Turkey’s COVID-19 response from the perspective of German business

Turkey’s COVID-19 response from the perspective of German business

Recently, “AHK Türkei,” the Turkish-German Chamber of Industry and Commerce, has announced the results of a survey regarding the business expectations of its members. Fortunately, Turkey is not the only country that AHK, the German Chamber movement, has a dual chamber arrangement with – it has these arrangements with 92 countries. That is how through this survey, we can compare the COVID-19 response of different countries from a commercial perspective. It’s a kind of litmus test for Turkey’s COVID-19 response, and I find the results more than a bit ambivalent. Let me explain.

First, a short backgrounder on global chamber systems. There are two types of chamber systems in the world. Those with compulsory membership, which is the continental European model, and those with voluntary membership, which is the Anglo-Saxon model. Germany, France and Turkey have the former, while the U.S., Britain and Japan the latter. Turkish modernity is based on that of the continent, so Turkey’s placement here comes as no surprise. The great orientalist scholar Bernard Lewis once wrote that history of the Turks throughout the centuries was one constant movement towards the West. He might have added that we generally travel on horseback, not boats.

Turkey is part of the Germany-based global value chains (GVCs), especially in the automobile industry. What the members of AHK Türkei are thinking about the COVID-19 induced economic crisis in Turkey is therefore important for the country’s sluggish export performance these days. Note that this is not about the reformulation of existing GVCs as a result of US-China tensions. That is a separate issue. Here, we are concerned with Turkey’s economy from the perspective of German business, and what that reveals about our current predicament.

According to AHK’s survey, the problem is not about Turkey’s health system, which has displayed a stellar performance. 33 percent of AHK global survey participants say that the challenge to their health system is an impediment to swift economic recovery. This declines to only 13 percent with the survey’s participants in Turkey. This is despite the fact that in the last month only, the share of ICU patients among active patients in Turkey has risen again from 2 percent to 10 percent. According to the survey, Turkey’s problems are also not about liquidity or financing, nor a significant impediment to recovery from logistics. So far so good.

The impediment to recovery in Turkey is related to insufficient foreign domestic investments, capital outflows, rising government debt burden and exchange rate related concerns. Note that these are also the most significant structural problems of the Turkish economy. We suffer from insufficient domestic savings, and this means that our growth process is unsustainable. Some 28 percent of global survey participants think that problems related to the exchange rate are an impediment to quick, V-shaped, recovery. In Turkey, however, 76 percent of respondents think this is the case. That is a huge jump. It tells us that the challenge in Turkey is to create a conducive investment environment through economic policy transparency.

Why does this survey matter? Perhaps because it asks pandemic questions, but ends up taking us beyond the short-term thinking of recovery and export performance. With all these discussions about reconsidering existing GVCs and establishing leaner ones in the post-virus environment, AHK Türkei’s voice should be even more important than before the pandemic. It isn’t clear that this message is being heard in Ankara. Rather, Turkey seems unsure about whether it would like to enhance its share in GVCs. Considering how disruptive the COVID-19 induced crisis would be in the countries to the east, north and south of Turkey, it is unclear what this line of thinking seeks to accomplish.

Policy certainty and structural reforms are key to faster growth and job creation in the post-virus environment, and we have start re-laying their foundations immediately.