There have been dramatic changes in the use of international capital markets by the Gulf Cooperation Council (GCC) countries in recent years owing to their increasing current account surpluses and accumulated sovereign wealth funds (SWFs). Furthermore, the changing industrial and financing strategies of the GCC represent a long term development not only for the GCC itself, but for regional markets like Turkey, Lebanon and Egypt, as well as for the West.

"High oil prices had been enabling the GCC governments to place a growing volume of financial resources into reserve and wealth management funds, which increased their role in international financial markets" -that is, until recently. Despite the declining oil prices since mid-summer 2008, the combined current account surplus (which is the main source of SWFs) of the GCC exceeded $2.5 trillion in 2008. Recent developments regarding the growing recessionary pressures in the U.S. and the Euro-zone economies might mean a slow down for GCC economies as well. However, seemingly unending investment activities in infrastructure and housing may still provide the necessary momentum to the GCC to expand and become increasingly effective in global markets.

GCC investment into the broader MENA region (including Egypt, Jordan, Syria, Lebanon, Tunisia, Morocco, Algeria, Mauritania and Turkey) accounted for around $60bn, or 11% of the implied overall buildup of $542bn over the period of 2002 to 2006. The GCC is a trading block but it is heavily involved in global finance, infrastructure and real estate investments. Just as much as the GCC‘s SWFs has become an increasingly critical lifeline for the prevention of a deep global recession, GCC trade has become extremely vital for global industries and agricultural markets. Securing a lion's share of GCC capital and imports has also become increasingly important for emerging economies like Turkey.

With the $40,000 average per capita income, the 6 countries of the GCC remain among the richest countries in the world. With the group's total combined population barely exceeding 38 million in total, GCC members continue to show dedicated interest in domestic infrastructure investment, luxury housing and high-tech health facilities, sports complexes, hotels and entertainment establishments. These consumption-driven investment activities have empowered the GCC to represent the fastest growing economies in the world, due mostly to the boom in oil and natural gas revenues. The region is also emerging as an attractive tourist destination.
The Fundamentals of Good Relations
Turkey and the GCC members reciprocally claim to have cultural and historical affinity to one another, made stronger by geographic proximity. Turkey aims to improve bilateral trade relations, tap into the investment boom by means of the highly competitive Turkish construction sectors and seek new employment opportunities for Turkish workers in GCC countries. Turkey shows the utmost political leniency towards the political elites of the GCC members to attract capital to Turkey.
The dynamic nature of the Gulf countries and their importance for the global economy are some of the factors which affect Turkey's current interest in the trading block and its members on a bilateral basis. Turkey has long been trying to establish the legal framework of its relations with GCC members by signing and ratifying a series of agreements since 1980s and efforts gained special momentum in the 2000s. Existing and newly established bilateral business councils promote mutual initiatives, sponsor periodic joint economic commission meetings and high- level visits especially since the 2000s in a bid to consolidate commitments.
Trade as a Starter
Merchandise trade between Turkey and Gulf countries has been picking up momentum in recent years. In 2006, the total volume of trade between Turkey and the GCC countries reached $6.1 billion. Turkey mainly exports manufacturing products to the GCC from iron and steel to electrical and non-electrical machinery, and from textiles to food products; in turn, importing minerals, petro-chemicals, petroleum and natural gas, animal skins and hydes The general contours of trade between Turkey and the GCC countries can be summed up as follows :
• Oman- Turkey's trade with Oman saw a significant rise in the 2000s. Even though figures are still extremely modest, a notable increase is apparent.
• Kuwait- Despite trade facilitating agreements and treaties in place, Turkey's trade volume has displayed only modest change over time.
• U.A.E- Turkey's trade with the U.A.E. increased from modest levels in the 1990s to over $2 billion in the second half of the 2000s. The existing treaties and intensified political relations have been helpful. The U.A.E.-Turkey trade seems to have improved independent of free trade agreements. The U.A.E. became the 8th most important export partner of Turkey in 2007.
• Saudi Arabia- While increasing slightly between the 1990s to 2000s, Turkey's trade with Saudi Arabia approached $3.5 billion as of 2006. Trade agreements seem to have facilitated relations between the two countries. Saudi Arabia became Turkey's 21st largest export and 16th import partner as of 2007.
• Although bilateral trade with Bahrain still remains negligible, Turkish-Qatari trade improved significantly as of 2006 to reach almost half a billion dollars.

