As Europe continues to grapple with its economic crisis, Turkey appears to be slowing its move toward EU membership.
The economy is booming, and as it strengthens relationships in the Middle East, the country is debating whether its future lies more in the east than the west.
Al Jazeera’s Hashem Ahelbarra reports from Ankara.
Are the Turks seeing the Ottoman Empire reborn or are they going to be the next victims of economic chaos in Europe and political turmoil in the Middle East? Is Turkey about to pay a price for the overconfidence bred by a decade that brought it triumphant success while its neighbours suffered decline or disaster?
The mood is buoyant. Turkey’s successes are recent and quite real. In a country used to covert or open military tutelage since its foundation, a democratically elected government is at last dominant; its economy has surged spectacularly, making it the 15th largest economic power in the world; it is lauded worldwide as a moderate Islamic state which ought to be the role model for Arab Spring countries.
Turkish optimism has ominous parallels with the self-regarding opinions once heard in Ireland and Greece. As with Turkey, both these countries had histories of poverty and emigration which made them psychologically receptive to the self-deceiving idea that they had at last attained the prosperity so long and so unfairly denied them. Excessive belief in their own booms produced disastrous economic bubbles.
Will Turkey be similarly damaged by myths about its own recent success? Some experts there fear so. Atilla Yesilada, an economic consultant at Istanbul Analytics, part of Globalsource, says: “It is as if the entire nation is hypnotised and drugged into believing we are unique and we have created our own successful economic model.” He suspects that Turkey is about to be hit by a devastating credit crunch. “Our belief in our own invulnerability means that the ultimate crash will be all the worse when it comes,” he says.
The Turkish economic miracle depended on the inflow of foreign capital, and this may soon stop. European banks are beset by problems of their own and Turkey may not look such a rosy prospect to them as it once did. Sumru Altug, a professor of economics at Koc University in Istanbul, says that everybody accepts that Turkey is going to have a much lower level of economic growth this year. She warns: “Turkey is playing a risky game.”
In foreign policy Turkey may likewise have seen the high tide and the turn. Twenty years ago it was ringed by hostile countries, but by 2009 these had largely become friends. Turkey was becoming an important influence in Iraq and Syria and other parts of the Middle East. It was a close ally of Bashar al-Assad of Syria and friendly with Muammar Gaddafi in Libya. Trade followed the flag. “Turkish companies are even collecting the garbage in Baghdad and Basra,” an Iraqi friend said last year.
The sort of moderately Islamic democracy the Arab Spring protesters were demanding sounded very like what Turkey had already achieved. The Prime Minister, Recep Tayyip Erdogan, received an ecstatic reception in Egypt where he astonished many Turks – and dismayed Egyptian Islamists – by praising the virtues of the secular state even for committed Muslims such as himself.
Mr Erdogan’s government likes to bet on winners. Turkey adeptly if cynically broke ties with Gaddafi and adopted the rebel cause. Soon Turkish hospital ships were sent to succour the besieged Libyan insurgents in Misrata and Libyan state money deposited in Turkey was channelled to the rebel government in Benghazi.
With Syria, Turkey has been much less successful. Indeed, Soli Ozel, a lecturer in international relations at Kadir Has University in Istanbul, says flatly that “Turkey’s Syria policy is an abject failure”. He argues that it has ended up with having no leverage in Damascus and took excessive offence over being misled by the Syrian government over the latter’s willingness to compromise. “Not to have a decent dialogue with the regime puts you at a disadvantage,” he says.
As with the economy, overconfidence led to serious mistakes. At first, Turkey wrongly imagined it had enough influence in Damascus to get President Assad to implement serious reforms, share power with his opponents, or even step down. It then became clear that the Syrian leadership had no intention of doing this and was simply muddying the waters and stringing the Turks along.
In Iraq, Turkey has a significant but still limited presence. It has, rather remarkably given their past hostility, good relations with the Iraqi Kurdish leaders, more fearful these days of Baghdad than of Ankara. But in Iraq as a whole, Turkey has expended a lot diplomatic energy without getting great benefits. Its main success has been commercial: Iraq is its biggest export market after Germany.
Turkey helped to set up the opposition party to the Iraqi Prime Minister, Nouri al-Maliki, during the last parliamentary election. Not surprisingly he was not pleased and criticised Turkey for meddling. “What have the Turks gained in Iraq for all their efforts?” a senior Iraqi official asked me last year. “They have a few politicians in their pocket, but nothing else.”
Not all the news is bad. Turkey has truly become a regional power. Its idea of its own strength may be exaggerated, but states that once had some strength – Egypt, Syria, Iraq and even Libya – are today divided and unstable. Iran is less powerful than it once was and Greece will take years to recover. Turkey also benefits from good relations with the US, which needs Turkey as a reliable ally.
