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TURKEY’S DEFENCE INDUSTRY IN TRANSITION

11 Apr 14. Professor Ismail Demir was appointed as the head of Turkey’s state arms procurement body, the Undersecretariat for Defence Industries (SSM). This replaces Murad Bayer who headed the SSM for a decade until he was appointed as chief counsellor to the Prime Ministry’s office in late March. Among other things, one of the main aims of the new chief of SSM is to increase effectiveness and exports of local defence industry. Demir will be faced with the difficult challenge of privatising the defence industry in order to make it more competitive in the international market.

In 2012, under Bayer, the Turkish government and the SSM planned to privatise a large portion of the defence industry forcing some of the military-owned companies to compete or eventually be liquidated. The process has seen a few ups and downs but the top five Turkish defence companies: Aselsan, Turkish Aerospace Industries (TAI), Havelsan, Roketsan and MKE, remain government-controlled. Resistance from the military have stalled these plans so far. It remains to be seen if the plan will proceed under the new chief. The Foundation to Strengthen the Turkish Armed Forces (TSKGV) owns the majority of shares of 18 Turkish defence companies, including Roketsan, Havelsan and Aselsan and TAI. The small amount of remaining shares belong to the SSM. This structure allows for no oversight on spending of these companies and they have come under severe criticism for their lack of transparency. While there seems to be interest in defence sector privatisation, it is not clear if the move is motivated by the need for democratic and transparent governance or if it is a political battle to gain control of growing defence budgets.

The Defence Industry

For the Turkish military and the SSM, domestic development seems to be the most preferred way of procurement but larger scale projects are mostly developed by joint production. In the land sector Turkey is largely self-sufficient with local companies supplying a wide range of tracked and wheeled vehicles. The naval sector is much more nascent and local companies are trying to increase their capability as Turkey has an ambition to develop over 100 hulls, some of which have already been commissioned. Reliance on foreign equipment of know-how is highest when it comes to air assets. Turkey has expressed ambitions to increase self-sufficiency in this field by developing its own fighter aircraft by 2023. Turkey has made some headway into the UAV market with its Anka drone that has already bagged orders from the Turkish military as well as international customers.

The SSM published a strategic development plan in March 2012 covering 2012-2016. Key milestones included:
• Annual defence exports of USD2bn by 2016.
• Procurement to reach USD8bn by 2016.
• A feasibility study on a national submarine programme.
• R&D to be maintained at 5% of the Defence budget. Turkey’s defence industry has largely grown through jointproduction and technology transfer from international companies. Exports have largely been possible through offset arrangements made with foreign arms suppliers. The country is at a juncture, where it needs to think about a new financial model as well as increased privatisation in order to become considered competitive globally.

Clarity on Offsets

Turkey’s defence industry has thrived on offsets and at present Turkey’s offset requirement is 70% with no minimum threshold. Industrial analysts have used Turkey as a role-model for countries trying to grow their industry through offset policies.

A news report by the Financial Times in 2012 clearly charted the beginning of Turkey’s offset business back to 1984 with the purchase of 160 F-16 aircraft from the US. Offset agreement of the deal saw all but eight aircraft being assembled in the newly formed Turkish Aerospace Industries (TAI). From then to now, TAI has grown to employ over 4,000 employees and undertakes assembling work for other countrie

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