In search for Turkey’s new economic narrative

In search for Turkey’s new economic narrative

Turkey’s need to create a new economic story is becoming more and more urgent. Economic growth has slowed and inflation has risen amid steep fluctuations in global markets and severe shocks. 

Until recently, Turkey had achieved a more or less successful economic story. The country lured record high foreign direct investment (FDI) in 2007 at around $22 billion, followed by $19.8 billion in FDI in 2008. These years were characterized by an intensive reform agenda from the government. The country later hit record high growth figures in 2011, becoming the second fastest growing country in the world just after China. 

It is unlikely for any emerging country to put things back on track right now, after the end of high liquidity party in global markets with the expected rate hike by the U.S. Federal Reserve soon. Within the last few days, the U.S. dollar has reached its highest value in 14 or more years. 

We also cannot ignore Turkey’s domestic problems. The Turkish Lira has been the world’s worst hit currency in recent weeks, performing even worse than the Mexican peso, on the eve of the era of U.S. President-elect Donald Trump. 

Politically, Turkey has suffered dozens of huge shocks – including fatal terror attacks, the escalating refugee crisis, and the failed July 15 coup attempt. In this environment, key sectors such as tourism have seen their darkest days in decades. 

The cabinet has announced a series of measures in the banking, agriculture and ICT sectors to boost the economy. However, more is needed in the short-term to revive the economy at least slightly, especially after European Parliament lawmakers called on Nov. 24 for a temporary halt to EU membership talks with Ankara because of the latter’s “disproportionate” reaction to the failed coup attempt. 

First of all, the state of emergency, which was announced just after the coup attempt and later extended, should be ended as soon as possible by speeding up the investigation processes, at least on the business side, in order to recover some confidence in Turkey’s investment climate. 

Second, the number of top officials talking about the economy should be minimized. The markets or others may now want to hear from one or two top economy officials about what is going on and what measures are being taken, rather than from five or more as we have at present. 

Third, the apparent “focus” problem needs to be overcome. What I mean by that is Turkey should decide whether it will be an industrial county creating high technology products or whether that will remain a developed subsidiary industry. Does Turkey want to be a tourism country or an energy hub? Does it want to boost its decentralized agriculture industry? 

Other key questions will follow this: Will Turkey choose to stick to the European Union accession agenda as a reference point to realize structural reforms, increase productivity levels, improve the education system, and strengthen the rule of law? Or will it start to seek new alternative “reference points” with which it will foster economic and trade ties? 

At this point, Turkey and the European Union, which is also Turkey’s largest trade partner, must take cautious steps in their bilateral ties. They need to use these new normal ties to understand each other and improve their ties, rather than closing all doors on each other. 

Now is not the time for Turkey to waste time on daily conflicts and populist discourse. The country still has time to strengthen its economy and welfare dividend, but it must act as soon as possible.