Turkey's Struggling Economy The Demise of the Anatolian Tiger

Turkey's economy is suffering badly amid the country's political uncertainty. Investors have lost confidence, tourists are staying away and the lira is rapidly losing value. President Erdogan hasn't grasped the severity of the situation.
The Turkish lira is struggling along with the country's economy.

The Turkish lira is struggling along with the country's economy.


Until recently, Haci Boydak was a popular man. The 56-year-old operated several dozen companies, including Istikbal and Boytas, two Turkish competitors to IKEA. Politicians used to ask him for advice and his hometown of Kayseri in central Anatolia even named a football stadium after him.

But that chapter has now come to a close. If Turkish President Recep Tayyip Erdogan gets his way, all references to Boydak in the country are to vanish. Last spring, police arrested the businessman along with two other senior executives from the family's holding company and locked them up in a prison near Ankara. Boydak's assets were confiscated and his companies were placed in receivership. Even Boydak Arena in Kayseri got a new name.

Erdogan suspects Boydak of having supported the Muslim cleric Fethullah Gülen, who the Turkish president blames for the failed military coup in the country on July 15, 2016.

The businessman's case clearly shows the direction Turkey has taken since the events of last summer and how Erdogan has set about transforming his country into a dictatorship. Around 130,000 civil servants have either lost their jobs or been suspended while 45,000 people have been arrested.

Now, the purge  has increasingly turned to the country's economic elite. Scores of business leaders have been put behind bars as suspected conspirators behind the putsch.

The trend has not been without consequences. The Turkish economic miracle is currently in the process of transforming into the opposite: The country's gross domestic product, which grew by 9 percent at one point under Erdogan's leadership, saw a drop of 1.8 percent in the third quarter of 2016 relative to the same period in 2015. In December, unemployment climbed to 13 percent, which is the highest level in seven years. And the Turkish lira is at an historic low against the dollar, which has put companies that hold debt in US dollars in a tight spot.


Taken together, the situation could put Erdogan on the defensive more quickly than expected. On April 16, Turkish voters will be voting on constitutional changes that would hand the president significantly greater powers than he currently enjoys. At the end of last year, surveys indicated that Erdogan was going to get his wish, but now, with the economy in the doldrums, victory is looking less certain.

Millions of Turks, after all, didn't elect Erdogan because of his nationalist agenda and Islamist leanings. They did so because of his promise of prosperity. Under his leadership, an Anatolian middle class has developed -- one which is now concerned that its standard of living may plunge once again. According to one recent survey, two-thirds of Turks are unhappy with economic developments in their country. Even in places like Kayseri, long considered a stronghold of Erdogan's Justice and Development Party (AKP), the president is facing criticism.

A 'Ghost Town'

On a recent chilly day in March, the 54-year-old businessman Kenan Marasli was strolling across the market square. Many of the shops were shuttered and had "for sale" signs in their show windows. "Kayseri has become a ghost town," Marasli says. "Even under the Junta in the 1980s, the situation wasn't as hopeless as it is today."

Marasli, a sturdily built man with a moustache and thinning gray hair, used to run a grocery wholesaler in Kayseri, but business plunged following the coup attempt, he says. In December, Kurdish extremists carried out an attack on a military bus. In response, a nationalist mob attacked the offices of the pro-Kurdish party HDP. Marasli, who was active on behalf of the HDP, also received threats. He was forced to close up shop, as were many others.

Kayseri is considered to be the birthplace of the "Anatolian Tigers," the Muslim-conservative business leaders who achieved significant wealth under Erdogan. The city is located in the heart of Anatolia, roughly equidistant from the Mediterranean coast in the west and the Iranian border in the east, and in the last three decades, its population has exploded from 500,000 to 1.4 million. In 2004, the city applied for a mention in the Guinness Book of World Records, with 139 companies founded in a single day.

Haci Boydak, the business leader who is now in prison, was one of those company founders. His holding company employs more than 12,000 people and exports goods to more than 140 countries and he was also an important AKP donor. The think tank European Stability Initiative described Boydak in one study as an "Islamic Calvinist," a man who combined Islam and modernity, capitalism and piety.

Like many in Kayseri, Boydak was sympathetic to Fethullah Gülen and is thought to have donated significant sums to the Gülen movement, which operates schools, media outlets and insurance companies around the world. Gülen's followers venerate the cleric, who has lived in exile in the United States since 1999, as a Muslim reformer while his opponents accuse him of being the leader of an Islamist sect.

Indifference at the Top

Gülen and President Erdogan were allies for quite some time, but had a falling out in 2013. The government now believes the cleric was behind the 2016 military coup attempt and has been going after his followers ever since -- including those who helped make the country an economic powerhouse.

In recent months, Erdogan has had around 800 companies confiscated, worth a total of 10 billion dollars. In Kayseri alone, some 60 business leaders in addition to Boydak have been arrested as alleged coup participants or terrorists, including the head of the local chamber of commerce and industry. Exports from the region surrounding Kayseri plunged by at least 4 percent last year while two of every five shops in the city center have closed since the coup attempt, says Marasli.

Erdogan doesn't seem to care, and he has shown an indifference to the statistics as well. On the contrary, in his speeches, he conjures up images of a strong Turkey that has emancipated itself from Europe and will soon become one of the largest economies in the world.

