Analysis: The growth of Turkey's defence industry
It is clear that key decision makers within Turkey regard the development of the country’s domestic defence industry as an existential matter.
The share of domestic content is increasing within Turkey while export revenues also continue to rise. But despite all this positive news, there is no obvious solution to the chronic problems that remain across the industry.
The annual turnover of the Turkish defence industry topped $6 billion last year while total annual exports reached $1.68 billion.
According to the Undersecretariat for Defence Industries (SSM), more than 500 companies have added nearly 3000 military products to the Turkish defence industry product catalogue to date.
The number of projects overseen by the SSM was 460 in 2016 and the total value of contracted projects amounted to approximately TRY122.44 billion.
According to official sources, the rate of foreign dependency across Turkey’s defence industry has rapidly declined.
The main objective of decision-makers in Ankara is to bring Turkey to the position of not only manufacturing system components but also developing indigenous technology at the same time.
While achieving this objective, it is important to create a competitive supply chain, where a significant proportion of military needs are met by national industry.
Positive growth and increasing export revenues captured by Turkey's critical defence technologies are bringing the sector closer to this goal.
Last year was a period of significant developments in the Turkish defence industry. Deliveries to the security forces of domestically-produced mine-protected vehicles, land-based remote electronic support/EW systems, T-129 ATAK attack helicopters, armoured tactical vehicles and coast guard boats were all made during 2016.
Many other important activities took place, including the launch of the Göktürk-1 satellite, the acceptance of Hürkuş basic training aircraft and the acquisition of international type certificates, and developments in subsystem projects.
At the beginning of 2017, design phase contracts were completed within the scope of the National Combat Aircraft Development (TF-X) project. Within the framework of the agreement signed between Turkey and the UK, the project will proceed under the principle of win-win.
Despite all these positive developments, the Turkish defence industry also has many dominant problems.
At the top of these concerns are the risky conditions of the investment environment in the defence industry, industry modelling and human resources.
The private sector is restricted in its ability to invest in defence due to the size of the investment required to develop defence technology as well as the high risk.
In addition, the relatively long product development cycle, which does not exist in many other sectors, also worries private investors as well as the doubt that any investment in defence technologies will result in a final, exportable product.
For all these reasons, state support is a must for the Turkish defence industry.
Nevertheless, the development of the domestic defence and aerospace industry over the last 15 years has increased demand for the systems and capabilities of Turkish firms in foreign markets.
Turkish firms are not only focused on exports, but also take into account relationship-based methods such as co-production, technology transfer and joint investment.
In 2016, Turkey's top export market was the US, with $587 million worth of business, almost a third of all Turkish exports. Other top markets were Germany ($185 million), Malaysia ($99 million), Azerbaijan ($83 million), the UK ($64 million), Saudi Arabia ($48 million), Qatar ($52 million), the UAE ($62 million) and Tunisia ($37 million).
In recent years, industry has observed a diplomatic opening to the Middle East and elsewhere.
Because of cultural and traditional ties with the Middle East, central Asia, Pakistan and Malaysia, these regions have become important markets for Turkey.
Indeed, Pakistan and Malaysia are now important markets for Turkish-made naval systems.
In 2016, Turkey and Pakistan inaugurated their first naval contract, a $90 million deal for the supply of a 15,600-ton tanker fleet, with STM, a Turkish government-controlled defence engineering company, acting as designer and prime contractor.
When it comes to the Middle East market, one important agreement was in February between Turkish military vehicle manufacturer Otokar and UAE firm Tawazun. In a $661 million agreement, the pair formed a joint venture, Al Jasoor, to make 8x8-wheeled amphibious armoured vehicles.
Aselsan and the Saudi Arabian public company TAQNIA DST also united forces under the roof of Saudi Arabia Défense Electronics Corporation to design and produce radar, EW and EO-IR equipment.
The AgustaWestland AW139 helicopter training centre was delivered to the Qatar Air Force Command in April, under a contract signed between Qatar and Havelsan. In addition, Havelsan is planning to open an office in Qatar in the near future.
Turkey's top armoured vehicles manufacturers, including Otokar, BMC, FNSS and the newly launched RBSS – the Turkey-based joint venture between BMC, Germany's Rheinmetall and Malaysia's Etika – are aggressively seeking deals in Gulf and Asian markets.
TAI, meanwhile, is negotiating to sell the T129 ATAK helicopter to the Middle East while Aselsan and TAI are currently modernising Bahrain's Cobra helicopters.
Other potential export items include electronic and electro-mechanical systems, software, management systems, cyber security solutions, and flight simulators. Top Turkish exporters in these fields are Aselsan, Havelsan and STM.
Many of these allied nations will need financial support if they are to opt for Turkish defence industry products and services originally developed for the Turkish armed forces.
To this end, Ankara is developing mechanisms for these countries to take on loans with repayments spread over long periods, while the SSM is also examining the existing regulations and practices on granting loans to foreign customers.
If favourable finance models can be applied, export revenues are expected to increase further, placing Turkey firmly on the path of defence industry independence.
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