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Luncheon Forum: U.S. and Houston Economic Outlook by Mark Vitner

As part of ATBC luncheon series, American Turkic Business Council in partnership with the French American Chamber of Commerce and Asian Chamber of Commerce hosted Mr. Mark Vitner, Senior Economist at Wells Fargo.

During his keynote address Mr. Vitner presented important data information of the U.S. and Houston Economic Outlook as well as his visions and forecasts.

Mr. Vitner began his speech with an overall outlook telling the audience that he expects the U.S. economy to grow only 1.7% in 2016. The strong domestic demand is helping offset the effects of the slow global growth. Looking back at last year’s federal budget, Mr. Vitner highlighted that the budget deal is providing a slight boost to economic growth. With the exception of the energy states, the state and local governments are following in their footsteps by lifting spending. When we look at the global economy, the slow growth in China is weighing down on other economies. This not only pushes the value of the dollar higher, but also presents a threat to U.S. exports and corporate earnings.

As we look at the economic growth, Mr. Vitner said the real GDP growth has been disappointing and unusually volatile. This recent volatility is due to swings in international trade and business inventories. While we face this movement in some areas, by looking at the private final domestic demand, we can easily see that it is growing more solidly and consistently.

When we talk about economic factors, one thing that usually comes to mind is its impacts on the employment situations. With solid month to month gains, Mr. Vitner emphasized that fears of recession can be put to rest. As unemployment continues to decrease, he said we are at the near of what we consider full employment. With job growth increasing across most industries, the strongest increase is happening in the construction industry followed by education and health services, professional and business services, and hospitality.

Mr. Vitner talked about the fall of optimism when it comes to small businesses because of the tight profit margins that have been rising due to competitive compensation costs and falling sales. With weakness in manufacturing and mining activities, there have been a divide between the employment data and GDP data. Another fall in optimism is in regards to the oil prices. With lower oil prices and a surge in crude oil inventories, there have been cuts in exploration activities. With countries like Iran, Russia and Saudi Arabia being adamant about not cutting back on output, it seems premature to expect the prices to rise anytime soon.

Now, when we look at the Houston and Texas market, we can easily see that Texas has been seeing employment growth slow down over the past year, with the exception of solid payroll gains in Austin and Dallas.

The Texas housing market is now in line with the pace of the U.S. growth. Residential construction activity has been picking up over the last year with an increase in single and multifamily housing permits.

Mr. Vitner said, although the oil slump has had a very meaningful impact on the local economy, especially with ones with close ties in the energy sector, Texas is still seeing a strong growth in population. But this unfortunately doesn’t mean that everyone is doing well, many manufacturers are still reporting cutbacks in employment.

When we look at the Houston housing market, Mr. Vitner emphasized that even after a solid growth period, the pace of residential building has slowed. It has become evident that the current weakness in the energy sector is spilling over to the housing market. Although the pace has slowed, home prices continue to increase in Houston even as the population remains robust.

Mr. Vitner ended his keynote address with a few critical takeaways. He included that in 2016, he expects the real GDP to rise 1.7%, with the economy being able to weather down the global economic slowdown. Mr. Vitner included that with a weakened global economy, industries closely tied together will face more trouble as a disinflationary undertow is created. His third takeaway was focusing on interest rates. Mr. Vitner said as the Federal Reserve begins to normalize interest rates, many policymakers will likely move gradually and cautiously. Looking at the housing market, Mr. Vitner emphasized that the demand for single family homes is reviving, which allows for first time home buyers to come back into the market. Finally, Mr.Vitner highlighted that the economy is definitely better for the consumers than the producers. Unfortunately, regions that are exposed to agriculture, energy, and mining and manufacturing are seeing conditions weaken.

