Turkish economy in the hole of the crisis: investors fleeing

Turkey is facing one of the most alarming periods of its modern history. Even though the local regime has survived the July coup attempt, has made it up with global powers and has even gained an “own niche” in the Syrian conflict, it is unable to solve its economic problems as many foreign investors are being scared off by President Recep Tayyip Erdogan’s plans to switch from the parliamentary to presidential rule and thereby to gain undivided authority.

Turkey remains extremely dependent on the inflow of investments. In 2015, it received $16.5bn in direct foreign investments, while in Jan-May 2016, it got just $2.3bn – half of what it got a year before. Foreign investors no longer wish to stay in Turkey for long and prefer short-term undertakings.

Increasingly short of foreign capital, the Turks are finding it much harder to repay their debts. Standard & Poor’s and Moody’s reacted immediately by cutting the country’s sovereign credit rating to non-investment grades (1).

Next year, Turkey is planning to enlarge its GDP by 4.4%. But this plan will obviously have to be revised as the European capital is streaming away from the Turkish market.

In Oct, TRL was as low against USD as never before – 3.1 TRL/1 USD. In contrast, bonds are growing in price. Since June, their yield has risen to 9.81% - but the problem is that appreciating bonds often mean depreciating securities.

Some foreign investors left Turkey even before the July events: Tesco of the UK sold its Kira network, OMV of Austria stopped selling oil products, Statkraft of Norway put its Siirt-based HPP up for sale.

After the “triumph” of Erdogan, European investors began fleeing from the country. The Turks were forced to look for alternatives in the Middle East. As a result, UAE-based Akzirve Gayrımenkü is planning to invest in Turkish real estate as much as $500mn. This is not bad considering that 25% of direct foreign investments in Turkey go to real estate.

The Arab partners are also interested in construction. This year Saudi Arabia’s Housing Infrastructure Program Ministry has made a contract to build 340mn sq m in Turkey.

But Arab funds are just a stopgap for Turkey as Asian investors are also showing reluctance to sponsor the country’s economy. Recently, a big Japanese investor cancelled its plans to build a network of hotels in Turkey. Its key concern is that Turkey is one of the key targets of Islamic extremists.

Turkey’s tourism is facing one of the worst periods ever. The growing number of terrorist acts in Turkish resorts is scaring off foreign tourists. Turizmdatabank reports that as a result, the country has already lost as much as $15bn and may lose even more. In 2016, Turkey has already lost as many as 9.5mn tourists or as much as $10bn.

One more anti-record is all-time high unemployment. Since July, the army of jobless Turks has been growing by 0.5% a month. According to TÜİK, as many as 10.7% of all Turks are jobless. This is as many as 3.3mn people. Among young Turks, the unemployment is as high as 19.8%.

Hard as Erdogan is trying to encourage his people, he cannot deny the reality. And this reality is not good for his plans to make Turkey a presidential republic. During the last conference of potential investors in New York, Turkish Economy Minister Nihat Zeybekci assured them that Turkey had overcome the crisis, but his assurances did not impress anybody as the gap between Erdogan’s optimism and the reality is too big for him to be able to hide it from sharp-eyed European and U.S. business partners.

But Arab investments are not the only way-out for the Turks. Joint projects with the Russians are also a good option. Western experts see no alternative to renewed Turkish-Russian contacts (2). The core of these contacts will be energy as Turkey is critically dependent on the Russian gas. Here we can already see some progress as the Turks have bought as much one million tons of Russian crude oil over the last months.

One of the scenarios for the Turks to diversify their gas imports is to buy it from Qatar but now they have put it aside and have preferred the project to lay a 15.75bn c m gas pipeline via the Black Sea.

One more promising joint project is the construction of four nuclear reactors with a total capacity of 4,800MW in the province of Mersin. For the Turks this project is certainly good but whether it is as good for the Russians is not yet clear.

The trade turnover between Russia and Turkey has slumped as compared with 2014. That year it was $32bn, but in 2015, it dropped to $25bn and in Jan-Aug 2016, it was just 40% of Jan-Aug 2015. So, the goal to bring to $100bn in 2020 is very far.

Besides prospects, the sides also have problems. And one of them is BOTAS’s claim against Gazprom’s price.

But recently the Turks have become much more compliant as Russia is a good alternative to the outflowing European capital.

Turkish experts say that after the July coup attempt, Turkey has lost as much as $100bn. And with indirect losses, missed profit and spoiled reputation inclusive, this sum is even bigger. And if we add to this the infrastructure damaged as a result of the war with Kurds in the southeast, we will have a deficit of a really disastrous scale.

There are lots of external and internal factors proving that Turkey is going down into the hole of a long-term economic crisis. Despite its seeming stability, Erdogan’s regime is not stable. An army of 3mn jobless Turks is just one of those factors (and also the consequence of Erdogan’s post-coup measures), but it alone is a big danger for Erdogan’s regime.

(1) Mustafa Sonmez, Risk indicators growing for Turkish economy // Al-Monitor, October 27, 2016.

(2) Engdahl’s article

http://www.vestifinance.ru/articles/76 574, 20.10.2016.

EADaily’s Middle East Bureau