A lead Turkish economist has described its political controversies and riots relating to corruption in the AK party as ‘hiccups’. Speaking at a business event organised by the Financial Times, in collaboration with Foreign Direct Invest magazine, fDi, Cevdet Akcay, a chief economist at the Yapi Kredi bank, said: “The reason why Turkey is the most poorly covered emerging market is because it is the most difficult to decode.”
He also faulted the Western media for fostering a poor image of Turkey without taking the responsibility seriously of how their reporting could form public opinion on the fate of a country, on not so honest perception created.
Turkey is most interested in getting down to business and has wasted no time getting down to work on this. The country has improved its infrastructure in just one decade and is looking to pour in some 45 billion USD on network rail by 2023. There are also plans to build a third airport in Istanbul to accommodate the growing tourist and business population.
(Slides from presentation by Turkish Finance Minister to investors at FT Headquarters, London)
Balancing the books and energy
Prof. Akcay explained inflation is likely to pick up by May 2015 and the country’s current account remained balanced. Turkey had experienced some high Current Account deficit between 2011 – 2013. Several factors are responsible for this deficit. First is strong domestic demand and the Euro Crisis. The EU remains Turkey‘s biggest trading partner and its crisis has been a drag on Turkey‘s external balances. Another reason is high energy prices due to the Arab Spring and market fluctuations. Turkey being a net importer of energy to the tune of 60 billion USD each year remains adversely affected.
To remedy the energy situation, nuclear plants have been built, with some in the pipeline to ensure electricity supply 24/7. Turkey is also becoming a big solar market with many investment opportunities.
(Areas in amber and red are potential solar energy markets)
Loosening the banking system
Many investors looking to penetrate the Turkish market bemoan the stranglehold the banks have on the distribution channels in relation to the financial markets. But as from July 1st, 2014, the market is opening for asset management companies, following years of bank dominance.
Turkish Finance Minister, Mehmet Simsek, said the government was in support of more competition across the board as they believe it is good for innovation. He said: “The banking sector grip needs to be loosened, reason why we are encouraging capital markets.”
The issue of the Central Bank’s independence was raised during panel discussions chaired by fDi’s Editor-in-chief, Courtney Fingar. FM Simsek said he believed the Central Bank in Turkey was independent as they had recently raised the interest rate by 5% (500 Basis Points) and have been quite independent operationally.
Prof. Akcay added his voice by saying if there has been pressure then the Central Bank has not succumbed to it.
Government contribution towards private insurance scheme
The Turkish government has also decided to contribute 25% towards the private pension fund scheme, a move which some investors questioned, how sustainable it could be. FM Simsek said that it is sustainable as the government wants people to save and reduce consumption. For every 100 Lira saved into the scheme, there is a 20 Lira return. Simsek called this ‘very generous’. This statement was also supported by Meral Kurdas, CEO of AvivaSA Individual Pension and Insurance, who was one of the panel members. She echoed a sentiment of surprise in the insurance community when the government agreed to support their pension scheme.
However, SMEs face challenges in accessing finance because the informal companies often have books not reflecting the real numbers of the business. Most are now getting help to bring their books to international standards so that they can apply for loans from banks. The government has used this route to try and reduce the shadow economy.
Despite these efforts, Turkey has been rocked by a lot of political controversy and riots recently. Since May 29th, there have been standoffs between the police and protesters in Taksim Square in Istanbul, as the latter gathered to remember the one year anniversary of Taksim Square. Protesters who gathered at the Square have been involved in fights with police and water canon and tear gas had to be used to disperse people. So far, 80 people have been arrested and 13 injured. These protests follow earlier protests of mine safety early last month, when a mine collapsed in the town of Soma, on Tuesday, 13th May, leaving at least 282 people dead.
The government of Reccep Tayyip Erdogan was rocked a month ago with corruption scandals and led to a temporary ban on Twitter within the country and YouTube. These two social networking sites the government believes is behind the social unrest that has gripped the country intermittently from last year. A high court in the country lifted a ban on YouTube which is yet to be enforced. Erdogan has been accused of trying to remain in power despite corruption accusations and mismanagement within the government.
Professor Akcay, to allay fears of investors who were in attendance at the Invest in Turkey event, said that most Turks believe that the corruption allegations against Erdogan’s government were politically motivated and emphasised that the country was normalising and stabilising; a sentiment later echoed by the Finance Minister, Mehmet Simsek in his keynote speech.
To end the panel discussions, FM Simsek invited investors to invest in ‘an emerging market growth with developed market risks.”