Economic relations between Turkey and Egypt restricted by political disagreements

Turkey and Egypt had previously been able to share solid economic relations. Agreements between both states paved way for impressive increases in trade and mutual economic growth. However, after the coup of a president and a sharp increase in voiced political disagreements, both states have been forced to witness drastic levels of deterioration in their formerly strong economic ties.

Turkey and Egypt signed a free trade agreement in 2005 to increase economic cooperation, raise standards of living for the people in both countries, remove obstacles and restrictions on trade and develop better economic relations between the two states. Following the agreement, trade volume between Turkey and Egypt had reached USD 1.1 billion by 2006 and USD 1.5 billion by 2007 – when the agreement took full effect.

In the past, economic cooperation had been the driving force in the development of relations between Turkey and Egypt. However, after the 2008 global financial crisis, which was considered by many economists to have been the worst financial crisis since the Great Depression in the 1930s, export levels between both countries suffered. Nonetheless, with Turkish businessmen’s increased confidence in the Egyptian economy, by 2009, Turkey’s exports to Egypt had been revived, and reached USD 2.6 billion, followed by investments worth up to USD 1.5 billion by 2010.

Economically, Turkey and Egypt developed stronger ties under the presidency of Mohammed Morsi. This was highlighted during Morsi’s visit to Ankara, when Turkey and Egypt signed an aid package deal at the AK Party conference in 2012, which agreed on a USD 1 billion loan from Turkey to Egypt. As a result of the deal, Morsi thanked Turkey for supporting “nations that are aspiring to freedom and independence”.

Later in 2012, Turkish President Recep Tayyip Erdoğan travelled to Cairo to attend the Egyptian-Turkish Economic forum, where he was joined by a large group of businessmen representing over 300 Turkish enterprises in Egypt.  During the forum it was mentioned that Morsi would put in even more effort to further increase Turkish investments in Egypt.

In the course of the Arab uprisings, the success of Erdoğan’s Islamist AKP party demonstrated how other Islamist groups such as Morsi’s Muslim Brotherhood in Egypt could make positive contributions to the changing governments across Arab countries. Turkey, being the model for looming democracies over the Middle East, supported uprisings, and particularly those in Egypt. However, after the 2013 coup d’état of Egypt’s first ever democratically elected president, Turkey’s strong support for the ousted president caused a dramatic increase in tensions between the two countries.

After Erdoğan’s vocal support for Morsi and public condemning of the coup, in 2014, Egypt decided not to extend its Free Trade Agreement with Turkey and in 2015 also decided not to renew the sea and land transportation agreement for roll-on/roll-off ships with Turkey. The sea and land transportation deal allowed companies to transport goods between Turkey and Egypt, meaning its cancellation will have damaging effects for both Turkish and Egyptian exports to either country.

Since the decline in political and economic relations between Egypt and Turkey, Egypt has found new financial supporters in Saudi Arabia, Kuwait and the United Arab Emirates, who have so far, since April 2015, collectively loaned Egypt USD 6 billion in aid. They have further agreed to jointly lend USD 12.5 billion in aid, investments and central bank deposits in order to support President Abdel Fattah el-Sisi, who took over presidency after the coup of Morsi. Egypt’s newfound support from oil-rich Gulf countries makes it likely that the economic relations it shares with Turkey will continue to deteriorate.