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Caspian Energy Equals

Caspian Energy Equals
American Security
In a landmark achievement, the United States recently surpassed Russia as the world’s largest combined producer of oil and gas according
to an October 2013 Wall Street Journal analysis
of International Energy Agency statistics.
This milestone was reached because private capital and innovative entrepreneurs took calculated risks striving for access to new energy resources and the tools to produce and distribute them more efficiently. The “Fracking Revolution,” which could secure America’s energy future for generations, is testament to the technological advancement brought by free enterprise and open markets.
Unfortunately, nations in Eastern Europe and the South Caucasus do not share a similar energy security. Russia continues
to subvert the independence of its former Soviet satellite states by controlling their energy resources. Just a few weeks ago Ukraine, a critical East-West energy conduit, appeased Russia – Kiev’s main energy supplier – by scuttling a long-awaited association agreement with the European Union. The EU agreement would have committed Ukraine to important political, economic, and trade liberalization reforms. Now, Ukraine is unlikely to develop more democratic institutions or free markets because Moscow effectively controls Kiev’s foreign policy.
Unlike some other former Soviet satellite states, Azerbaijan has taken great risks to achieve political independence from Russia and a secure energy future. It is utilizing western companies, free markets, and private capital to conduct Caspian Sea- based energy exploration and distribution. Azerbaijan’s wise decision is now providing energy security for our European allies and friends. To avoid another Ukraine debacle, U.S. foreign policy must support Azerbaijan’s energy development through
22 AMERICANTURKIC JUNE 2014 02 InsidePages_3-47.indd 22 both diplomatic assistance to protect Azerbaijan from Russian interference and increased security cooperation with Baku to safeguard its facilities and pipelines. Congress should take the first step by repealing Section 907 of the antiquated U.S. Freedom Support Act, a provision which unnecessarily inhibits U.S. cooperation with Azerbaijan. Protecting Azerbaijan’s energy renaissance supports foundational U.S. foreign policy objectives of ensuring our allies’ political independence and free markets.
Squeezed between Russia and Iran, Azerbaijan is an unlikely energy powerhouse. Yet, Azerbaijan ranks 21st
in proven oil reserves and 26th in gas according to the U.S. Energy Information Administration (EIA).2 Azerbaijan’s government reports that oil production more than tripled to almost one million barrels per day since 2000. Gas production in the Caspian’s Shah Deniz field skyrocketed to over 580 billion cubic last year even prior its full development. With an EIA-estimated 30 trillion cubic feet of gas reserves, Azerbaijan is well-stocked to provide energy security for our European friends into the future.
We should also carefully note who produces and to whom Baku distributes its energy riches. Rather than opt for a state-controlled top-down system, Azerbaijan became the first country to open the Caspian to U.S. energy companies. American and Western energy firms are major partners in resource exploration and production and also development of an expanding pipeline network.
EIA notes that Azerbaijan’s state oil company only accounts for 20 percent of total petroleum output. U.S. companies such as Chevron, ConocoPhillips, and ExxonMobil, among others are big shareholders in the Shah Deniz field consortium and pipeline network.
Rather than capitulate to Moscow’s bullying, Baku builds oil and gas pipelines that specifically avoid the trap of crossing into Russian territory. Azerbaijan’s oil and gas exports directly increase the energy security of our European and Israeli allies by helping diversify supply. The Baku-Tblisi- Ceyhan pipeline helps deliver 40 percent
of Israel’s oil consumption according to the Washington Institute for Near East Peace. The South Caucasus pipeline helps fuel Turkey’s economic boom. The emerging Southern Gas Corridor will connect Caspian gas to Europe and decrease European reliance on Russia even further. In another impressive commitment, Azerbaijan recently decided to send over 350 billion cubic feet of gas to southern Europe through the Trans Adriatic Pipeline. While Azerbaijan and America see energy as the means to generate prosperity and security, other countries take a darker view. With few other sources of power, Russia uses energy as a weapon to intimidate and coerce.
Many of our NATO allies rely heavily on Russian oil and gas. This dependency provides Moscow with license to meddle in the
internal affairs and foreign policies of many countries, particularly our newest NATO allies in Eastern Europe. In January 2009, for example, Russia halted gas exports to Ukraine in the dead of winter and people suffered. By extension, this round of Russian pipeline politics once again threatened our closest allies because their gas comes from Ukraine.
Diversifying supply is always sensible, but it becomes strategically imperative when countries such as Russia exploit dependency
to threaten other nations’ political independence. Fortunately, Azerbaijan’s energy boom – a genuine partnership with private enterprise – provides an additional way to ensure energy security. The United States should fully support Azerbaijan’s energy development so that Baku is not forced to choose between integrating with the West or being coerced into Vladimir Putin’s dreams of a new Russian imperium.
Congressman Jim Bridenstine
Represents the First District of Oklahoma.

