Category: Business

Bridging the gap between Asia and Europe

A rare example of an Islamic democracy that enjoys a robust capitalist economy.

MORTEZA NIKOUBAZL/REUTERS

By Rick Westhead

Rick Westhead South Asia Bureau

When U.S. oil billionaire Malone Mitchell first walked out of the Istanbul airport, he expected to see a Third World country chockablock with security concerns and whirling dervishes.

“It dawned on me that I knew nothing about the country, only what I had been taught,” Mitchell says.

Instead, Mitchell, 50, discovered a place where he felt safe walking the streets and where he could get his company’s oil rigs fixed by local firms.

Mitchell’s TransAtlantic Petroleum drills 150 wells a year in Turkey and “the stress on drilling rigs and pumps is extreme,” he says. “They break, they need constant repair, but anything we needed fixed, it’s been available in Turkey.

“This is really a country with a first-rate manufacturing sector, and that surprised me.”

FULL COVERAGE: Emerging Markets

In financial circles, the secret’s out about Turkey, its dynamic economy and its strategic importance. A key stop on the ancient Silk Road, Turkey bridges Asia and Europe and is among the world’s busiest transportation hubs.

Turkey’s $730 billion (U.S.) economy grew faster than any country other than China and India last year. It’s now a member of the G20 and it lays claim to NATO’s largest army.

It’s also a symbol for religious liberals, a rare example of an Islamic democracy that enjoys a robust capitalist economy.

The country has made incredible progress since 2001, when some analysts suggested it was on the verge of bankruptcy.

In 2002, the current government, led by the Justice and Development Party, took power and introduced reforms. Government utilities were privatized, bureaucracy was pruned and archaic corporate laws were scrapped.

Exports have tripled, the economy has grown at a 6.5 per cent annual clip, and foreign investment has climbed to more than $20 billion (U.S.) from $1 billion in 2002. Tourism, a key sector, is also skyrocketing.

Turks are taking pride in this reversal of fortunes, with young people snapping up T-shirts with slogans such as “The Empire Strikes Back” and “Terrible Turks.”

Still, there are reasons for concern.

Reporters Without Borders says as many as 64 journalists are jailed in Turkey, more than any other country. Advocates for Human Rights, a nongovernment organization, says domestic violence, sexual assault, honour killings and human trafficking persist, despite amendments to Turkish law. Nearly one-third of Turkish women are married before they turn 18, activists say.

Still investors remain high on Turkey.

In 2006, a British Petroleum-led consortium opened a $4-billion (U.S.), 1,760-kilometre pipeline that runs from the Caspian Sea to the Mediterranean. With the new line, an estimated 5 per cent of the world’s oil runs through Turkey.

When Scotiabank’s Paul LeBlanc went to Turkey in 2008 to open an office, he was struck by the bustle of seaside activity.

“There was such as long line of ships going through, it was like Singapore,” LeBlanc says.

Scotiabank provides assurances to exporters sending goods to Turkey that their bills will be paid.

“We’ve been there three years now and we’ve seen it’s stable politically and important geographically,” he says. “It has such a bright future.”

via World News: Turkey: Bridging the gap between Asia and Europe – thestar.com.

December 5, 2011
In Turkey, Biden touts political freedoms

In Turkey, Biden touts political freedoms

Originally published: December 3, 2011 6:45 AM

Updated: December 3, 2011 1:36 PM

By The Associated Press CHRISTOPHER TORCHIA (Associated Press)

Quick ReadTurkey: Biden tells entrepreneurs that democracy spurs economic innovation

Photo credit: AP | In this photo provided by the Turkish Presidency Press Office, U.S. Vice President Joe Biden, right, and Turkish President Abdullah Gul pose for photographers during their meeting in Ankara, Turkey, Friday, Dec. 2, 2011. Biden urged Turkey to impose new sanctions against Iran and praised Ankara for its role in pressuring Syria to stop its bloody crackdown on protesters. (AP Photo/Turkish Presidency Press Office, Murat Cetinmuhurdar) EDITORIAL USE ONLY

Photos

(AP) — A free political climate is essential to economic innovation, and countries that try to censor the Internet are pursuing a “dead end,” U.S. Vice President Joe Biden told a group of young entrepreneurs gathered in Istanbul on Saturday.

