Defence industry can look to Turkey for lucrative market

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Turkey’s defence budget will continue to rise steadily and the country might also act as a bridge to potentially lucrative new markets for the industry, notes analyst

Turkey is 15th among the global top military spenders and sixth in Europe, accounting for 1.1 per cent of global military spending in 2011. The state’s unique geo-political condition, where both domestic and foreign security threats remain a genuine concern, has encouraged sustained military spending in contrast to global trends.

However, Turkey’s main procurement agency, the Undersecretariat of Defence, the SSM, has expressed its commitment to reducing Turkey’s dependence on foreign procurement and that modernisation trends should be considered within this context. Current modernisation trends aim to increase capabilities across all end-users while scaling back required manpower. The SSM’s modernisation goals are to have smaller, more advanced forces with greater mobility and firepower. Advanced technologies required for these ambitions have prompted Turkey’s participation in next generation programmes including the Joint Strike Fighter F-35, A400M transport aircraft and the Type-214 air-independent propulsion submarine.

The Turkish defence market will grow steadily. The industry earned revenues of $18.76bn in 2012 and is estimated to reach $24.70bn in 2021 with a compound annual growth rate of 3.29 per cent between 2011 and 2020. The country’s bilateral position as a North Atlantic Treaty Organisation member with significant west Asian associations is being leveraged to drive growth in its domestic defence market. Investment in domestic manufacturing infrastructure is the principal trend in the Turkish defence market at present. This will continue, buoyed by Turkey’s steady economy and political intent to establish a self-reliant defence industry.

The market is dominated by the Turkish Armed Forces Foundation, a governmental organisation that owns a full or partial share in 18 of Turkey’s leading defence companies. As the domestic sector becomes increasingly self-sufficient it can be expected that Turkish companies will become regional if not global competitors, particularly through the exportation of four key national projects; the Altay Battle Tank, the ANKA MALE UAV, T-129 Attack Helicopter and the Milgem Corvette.

However, Turkey as of today lacks the necessary technology and infrastructure required to fulfill its future military ambitions, which is necessary to create good business opportunities for companies with advanced capabilities, particularly in air and naval programs. Entering the Turkish market could be supported by partnerships with local companies looking to raise their expertise and industrial infrastructure.

Frost & Sullivan research indicates that C4ISR and air platforms make up 66 per cent of military imports as a result of Turkey’s lack of infrastructure in these areas. However, the time to build cooperation is now, as opportunities for partnership will diminish and indigenous technical capability continues to grow in the country.

A successful cooperation example between a global and a local player is the partnership of Augusta Westland and Turkish Aerospace Industries for the production of 60 T-129 helicopters for the Turkish land forces. Augusta Westland is a subcontractor to TAI with all assembly completed in Turkey. The original contract of 51 was increased by the delivery of the additional nine T-129s in mid-2012. TAI shares the ownership of intellectual property rights of the new configuration helicopters with a permission to market the T-129 globally, excluding Italy and the United Kingdom. TAI and Augusta Westland have already been shortlisted for the South Korean Attack Helicopter program.

As budget reduction continues in the United States and Europe, the defence industry has to look for new markets. Turkey’s increasing ventures beyond its borders serve as a bridge to potentially lucrative new markets and should be considered, when planning long term investments.

Turkey will potentially become a major exporter to Gulf Cooperation Council and Association of Southeast Asian Nations countries, and the Turkish armed forces will play an increasingly integral military role in the Middle East and beyond, requiring next generation technologies. The Turkish market, however difficult to enter and operate, is an attractive target for companies otherwise dependent on other European and North American markets.

by Koray Ozkal (Analyst at Frost & Sullivan).

Source: Public Service Europe

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