In the early days of the Arab uprisings, when hope still mingled with smoke on the streets of Cairo, a prominent Egyptian investor, Ahmed Heikal, said that “if we get things right, we could be Turkey in 10 years. If we get them wrong, we could be Pakistan in 18 months.”
Everyone understood what he meant. After all, Turkey spent much of the first decade of the Recep Tayyip Erdogan era, beginning in 2003, as a darling of the emerging markets. During Erdogan’s first decade, Turkey’s economy was well on its way to tripling in size and growth rates were, at times, sizzling. Investors, including many from the Arab world, flocked to Turkey. Some outside investors even breathlessly compared Turkey to the BRIC economies of Brazil, Russia, India, and China, which were the flavor of the time.
There was truth to some of the hype. Turkey’s Anatolian Tigers and other manufacturers across the country became consumer goods powerhouses, exporting precision machines to Germany, televisions across Europe, and food products around the world. Meanwhile, Turkish soft power was on the rise as its soap operas were all the rage in Arab living rooms and far beyond. It seemed that Turkey’s moment had arrived.
Fast forward to today and Turkey’s economy is battered by rising deficits, a deteriorating currency, and erratic leadership by the man who seemed to once have the golden touch. President Erdogan is no longer seen as the successful leader that brought growth and stability to Turkey. He is seen as a more traditional crony capitalist autocrat with a deep paranoid streak. Turkish companies and the broader economy are also facing a post-binge crash as their excessive borrowing of foreign capital is coming back to haunt them as the lira falls and their debts become unsustainable.
Erdogan should remember the lessons of his first decade in power: Measured, pragmatic policies may not win you applause, but they serve your people better in the long run.
When Turkey comes up in the conversation among emerging markets investors, it is not to tout its opportunity, but rather to discuss its problems. Many analysts see Turkey headed for, as one put it, “a very hard landing.” Turkey, according to JP Morgan Asset Management, faces “a perfect storm” of rising debt, a falling currency and unsustainable fiscal and current account deficits.
Erdogan’s massive purge of government and military officials, combined with his tirades against “the interest rate lobby” and finger-pointing at what he calls “economic terrorists on social media,” have contributed to a sense in the investor community that Turkey is no longer a reliable place to invest and do business. While this may not be true (Turkey’s private sector remains sophisticated and it has a large middle class), Erdogan’s actions have spooked foreign investors.
A nation’s politics inevitably color the investment outlook, whether fairly or not. When the leader looks erratic and paranoid, you had better have a very appetizing economic story to tell. Consider the US. Even the most ardent supporters of President Donald Trump would admit to his erratic nature and his paranoia (only fueled by last week’s anonymous New York Times op-ed suggesting that officials in the White House are ignoring his wishes). Still, the $19 trillion US economy can absorb Trump’s unconventional style. There are simply too many opportunities, too many innovative companies, and too deep and liquid capital markets for any global investor to give the US “a pass” because they find its politics erratic.
This brings us back to Turkey and Erdogan’s leadership. During his first decade in power, Erdogan won grudging respect even from his opponents because he seemed to set aside his firebrand instincts from his days as an opposition leader — which once landed him in jail —in favor of a more measured, focused, technocratic approach to delivering the economic goods for his people.
It is worth remembering that Erdogan’s AKP party swept to power in 2002 in response to an economic crisis. Today, as Europe once again wonders if Turkey has become “the sick man of Europe,” as Tsar Nicholas I of Russia dubbed the Ottoman Empire in the mid-19th century, Erdogan would do well to remember the lessons from his own first decade in power: Measured, pragmatic policies may not win you applause from the cheap seats in the gallery, but they serve your people better in the long run.
- Afshin Molavi is a senior fellow at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies and co-founder of emerge85, an initiative dedicated to exploring change in the emerging world and its global impact. Twitter: @afshinmolavi