Could Turkey’s moment as a coming power be passing at the very moment when it is still being lauded as one of the world’s few success stories? Expectations that it would enter the European Union gave momentum to reform in Turkey, ending the predominant role of the military. EU accession talks gave confidence to investors and underscored Turkey’s development into a liberal democracy. The failure of these talks with the EU to get anywhere has undercut legal reform, the dismantling of the security state, the search for a settlement of the Kurdish insurgency and progress towards a deal over Cyprus.
The EU’s relationship with Turkey remains crucial. It is by far Turkey’s largest trading partner and the main source of its foreign investment. Turkish options in the Middle East are deceptively alluring, but not necessarily very rewarding.
Turkey still has a self-confident feel, but it is at the heart of an unstable region. In speaking of the economy – though it might also be true of Turkey’s future – Mr Yesilada says: “We may see the ‘Turkish miracle’ turn into the ‘Turkish disappointment’.”
Turkey’s mammoth balance of payments deficit is on the way down – at least by some measures – but there is still a long, hard road ahead if the country is to resolve its financing difficulties.
Central bank data released on Wednesday showed a current account deficit for November of $5.2bn, in line with market expectations. That was more than October’s tally of $4.2bn, but less than November 2010’s level of $6bn, so bringing down the country’s rolling 12 month deficit for the first time in two years.
But the scale of improvement is small at present and the current 12 month deficit of $77.8bn remains formidable, at 10 per cent of GDP.
“The good news is that the constant rise in the 12 month current account deficit since 2009 is now halted,” wrote Güldem Atabay at Unicredit in Istanbul in a research note. “The bad news is that it will increase again in December reaching circa 10.4 per cent of GDP while the expected meaningful correction is to start from late 1Q12.”
She added that she expected the current account to move down to $65bn by this year’s end, accounting for about 8.5 per cent of GDP, “which of course is a correction though would still mean that Turkey’s Achilles heel remains”. Part of the constraint for Turkey are its formidable energy import costs, which totaled $45bn for the 12 months to November, much more than half the deficit.
Meanwhile the rate of growth of both imports and exports slowed; since the European Union is Turkey’s main market many economists expect the eurozone crisis to act as a drag on rebalancing Turkey’s trade account.
The November figures also showed an increase in central bank reserves by $1.9bn, although this is partially accounted for new rules that include commercial banks reserves left with the central bank. At present, many analysts reckon Turkey’s net reserves, which exclude such items as liabilities, at less than $50bn.
Since August, Turkey has spent some $15bn in defending the currency, and much of that intervention has taken place in recent weeks.
By contrast with the size of such interventions, the scale of foreign direct investment was disappointing in November, at just $218m. Overall, foreign direct investment finances considerably less than 20 per cent of the deficit, which is left depending on more fickle portfolio flows.
via Turkey: rebalancing, slowly | beyondbrics | News and views on emerging markets from the Financial Times – FT.com.
WPP’s Sorrell Says 2013 `Worries’ Him More Than 2012
Jan. 5 (Bloomberg) — Martin Sorrell, chief executive officer of WPP Plc, discusses growth in Turkey and the outlook for the advertising industry. He talks from Istanbul with Andrea Catherwood on Bloomberg Television’s “Last Word.” (Source: Bloomberg) (Bloomberg)
via WPP’s Sorrell Says 2013 `Worries’ Him More Than 2012 – The Washington Post.
By Markus Jaeger*
IDN-InDepth NewsViewpoint
Turkey’s economic and demographic weight relative to the 27-nation European Union (EU-27) will increase over the coming decades. However, relatively rapid population ageing, a slowdown in the growth of the working-age population and declining outward migration will limit the “demographic dividend” the EU will reap in case of Turkish membership. While there are many reasons – political, economic and strategic – that make Turkish EU membership desirable for both the EU and Turkey, it would do little to alter the fundamental economic and demographic dynamics of the EU. NEW YORK (IDN) – In the wake of the “great risk shift”, which saw risk migrate from the emerging to the advanced economies, and given the continued solid medium-term growth outlook in the emerging markets, one finds an understandable degree of enthusiasm in those countries. Turkey is a case in point, having made economic strides over the past decade.
Following the 2000-2001 crisis, Turkey implemented far-reaching economic reforms (for example floating exchange rate, adoption of an inflation targeting regime and central bank independence, reform of the fiscal policy framework and banking sector reform and recapitalisation). The reforms have significantly improved economic fundamentals and raised economic growth.
