Turkish economy needs normalization before incentives

Turkish economy needs normalization before incentives

We have learnt that Prime Minister Binali Yıldırım will announce the “attraction centers” program, including new economic incentives, this week.

Although we do not know its scope, in a period like this, we must not expect to get much from such incentives. Let’s have a look at the last two years. The ruling Justice and Development Party (AKP) continuously announced new incentives after elections when the party could not come to power by itself.

These incentives skyrocketed ahead of the referendum. We can say roughly that only “the incentive measures through which money was put in people’s pockets” gave results, but the longer term investment incentives were not that successful. 

Ahead of the referendum, the employment incentive also gave good results so they do not belong to the two groups I mentioned above. It was a success as the political authority said, “I will look at each company one by one to see how many workers they hire.” Therefore, it may not be right to call this an economic incentive.

In my opinion, the most effective incentive was to offer the treasury guarantee for loans originated from the Credit Guarantee Fund (KGF) and to give a boost to their limits to a vast scale. It is obvious that the increase in these loans was the most effective tool in surging the economic growth. Besides, despite being late, the Central Bank’s efforts to prevent steep fluctuations in foreign exchange rates and to increase the rates for the money it offers to the market have also been effective, even though we cannot call them an incentive. Just as some government members have accepted, the blast in KGF loans ahead of the referendum buoyed many troubled small and medium-sized enterprises up by pouring hot money into them. These loans had a positive effect on the market but starting especially from next year, we will altogether see the scale of the return problem. Next to its financial bill for the treasury, expectations might also double the negative impact.

Development Minister Lütfü Elvan said the “attraction centers” program, which is set to be revealed by Yıldırım, should be considered together with the previously announced project-based incentive system and the employment incentives. Elvan added that all of these can create an ideal climate for new investments.

The government might think this way, but it is different in practice. Because even without the attraction centers incentives, the last two years’ incentives would be expected to create a more positive influence if we were in normal times. Therefore, not much must be expected from the attraction centers statement on its own. 

We say if we were in normal times because Turkish politics and its economy are not in its normal times. In the recent years, big mistakes have been made economically but the new global climate will not leave any further space to compensate these mistakes. We are not in normal times; we are going through a state of emergency and its name says a lot. The weird thing is that we do not know when this period will end.

The negative effect of the state of emergency is a lot. First of all, since local and foreign investors do not know when we will return to a normal state, they cannot estimate the future. It means that they do not want to risk their money during an uncertain period. 

One of the problems of this state of emergency is that the normal legal rules do not apply. You can say, “Why do the foreigners bother themselves with this?” But if it were you, would you invest your billions of dollars in a country whose regulations might continuously change and its politics being this tense. You would bring funds for high interest for a couple of months but investment is a long-term business. 

In brief, before announcing any further incentives, Turkey must return to the normal state in every aspect. Only then proper investments can be made.