficient rain in the Adana region and winter snows were
adequate to fill the irrigation reservoirs. Although high oil
prices have increased operating expenses and the price of
inputs, analysts expect local wheat, corn and soy farmers to
benefit from the run-up in world grain prices. Cepni said that
in markets where the GOT plays a strong role, such as wheat, he
also expects high prices as the ruling party will want to win
support in the run-up to local elections next March.
GREEN

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