Average ten-year real GDP (gross domestic product) growth is running at 4% compared with only 2% in the late eighties and late nineties. Net public debt fell from 70% of GDP (actually higher, pre-GDP revision) to a safe 30% and FX (foreign exchange) reserve accumulation policy has helped lower net FX liabilities. This has resulted in a decline in interest rates and a sizeable increase in bank lending to the private sector, which doubled from 20% to 40% of GDP over the past decade.
Reasons for accelerated growth include a bounce-back following crises in 2000-2001, a “pay-off” from 1980 reforms (for example trade opening, domestic economic liberalisation), a proven commitment to economic stability and structural reforms under a one-party government during the 2000s. It is difficult to disentangle the relative importance of these factors. It remains to be seen to what extent policy discipline will last, should a more fractious multi-party coalition government emerge at some point in the future, absent an external anchor (for example IMF, EU accession negotiations).
Weaknesses
Despite all the impressive progress, significant structural weaknesses persist. First, Turkey has become only moderately more open in terms of trade. Exports of goods and services rose from an average of 19% of GDP in the 1990s to 23% of GDP in the 2000s. Total trade as a percentage of GDP rose from 41% of GDP in the 1990s to 49% of GDP in the 2000s.
Second, Turkey’s export mix has not changed dramatically, either. The share of manufacturing products in total exports has remained unchanged at 90%. High-tech exports have stagnated, accounting for less than 2% of manufacturing exports, half the share of the late 1990s and the same level as in 1989 (and considerably smaller than in other major emerging markets).
Last but not least, low savings and investment rates severely limit Turkey’s growth potential. Intriguingly, the savings rate actually declined from more than 20% of GDP in the 1990s to less than 17% of GDP in the 2000s, in spite of a major rise in public-sector savings. Not surprisingly, Turkey is running a very large current account deficit, making it highly dependent on external financing to sustain 4-5% annual real GDP growth.
In spite of continued vulnerabilities and weaknesses, Turkey’s relative economic weight will continue to increase. Turkish GDP currently amounts to less than 5% of EU-27 GDP [in PPP (purchasing power parity) terms]. Turkish GDP per capita is 50% of the EU average, up from 40% and 30% one and two decades ago, respectively. Under reasonable assumptions, this share could reach 70% by 2030.
This would translate into a Turkish GDP that would just about exceed 10% of total EU GDP. This would leave Turkey as the fourth-largest economy in the EU behind Germany, France and the UK, but likely slightly ahead of Italy.
Naturally, the risks attached to the outlook for the “catch up” economies are greater than for the slowly growing advanced economies. Even at its peak in 2050-2060, Turkish GDP would, under current projections, not exceed 17% – smaller than Germany’s 22% today.
Demographically, Turkey’s population of 73 million is equivalent to 15% of the EU population. While larger than France, Italy and the UK (60-65 million each), it is smaller than Germany (82 million). According to the latest UN projections, Turkey’s population will reach 90 million by 2050 (and gently decline thereafter).
At its peak, Turkey’s population share would be equivalent to Germany’s today (17%). The EU is often thought to benefit from a “demographic dividend” in the event of Turkish EU membership. But this is unlikely to be the case. Turkey’s population of working age will increase by a mere 5 and 10 million over the next 10 and 20 years, respectively, peaking at 61 million in 2040.
Effectively, the working-age population will remain unchanged after 2025. Net migration has dropped very dramatically over the past few decades from its peak period in 1960-1980 and is projected to fall to zero by 2025.
This suggests that even if Turkish EU membership were to grant Turkish citizens complete intra-EU labour mobility, the net flow of workers to the EU-27 would be very limited, perhaps non-existent, and completely inadequate to offset the projected decline in the EU-27 working-age population of 10 million per decade.
Turkey’s economic and, much less so, demographic weight relative to the EU will be growing over the coming decades. While there are many reasons – political, economic and strategic – that make Turkish EU membership desirable for both the EU and Turkey, it would do little to alter the fundamental economic and demographic dynamics of the EU – the “great risk shift” and Turkey’s buoyant medium-term growth prospects notwithstanding.
*Dr. Markus Jaeger is a Director at Deutsche Bank Research in New York, USA. He is responsible for economic, financial, and political risk research, with a special focus on the larger emerging markets. This article appeared online on December 15, 2011 under ‘Talking Point’ in Deutsche Bank Research. [IDN-InDepthNews – January 7, 2012]
2012 IDN-InDepthNews | Analysis That Matters
Picture: The writer | Credit: Deutsche Bank
LONDON — Turkey’s split personality has often left it caught between two worlds. Some European nations have vocally opposed the country’s attempts to build closer ties with the West. And many of its Middle Eastern neighbors have been wary of the avidly secular state.
