Initially suspected, only to be later confirmed by analysts from the US consulate, the Turkish people (generally speaking) can be fairly polarizing in their own views of Turkey, rarely playing devil’s advocate to many of the underlying weaknesses that lurk underneath its growing economy. In the context of global business, my attempt below is to try and flesh out the real positives and negatives of Turkey’s economy, and its true present and future business potential.
While in Istanbul, I met with a young Indian gentleman who is the epitome of global businessman. Only in his early 30’s, he has already worked in nearly every major city of the world, and routinely travels internationally. His most recent semi-permanent stop has been a transfer within his solar energy company from Dubai to Istanbul. In discussing Istanbul and Turkey (and actually being Muslim himself), he wasted little time in bringing up the natural comparison to Cairo, Egypt. Although Cairo is slightly larger in size and population, both Istanbul and Cairo were essentially equals on the economic global playground only 15 years ago. Now, Istanbul/Turkey represent one of the largest economies in the world, and Cairo has fallen into chaos and near anarchy. How has such a sudden transformation been possible?
As the self-proclaimed, “Next Ataturk,” Turkey’s Prime Minister/new President, Erdogan carries quite a bit of bravado with him. Love him or hate him, most cannot deny the economic transformation that has taken place under his leadership. In many ways, Erdogan epitomizes the fascinating juxtaposition and contrast that makes up Turkey. Incredibly decisive, steadfast, stubborn, dynamic, controlling, conservative, global-minded yet very nationalistic, and “religiously secular”. Although he has quite a bit of opposition, I think few would argue that anyone else could have better managed and balanced a Turkish economy that essentially sits on a daily see-saw of geopolitical and economic tremors. The means as to how he has decided to manage and execute this balancing act is clearly a whole other question, and very much a debate to have in another paper. Whether one is for Erdogan or against him, there did appear to be a sense across the city that at least someone capable of leading is behind the wheel.
Provided there is a well-received succession plan when or if Erdogan ever relinquishes power, Turkey may be in a very good position for years to come. With an incredibly smart, entrepreneurial, engaged, educated, and dynamic young demographic, many Turks are being groomed (many perhaps unconsciously) to really bring Turkey onto the global economic and political stage. In this case, the rather large gap between the “professional” economy that I saw in my business meetings and the “street” economy that I experienced with the carpet salesman in the Grand Bazaar will eventually narrow. More Turks studying in U.S. universities compared to any EU nation means less are being trained for a sales role at the “Turkish Glengarry Glen Ross Academy,” and more are being groomed to be a player within the professional global business world.
Turkey, however, is playing with a bit of fire as it sits directly on the fulcrum of this see-saw mentioned above. On one side, this fire ignites one of the greatest economic success stories of the 21st century, and makes Turkey a beacon on the hill for all other comparable nations to follow in the region. On the other side, high inflation, youth unemployment, zero savings, implicit and explicit oppression, and a chaotic/unsustainable geopolitical environment could tip this massive young population into a firestorm that makes the Arab spring protest in Cairo look like a cake walk. Much of what holds up the Turkish economy is foreign investor capital, particularly from oil-rich Arabs. At even at the slightest hint of instability and unrest, foreign cash flow vanishes, and the scale tips immediately into dangerous territory. As we witnessed in Cairo, when people lose everything, and have nothing left to lose, they lose it. In such a scenario, 15 years of progress could be wiped out fairly quickly.
A representative from DEiK mentioned on several occasions that the lack of a financial sector in the Turkish economy can be viewed as a positive because more resources are being employed towards infrastructure and real estate. Within the context of financial instruments of mass destruction (i.e. derivatives, etc.), he makes a very good point. However, while Turkey is not at risk to an economic fallout due to these financial instruments, the lack of a financial sector means that wealth is not largely distributed. While many of the infrastructure and real estate projects are nice and can be enjoyed by some everyday Turks, the ownership of the last 15 years of Turkey’s economic boom is owned by very few. The vast majority of Turks have no equity in any of Istanbul’s many projects due to the lack of a public market structure that allows for broader wealth and ownership allocation. Unfortunately, many Turks (particularly the large population from the “street” economy) believe they are participating in real wealth creation in the Turkish economy, but this is largely thanks to the illusion created by credit expansion. Even the representative admitted that the use of credit cards is alarmingly high. Mixed with a 30-year low savings rate, we can assume that the everyday Turk is not employing real personal wealth to mingle with and join the ranks of the few elite Turks/outside investors to share in the ownership of Turkey’s growing asset base. History will show that while asset prices can fall in an economic downtown, the owners still have control of the assets – the public, however, will be left with the bill and potentially catastrophic inflation.
Lastly, let’s also not forget the role of the IMF. As politically ambitious as Erdogan may be, and as ripe as his country is to become an economically powerful sovereign and autonomous state, Turkey is still indebted to the programs of the IMF. While the loans have been paid back, Turkey’s long-term future is likely to still be dictated by a few global power elite who continuously control the ebbs and flows of a forever changing global geopolitical and financial system. While Turkey may not be completely in control of its destiny, it is certainly a fascinating place with a long and rich history, and an undeniably significant geographic presence in our world. With a friendly and hard-working population and culture, Turkey has shown that crises and problems only make the country stronger, so betting against Turkey is one gamble many are likely not willing to take.