THIS time last year, German companies were gloomy about their sales prospects in the Middle East. Export growth to other parts of the world was helping to drag Germany out of recession, but sales in the Middle East continued to mark time under the weight of the region's financial troubles. In the event, the gloomy predictions proved to be wide of the mark and exports grew by a healthy 3 per cent in 1995, although they did register a fall of more than 6 per cent over the first four months. This year, the January- April figures show exports continuing to recover, although not growing as fast as German exports overall.

Turkey is the star market, and by a wide margin. Not only has it stubbornly held on to its position as the leading export market in the region, but sales figures shot up last year and continue to rise. With imports of German goods worth more than DM 9,000 million in 1995, it is far ahead of Saudi Arabia. The growth in sales is equally impressive: up 43 per cent last year, and 28 per cent in the first four months of 1996.

'We see this as investment by Turkey in preparation for [the EU] customs union. It is the need for modernisation of the Turkish economy,' says a Turkey expert at the Economy Ministry in Bonn. Vigorous growth is evident in all product categories, but especially in machinery, a sector in which Germany continues to be particularly strong. Turkey bought more than DM 2,000 million worth of German machinery in 1995 alone, more than the entire GCC.

'Part of the growth has to do with catching up after the economic crisis in 1994,' the official says. Indeed, the increase appears less dramatic if it is compared with 1993, when machinery, chemicals and electronics exports were broadly in line with sales in 1995. Over the past 10 years, Turkey has been an important if volatile market for Germany. Says the official: 'I would not like to bet on how long the upward trend will last.'

By contrast, Germany's other large market in the region has continued to decline. Iran headed the list of regional export markets as recently as 1992, when sales were worth DM 8,000 million, but it slipped to third place last year. On the basis of the performance so far this year, it has fallen to fifth place, and it lags behind Egypt and the UAE. 'All countries have suffered but Germany has especially, because it is Iran's largest trading partner,' says Dieter von Horn, head of the Arab region department of the Economy Ministry. Exports declined by 8.7 per cent in 1995, with machinery sales suffering most; they fell 26 per cent from DM 980 million to DM 722 million. Results this year show a further deterioration: exports fell by 17.4 per cent in January-April.

Gulf leader

In the Gulf, Saudi Arabia remains the most important trading partner, as a source of oil for Germany and a buyer of much larger quantities of machines, vehicles and electronics in return. German exporters have not fared particularly well of late, however. Last year, vehicle exports fell by 43 per cent while overall exports to the kingdom were down by 6 per cent. 'This is the result of a restrained budget policy,' says von Horn. This year, figures for the first four months point to a further decline, with exports down by 15 per cent from the same period in 1995.

The steady growth of exports to the UAE since 1990 came to an abrupt halt last year, when a slump in machinery and vehicle sales contributed to a 13 per cent fall in total exports. 'These are only temporary fluctuations. A large part of the goods are re-exported and sales depend on the third countries,' says von Horn. The downward trend has continued this year as the figures for January-April show a 14 per cent fall from the same period last year.

Although Saudi Arabia's exports to Germany are almost exclusively confined to oil, it is a less important provider than other countries in the region. The largest suppliers are geographically closer - Libya and Algeria - and are the only countries to have a strong positive trade balance with Germany. Sales are dependent on spot prices and tend to fluctuate. Libya, renowned for its sweet crude, recorded a 30 per cent rise in the value of its oil sales to Germany in the first four months of this year, against a 12 per cent decline in 1995. Algeria experienced a similar pattern, with a rebound this year after a fall in sales last year.

The most impressive performance comes from Tunisia, the only regional country to record a trade surplus with Germany by virtue of its exports of manufactured goods. Sales have been increasing steadily since the 1980s and reached DM 1,370 million in 1995. They grew by another 9 per cent in the first four months of this year. Two-thirds of the Tunisian exports are garments and 18 per cent are electronic goods. Morocco is not far behind, selling between DM 900 million and DM 950 million worth of exports to Germany every years since 1991, of which 60 per cent are textiles.