Trust plays a big role when it comes to trade in developing economies. Turkey is no exception. The need for bank guarantees, understanding of payment commitments, and where international rules stand to effect are critical to grow and establish economies such as Turkey. With that in mind, TFG spoke to experienced trade veteran Abdurrahman Ozalp, based in Turkey.
Ross McKenzie: Thank you for speaking to us! So in 30 seconds, can you give us an elevator pitch; who are you, where are you from, what do you do?
Abdurrahman Ozalp: I’m 56 years old. I am from Turkey. I have 30 years of foreign trade and banking experience. I am a foreign trade consultant, expert, educator and author. I participate in and contribute to studies at the International Chamber of Commerce (ICC), where I am a docdex expert. I also sit as a member of the Digitalization, URDG and Guarantees and Financial Crimes and Risks working groups at ICC.
Currently, I am still serving as a Trade Advisor in a Turkish bank (TEB) and chair of ICC Turkey’s Banking Commission.
I have written nine books and published many articles on domestic and International on International Trade.
Bank Payment Obligation in Turkey
RM: Why is the Bank Payment Obligation so important in markets such as Turkey?
I also made the Bank Payment Obligation (BPO) widely known in Turkey. The BPO is a payment method that is similar to a Letter of Credit, but with a bank commitment instead and there is no need for paper documentation.
The bank enters an irrevocable payment commitment against the seller, such as a letter of credit. It’s an electronic platform where BPO conditions will be placed (baseline) is needed for BPO issuance.
This platform is called the TMA (Transaction Matching Application). The buyer’s bank is known as the Obligor bank, and the Seller’s bank is known as thee Recipient bank.
- Both banks must have TMA in order for the buyer and the seller to perform BPO transactions.
- The buyer then gives instruction to their bank to start the transaction.
- The obligor bank must have collateral from the Buyer.
- The Obligor bank places BPO information on TMA, thus a baseline establishes, then advises to the seller through Recipient bank.
- The seller relies on the BPO commitment and sends the goods.
- In BPO transactions, trade is done on open account terms, paper documents are sent with the goods.
- The data taken from the documents (not paper documents itself) are presented in the Recipient bank (Seller’s bank).
- If the data set matches on the TMA then BPO becomes payable and paid.
The Uniform Rules for Demand Guarantees (URDG) Rules
RM: Let’s talk about URDG rules. Why are these rules so important and how do they help increase trade between unknown parties?
I now want to talk a bit about URDG (Uniform Rules for Demand Guarantees), which I am a member of its Task Force.
The URDG is a set of contractual rules that drafted, developed and published by ICC (International Chamber of Commerce, Paris) apply to demand guarantees and counter-guarantees. The ICC Uniform Rules for Demand Guarantees (URDG) reflect international standard practice in the use of demand guarantees and balance the legitimate interests of all parties. More than an update of the existing rules, the revised URDG 758 is the latest and a new set of rules for the twenty-first century that has been in effect since the 1st of July 2010.
Since their first adoption in 1991, ICC’s URDG have gained international acceptance and official recognition by bankers, traders, industry associations and international organizations including UNCITRAL, FIDIC and the World Bank. The current edition, URDG 758, was officially endorsed by the UN Commission on International Trade Law (UNCITRAL) in 2011.
There is a very active working group on URDG at ICC. The purpose of this group is to identify problems related to URDG, to find solutions and to ensure easy use. Meanwhile, ISDGP is being prepared. ISDGP will be an operational guide. ISDGP will contribute to the more extensive use of URDG guarantees.
RM: What about blockchain – is this a tool that can be used to accelerate the digitisation of trade and trade documents?
Now, I am dealing with Blockchain. A blockchain, originally block chain, is a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data (generally represented as a Merkle tree).
By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks, which requires consensus of the network majority. Although blockchain records are not unalterable, blockchains may be considered secure by design and exemplify a distributed computing system with high Byzantine fault tolerance. Decentralized consensus has therefore been claimed with a blockchain. Source: wikipedia, for more information, you can visit; https://en.wikipedia.org/wiki/Blockchain
Blockchain, which was originally used only for the production of crypto money, in today has many uses in trade finance and government affairs.
Turkey – Market Overview
RM: Turkey is an emerging and developing market, gaining considerable ground on the global stage with; a gateway to Asia and an exporter of finished goods. What’s the market landscape for trade in Turkey?
Trade is very important for Turkey, because Turkey is a country which imports and exports in goods. Turkey tends to export during difficult times, becoming a lifeline for the economy of Turkey.
Turkey is a logistics centre due to its geographical location, fertile and virgin land due to organic farming, and enjoys a dynamic workforce because of the very large young population.
Anatolia is located on Turkey was the centre of trade and transit routes since ancient times. Three sides are covered with sea and connected to three continents by sea. In a way, it is the centre of trade. From time to time, even though political turmoil surrounding Turkey’s trade will always maintain its vitality and importance.
