Serefe! According to the latest survey from Ipsos KMG, the popularity of alcoholic beverages in Turkey appears to have increased by some 35% in 2007. This rise in popularity of alcohol in Turkey’s five largest cities (Istanbul, Ankara, Izmir, Bursa and Adana) came on the back of a modest fall in 2006, of some 9%. However, while the popularity of alcoholic beverages appears to be undergoing somewhat of a renaissance in recent times, there are still many issues facing both the local beverages industry and importers. High tax and customs duties have restrained growth within the sector, while an unsympathetic government may look to impose further restrictions on the sale and consumption of alcohol over the course of the new parliament. As always, those looking for a drink have found interesting, and at times dangerous, ways to get around the system.
The attitude towards alcohol by the ruling Justice and Development Party (AKP) returned to the fore in late August following accusations concerning a spirited serving of risotto. The dish in question was apparently ordered for the interior minister, Osman Gunes, by Mugla governor Temel Kocaklar and allegedly resulted in the latter’s sacking after the minister discovered that the sauce it came with had been made with wine. The incident sparked off discussions by Islamic theologians in the country, who broadly agreed that all of the alcohol would have either been “boiled off” or chemically converted into vinegar via the cooking process. While the minister denied the accusations, a sour taste was left in the mouths of those who enjoy a quiet tipple.
Turks consume less alcohol
According to the Ipsos KMG report released in late August, 82% of those who drank alcohol registered a preference for beer, 9% for the national drink raki, 7% for wine, while the remaining 2% was split among other beverages. The World Health Organization (WHO) estimates that Turks consume an average of 1 liter of pure alcohol per year, compared to 9.4 liters for the EU’s 25 countries. And the geographical spread of consumption tends to be concentrated in Turkish Thrace as well as along the Marmara, Aegean and Mediterranean coasts. Areas in the east of the country, and especially the south-east, are considered to have the lowest rate of consumption.
One of the biggest complaints of producers in Turkey, and those looking to import alcohol into the country, is the high level of tax placed onto these products. In 2006, some $8 billion was handed over by producers, importers and consumers to the government thanks to the “special consumption tax,” or OTV. The levels of tax charged on alcoholic beverages are significantly higher than the EU average. A single liter of wine is imposed a levy of 1.87 euros in Turkey, as opposed to 0.58 euro for the EU 25. The lowest rates for wine tax in the EU, unsurprisingly, are in France and Hungary, which impose a 0.03 euro per liter duty on the product. Other products are similarly taxed heavily, with beer at 0.68 euro per liter (EU 0.29 euro), while rates for spirits can vary from 9.22 to 16.21 euros per liter in Turkey, compared to the EU average of 6.27 euro. Sparkling wines and champagnes are hit the hardest by the OTV, having a 275.6% duty slapped onto them. According to figures released by the opposition Republican Peoples’ Party (CHP) before the 2006 election, the tax collected by the state under the AKP government had increased sharply, by 96.1% for raki, 185.6% for beer and 222.2% for wine produced by TEKEL, the former state monopoly producer.
As a result of these high duties, there has been a thriving market in black market or undeclared alcohol production. Up to 50% of all wine is considered to be produced without paying the requisite tax, while the rate for raki is lower at 5-6% of overall production. In order to combat the growth in illegal alcohol production and sales, the government instituted a new tax stamp, or banderole, system that went into force on July 24. According to the legislation, all alcohol and cigarette containers must have a new banderole placed on them before November 5, or be considered ineligible for sale. The EU representative office initially opposed the plan, believing its swift implementation would be in breach of Turkey’s World Trade Organization (WTO) responsibilities, although the Finance Ministry was little disturbed by the EU protest. Other complaints by importers include the extra duties placed on their products, which can almost triple the price of a foreign-made product on the local market. A USDA report prepared in 2005 estimated that a $10 bottle of US wine would, after taxes, be sold for a minimum of $30.47 on the local market. Equally, a tricky labeling and approval system from the Ministry of Agriculture and Village Affairs also complicates the problems of importers.
However, the news isn’t all bad for local producers, as rising consumption trends indicate. The alcohol industry changed significantly following the privatization of the alcohol wing of the former state monopoly producer TEKEL in 2003 and the liberalization of alcohol production in Turkey. The measures were required by the International Monetary Fund (IMF) in its bail out package for Turkey after the 2001 economic crisis. Following the liberalization process, the number of local producers and importers has grown from 900 to 2500 in the past two years alone. The size of the beer market in Turkey was estimated to be around 885 million liters in 2006, with the national staple raki coming in at 70 million liters, according to Referans Gazetesi.
Foreign investors taking an interest
Local producers also became a target of interest for foreign investors, with the former TEKEL company, renamed Mey Icki, bought for $900 million in 2006 by US firm Texas Pacific Group (TPG). Large local producers such as Anadolu Efes and Turk Tuborg are now also looking to increase their presence in foreign markets to escape the high taxes imposed at home. Anadolu Efes, producer of Efes Pilsen among other marks, now exports to more than 50 countries around the world, with particularly strong sales growth seen in Eastern Europe and the former Soviet Union, especially Russia. Anadolu Efes remains the dominant brewer in Turkey, with some 82% of all sales. Turk Tuborg, with around 12% of the market, is also looking to emulate its larger rival, and is now exporting to 20 countries.
Other good news could also be on the way for local alcohol producers and importers, in the form of the EU. Pressure has been mounting to normalize tax rates to those closer to the EU average. The high duties and complex procedures applied to imported products have also been coming under attack, and could also be the focus of challenges under WTO procedures. The state of Turkey’s alcoholic beverages market over the coming years and its increasing sophistication could be interesting for investors, and drinkers, to watch. As for risotto’s popularity, it too has undergone something of a renaissance of late according to the daily Hurriyet — the wine sauce being especially sought after accor
Iraq auctions off mobile licenses for $3.75 billion
Iraq’s Communications and Media Commission announced in mid-August that it has successfully auctioned off three mobile phone licenses for a total of $3.75 billion to Iraq’s Korek Telecom, Qatar-backed AsiaCell and Kuwait’s Mobile Telecommunications Company (MTC).
“To get the best return from the auction in such circumstances is a great vote of confidence in the Iraqi economy,” Iraqi Finance Minister Bayan Jabr told reporters in Amman.
TurkCell and Egypt’s Orascom had also expressed an interest in the licenses but dropped out of the race with the latter saying that a license cost of $1.25 billion and an 18% revenue sharing agreement with the government was too high a price to pay. The tendering process took a year and half and left five mainly Middle Eastern bidders in the running out of the 11 firms originally short-listed.
Jabr said each license was auctioned for $1.25 billion
a 15-year term and the companies would have to share 18% of revenues with the Iraqi government. Iraq has a mobile penetration of 37%, delivering services to 10 million current subscribers. Mobile penetration is expected to more than double in less than three years, according to experts.
Some of the conditions call on the winning companies to offer at least 45% of their equity to the Iraqi people in a form of initial public offering within four years. Iraq is expected to earn over $15 billion in revenues over the contract period.
Observers were surprised when Orascom announced that it had pulled out as the operator was the first to provide a full mobile phone service in Baghdad after the 2003 invasion by the United States, through its Iraqna subsidiary. Orascom had invested close to $300 million in Iraq since it first won the rights to operate there in October 2003.