The international forum, which drew hundreds of attendees, followed up on a meeting in Washington last year aimed at deepening ties between the United…

via In Turkey, Biden touts political freedoms.

December 5, 2011
Biden Parries Turkish Official’s Economic Boast

In Turkey to Strengthen Ties, Biden Refuses to Ignore a Host’s Economic Boast

By MARK LANDLER

Published: December 3, 2011

ISTANBUL — Vice President Joseph R. Biden Jr. came to this ancient city that spans Europe and Asia to talk about building bridges between the United States and the Islamic world. But on Saturday, he felt compelled to brush back a challenge from his Turkish hosts.

Mr. Biden was a keynote speaker at an annual gathering of students and young entrepreneurs that President Obama inaugurated last year as a way of encouraging American-style business in Muslim countries. This entrepreneurial spirit, Mr. Biden said, had helped to fuel the political uprisings across the Middle East and North Africa.

But while the vice president was here to reach out, and did so in a later meeting with Prime Minister Recep Tayyip Erdogan, he got a taste of how the economic travails in the United States and Europe have bolstered the brashness of emerging powers like Turkey, which has so far avoided the troubles in Europe and the United States.

Ali Babacan, a deputy prime minister of Turkey who oversees the economy, delivered a confident address about Turkey’s future and its status as a model Muslim democracy. He attributed Europe’s spiraling debt problems to its lack of political leadership.

“If they had a strong government like we have in Turkey,” he said, “they would be able to solve their problems.”

Mr. Babacan said that with 7.5 percent economic growth projected this year, Turkey, not the larger but troubled economies of the United States and Europe, was poised to win in the 21st century. “The fast fish, not the big fish, eats the small fish,” he said.

Mr. Biden then got up to speak, and after declaring that he did not plan to talk about the American economy, he did just that. First he took issue with Mr. Babacan’s competitive tone, saying, “I am going to suggest that we, all nations, are in this together.” Then, even as he was acknowledging economic difficulties, he pointedly reminded the audience that in a sea of young sharks, the United States was still the whale.

“The fact that our economy is three-and-a-half times as large as the next-largest economy, and larger than the next four combined, does not make us immune from what’s happening around the world,” Mr. Biden said.

The vice president’s aides said he had added those words to his 31-minute speech after listening to Mr. Babacan. There was no evidence that either man was ruffled by the episode. They posed next to each other with broad smiles after their speeches.

The rest of Mr. Biden’s day appeared more harmonious, including his two-hour session with Mr. Erdogan, who was recuperating from a medical procedure at his private residence. Mr. Biden and his aides put on slippers and were introduced by Mr. Erdogan to his son, daughter and son-in-law, according to a senior administration official.

Turkey and the United States, NATO allies since 1952, have had a rich but complicated relationship during the Obama administration. The president has assiduously cultivated Mr. Erdogan, viewing him as part of a new generation of Muslim democratic leaders.

But the two clashed over Turkey’s vote in the United Nations Security Council against harsher sanctions against Iran for its nuclear program. Turkey and Brazil tried to break the impasse with Iran — a diplomatic gambit that the United States repudiated.

Mr. Biden appeared not to have pushed Mr. Erdogan on Iran. While the vice president made the case for continued pressure, the senior official said, the two did not discuss specific sanctions. Mr. Biden urged Mr. Erdogan to repair Turkey’s badly frayed relations with Israel, and the leaders discussed the upheaval in Syria, where Mr. Erdogan has imposed sanctions and backed up the American demand that President Bashar al-Assad step down.

Despite his striking pushback, Mr. Biden made clear later in his speech that he admired Turkey’s ambition. He noted that Turkey, whose economy is now the 17th largest in the world, aspired to enter the top 10 by 2023, the 100th anniversary of the founding of the Turkish republic.

“With what I know about Turkey’s people and its leaders over the past 35 years, and what I’ve seen in the last decade, and what I’ve seen this week,” he said, “I’d say that’s a pretty good bet.”

