Turkey’s Private Sector Concerned Over Protracted Emergency Rule

Rahmi Koc, the honorary president of Koc Holding Business Group, the largest business conglomeration in Turkey, said last month that his family was mulling to move some investments abroad, citing the exhaustion of domestic markets.

“We have grown enough in Turkey. We are now looking elsewhere for new investments,” he said. Another reason he put was the competition commission’s ever-growing monitoring of the group’s business activities given its outsize place in the Turkish economy.

“When Arcelik adds another two points to its market share, the Competition Authority instantly tells us that it is too much, that we should stop. When we buy something new, they deny permission,” the business icon said, citing the need for going international and global.

According to an Al-Monitor report, the Koc Holding’s annual sales amounted to 6% of Turkey’s entire gross domestic product, a staggering figure that singles out the group as the richest, largest and influential actor in Turkey’s private sector.

It employed 83,000 people and emerged as a bone of Turkey’s growing industrial prowess, became a source of national pride with selling technology and various products in advanced EU economies.

But Mr. Koc’s carefully scripted language contained a subtle acknowledgment of anxiety prevalent among business world in Turkey. And concerns of Turkey’s business community appear to be worsening as the protracted state of emergency shows no signs of an end after the government extends it every time when it expires.

Multiple Challenges

The world economy seems to be in a fine fettle in general terms. The economic growth simultaneously spans the major economies around the globe, in Europe, America and Asia.

“In emerging and developing Europe, where growth in 2017 is now estimated to have exceeded  5 percent, activity in 2018 and 2019 is projected to remain stronger than previously anticipated, lifted by a higher growth forecast for Poland and especially Turkey,” IMF said in its January report to evaluate the economic outlook of world economies.

“These revisions reflect a favorable external environment, with easy financial conditions and stronger export demand from the euro area, for Turkey, an accommodative policy stance,” it added.

A month later, an IMF mission in Turkey warned against overheating. Surprising most of observers and experts, the Turkish economy showed an unexpected resilience and growth last year. The Turkish economy grew by an eye-catching 11.1 percent in the third quarter of 2017, defying most of the forecasts.

“Such has been the strength of the recovery that the economy now faces signs of overheating:  A positive output gap, inflation well above target, and a wider current account deficit,” the mission said in a statement.

Still, the uncertainty over the state of emergency keeps private sector jittery.

“The economic, business and political environment is challenging for sure and given the risks likely some Turkish businesses are diversifying their holdings which means putting some assets offshore,” Timothy Ash,  a senior strategist at Bluebay Asset Management, told Globe Post Turkey.

In early February, leading business group, the Turkish Business and Industry Association (TUSIAD), urged the government to end the emergency rule.

In order to preserve its international reputation, Turkey needs to start normalizing rapidly, TUSIAD head Erol Bilecik said, according to Reuters.

“The first step in that regards is bringing an end to the state of emergency.”

The rising inflation, which hit record highs last year, the quarrel between President Recep Tayyip Erdogan and Central Bank over interest rate, the fear of bubble in the construction sector and the new military offensive against northwestern Syrian enclave of Afrin remain sources of anxiety for the business world.

When reports first emerged about businessmen moving assets abroad, the president called them as traitors. Facing international criticism, he later retracted his remarks and praised Turkey’s embrace of free trade, and movement of money and goods.

Despite all signs of troubles ahead, the Turkish economy displays resoluteness.

Mr. Ash said Turkey is a pretty complicated story – growth has surprised to the upside and there is an underlying durability.

“Note likely 6.5% growth last year and perhaps 3.5-4% this year. The price though has been concern about overheating and that had meant high inflation, a weak lira and high policy rates and that is hurting business with higher leverage, particularly in FX,” he said.

The cost of Afrin operation also looms large over the fortunes of the Turkish economy. Combined with the prolonged emergency rule, any protracted campaign against Kurdish militia is bound to stir up concerns among the Turkish business community, would further erode the confidence of private sector.