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Mayor Parker

Greetings!
Annise D. Parker
Mayor

I welcome you to visit Houston, a uniquely diverse city which embraces its Turkish citizenry and is known as America’s great city of opportunity.
Houston is fortunate to have a large and active Turkish American community whose members contribute significantly to the civic, cultural, economic and spiritual life of our city. The Texas Turkish American Chamber of Commerce brings together entrepreneurs and professionals from across the state in an effort to expand business ventures, while helping ensure a strong infrastructure to support Turkish American businesses in our city and throughout the country.
I am delighted that the chambers’ magazine gives our visitors a great introduction to our city and all that Houston has to offer. Visitors should take advantage of the first ever non-stop flights operated by Turkish Airlines that connect Houston’s George Bush Intercontinental Airport to Istanbul’s Ataturk International Airport.
We look forward to having you stay in our great city. Sincerely,
Annise D. Parker Mayor

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Business Opportunities

Business
opportunities
Turkey & the Turkic World

Present economic trends in our world require equal, stable and proper application of the global business norms established for all nations.
How to overcome differences in the business culture between nations and legalities becomes a major concern. There are many differences between each nation’s understandings of the global norms that create huge hurdle for business. These hurdles are created by misunderstandings caused by misinterpretations of the prevailing laws guiding different sovereign nations or by cultural differences. This is why organizations like Chamber of Commerce’s are established to ease access to these very lucrative markets.
Our subject is TURKEY and TURKIC World.

For many years now Turkey is very well known as an open market with huge potential for investments and production. Let’s take a closer look:
Turkey is one of the fastest growing economies in the world.Turkey is the bridge between East and the West.
Turkey is the next transportation hub for transiting energy, industrial manufacturing, auto industry, and physical distribution center to/from Europe and the world.
Turkey is the gateway to Caucasus, central Asia and far eastern Asia
Turkey with financially sound and excellent banking system (praised by IMF, WB) provides great financial services to every business in every nation.
Every major corporation that has manufacturing or distribution facility in Turkey states that they are “happy as a clam”. Some of the big names are; GE, TOYOTA, GOOD YEAR, ALSTOM, SHELL, MERCEDES-BENZ, FORD, and hundreds more, therefore, I will not get in to the details of investing or establishing business in Turkey. I will leave that to the good hands of the excellent professionals within TTACC and the Turkish Commercial Attaché’s office.
Now, I feel most of you are very new to the term “TURKIC WORLD “.
I will try to make it easy for you to understand the term and the sovereign nations who are part of this world. Present SOVEREIGN Turkic nations (Turkish or TURKIC speaking countries) are: Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, Turkey and Uzbekistan. Turkic world also encompasses other nations who are part of the Russian Federation as “AUTONOMOUS” states. In short, we can comfortably state that when we talk about Turkic markets we are talking about 250- 280 million consumers and six major SOVEREIGN nations and many other nations within central Asia and Eastern Europe.
A market which is huge, with fantastic opportunities
I have spent exactly 20 years in these countries and FSU/CIS working and managing major global enterprises and finally returned home in 2013.

