The fast expansion of Turkey’s defense industry in recent years might be becoming harder to sustain as newly released data show the sector is struggling to reduce its heavy reliance on foreign inputs and expand foreign clients, despite growing investments in high-tech development.
Turkey has announced another year of growing defense and aerospace export sales but it is still nowhere near its goal of US$25 billion per annum by 2023.
At the start of 2019, Undersecretary for the Defence Industry Directorate Ismail Demir said Turkish defence and civil aerospace exports for 2018 were 17% up on the previous year, reaching a record US$2.035bn. For the best part of a decade, the Turkish government has set itself the daunting target of hitting an annual defence and civil aerospace sales and services export target of US$25bn by 2023. ‘Defence’ and ‘security’ exports are supposed to constitute US$5bn each of the total.
Thanks to the rising strength of the Turkish defense industry, Turkey’s defense imports fell nearly in half between 2015 and 2019 compared to the previous five-year period, according to an international think tank. Turkish arms imports fell by 48% between 2015 and 2019 compared to the previous five-year period, the Stockholm International Peace Research Institute’s annual report showed.
Promoting local arms production has been a hallmark of President Recep Tayyip Erdogan’s government, based on the idea that Turkey needs stronger military deterrence to be a major regional power but cannot trust traditional Western allies for conventional weapons supplies. Keen to muscle up its foreign policy, the government has sought to enhance Turkey’s arms-development capabilities to achieve self-sufficiency and make the most of export opportunities to ensure sustainability.
Turkish National Defense Industries
Efforts to develop the national defense technological and industrial base are seen as an inseparable part of the diplomatic flexibility and international prestige Ankara believes to have gained in cross-border operations in Syria and Iraq since 2016. In Ankara’s eyes, the Turkish military continues to be a deterrent combat force in the region, so self-sufficiency in the defense industry remains a major priority.
Another aspect not to be overlooked is that the defense industry has become a distinct area for government grandstanding in domestic politics. Any new military product manufactured locally or sold to foreign buyers is being presented as some sort of political victory in the pro-government media.
Indeed, the Turkish defense industry made significant strides in the 2015-2018 period, creating a success story for Ankara. Yet, the 2019 performance report of the Defense and Aerospace Industry Manufacturers Association, released in late April, shows problems in this success story as a result of some structural problems.
According to the report, the industry’s turnover was some $10.9 billion last year, a 24% increase from nearly $8.8 billion in 2018. Foreign sales revenues rose 40% to over $3 billion from $2.2 billion the previous year. But, crucially, imports rose as well. They even slightly exceeded the worth of foreign sales, standing at nearly $3.1 billion, a 28% increase from about $2.4 billion in 2018.
Foreign Inputs
The imports are overwhelmingly raw materials such as steel from Finland to make armored vehicles and intermediate products such as turboprop engines from Ukraine to make drones.
The increase in imports is an alarming sign for the Turkish defense industry, underscoring its extreme dependency on foreign inputs. In other words, the increase in exports has relied heavily on imports.
Germany exported arms worth 243 million euros ($268 million) to Turkey in 2018, accounting for almost one third of all German weapons exports, according to the weekly Bild Am Sonntag. According to the data of the Stockholm International Peace Research Institute (SIPRI), Turkey spent $8.3 billion on defense product imports in 2008-2018.
In that period, Turkey barely imported arms and ammunition from the Netherlands and Finland. Purchases from Norway totaled only $12 million in the same period, SIPRI data showed.
Defense imports from Norway totaled $267 million in this period, but Turkey’s imports from the country significantly diminished in the last two years. Arms imports from Italy, according to the SIPRI, came at $766 million, including $181 million last year. In 2018, defense imports from Germany only stood at $30 million.
Between 2009 and 2018, Turkish military expenditure increased by 65% to reach $19 billion. In 2018 alone, spending grew by 24%, the highest increase in military expenditure among the top 15 military spenders.
Challenges and setbacks
Of note, some European defense industry companies slapped embargoes on Turkey and some European governments banned the sale of certain products to the country during Operation Peace Spring in northeast Syria in October and November 2019.
Turkey’s campaign targeted Syrian Kurdish militia affiliated with the armed Kurdistan Workers Party group in Turkey, which Ankara considers a terrorist organization.
A defense industry expert interviewed by Al-Monitor estimates that the embargoes related to Operation Peace Spring have cost Turkey around $1 billion in production losses.
Turkey’s acquisition of S-400 system from a Nato adversary could greatly undermine its security because Turkish military forces are integrated into Nato’s equipment and broader air defense systems.
