The effect of foreign policy normalization on Turkey’s economy

The effect of foreign policy normalization on Turkey’s economy

The business community is closely watching the normalization that has started between Turkey and Israel after six years of breakdown, as well as the steps taken to overcome the crisis with Russia.

Many believe that these recent developments in foreign policy will have a positive effect on the economy and wish for the continuation of these steps.

The fact that the “we will become friends with more countries” rhetoric, which came onto the agenda with the new government, is being realized is in itself seen as a positive development. 

If there are to be outcomes in the short term following these reconciliatory steps, there could be some smoothening of the problems that have been endured. 

As trade relations with Israel have for six years continued on their normal course - despite political stalemate - a significant contribution is not expected in the short run in commerce. 

In terms of tourism, the problem in Turkey keeping tourists away is terrorism. In the event that terrorism ends, tourist arrivals from Israel would be expected to rise again.

The economic contribution of the reconciliation of ties with Israel will be more significant in the medium term, with the Eastern Mediterranean gas passage to Europe via Turkey.

A solution in Cyprus is required for the gas project. Therefore normalization with Israel could facilitate a step that is very important for Turkey.

On Russia, in the short run no doubt normalization with Moscow will have a much higher contribution to the economy. In view of the fact that Russia’s imports from Turkey have stopped to a significant degree, this step will have an important contribution in terms of exports.

In terms of tourism, the problem created by Russia is clearly very big. Even if steps start to be taken, there are unknowns such as when normalization will actually take place and whether Turkey’s moves will be enough. This is being closely monitored.

In any event, it will take some time for relations to get back to where they used to be. This tourism season is seen as a loss, but we can say there is still hope about saving next season.

Obviously the main problem for tourism is putting a stop to terror acts. Peace steps taken abroad will have to be replicated inside the country too.

The normalization steps taken on the foreign policy level, followed by normalization in domestic politics, will have a great contribution to the economy. Needless to say, this environment also needs to be strengthened by further economic reforms.

Brexit uncertainty

So business circles have welcomed the recent normalization steps. But they are also cautious. It will be more difficult to take the necessary steps on Iraq and Syria; and there is also a need to reconcile with the West.
Yet the most important development that has led to concerns in the business community, especially the banking sector, has been the recent Brexit vote.

Global developments still pay a dominant role in domestic economic developments and it is clear that this will continue.

When Brexit will actually happen, what will be the outcome of the disagreement that has already started on its timing, and how long the exit process will last are all issues of curiosity.

What is feared most is any stop in the flow of capital, which would badly affect Turkey’s economy.