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  • Published on: 14th September 2019
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Since 2011, the Syrian civil war has forced over six million people to relocate internally, five million have fled across the border to seek refuge in neighboring countries, and1.2 million have sought asylum in Europe. Together, half of Syria's pre-war population has been left dependent on life-saving assistance, either inside or outside the country. This, along with the loss of human life, the trauma inflicted, the decimation of Syria's infrastructure and the influx of refugees into the Middle East region, has set in motion one of the greatest and most devastating humanitarian crises in modern history.

While Turkey was unprepared for the magnitude of the crisis, the country is now host to the largest refugee population in the world, having opened its borders to three million Syrians. The country's initial response to Syrian refugees was to focus on short-term humanitarian assistance, but this has slowly shifted towards offering free healthcare, education, and work permits, creating both benefits and consequences. While consumer demand has risen, infrastructure and social services are over-burdened, and the labor market does not have the capacity to absorb all the workers needing jobs. Without formal jobs, there is more poverty, dependence, and competition on scarce resources, which is not only bad for the economy, but can create social disruption and instability.

Creating employment is one of the most powerful tools to provide economic, political, and social stability. SMEs are essential to achieving this, as they are responsible for creating over 86 per cent of new jobs globally. In Turkey, it is estimated that SMEs represent over 90 per cent of the total businesses in the country. This means when the sector thrives, it can draw in new investment and have a significant positive impact on Turkey's high rates of unemployment. However, while there is research on the opportunities and constraints facing local firms in the country, reliable data on the unique challenges and needs of refugee-owned SMEs is largely unavailable, and has therefore limited opportunities to enable their growth. This report is meant to fill that gap in knowledge in order to enable Building Markets and other stakeholders to offer relevant, targeted support to Syrian SMEs in Turkey.

1.1 Economic Impact of the Syrian Crisis on Turkey

The net economic impact of the Syrian crisis and refugee influx in Turkey has not been measured precisely, but economists have attributed part of Turkey's recent economic growth since the start of the Syrian war to increased consumption associated with the country's new refugees. Furthermore, effects are reported in exports, labor markets, and prices, shaping and, sometimes contradicting, perceptions among the business community and the general public.

Turkish public perception of the Syrian refugee population ranges from compassion and empathy, as well as “a source of national pride” about the generous response of the country to the crisis, to concern and displeasure about the pressures Syrians are placing on public services and the perceived and real competition they pose for jobs and housing in areas with higher concentrations of Syrians. For the Turkish business community, specifically, perceived negative impacts include expansion of the informal economy, unfair competition, and higher rates of unemployment. According to an assessment by TISK (Turkish Confederation of Employer Associations), “Turkish business people emphasize the need for greater education, language and vocational training, and necessary regulations for greater integration and avoidance of negative impacts on the economy.” On the other hand, in cities like Gaziantep, where investments by Syrians are generally encouraged, the business community understands that, “their impact on the economy should be viewed from a cost-opportunity perspective,” and they should not simply be considered as dependents.

Exports

While the war initially disrupted Turkey's previously expanding cross-border business and tourism volume with Syria, recovery has come quickly thanks to commerce by Syrian business people. Increased cross-border trade related to the humanitarian assistance delivered inside Syria from Turkey has also stimulated local markets, especially in border cities such as Gaziantep.  According to research by The Economic Policy Research Foundation of Turkey( TEPAV), “Gaziantep's exports to Syria quadrupled from $96 million in 2011 to $405 million in 2015,” making the city one of the top exporters to Syria nationally. However, the war has changed the composition of exports to Syria from building materials and cars to food, generators, and pick-up trucks.

