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BGC Partners: No-deal Brexit Implications for Turkey

BGC Partners: No-deal Brexit Implications for Turkey - Potentially negative for ARCLK, FROTO at first glance although the UK has no locally built alternatives for the goods exported by these companies.
A ‘no-deal’ or disorderly exit of the UK from the EU means that the UK would need to follow World Trade Organization (WTO) terms on trade, rather than the EU rules. UK would have to renegotiate all trade agreements with non-EU countries alongside the new agreement with the EU. Turkey’s exports to the UK totaled US$10.2bn as of 11M18, 6.6% of Turkey’s total exports while imports totaled US$7bn as of the first 11 months of 2018, comprising 3.4% of Turkey’s total imports. Turkey’s automotive exports to the UK totaled US$2.25bn in 2017 with the export of 140k units and the UK accounted for 11.9% of Turkey’s automotive exports. Ford Otosan has the highest exports to the UK (accounting for 30% of the company’s exports and 25% of total sales volume) and would be negatively affected initially. On the other hand, there are no locally built alternatives in the UK to the commercial vehicles built by Ford Otosan and therefore there is no easy replacement of those vehicles available in the country. The UK comprises 8-9% of Arcelik’s total revenue. Arcelik’s exports to the UK are either sourced from its plants in Turkey or Romania (and to a very small extent China). Therefore, the UK’s trade deals with both the EU and Turkey (if it comes to a FTA) will be important to gauge what would happen next in case of a no-deal Brexit. On the other hand, there are no white goods producers in the UK and the country will need to import these appliances. Arcelik may experience some loss of business due to delays and confusion with respect to the next steps to be taken if a no-deal Brexit indeed happens