Can Turkey Become a Top Defence Exporter?

Turkey’s defence exports are catching momentum. In July, the Turkish Exporters’ Assembly (TIM) reported that the country could ship more than $4 billion USD in defence goods in 2022. Turkey currently has about $2 billion USD in defence exports registered for 2022 thus far.

So, what do these sales look like?

Drones, especially the Bayraktar TB2, are headlining Turkey’s defence exports. But in truth, Turkey’s sales actually cut across several of its key verticals, including manned aircraft (e.g., the Hürkuş turboprop trainer and light attack aircraft), naval solutions (e.g., corvettes, patrol boats, etc), and light armoured vehicles.

Moreover, Turkey is also securing a growing portfolio of subcontracting work from other aerospace and defence giants, such as Airbus. In July 2022, Turkish Aerospace Industries (TAI) signed an agreement with Airbus to manufacture inputs for the A350F, A320, and A220.

Its defence export growth is showing across both its public sector (e.g., TAI) and private sector companies.

From the latter, Baykar Technologies is seeing considerable growth. In fact, its GM, Haluk Bayraktar, reportedly said they have signed Bayraktar TB2 deals with 22 countries and that the drone’s production line is booked for three years. It has also sold the Bayraktar Akıncı to four countries.

Finally, Turkey’s exports cut across regions with traction in Sub-Saharan Africa, South Asia, Central Asia, the Middle East, and Central Europe. In fact, with at least one NATO power in the books (Poland), Turkey’s traction also cross geo-political alignments (albeit to an extent) with sales going both East and West.

So, with such a promising foundation, is Turkey’s defence industry poised to drive more export growth? Could Turkey’s exports one day cross $10 billion USD? Or $20 billion USD? Can it become a ‘top exporter?’

What Does it Take to Become a Top Defence Exporter?

To answer this question, one must look into two areas.

First, how did the ‘traditional’ top exporters (like the United States) emerge? Second, can a ‘new type’ of exporter rise without the same exact foundations of today’s ‘top exporters?’

The second area is important because one cannot take the innate advantages of the U.S. (or China, Russia, etc) for granted. Ultimately, only a handful of countries have the resources, geo-political positioning, and other factors to become a superpower. So, if one lacks those advantages, can they still grow their defence industry and drive large amounts of defence exports?

The ‘traditional’ track typically involves a country that builds a turnkey industry base. It is able to design and manufacture a defence solution from the ground up. In general, they can do it independently of any other external supplier. So, for example, the U.S. has produced its own fighter aircraft using inputs from its domestic industry base, such as engines and electronics.

Likewise, it can build its own naval solutions, land systems, and munitions from the ground up. This ‘total’ turnkey basis enables the U.S. to compete across many defence spheres and, in turn, drive large exports. This is why China is also poised to grow in terms of its defence exports as well.

However, other top defence exporters, such as Germany, “own” specific verticals from end-to-end. They might not have a turnkey base in every sphere, but in some, like naval solutions or armoured vehicles, the Germans can source domestically. Likewise, the United Kingdom and Italy have a turnkey base in specific areas, and, in turn, they heavily compete for defence sales in those fields.

The ‘traditional’ scope opens the way for high defence exports for these reasons:

First: To develop a turnkey base, especially across critical inputs like gas turbines, steel, semi-conductors, etc – one needs significant economic weight and economies-of-scale. That is why, in general, the leading exporter in any given point in time will be an economic superpower. The continual investment in the arms technology and scale generally leads to the top sellers’ goods to be more affordable. Moreover, the allies of those superpowers feel less of a need to develop their own solutions, and, for interoperability, cost and alliance purposes, will prefer buying from the superpower than a smaller vendor.

Second: The turnkey nature leads to more sales from the top seller. The U.S. is not just shipping the end-product (e.g., the F-35), but the engines, munitions, and electronics. So, this all accumulates in U.S.-origin sales, thus enabling America to own a greater proportion of the total sum of defence sales.

Third: Superpowers can throw their political and weight to drive exports. For example, for Germany, the choice of buying from America helps with supporting relations. Similarly, countries that traditionally rely on U.S. aid, such Israel, seeking American weapons is expected (if not tacitly required).

While Turkey has grown economically, no one would argue that it is a superpower in the works. It will not match the comprehensiveness of the U.S. or China. However, does the ceiling prevent Turkey from being among the world’s top exporters? Not necessarily.

Turkey has two pathways available (and it can take both):

First, it can invest in more critical inputs to own more of the stack. This is what Turkey is already doing via its investment in the TR Motor initiative (to develop a turbofan engine for its next-generation fighter, the MMU). So, when it exports the end product (e.g., the MMU), it would also account for the sale of engines, electronics, and munitions (much like the U.S. and the F-35, for example). This road could take Turkey to a similar track as Germany where it masters certain verticals, like aircraft.

Second, Turkey could try deepening its involvement in the defence industries of other countries. In other words, Turkey can become a subcontractor or supplier for certain inputs for Europe, the U.S., etc. So, as those industries grow, Turkey’s industry will grow in tandem. This is the consortium route.

However, there is also a third route that could make Turkey – from a purely industry standpoint – a hybrid between a U.S/China-type superpower and Europe-style consortium.

Basically, Turkey could start investing in other countries’ defence industries and, in turn, drive sales from the host countries of those industries. However, one must not confuse this for partnerships (akin to Airbus or MBDA). Rather, this approach would actually be led by Turkish companies, but transnationally.

This could start with Turkey investing in the industries of potential customers. It sets up subsidiaries such as TAI Pakistan, for example, and allocates some work from the MMU to that branch. In turn, this creates potential interest in the Pakistan Air Force (PAF) to buy MMU fighters. Besides getting the product, Turkey sells the PAF on the idea that some of its procurement money will return to Pakistan via TAI Pakistan.

In this dynamic, Turkey has created a second market for its goods through Pakistan and, in turn, has grown its primary defence contractor (TAI) into a larger entity. If this dynamic takes root, Turkey can potentially count on a second big funding source for its R&D. It can encourage Pakistan to help fund that R&D through the Pakistan-based subsidiaries of TAI (and, potentially, other contractors).

In this dynamic, Turkey gets the benefit of more funding access for its programs and, potentially, a ready-made, skilled labor pool. Turkey did not have to create this labour pool, so it can send work to this group rapidly and scale its programs at a quicker pace. Pakistan, on the other hand, gets someone that can put its underused labour pool to work and, through procurement orders, get economic offsets through work-share, R&D contracts, and other benefits.

However, while Pakistan would get economic benefits in the end, it is TAI (and other Turkish contractors) that are growing into big players. These would not be consortium companies with multiple partners, but rather, Turkish-owned transnational giants operating in Pakistan, Indonesia, Malaysia, Central Asia, Africa, Bangladesh, and other parts of the world. When the ‘host’ countries start steering their defence purchases to the economic promises of the Turkish companies, the Turkish industry could start driving growth at a significant level.