Labor Markets

The World Bank  reports that, “Syrian refugees are overwhelmingly employed informally, making their arrival a well-defined supply shock to informal labor,” with calculations suggesting “large scale displacement of natives in the informal sector.   At the same time, consistent with occupational upgrading, there are increases in formal employment for the Turkish.” Since January 2016, legislation has been in place to issue work permits to Syrians, which means “legalizing Syrian workers will likely ensure the further decline of the informal market.” Interviews undertaken during this research found that Syrians were largely employing refugees that were previously part of the informal economy. Still, according to an Orsam survey investigating the economic impacts of Syrians in Turkey, “40% to 100% of the people who lost their jobs in border cities believe that they lost their jobs because of the Syrians” – a response that can exacerbate existing tensions associated with increasing unemployment due to macroeconomic pressures.

Inflation

The influx of Syrians has driven up the costs of housing, transportation, and consumer goods in regions with large refugee communities, with official figures registering higher inflation than the national average.  On the other hand, economists also find that the “general level of consumer prices has declined by approximately 2.5% due to [Syrian] immigration,” because of an increased supply of inexpensive informal labor.

Aid Spending

Turkey's public spending on refugees represents about 0.2 per cent of GDP per year. While this is not insignificant, and has largely been funded internally, according to World Bank economists, this spending has not jeopardized the country's fiscal sustainability.  Furthermore, public spending has injected cash into goods and services, such as clothing, nutrition, and sheltering needs, mostly in the camps, which has possibly boosted local economies. In addition, aid spending by the UN and international NGO community may have provided a new business opportunity for firms, particularly in the food and textile sectors. There may have also been potential additional benefits such as “the strengthening of infrastructure (e.g. renovation/upgrading of public schools, improved technology in health services, better waste water management etc.)” resulting from the Syrian crisis response.  

1.2 Economic Integration of Syrian Refugees in Turkey

Located at the nexus of important trade routes, Turkey offers a developed economy, a young and vibrant consumer market, and entrepreneurial opportunities. That being said, creating livelihoods for new Syrian refugees is fraught with challenges. Unskilled workers – notably in textile and service industries – are vulnerable to exploitation in low-paying, informal jobs.  Skilled workers also have difficulty accessing job markets, because of language barriers, lack of networks, and difficulty verifying qualifications.

Syrians in Turkey typically carry two statuses: A great majority of them are registered under “temporary protection,” carrying an ID issued by AFAD (Turkey's Disaster and Emergency Management Presidency). The rest, numbering around 80,000, entered the country with passports, and are technically considered “foreigners,” and can apply for residence and work permits. While there is now also legislation that offers Syrians registered under temporary protection for at least six months the same rights as Turkish workers,   only 13,000 of the total 73,000 work permits issued to foreigners in 2016 went to Syrians – representing a small percentage of the estimated 500,000 to one million Syrian workers in the informal labor market.

Vocational, Turkish language, and other training by Turkish public entities, municipalities, local and international NGOs are increasingly offered to prepare Syrians for work in Turkey. Beyond the availability of such support programs, the Turkish economy and its job generation capacity will play a critical role in terms of labor market integration, and the Turkish private sector will have a significant role to play.  

In the meantime, Syrians themselves have already fueled this growth by participating in the Turkish economy in an important way, by establishing businesses. In addition to the evidence of increasingly visible Syrian storefronts in Turkey, Syrians have founded 5,356 new formal companies in Turkey since 2011, with initial investments of $304 million. Other estimates put total Syrian capital invested in Turkey at $1-1.5 billion.

The share of new Syrian-owned firms among all new foreign firms in Turkey has steadily increased, reaching 39 per cent in 2016, and has ranked first each year since 2013. In the first 2 months of 2017 alone, new Syrian-owned companies numbered 302, which could mean 1,812 additional new companies for the year with total initial capitalization of almost $97 million.  

Figure 1: Syrian-owned and Other Foreign Firms in Turkey

“Southeast Turkey and western metropolitan cities in particular [have] increasingly became hubs for Syrian entrepreneurs,” according to TEPAV, with their absolute numbers highest in Istanbul, the country's economic center, but greatest as a percentage of all new firms in the local economies in southeastern cities, such as Gaziantep.