The US State Department’s eviction of Turkey from Lockheed Martin Joint Strike Fighter cost Turkey almost $13 billion long-term subcontract from Lockheed Martin, not to mention the maintenance contract of F-35 and intellectual property loss of Turkish Defense Industries.
Nine European countries have imposed controls on arms sales to Turkey.
The Czech Republic, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden, and the UK have all – along with Canada – announced they are halting or restricting arms export license approvals for Turkey.
Finland, for instance, halted steel exports to Turkey, while London suspended the involvement of British firms in Turkey’s first indigenous fighter jet project, which was already ridden with delays over engine problems.
Investment on R&D
Other figures in the report are more encouraging. Spending on research and development was up by more than 15%, reaching nearly $1.7 billion from some $1.4 billion in 2018. Research and development budgets have continued to expand since 2016, which is a promising sign for the future. The breakdowns show that spending on technology development, in particular, has shot up. The sum reached $249 million last year, increasing 67% from $149 million in 2018. The upticks speak of an increasing focus on high-tech advancement in the Turkish defense industry.
Yet the legal and bureaucratic framework on intellectual property rights continues to fall short of supporting this drive. Because of regulatory loopholes, many defense industry firms involved in research and development are embroiled in legal battles with each other over claims of intellectual property infringements. This spoils trust within the sector and deters firms from collaborating, forming joint ventures and jumping into bigger projects.
Turkey has long been working on producing a domestic long-range air defense system and domestic fighter jets under the light of the Vision for 2023.
Turkey is undertaking an ambitious attempt to reverse engineer Russian S-400 systems following similar path of China which successfully reverse engineered Russian S-300 and made a domestic variant HQ-9A with the help from Russian Almaz-Antey.
Domestic Orders
In another downside, new orders in 2019 totaled $10.7 billion, a decrease of more than 12% from the previous year. The drop, which came amid economic turmoil in Turkey, ongoing quality and trust problems in the sector and various crises stemming from Ankara’s foreign policy, shows that Turkish defense industry firms are struggling to find foreign markets and that the sector has a structural export problem. Given that the sector now supplies 90% of domestic needs, one may suggest the domestic market has reached a point of saturation.
Recent Export Successes
Turkish defence exports over the past decade have typically been of wheeled armoured vehicles. Hundreds of BMC’s Kirpi 4×4 patrol vehicle have been sold to Tunisia and Turkmenistan, while Otokar’s Cobra 4×4 armoured personnel carrier is now in service with countries such as Bahrain, Bangladesh, Mauritania and Rwanda.
Whilst the quantity of vehicles exported during this time is noteworthy, these are relatively simple and inexpensive systems, with many companies around the globe offering similar products in what is a crowded market.
Defence-export contracts signed over the last 12 months, however, reflect the growing capability of the Turkish defence industry. Frigates, attack helicopters and armed uninhabited aerial vehicles are more complex than armoured vehicles and require a larger supply chain, as well as a more demanding post-sales logistics and support service.
These systems are now being produced in Turkey, where companies such as ASELSAN, HAVELSAN and Roketsan produce combat systems and guided weapons. Despite this, significant industrial capability gaps continue in areas such as marine and aircraft propulsion and in radars.
Export Markets
Without expanding foreign sales, Turkey can hardly sustain the expansion of the sector. Turkish defense industry firms will be fighting for contracts on the international market and the competition will be much more aggressive.
Turkish arms exports during the period 2014-18 had increased by 170% compared with the period from 2009-13.
By 2018, Turkey was the 14th largest arms exporter in the world with Saudi Arabia, the UAE and Turkmenistan the main destinations.
Other structural problems slowing progress in the sector include crony capitalism, extreme politicization and human capital shortages caused by brain drain.
In recent years, the Turkish defense sector has been able to manufacture and export several high-tech defense products and systems, including tanks, unmanned aerial vehicles (UAV), missiles, radar, vessels, and rifles.
In the last nine months, defense and aerospace exports to the U.S. rose by 17.1% and totaled $595.2 million. Germany came second with total defense exports of $184.7 million and defense sales to Europe’s largest economy rose by 9.7%. The sector’s exports to Oman recorded a rise of 35.8% and reached $184.7 million.
Another drastic rise was seen in the defense sales to Qatar with 336.6%, while exports to the country totaled $138.7 million. The highest surge, however, was recorded in the exports to the United Arab Emirates (UAE). The defense sales to the country hit $96.4 million, rising by 763.8%.
The next several years will be highly critical for the future of the Turkish defense industry. Whether it can get past the sustainability phase and grow into a global actor will depend on the decisions and steps that Ankara takes.
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