Services and Investment Sectors as the Main Course
Beyond merchandise trade, Turkey's services sector notably in the contracting, financial and tourism services has presented fresh economic opportunities to expand relations between Turkey and the Gulf countries. Turkey has been increasingly taking part in investment activities in infrastructure and housing construction as Turkish construction firms promise to have a competitive edge in the GCC countries. Notably, a multi-dimensional approach towards the region coupled with the entrepreneurial eagerness of Turkish exporters, contractors, professionals in engineering and architecture to venture into new markets have enabled Turkey to penetrate the Gulf markets.
Thanks to high oil revenues and wealth in the region, appetite for new buildings and infrastructure had been growing until recently. Despite the declining oil prices and significant financial losses Gulf states have faced with the turbulence in global markets , projects which are already underway are likely to continue. However, new contracts and projects may slow down. In the 2002-2006 period 17% of total foreign projects won by Turkish contractors belonged to the GCC. Projects received from the Gulf comprised 27% of all foreign projects received by Turkish contractors in 2006 alone.
In banking and finance, 13 Turkish banks, some of which are involved in Islamic banking activities with alternative instruments, do off-shore banking in the Gulf's main financial centers. How the growing market share of Islamic and sukuk in finance will affect the Turkish economy in its engagement with the GCC is yet to be seen. Some of the most reputable global banks use Islamic banking instruments to increase their market shares in the Gulf, encouraged by the the small, but growing market for Islamic finance. Turkish banks should tap into opportunities in the region in so far they complement its existing and proven global partnerships.
Turkish textile and garment sectors with their department stores and unique fashion designs seem to have growing prospects in the GCC. In the textile and garments sector, Damat-Tween currently owns three stores in Oman (Muscat), Saudi Arabia (Jeddah) and Bahrain (Manama). In the food sector Mado has three franchise locations in Dubai, Kuwait, and Saudi Arabia. Turkish TV shows take advantage of the cultural affinity and seem to attract the growing interest of the Gulf audience.
Growing GCC Appetite for Turkey
GCC companies have been involved in acquisition finance, infrastructure development, luxury housing projects, banks, financial institutions and general corporate finance in Turkey. Investors from the GCC usually prefer investing in real estate sectors because of high returns on metropolitan city dwellings in Turkey. An office park, a luxury homes development and a budget housing project, a golf resort and holiday home development in Antalya are among the major projects in construction. The Housing Development Administration in Turkey (TOKİ) and the Kuwait Investment Authority have become partners in the fields of housing, land development, real estate service, construction and property consultation having signed a protocol in April 2008. The strategic partnership will finance the construction of a 66.000 apartments in Istanbul's Kayabaşı district.

Kuwaiti firms have been interested in privatization and investment opportunities in Turkey in the past few years notably in the finance, real estate, trade and industry sectors, reflected by the fact that Kuwaiti investments in Turkey have reached $5 billion in recent years. The Kuwait- Turk bank is considered one of the most important Kuwaiti investments in Turkey. Other Kuwaiti investments include the Cevahir shopping mall, Debenhams, and Starbucks which is operated by Al-Shaya group. The GCC views Turkey as a gateway to Europe and a pole of attraction which offers various opportunities in multiple sectors.

Turkey is mainly trying to attract investment from the Gulf States in four major sectors, energy, infrastructure, tourism and real estate. To this end, Turkey has accelerated its efforts to acquire LNG from Qatar and currently targets LNG purchases by 2011, facilitated by the construction of a joint facility in Ceyhan on the East Mediterranean Coast. Additionally, the Turkish Petroleum Company has shown interest in contributing to the exploration of natural gas in Qatari territorial waters. As of June 2007, there were 141 companies with Saudi and 48 companies with U.A.E. capital operating in Turkey.

These are mainly in the commerce, real estate, tourism, communication and transportation sectors. A number of Turkish companies were acquired in the 2000's by GCC members; acquisitions of Turkish Telecom by Oger Telecom of U.A.E.; Acıbadem Hospitals by Abraaj Capital of the U.A.E. and Türkiye Finans by the National Commercial Bank of Saudi Arabia have been the most notable examples. Another type of FDI that became more prominent in the same period was the establishment of Turkish companies with Gulf funds (DP World, Emaar and SAMA Dubai of U.A.E. and BIM of Saudi Arabia).