While I was in the area, I was always wondering where are major US corporations (except few oil companies). Why they are not in the region? Then, I realized that besides major oil companies, the US business in general did not have enough knowledge of the market place. Despite the fact The BISNIS department of U.S. Department of Commerce were trying very hard to promote business relations with this region. Meanwhile, some think tanks were channeling business people according to their own beliefs which proved to be completely wrong. On the other hand the companies that had detailed knowledge were doing a brisk business through their distributors….like “Poultry farms”, Kraft foods, Coca Cola, Pepsi, tobacco industry, John DEER, International Harvester, ADM, Monsanto, HP computers, Dell Computers, XEROX & IBM machines just to name few, yet major service companies in Oil & Gas sector, pipe manufacturers, Drilling equipment manufacturers, offshore platform builders, heavy construction & industrial construction companies that were not there with their full force….
Well, I sincerely hope that TTACC member companies will seriously consider and focus on this particular market before it is too late.
Time is of the essence, in a few years (by latest 2020) markets within Turkic countries will be saturated and filled by British, German, Chinese, Korean, Malaysian, Russian, Indian, Pakistani, Turkish manufactured goods, services and construction companies. Despite the fact that most of these nations businesses represent U.S. Businesses interests by “agency or licensed manufacturing in technology” yet, as the locals in those countries say “it is not the real thing” therefore, I would urge TTACC member businesses to hurry –up and complete their due diligence regarding entering into this lucrative market called “Turkic World”.
Present needs in these focus market countries can be classified in five major sectors;
– Energy ( oil & gas upstream , downstream) & Distribution
– Power Gen & Power Transmission
– Food industry (Manufacturing & all subsectors)
– Service Industry (all subsectors)
– Industrial Infrastructure & Mining (Pulp & paper, various textile mills, food packaging, equipment, etc.)
At this point I would like to share few select historical and future project data applicable to the Turkic nations of central Asia. Data is based on officially disseminated information by global financial institutions and announced by governments.
The purpose of the following paragraph is to display the specific market value of the projects secured and approved by global financial institutions and approved by individual governments where risk factors are minimized for the contractors.

As of 2012 following number of projects were initiated and completed:
Azerbaijan……………..149 major projects, total value 5.7 Billion Euros
Kazakhstan…………….149 major projects, total value 10.7 Billion Euros
Turkmenistan……………30 major projects, total value 600 Million Euros
17 Billion Euros or USD 23.6 Billion. Now let’s review 2014…
In the second Quarter and the remaining 2014 following major projects are initiated with secured financing. Tendering process already began;
Azerbaijan………………142 major projects, total value 1.7 Billion Euros
Kazakhstan……………. 168 major projects, total value 4.7 Billion Euros
Turkmenistan……………42 major projects, total value 175 Million Euros
Turkey…………………….116 major projects, total value 3.5 Billion Euros
Uzbekistan………………..54 major projects, total value 711 Million Euros
Total 10.8 Billion Euros or USD 14.9 Billion
Above project figures do not include inner governmental projects financed by each individual government.