Taken together, informal, unregistered businesses, the total number of Syrian-owned companies in Turkey is estimated to be over 10,000. There are several efforts to formalize these businesses to make them more sustainable economically and less vulnerable to fines, closures by authorities, and complaints by local communities.

Reports on Syrian entrepreneurs in Turkey paint a picture of an entrepreneurial, resourceful community, driven by a desire to achieve livelihoods for themselves and other Syrians by taking the opportunity to serve the growing Syrian refugee market in Turkey,  as well as contribute to the diversity and vibrancy of the local economy.  From restaurants and bakeries to small shops selling daily necessities, Syrian entrepreneurs “offer refugees tastes of home [or] cater to those who cannot speak Turkish or cannot afford to shop in Turkish stores.”

In addition to first-time refugee business owners, most of whom may be necessity entrepreneurs, there are seasoned Syrian entrepreneurs who moved their business operations from Syria, along with their capital, to other countries in the region, including Turkey. In the words of a Syrian restaurant owner in Istanbul, “We are international businessmen. We have also been to Dubai and Riyadh. Syrians in Turkey are not just poor refugees.” In fact, Syrian businesses have been engaging in international trade from Turkey, using border provinces for trade into Syria, and other Arab nations, leveraging their networks, similar culture, and language.  

Insert as Quote: “Syrian businesspeople and individuals are prepared to invest significant private capital in their host nations, creating opportunities for both host nationals and Syrian refugees, if the conditions are appropriate…Few countries have made concerted attempts to attract, retain, and support Syrians who would like to relocate their businesses. Helping Syrian businesses would be a boon to all host countries.” – Jobs Make the Difference report  

While Syrians have demonstrated their ability and willingness to invest in Turkey, challenges still remain. During stakeholder meetings held by the ILO and Syrian Friendship Association, for example, Syrian entrepreneurs and business owners voiced a wide range of challenges. This included, “problems in securing visas; insufficient information about relevant legislation and regulations; a lack of guidance services in establishing companies and possibilities of benefiting from support/incentives; and problems in communication and business development stemming from poor command in Turkish language,” among others.

The current capacity to respond to these challenges is limited. As a recent report by the International Crisis Group articulates, “uncertainties with regards to the Syria war delayed long-term planning by both authorities and Syrians in Turkey,” although the shift to consider Syrians as “permanent,” and respond to their economic needs, is beginning to take place. There are Syrian organizations that offer advocacy, information sharing, and networking to the Syrian business community. There are also a small number of international and local entrepreneurship training and support activities targeting Syrians. Stakeholders in provinces where the Syrian population is highest, including Gaziantep, have done more to respond to Syrian firms' needs, such as the establishment of a Syrian desk at the Chamber of Commerce to respond to questions and offer guidance. Turkey's development agencies and other public entities are also open to working with Syrians firms, albeit often without formal, structured programs, resources in Arabic, or targeted, evidence-based outreach in place.

1.4 Context for Syrian Businesses in Turkey

Economic Overview

Turkey is the world's 18th largest economy, with a developed financial sector and industry, a vibrant consumer base, and a young and well-educated labor force. While the period of rapid economic growth since 2002 has slowed over the past couple of years, and Turkey has experienced a widening current account deficit, persistently high unemployment, and geopolitical instability, yet, the country has largely escaped a serious economic downturn and is poised to continue to enjoy growth.

Foreign Direct Investment

Despite the domestic and regional political risks, an onerous bureaucracy, and market access barriers across a range of sectors, Turkey attracts $12.3 billion in foreign direct investment annually, with a wide array of incentives in place for general, regional, large-scale, and strategic investments. According to the Investment Support and Promotion Agency of Turkey (ISPAT), the primary objectives of Turkey's investment schemes are to “reduce the current account deficit; boost investment support for lesser developed regions; increase the level of support instruments; promote clustering activities; and to support investments that will create the transfer of technology.”