A version of this article appeared in print on December 4, 2011, on page A14 of the New York edition with the headline: In Turkey to Strengthen Ties, Biden Refuses to Ignore a Host’s Economic Boast.

via Biden Parries Turkish Official’s Economic Boast – NYTimes.com.

December 5, 2011
Iceland Arrests Former CEO Of Failed Bank

Adam Taylor

Iceland’s special prosecutor has taken Larus Welding, the former head of the failed Glitnir Bank, into custody, Reuters reports.

Glitnir Bank was the first of the top three Icelandic commercial banks to fail in 2008.

Former director of market trade Jóhannes Baldursson and former broker Ingi Rafn Júlíusson were also taken into custody and between ten and twenty other former employees of Glitnir Bank were also investigated.

They are expected to be held for a week, apparently to prevent tampering with evidence or witness coercion.

The Special Prosecutor’s Office released a statement that indicates their investigation will focus on four areas (via IceNews):

1. The purchase of Glitnir’s own trade of shares issued by the bank on the stock market. Also the bank’s purchase of and trade with shares issued by FL Group.

2. Loans granted to various companies because of purchase of shares issued by the bank at the end of 2007 and in 2008. The original principal of these loans is believed to amount to almost ISK 37 billion (USD 310 million, EUR 231 million) in total.

3. Trade with forward contracts on shares issued by the bank.

4. Glitnir’s underwriting of the ISK 15 million (USD 126 million, EUR 93 million) stock offering by FL Group at the end of 2007, beginning of 2008.

Image: AP

The collapse of Iceland’s three biggest commercial banks left $86 billion in debt (Iceland’s 2010 GDP was only $13.3 billion).

www.businessinsider.com, 1 December 2011

December 2, 2011
Why Turkey is the next raging e-commerce hotspot

November 26, 2011 | Matt Marshall

Last week, I visited Turkey, and discovered what a lot of people are saying about this fascinating country: It’s the next developing hotspot for technology startups, especially for e-commerce.

The sector is exploding: The Turkish e-commerce market hit $10.6 billion in the first six months of the year, compared to $16.3 billion for all of 2010.

And after years of neglecting Turkey, U.S and other investors are now starting to flock there. Investment capital isn’t gushing full-bore yet, as investors assess this still-emerging market. But 2011 is the year when the spigot was first turned on.

Until this year, Turkey looked like a backwater. Silicon Valley regularly sees private companies valued in the hundreds of millions — even billions — of dollars by venture capitalists who invest in them. But in Turkey, no private company had been valued as high as even $100M, according to Sina Afra, co-founder of one of the largest e-commerce companies in Turkey, Markafoni, and a seed-round investor.

But in 2011, that all changed: First, eBay acquired 93 percent of Turkey’s largest auction site, GittiGidiyor — in a deal rumored to value the company at $215 million. Then South African media conglomerate Naspers acquired 70 percent of Markafoni, one of Turkey’s largest private shopping companies, in a deal valuing Markafoni at about $200 million, a value confirmed by my sources. Markafoni is also owner of Zizigo, the largest online shoe retailer in Turkey (yes, an a self-acknowledged copycat of the U.S. shoe retailer, Zappos).

The list of “firsts” this year continues: Kleiner Perkins, one of Silicon Valley’s preeminent VC firms, made its first deal in Turkey, pumping $26 million into Trendyol, a large private shopping site. Tiger Global joined Kleiner in that investment. Intel, the chip giant, also made its first Turkey investments this year, initially backing a leading online media company Nokta, then a week later, a group shopping site Grupanya. Finally, hot social gaming site Peak Games, attracted $11.5 million from EarlyBird Venture Capital, Hummingbird Ventures and an unnamed investor. (Here’s an outdated list of Turkish start-up investments so far.)

Naturally, there’s great excitement here, and it was palpable at a the 4iX Istanbul investors conference I attended in Istanbul last week. The event’s producers, BootCamp Ventures, said it was the largest entrepreneur-investor gathering so far. It attracted investors from a dozen countries. In e-commerce, it feels a little frothy, even. By one count, there are 200 daily deal sites in Turkey — far more than in even bigger European countries.