Importance of these nations for the world is paramount. Except for Turkey, these nations were part of the former Soviet Union and were the major suppliers of “RAW MATERIALS” for the Soviet Union. Now they are free and independent, and they are developing fast and looking for reliable markets for their natural resources as well as looking to procure western technology and consumer goods.
Natural resources of Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan (natural gas and Shale oil) are globally known.
Today, some of the natural gas sold to Europe by Gazprom (a Russian Company) is procured from Turkmenistan and Kazakhstan. For many decades KAZAKH agriculture products combined with Ukrainian agriculture products fed Soviet Union. Gold mining in KAZAKHSTAN and UZBEKISTAN are legendary. There are many opportunities available in mining, energy services, manufacturing, and consumer goods for business leaders who are looking to expand their markets globally and enjoy the fruits of it.
In early 2015 a new era will began in “Transportation of Goods” from Europe to central Asia and on to Peoples Republic of China.
Imagine for a moment that you will be able to place your 40 or 45 foot containers on a rail wagon in the heart of Europe and ship it to your clients without changing rail wagon or transferring your containers to another carrier and avoiding multi-handling costs and without politically motivated, customs delays, artificially created documentation problems and most of all the congestion of the northern route. The SILK ROAD rail system will commence service as of 2015. Routing will be Europe to Istanbul (trains will go through “MARMARA-RAY” rail Tunnel underneath of the Istanbul straits connecting Europe and Asia surfaces on the Asian side and continuing on to Georgia- Azerbaijan –Turkmenistan (passing Caspian Sea via rail car ferry) –Uzbekistan- Kazakhstan- Kyrgyzstan- Mongolia- China.
This huge initiative and completion of the project by Turkish authorities in tandem with Georgian- Azeri- Turkmen governments and with other inner central Asian governments involvement will make global trade a lot easier, a lot faster and much more economical for all the nations and the world. In addition to SILK ROAD this rail connection will serve key Middle Eastern nations like Iraq, Syria, Kuwait, and so on.
Another upcoming business opportunity is DUTY-FREE -ZONE & Distribution facilities that are in the official programs of the Turkic world’s governments. Turkey already has 21 operational DFZ ‘s. Azerbaijan and Turkmenistan are contemplating to establish the similar DFZ zones to enhance business opportunities.

In summary, business potential in Turkic world and Turkey is very attractive and profitable. All it takes is an educated first step. Present business opportunities in the Turkic world are just the tip of the iceberg. American business with vision should make a move now to answer the needs of this rapidly growing region and to actively promote future opportunities.

Borusan Pipe Facility, March, 2014
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Borusan

Borusan
Mannesmann

Over the past years, Turkey and Turkic countries’ economy have been growing and the currency has stabilized furthering international interest in the countries. Turkic countries, Azerbaijan and Kazakhstan have worked towards integrating the country more fully into the global economic marketplace. In the last 10 years, oil industry of Azerbaijan has increased dramatically by 190%. On the other hand, Kazakhstan is the second largest oil reserves as well as the second largest oil production among the former Soviet Republics. With the recent shale oil boom in the United States, Turkic countries can act as great partners in trading, exchanging resources and sharing best practices.
Texas is a leading global destination for foreign direct investment, due in part to the state’s strong economy and competitive business climate. More than 1,300 major foreign companies are continuing and expanding their active operations in Texas, making it an ethnic business destination. Borusan Mannesmann, Turkey’s leading steel pipe manufacturer who started its business in 1958 as the first enterprise of Turkey’s leading industrial power, is a great example of a foreign company who has become a trusted brand for more than 5 years all over the world.
Borusan Mannesmann offers unique, innovative and high quality products to use securely in all aspects of life. Its wide array of products consists of gas pipes, water pipes, industrial pipes and profiles, large diameter pipes which are used in infrastructure projects such as water, gas and oil transmission lines, among others. Borusan Mannesmann supplies products for the fields of energy, construction, automotive, installation, white goods and furniture manufacturing, it’s also very prominent in various major national and international water, oil, and gas pipeline projects. As mentioned before, Borusan Mannesmann is among the leading steel pipe manufactures in the world with over one million tons of production capacity. Borusan Mannesmann has a total of four production facilities in Turkey and Europe.
Borusan Mannesmann’s production facilities include the Gemlik ERW Pipe Plant, Gemlik Two Step SAW Pipe Plant, Halkali Plant, Vorbano Plan and the Houston Plant. In the Gemlik ERW Pipe Plant processes’, which has 550 employees and was established in 1975, are performed with high precision, ranging from supplying raw material up to customer delivery of the product and after sales services. Construction both in national and international markets are prominent is this plant. The Gemlik SAW Pipe Plant, which was established in 2010 with currently 90 employees, has an annual capacity of 250,000 tons. The plant was designed to answer domestically as well as internationally potential oil and gas line pipe demands. The Halkali Plant established in 1958 produces mainly industrial pipes and profiles while providing various products for different segments including automotive, bicycle, furniture and white goods. The plant currently has 300 employees. The Vobarno Plant specializes in producing high value-added cold drawn pipes. With 90 employees, it serves to countries which are highly innovative in the automotive field, such as Germany, Italy, France and Spain. Borusan Mannesmann’s Houston Plant, currently with a total of 140 employees, focuses its output on OCTG and ERW line pines, which plans to start production by mid-2014. Not only does Borusan Mannesmann export its products to countries including Europe, Asia and America, it also contributes to Turkey’s growth as being one of the main driving forces of the Turkish economy. The name of Borusan Mannesmann can be found in many great worldwide projects. To tell us more about this wonderful company and his journey I had the pleasure of interviewing Buddy Brewer, CEO of Borusan Mannesmann.