Nowadays, the economic situation in Turkey atmosphere is not so bad. Especially export and investment are promising, exports target is $200 bill, on in 2020, world bank figures will be given later, according to The Turkish Perspective (a periodic magazine of TIM-Turkish Exporters Assembly) Turkish Exporters have only the tailwinds. Raw materials, value-added products and services exported to 222 countries continue to move the country to the league it truly deserves. Turkey, the country that broke its own record in 2018, whose opponents lost power in 2019, has increased its exports unabated. Turkish companies, which realized USD 180 billion of exports in the last 12 months, gaze upon 2020 for new successes. Now the target is USD 200 billion!
Rising protectionism measures, super levy practices and trade wars in the last two years have influenced many countries. Turkey, thanks to its wide variety of production and flexible exportability, managed to land upon both feet. According to the latest data of the World Export Organization, exports of the top 50 countries among the top exporters decreased by 2.6 percent while Turkey’s exports increased by 2.56 per cent. Although not a huge figure as a percentage, the growth that Turkey has shown despite the contraction in the global trade has moved Turkey to the 7th row in the world export growth ranking. Turkey moved to 5th row in the dollar-based value increase ranking. The fact is worth remembering frequently that Turkey is a country with highly manoeuvrable companies. There is a unique trade dynamism with the ease of doing business and geopolitical advantages. In addition to these, thanks to company managers who are talented in problem-solving and able to cope with crises, Turkey is one of the few countries that can respond to all the needs for investment and bilateral trade. 2019 put every country to the proof and Turkey has come through, proving its adequacy. We do not feel the need to redefine the win-win philosophy. Therefore, we say “Turkey is a profit centre”. 2019 was a difficult year and so will be 2020. Supply and market scouters, you keep an eye on Turkey.
Let 2020 be ‘the year of Turkey’.
All figures are based on January – November 2019 period, Resource is TİM (https://www.tim.org.tr/en/).
Turkey – Export Overview
The main export market for Turkey is Europe Europian Union is the largest market with about 50 percent, share of Turkey who exports to 222 countries worldwide.
In 1996, following the establishment of a Customs Union with the European Union, Turkey’s exports entered a new structural transformation process. Developments in recent years show that production and exports have increased substantially in high-technology sectors, where goods include electrical and electronic machinery and equipment, as well as in the automotive industry.
Turkey’s top export country is Germany. Especially in the automotive, machinery, nuts, dried fruits, fruit and vegetable products, air conditioning, ready-to-wear sectors. The most exports are made to Germany.
The locomotive of the export sector in Turkey is automotive; the automotive sector constitutes the most important share in Turkey’s exports rising with each passing year. In this process, the share of automotive industry, which signed exports of USD 30,5 billion, reached 17 per cent in total exports.
The Turkish automotive sector exported goods ranging from USD 1 million to USD 4 billion to European countries such as Germany, Italy, France, England, Spain, Belgium, Slovenia and Poland.
Source: Sector Reports of TİM (https://www.tim.org.tr/en/)
Turkey’s last trade figures are as following as per Worldbank statistics
Export and Import figures with top 11 product categories
Beyond the trade Turkey is a transit hub and one of the best place for investments. Turkey has the potential to be an indispensable global base for transit trade. The Middle Corridor, which Turkey is also located in, comes forth as the most strategic area in terms of reviving the historical Silk Road. When we look at the investment side also Now ıs the tıme to ınvest ın Turkey with signs of amelioration in the Turkish economy and expectations for continued improvement through the next year. According to Livio Manzini, president of the Association of the Italian Chamber of Commerce, it is the time to invest in the Turkish economy as the opportunities are now manifesting.
RM: As an author of over 9 books, why is championing trade so important for you?
I think one of the ways to contribute to the state and the nation is to contribute to trade. With the contribution to trade, the country gets richer and stronger. In the old times, physical power was important to get rich, he would go and buy someone else’s goods and property, and he would be rich. Technology and knowledge are important today, the way to turn it into money is trade. I see trade as a struggle for power and enrichment. With the contribution to trade, the country gets richer, so the world gets richer. Where there is wealth and prosperity, the fight decreases and happiness rises. This is why I contribute to trade. Even if I made a small contribution to trade with my nine books, I will consider myself happy.
RM: What are the biggest challenges at the moment in global trade?
AO: Currently, I see protectionism, sanctions, regulations and customs formalities as the biggest obstacle to trade. I believe that these will be overcome with new technologies, blockchain is a blessing on this matter.
RM: What are the priorities for you as Chairman at the Banking Commission?
AO: It is to ensure that ICC’s trade rules are learned, taught and implemented correctly. It is the realization of the known mistakes. It is resistance and prejudices related to digitalization. In order to overcome the obstacles that make trade difficult, absolutely everyone should be self-critical, sincere and free from prejudices. Failure to do so only takes time. Soon technology and common sense will prevail. It is not possible to escape from technology. Another issue is the clean trade. For this there are the Trade Finance Principles published by ICC, Wolfsberg Group and BAFT. Banks and firms need to be aware of this, develop their own risk approach policies and establish control mechanisms.
RM: As an inspirational leader in the trade world, what advice would you give to an emerging leader entering finance or trade today?
AO: First of all, I recommend that it be realistic, do good research and intelligence, use technology, and most importantly, know the techniques and rules of trade very well.