As an incentive to foreign and domestic investors, Turkey offers three types of Investment Zones: “Teknoparks” for technology start-ups; “Organized Industrial Zones,” which offer land and infrastructure to manufacturing companies; and “Free Zones” that exempt companies from customs and other taxes for trade.  A recent law has established certain cities in eastern and southeastern regions, including the top refugee-hosting city of Sanliurfa, as “Centers of Attraction” (Cazibe Merkezi) for enticing investments to these less developed regions of the country. Total investment to be attracted this year through this new law is expected to be over $25 billion, creating over 300,000 new jobs. Another piece of recent legislation that is relevant for foreign investors is that Turkey grants citizenship to those who invest at least $1 million in property or $2 million in fixed capital investments; by purchasing government bonds or keeping a balance of $3 million in a bank for 3 years; or creating at least 100 jobs in the country.  

Exports

The exports sector in Turkey is the keystone of their economy, and is especially relevant for the Syrian business community given their interest in and experience with establishing import/export businesses. According to published figures, exports of goods and services, which have grown 12.1 per cent between 2001-2015, constituted 27.5 per cent of the GDP in 2015. Europe is the biggest regional destination for Turkish exports, with Germany ranking number one among countries globally. The Middle East comes in second among Turkey's largest export markets, with a rapidly growing share. In the period between 2001-2015, the biggest increases in exports have been to Iraq, with 24.5 per cent growth, followed by U.A.E. in 3rd place with 19.6 per cent and Saudi Arabia in 10th with 14.8 per cent growth rates.  Automotive, apparel, and gold and jewelry are the top three export goods, followed closely by textiles. The greatest growth between 2001-2015 has been in gold and jewelry (25.4 per cent), plastics (17.2 per cent), and automotive (15.5 per cent). Turkey expects a rebound in exports in 2017 after experiencing a decline in 2016 attributed to regional conflicts and instability, including in Syria.

Turkey Among Other Refugee-Hosting Economies

Comparing the three countries hosting the largest share of Syrian refugees, Turkey boasts a larger economy than Jordan and Lebanon, with a higher GDP per capita. Turkey also ranks higher on the World Bank's “ease of doing business” and “ease of starting business” measures (see table below). When it comes to entrepreneurship, Turkey also ranks higher (36 out of 137) than Jordan (56) and Lebanon (63), according to the GEDI Entrepreneurship Index.  In another measure, the 2016-17 Global Entrepreneurship Monitor, Turkey seems to fare better than Jordan but somewhat worse than Lebanon in most indicators, but ranking higher, overall, in job creation expectation, performance in business services, commercial and professional infrastructure, internal market dynamics and readiness, and government support and policies.

These comparisons have implications for the Syrian business community in Turkey. Unlike in Jordan and Lebanon, Syrians in Turkey, including business owners and employees, struggle with language as a barrier. On the other hand, operating in Turkey has the advantages of a bigger and more developed economy, with a generally enabling environment for doing business and entrepreneurship.

Table 1: Comparison of Top Syrian Refugee Hosting Countries  

Ease of Doing Business Report (World Bank, 2016)

Rank out of 190 countries

Turkey

Jordan

Lebanon

Ease of Doing Business

63

119

122

Starting a Business

90

98

124

Trade Across Borders

70

50

132

Getting Credit

78

185

109

 Economy & Refugees

Turkey

Jordan

Lebanon

Population

(World Bank, 2015)

78.6 mm

7.6 mm

5.9 mm

Syrian Refugee Population

(UNHCR)

2,910,281

(February 2017)

657,000

(March 2017)

1,011,366

(Dec 2016)

Syrian Refugees as % of total population

4%

8%

16%

GDP (World Bank, 2015)

$717.9 bn

$37.5 bn

$47.1 bn

GDP per capita (World Bank, 2015)