Top 20 Turkish e-commerce companies. Average growth since Oct 2010 was 60%. Source: Comscore

Why is this all coming together now? Well, it helps that Turkey has got its act together at a time when everyone else seems to be fumbling. Turkey is on pace to grow faster than 6 percent this year. It’s gotten its relatively high rate of inflation under more control, and its debt is low. It still has more work to do (mainly on the political and social fronts, and it has some weird censorship policies), but it remains relatively unscathed by the mess going on in the EU to its west — and the main progress indicators point upward (see our recent piece about Turkey’s restructuring and mobile boom).

The prime minister Tayyip Erdogan’s swagger, underscored by his assertiveness abroad, has boosted national pride too, even as he has concerned liberals suspicious of his pro-religious agenda.

Specifically, though, Turkey has got great fundamentals for Web start-ups. Turkey has got one of the youngest, most dynamic populations in Europe. Some 35 million people are Internet users — 12th in the world, and fifth largest in Europe, after Germany, UK, Russia and France. The median age is 28. Turks spend more time online than the average European. And they’re more interactive when they do get online: They’re the fourth most active in the world on Facebook, up from fifth a few months ago. They’re the eighth most active on Twitter.

Markafoni’s Afra points to two fundamental drivers of the country’s e-commerce boom:

1) One prerequisite of e-commerce is a credit-driven economy, and Turkey has this big-time.

Turkey has an astonishing 62 percent credit-card penetration rate among consumers. My trip was limited to Istanbul, which is a relatively modern city as far as Turkey cities go, to be sure. But almost anywhere I went, even the smallest shop-owners accepted credit cards. In the free-wheeling Grand Bazaar, I bought a pair of jeans from a small vendor, and he took my card gladly, as did a small shop where I bought a ceramic bowl. Even a small, dilapidated snack stand, where I bought a bottle of water near my hotel, welcomed credit cards — and they did so without the wince that you often get from small U.S. business owners when you pull out a credit card. Turkey’s credit penetration rate is second only in Europe to the UK. But I’ve got the feeling Turkey might overtake the UK soon. Businesses seem more eager to take cards than in the UK. I say this more anecdotally, to be sure, but it hit me when two relatively established grocery merchants in respectable north London declined to take my credit card (one of them did accept a debit payment) last week.

2) Another e-commerce prerequisite is logistics: And here, too, Turkey has a grouping of shipping firms that can deliver products anywhere in a radius of more than 350 miles around Istanbul within 24 hours.

Markafoni’s Afra credits this factor for of his company’s own success in penetrating countries outside of Turkey.

The Turks have one major weakness when it comes to e-commerce, and that’s marketing, Afra told me in an interview. While Americans have experimented with behavioral targeting for at least five years, Turkey has barely started. Still, this void represents a great opportunity for investment, Afra said.

And Turkey domestic market size is limited, and so startups need to be clever about their expansion plans — a drawback suffered by other European countries. Startups can use Turkey to test out their products and services, but the tendency is for entrepreneurs to rely on that home market, and not think big enough, several investors told me. Companies that do go global often take the route first through Eastern Europe, Russia and even Asia before going after the U.S. — a uniquely Turkish recipe, Mae Ozkan, an investor in the seed fund Golden Horn Ventures, tells me.

Ozkan, one of the earliest seed investors in Turkey, said Turkey needs to build a vibrant ecosystem of managers, repeat entrepreneurs and other professionals before start-ups can be truly competitive with U.S-based startups, and she’s been working hard to foster that. Her work has apparently started to pay off. Other seed investors are starting to pile in: Murat Aktihanoglu, a Turkish investor now based in New York, said he refused to invest in Turkey three years ago because there was “too much country risk.” But now, he told the audience last week, he’s back and snooping around, and other U.S. investors are asking him for tips.

[Update: Just posted about 20 more Turkish start-ups.]

Image credits: Top: Kivanc Nis/Flickr, lower right: Trendyol.

November 28, 2011
Turkey Confident on Economy

By MARC CHAMPION

ISTANBUL—Turkey could get hit hard by the euro zone’s sovereign-debt troubles next year, but will bounce back strongly just as it did after the Lehman crisis, according to the country’s finance minister, Mehmet Simsek.

