Abu Dhabi Inc is taking a big interest in Turkey with plans for “billions of dollars” of investment in the country by the Emirate’s sovereign wealth funds.

Straddling continents, Turkey is a significant emerging market with a large manufacturing base as well as a growing tech sector. According to Bloomberg, the UAE funds are scouting for deals with top-level conversations between President Recep Tayyip Erdoğan and Abu Dhabi Crown Prince Sheikh Mohammed Bin Zayed Al Nahyan.

The two countries are seeking to set aside geopolitical differences for closer economic ties with the potential for Abu Dhabi SWF involvement in the Turkish economy. According to Bloomberg, ADQ is considering spending up to US$1 billion on health care and fintech targets.

As it branched out into venture capital, in August ADQ participated in a US$1.5 billion fundraising by Trendyol, a Turkish e-commerce platform, alongside Qatar’s QIA. ADQ and Abu Dhabi stablemate Mubadala also invested in the series D round in Gerit, a Turkish grocery delivery start-up.

In geopolitical terms, Ankara is far closer to Doha in their interventions in Syria and Libya, where civil wars have brought to the fore ideological disagreements. The UAE’s antipathy towards the Muslim Brotherhood movement, which is closer to the Turkish and Qatari governments, has caused a rift in diplomatic relationships. However, a thaw in relations, assisted by Qatar’s reconciliation with Saudi Arabia, appears to have prompted the renewed interest by Abu Dhabi Inc in Turkey.

Portfolio companies of Abu Dhabi SWFs are likely to move into the Turkish market, but all eyes are on a deeper relationship at an institutional level. Bloomberg’s talks of a multibillion dollar deal suggests a Sovereign Investment Partnership, similar to the one recently signed with the UK. This would invite greater involvement in tech sectors as well as infrastructure. Abu Dhabi may also seek partnerships with the Turkey Wealth Fund (TVF) with co-investments in sectors such as financial services.

There are, nevertheless, huge hurdles in the way of greater Abu Dhabi engagement with the Turkish economy. Substantive reform in labour market, education and pensions is crucial to enhance innovation. Yet, the Erdoğan administration is drifting in the other direction as it becomes increasingly interventionist, thereby undermining national competitiveness. National leadership continues to favor stimulatory policies that are populist in intent, but feed economic volatility and divert attention from productive parts of the economy. As such, Turkey is a far more challenging market than the SIPs signed by the UAE with the UK, China, France, Russia, Greece and Kazakhstan.

Related funds ADQ
Related tags Turkey