$9,126

$4,940

$8,048

Small and Medium-Sized Enterprises (SMEs)

Defined broadly as enterprises with fewer than 250 employees, SMEs play a critical role in the Turkish economy. More than 90 per cent of all firms in Turkey are SMEs, and more than 90 per cent of all Turkish SMEs are considered “micro,” with fewer than 10 employees.  SMEs in Turkey account for more than half of total value added (53 per cent) and nearly three in four jobs (74 per cent) of the “non-financial business economy.” While the SME sector continues to suffer from challenges related to innovation, management capacity, and access to skilled employees, improvements have been steady over the past few years in policy and access to finance environments. SME Banking is generally well-developed with access to credit and services for SMEs offered by most major banks in Turkey, although there are some challenges in the Southeast region. As alternatives to bank credit, especially for higher-impact small businesses, angel investing and venture capital have both been gaining prominence.

Turkey's “Medium Term Plan”  states as a priority “improving SME competitiveness through innovation and R&D; branding, institutionalization and development of innovative business models.” The plan includes supporting and facilitating SME access to international export markets as well as increasing access to finance by reducing the credit risk of SMEs. Turkey prioritizes improving production capacities of exporting companies; encouraging foreign direct investment in high tech production areas; and supporting manufacturing sectors with high trade deficits through public R&D spending.   

In keeping with the importance placed on developing SMEs, Turkey offers a strong support system and portfolio of incentives and facilities to them, primarily via KOSGEB (Small and Medium Sized Industry Development Organization) through various support instruments in financing, R&D, market research, investment, marketing, export and training. International financial institutions, such as IFC, EIB, and EBRD, are also active in offering access to finance and business advisory services. In addition, “entrepreneurship” as a concept has been growing in significance over the past decade. University programs, public agencies, private sector NGOs and companies increasingly offer programs supporting high-impact ideas and the creation of new firms.

Consistent among various assessments of the entrepreneurial environment in Turkey is the need for further improvement in the regulatory environment with regards to procedures and bureaucracy, especially in starting businesses and international trade. These are also areas of relevance for Syrian SMEs in Turkey.  The negative effects of bureaucracy are exacerbated for Syrian entrepreneurs by the additional challenge of language barriers and access to information.

Syrian Economy and Syria-Turkey Economic Relations

The Syrian economy prior to the conflict was growing, spurred on by economic liberalization reforms in the early 2000s, with the oil industry and manufacturing of textiles and chemicals as key contributors.   Turkey-Syria economic ties were gaining strength in the decade prior to the war, in tandem with a gradual thawing of political relations which had historically been contentious. In 2007, a free trade agreement went into effect between Syria and Turkey. In 2009, the first train between the Syrian province of Aleppo and the Turkish province of Mersin went into operation, and there were hopes to raise the trade volume between the two countries to $10 billion from its level of $2 billion at the time. DEIK, the Foreign Economic Relations Board of Turkey, established a Syria-Turkey Business Council in 2010 that brought together the business community interested in investing in Syria and boosting trade ties; with the war, the Council has shifted that mission to solve the problems of the Syrian business community in Turkey.

According to the IMF, “Syria's GDP today is less than half of what it was before the war started and it could take two decades or more for Syria to return to its pre-conflict GDP levels.”  Small businesses, representing the core of Syrian business sector, have been worst hit. The ones that continue to try to operate in Syria are often engaged in the black market or war economy, and have seen their productivity decline as “their markets, supply chain[s], houses and labor sources have been destroyed, and they have no cash in hand to sit through it.” Thinking about the reconstruction process, the IMF recommends focusing on the “energy sector and agriculture, as well as in labor-intensive industries such as textile or food processing, which could become drivers of growth.”

Syrian SMEs will play an important role in the reconstruction of Syria, as well as in the lives of Syrian refugees and host communities affected by the war, which makes additional information and insights about these firms an important aspect of development efforts.

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