In an hourlong interview with The Wall Street Journal over the weekend, Mr. Simsek echoed a confidence among Turkish officials that led Europe Minister Egemen Bagis to say last week: “Look out Europe, Turkey is coming to the rescue!”

Turkey’s economy is forecast to grow between 7% and 8% this year, after a 9% expansion in 2010, with little sign yet of any rapid slowdown. While Turkey can’t decouple its economy from the European Union, its biggest export market and investor, fiscal headroom and strong fundamentals will allow it to respond, he said.

“Yes, through trade channels, through other channels our macroeconomic performance may come under pressure,” but Turkey won’t suffer any “permanent damage,” said Mr. Simsek. Fallout from Europe’s debt crisis for the world economy, including Turkey, could be “very significant,” he added.

He contrasted Turkey’s ability to make quick decisions as a single-party government that has its own currency with the euro zone’s need to reconcile 17 different governments, leaving them “behind the curve.”

He said he remains dedicated to Turkey joining the EU, despite its current woes. “Everywhere I go people ask me: ‘Why do you want to join the EU still?,’ ” but that loses sight of what Europe has achieved, he said. The euro, however, was different. “I think in retrospect that the U.K. was probably right” to stay out,” he said. “Unless there is near-perfect cohesion among such diverse nations, then I think it is like a straitjacket.”

During the Lehman crisis, Turkey’s central bank cut interest rates by 10 percentage points to stimulate lending, something euro-zone members couldn’t do. While the economy contracted 4.7% in 2009, it then roared back.

Mr. Simsek in many ways epitomizes a new, more prosperous Turkey that feels able to offer lessons on structural reform and fiscal prudence to richer neighbors in the EU. Turkey is negotiating to join the 27-nation economic and political union, but is being blocked by a number of countries, including France and Germany.

An ethnic Kurd and son of illiterate subsistence farmers, Mr. Simsek grew up in extreme poverty in the mainly Kurdish Batman region of eastern Turkey. At 44 years old, he is finance minister of an economy that has roughly tripled gross domestic product per capita since 2002 and is a member of the Group of 20 industrial and developing nations.

Mr. Simsek ticked off Turkey’s economic highlights: low public debt (42% in 2011, according to the International Monetary Fund estimates, compared to 120% in Italy and 99% in the U.S.); a budget deficit of 1%; a tightly regulated banking sector with average capital ratios above 16%, well above Western banks’; and falling unemployment.

The former Merrill Lynch banker said he recognizes that Turkey, a nation of some 75 million, still has large shortcomings, including in education, labor flexibility and a chronic dependency on energy imports. Nor has the government got everything right, he said. “We would accept that domestic demand has been a lot stronger than we have had ever anticipated,” Mr. Simsek said.

That in turn is boosting Turkey’s current-account deficit, as consumers devour imports and markets for Turkish exports in Europe and the Middle East shrink, leaving the country exposed to a potential funding crunch should external financing for the deficit suddenly pull out.

Economists argue, too, that the government and central bank have been too sanguine about inflation—which hit a year-on-year rate of 7.7% in September, smashing predictions—as they drive to maintain growth. Turkey’s central bank, which currently has a 5.5% inflation target, recently upped its 2011 year-end inflation forecast to 8.3% from 6.9%.

Mr. Simsek said the recent jump was partly due to tax increases. He predicted that headline inflation rates would soon fall and that a market perception that Turkey was running a relatively loose monetary policy was wrong. The central bank in October raised overnight borrowing rates and increased reserve ratios, but controversially, it has kept the bank’s policy rate at a record low of 5.75%.

The finance minister pulled out a presentation contrasting money creation by central banks in Turkey (which is trying to rein in demand), and in the U.S. and Europe (where they are trying to stimulate demand using large doses of quantitative easing). “These are uncharted territories globally…. This is risky stuff to do,” he said, pointing to the loose money policies elsewhere. “But we aren’t doing it.”

—Joe Parkinson contributed to this article.

Write to Marc Champion at marc.champion@wsj.com

via Turkey Confident on Economy – WSJ.com.

November 25, 2011