Attempts to diversify Turkey’s economy meet with resistance

Originally appeared on Bosphorus Consulting on 19 September 2014

Ali Babacan, Turkey’s Deputy Prime Minister, and the man largely responsible for running the economy, spoke last week of his intention to turn Turkey’s focus away from construction to developing industry. The remarks were welcomed by international and domestic observers, as it has long been argued that Turkey risks facing a construction bubble if it is unable to diversify. The country’s construction industry is heavily indebted and contributes significantly to Turkey’s national debt (90% of which is denominated in foreign currency), making it very vulnerable to changes in the strength of the lira.

However, Babacan’s words were met with fiery criticism by Ali Ağoğlu, a construction mogul with close ties to the government, who claimed the Deputy Prime Minister was trying to “block construction” (HürriyetBusiness tycoon Ağaoğlu slams Turkish deputy PM’s vow to shift focus from construction,” 19 September 2014). There have been a number of examples of discord between Babacan and the government’s position over the last year, but commentators generally favor Babacan’s approach. Indeed, markets rose on news that he will remain in charge of the economy after news circulated that Yiğit Bulut, well-known for his idiosyncratic comments and unorthodox opinions (Reuters “Turkish president Erdogan appoints divisive aide as economic adviser,” 30 August 2014), will serve as chief economics advisor to newly elected President Erdoğan.

All this highlights the precarious position in which the Turkish economy now finds itself. Seeing indecision at the government level at this potentially difficult time, investors are likely to be growing more wary and may start to see Turkey in a different light, now no longer the darling of the emerging markets that it once was. Still, there are many investors wanting to work in Turkey, and against this backdrop it appears that now is a better time than ever before for a Turkish business to take steps to stand out from the crowd and present a transparent and conscientious business approach to the world.

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