Questions&Answers

 

Q: Why did Borusan Mannesmann choose Houston, Texas as a location?

A: Houston area is the hub of the pipe business for OCTG, so many of our customers are in this area, a lot of end users are based in this area. There are any numbers of pipe mills around so we have access to staff, to employees and experienced workers. This area is very friendly to industry. The state of Texas has been very good to work with us as well as chambers county. We have a prime location with barge access, rail access, and easy truck access. Houston is somewhat centrally located in terms of where our customers need the pipes supplied.

Q: What is currently Borusan Mannesmann’s target market?

A: We sell strictly through distributors. We plan to be approximately 80% OCTG,
which is all down-hole casing and tubing for oil well drilling and 20% land pipe.

Q: Does Borusan Mannesmann plan to expand further?

A: Yes, we have purchased enough property to be able to add a phase two. We also have an option to purchase additional property adjacent to ours, which we will likely exercise shortly. We don’t have any idea what phase two is going to be at this point, but there will be a phase two and possibly even a phase three. Borusan is very determined that this is going to be a major business concern in the United States, in Texas, and we are going to grow this business.

Q: How has Turkey contributed and helped in Borusan’s success?

A: Our parent company is a very large, very prominent company in Turkey. They have great financial resources and they also have great human resources. They have been very active in supporting everything we do, again, financially and also with engineering, HR support and administrative support. They are very active and very supportive of what we are doing here.

Q: What would your advice be to Turkey investors who want to do business in Houston or Texas?

A: Texas is a very business friendly location. There is, again, easy access to utilities and to transportation. There is a very highly skilled workforce in the area. With the other pipe facilities or other industrial concerns, with all the oil refineries there are very highly trained people in this area. I think its keyed for any entity going into a different country, whether it was Turkey coming here or the United States going to invest in another country, you have to understand the culture, both with employees and business culture of whichever market you are getting into. If they learn that and have people who have experience working in that culture then they could be very successful.

Q: Who does Borusan’s clientele consist of?

A: We sell strictly through distributors. Those distributors sell to a pretty wide array of end users out in the industry, drilling companies and some E&P companies directly. Our products go into practically every oil field in the U.S. The Shale Plays are the big news now and we are all very active in that, but there are also other very active oil & gas fields that we also have a large presence in.

Would you like to add anything else? An update?

A: Borusan has been importing pipes in the U.S for 8 or 10 years selling primarily through brokers. Once we came on board, starting the second quarter of last year, we started marketing the products ourselves. We began construction in April of last year and we are now up to 140 employees. We have begun threading operations on our site, and we are currently in the commissioning phase of the pipe mill. We expect to have all of our operations up to speed by July of this year. We will be ramping up very rapidly.

Q: What are the next projects for Borusan Mannesmann?

A: This is the first investment by Borusan in the U.S. they have one other investment outside of Turkey. They have a pipe manufacturing facility in Italy. Its different products, it’s an automotive and mechanical tubing line, different than what we are producing here. We have about, I would say, three potential projects on board to become phase two and we will choose one of those. This will be primarily market driven, wherever the market leads us is what phase two will be. A couple of those projects are directly related to what we do in the existing facility and there are a couple more that are totally unrelated. We will see what direction the market takes us.

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