Now, the country’s identity is an advantage for deal makers. Turkey doesn’t have the economic baggage of its European neighbors, which are dealing with the sovereign debt crisis. With a relatively stable government, it has also angled for a more prominent role in the Middle East, as countries like Syria and Libya continue to face turmoil.
The combination of economic growth and political stability has attracted cash-rich companies looking to make acquisitions. So far this year, deal volume has totaled $10.6 billion, ahead of European countries like Austria, Portugal and the Czech Republic. In 2010, mergers and acquisitions reached $25.6 billion, up from $1.1 billion a decade ago.
“The economic backdrop in Turkey is better than in other European economies and has been rebounding faster,” Emre Yildirim, an executive director at JPMorgan Chase who focuses on Turkish mergers and acquisitions. “It’s a large country that’s growing quickly, so it makes strategic sense for companies to take a look.”
The country’s rapid growth has been a critical factor for foreign buyers. Turkey’s gross domestic product is on track to increase by 8 percent this year.
It also has a growing middle class, an attractive characteristic to Western consumer product companies. The local population totals more than 73 million, almost the same size as Europe’s largest economy, Germany. And the country’s G.D.P per capita has more than doubled to $10,094 in the last decade, according to the World Bank
Turkey is hardly immune from the usual growing pains associated with emerging markets. Inflation hovers near 10 percent, affecting the country’s overall competitiveness. Reliance on debt-ridden Europe may also start to pinch. Roughly 50 percent of Turkish exports are bought by countries in the European Union, according to the Organization for Economic Cooperation and Development, a policy research organization based in Paris.
Still, Turkey “remains one of the good performers,” said Rauf Gönenç, chief economist for Turkey at the O.E.C.D. While growth is expected to slip to 3 percent next year, the country outpaces its European counterparts, many of which are heading for recession in 2012.
From a deal-making perspective, the region’s troubles may help spur activity, notably in the financial services sector. Over the last decade, European banks, including the National Bank of Greece and UniCredit of Italy, acquired local institutions as part of their debt-fueled expansion. Now, many of Europe’s banks, which are facing losses linked to their sovereign bond exposure, want to sell assets outside their local markets to meet new capital requirements.
One target could be DenizBank, the Turkish subsidiary of Dexia, the Franco-Belgian bank that received a $5.4 billion government bailout in October. As part of Dexia’s nationalization, the European bank has agreed to be broken up. Analysts say a number of relatively strong international players, including HSBC, are circling the local operations in Turkey.
“International banks may look to make disposals and sell profitable Turkish assets as part of their global deleveraging,” said Mr. Yildirim of JPMorgan.
Foreign companies are also trying to capitalize on the growing consumer demand.
Earlier this year, Diageo started moving to expand into the emerging markets, aiming to increase its revenue from such economies to 50 percent by 2015. Turkey was at the top of the list. Each year, more than one million people reach the country’s legal drinking age. And despite the country’s large Muslim population, local authorities encouraged foreign investment, said Andrew Morgan, president of Diageo’s European operations.
“Turkey has attractive G.D.P growth, is politically stable and has a big population,” Mr. Morgan said. “It’s a very important market for us.”
In August, Diageo bought Mey Içki, Turkey’s largest spirits company, from the private equity firm TPG Capital for $2.1 billion. The local business has more than an 80 percent market share in the local spirit Raki. It also operates roughly 50,000 outlets across Turkey that Diageo now uses to sell its international brands, such as Johnnie Walker and Smirnoff.
Other Western firms also are tapping into the local consumer market. In November, the brewer SABMiller agreed to buy a 24 percent stake in the Turkish beverage company Anadolu Efes in a deal worth $1.9 billion. To take advantage of rising domestic and international energy prices, the British investment firm Vallares, founded by Tony Hayward, the former chief executive of BP, bought the Turkish oil and gas exploration company Genel Energy for $2.1 billion.
Turkey’s renewed push to privatize state-owned industries has attracted international attention, too. As it has liberalized over the last 20 years, politicians have sold to the private sector stakes in much of Turkey’s energy and telecom industries. To further reduce the financial burden on state coffers, other government-backed businesses, like Turkish Airlines, which is 49 percent owned by the state, could soon be up for sale.
“Privatizations will include infrastructure, financial and energy assets,” said Richard Evans, a partner at the law firm Allen & Overy, which opened an office in Istanbul in December to capitalize on the growing mergers and acquisitions activity.
“Right now, Turkey is a much more attractive place to do business than Greece or Spain,” Mr. Evans said.