The sale of Sabah-ATV to the Çalık group, a company connected to the Qatar Investment Authority (QIA) is considered one of the most important events in recent years. Qatar has been trying to expand cooperation in tourism, hotels and marinas, especially in Marmaris and Antalya. Transportation, communication, technology and the agricultural sectors also offer opportunities in Turkey for Qatari investment. The following table summarizes the existing yet still modest investment activities between the Gulf countries and Turkey.

Major Turkish Projects in the Gulf and Gulf investments in Turkey

Source: Prepared by the author, according to the information compiled from the Republic of Turkey Ministry of Foreign Afffairs (www.mfa.gov.tr) and DEIK (Foreign Economic Relations Council) Country bulletins

Some Sweet and Sour Thoughts
Pragmatic Turkish foreign policy has been supportive of the business initiatives of Turkish entrepreneurs in the GCC and GCC investments in Turkey based on mutually beneficial bilateral and reciprocal relations, notably in the last 6-7 years. The GCC cooperation may continue, if not in the form of more merchandise trade, than in other critical sectors such as infrastructure, housing and real estate investments, banking and finance, media, and energy. Turkey and the GCC have the potential to partner up on several areas of cooperation, such as: 1) joint ventures in different geographies; 2) poverty reduction programs where aid is urgently needed; and 3) coastal and high sea security against piracy in and around the Red Sea and the horn of Africa. However, much of this depends on how the GCC economies are affected by the global financial crisis. For example, if the Dubai bubble bursts and housing prices plunge, new opportunities would be hard to come by for Turkish contractors.
Even at an oil price of $70 per barrel, the GCC countries may expect unprecedented revenues over the next decade, which grants them extraordinary investment clout abroad. But considering the fact that for the past 5 years up until 2006, almost 65% of the total GCC SWFs had been invested in the USD based assets and in the EU , in the medium to long-run, a larger portion of GCC funds are likely to still go primarily to Western and the Asian markets. This may seriously curtail Turkey's prospects of attracting more Gulf capital even if it continues to dedicate focused political effort to designate the venue of funds to Turkey.

i GCC is a trade block, which was established in 1981 by Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE and progressed to form a monetary union. Yemen hopes to join the block by 2016. See Yemen Times (December 19, 2006).
ii Simeon Kerr ,"Gulf states' foreign assets to top $2,000bn," Financial Times, January 16, 2008. Available at http://www.ft.com/cms.
iii Sema, Kalaycioglu,"Is the Outcome Worth the Effort? Turkey's Free Trade Agreements in the Middle East" Middle East Studies Association (MESA) presentation, Washington DC, November 2005.

iv Republic of Turkey Ministry of Foreign Affairs, www.mfa.gov.tr.

v Turkey's Undersecretariat of the Prime Ministry for Foreign Trade, www.dtm.gov.tr.

vi According to an estimate, Gulf foreign reserve funds and Sovereign wealth funds lost $ 350 billion in 2008; which corresponds to 27% of the value of their total assets. See The Economist, January 24th, 09, p.74.

vii Turkish Contractors Association, http://www.tmb.org.tr.

viii Based on information provided on corporate websites: www.damat.com.tr and www.mado.com.tr.

ix "Bahrain-based bank prospects Turkish real estate investment opportunities for its Modaraba fund," July 23, 2008. Available at http://www.animaweb.org.

x "Turkey, Kuwait establish partnership," April 4, 2008. Today's Zaman. Available at www.todayszaman.com.

xi "Bahrain bank unit to expand in Turkey," Yatirimlar, June 10, 2008. Available at http://www.yatirimlar.com.

xii Erdal, Şen, "Turkey accelerates efforts for LNG purchase from Qatar," Today's Zaman, April 15, 2008. Available at http://www.todayszaman.com.

xiii Republic of Turkey Ministry of Foreign Affairs online at www.mfa.gov.tr reports that Saudi capital in Turkey amounts to YTL 600 million.

xiv Turkish Undersecretary of Treasury, November 2007.

x "Katar sermayesi turizme yatırım yapmak istiyor," [Qatari capital wants to invest in tourism] Sabah Newspaper, November, 21, 2005. Available at http://arsiv.sabah.com.tr/2005/11/21/eko98.html.
xvi Alessandro, Bruno and Afshin Mehrpouya, "Sovereign Wealth Funds; Potential Strategic Tools for Regional Stability and Social Cohesion?" Middle East Online, October 28, 2008.
xvii Augustine, Babu Das, "Gulf Funds could shift focus home," Gulf News, February 10, 2008.