The truth, however, is that the country is in the process of economic collapse. State repression has created an atmosphere of fear and distrust -- and that has taken a heavy toll on business.

The Istanbul banking quarter of Levent

The Istanbul banking quarter of Levent

Foto: Murad Sezer/ AP

In Levent, the Istanbul banking quarter, anti-terror police patrol the streets and pro-referendum posters featuring Erdogan's portrait are plastered on buildings. Tolga Yigit, the Turkish manager of an American investment bank, pushes his way past the security gate into a Starbucks café in the shadow of the adjacent office towers. He imposed two conditions on our interview: that his real name not be used and that his employer likewise not be revealed. Otherwise, the investment banker fears that he could become a target of the government. "Nobody who criticizes Erdogan is safe in Turkey," he says.

Yigit was once a supporter of the president's AKP party and says that when Erdogan became prime minister in 2003, he modernized the Turkish economy, including reducing bureaucracy and opening the market to private investors. Foreign financiers were eager to invest in companies in the country, pouring around $400 billion into Turkey between 2003 and 2012. The sum was more than 10 times higher than in the 20 previous years.

'The Risk Is Simply Too High'

But the aftermath of the coup attempt -- the mass arrests of opposition activists and the confiscation of companies -- has scared investors off. The rating agencies Moody's and Standard & Poor's have slashed Turkey's credit rating to junk status and foreign investment plunged by over 40 percent last year.

Yigit says that he can hardly find anyone anymore who is interested in doing business in Turkey. "The risk is simply too high for investors," he says. Meanwhile, clients who have been economically involved in the country for years are now pulling their money out.

The capital flight has triggered a downward spiral that has been particularly noticeable in the construction industry. Turkey's high growth rates in recent years were fueled primarily by infrastructure projects, with Erdogan pouring money into the construction of highways, hospitals and airports. Now, though, there is insufficient foreign capital available and growth is stagnating.

Furthermore, political instability has led to a steep drop in tourism revenues, with a plunge of roughly one-third last year. There are hundreds of hotels up for sale on the Turkish Riviera, on the country's southwest coast, and some 600 of 2,000 shops in Istanbul's Grand Bazaar have been forced to close since last summer, according to the bazaar's merchant association. Turkish Airlines has taken 30 planes out of service.

The consequences of the struggling economy can be seen in day-to-day life: Companies have been forced to lay off workers and cut salaries; people have less money. Domestic consumption, which made up 60 percent of the country's GDP last year, has shrunk.

At the same time, the Turkish currency, the lira, has rapidly lost value and inflation stands at 10 percent. "We are heading toward the worst-case scenario: economic stagnation combined with persistent inflation," says Istanbul-based economic writer Mustafa Sönmez. "Turkey is on the verge of bankruptcy."

Great Potential

Observers fear that Turkey could take other countries along with it. The country holds $270 billion of debt with international banks, with $87 billion of that total in Spain, $42 billion in France and $15 billion in Germany. Should the country default or partially default, Sönmez believes, it could trigger another financial crisis in Europe.

Germany, too, is affected by Turkey's economic struggles. Almost 7,000 German companies are active in Turkey, with 2016 trade volume at 37 billion euros. Many of these companies are increasingly worried about business. Volkswagen, for example, sold one-third fewer trucks in Turkey in 2016 than it did the previous year. "The market in Turkey has come to a standstill because of the political developments," says Andreas Renschler, head of the VW subsidiary Volkswagen Truck and Bus. In another example, Hamburg-based shopping-center operator ECE was forced to back out of management of a shopping mall in Istanbul after its Turkish partner firm, which owned the center, was confiscated by the state.

German-Turkish Chamber of Commerce head Jan Nöther, whose Istanbul office looks out over the Bosporus Strait, finds the situation challenging. Turkey, he says, has the potential to become a successful economic power: a young population combined with modern infrastructure. "Everything is there."


The article you are reading originally appeared in German in issue 14/2017 (April 1, 2017) of DER SPIEGEL.

But the country's current direction, he says, is difficult to understand for international industry. German-Turkish trade relations, he says, are immune to crisis, but sooner or later companies will begin looking around for other locales if stability in Turkey becomes unreliable.

Erdogan, by contrast, depicts the crisis as a conspiracy of international powers against his country. "There is no difference between a terrorist who has a weapon or bomb in his hands and a terrorist who has dollars, euros and interest rates, in terms of aim," he said in January. "The aim is to bring Turkey to its knees."

For weeks, Ankara has been waging verbal warfare against European countries that have banned referendum campaign appearances  by Turkish ministers. Erdogan himself has accused the German government of "Nazi practices ," "racism" and "Islamophobia." Last Sunday, he announced that following the upcoming constitutional referendum, he would call a second vote to ask the Turkish people how they feel about European Union accession.

Living in His Own World

It is becoming increasingly apparent that Erdogan is seeking to divert his people's attention from the fact that he doesn't have a plan for confronting the economic headwinds his country is currently experiencing. Meanwhile, he is almost desperately seeking to procure capital. Ankara has introduced a special gasoline tax and resolved to increase value added tax (VAT). Likewise, Finance Minister Mehmet Simsek met with his German counterpart Wolfgang Schäuble in February in the search for support for his country's shaky economy.

Furthermore, experts have been warning for months that the Turkish Central Bank needs to raise interest rates more rapidly to prop up the lira. But Erdogan is afraid that growth would drop even further as a result. Instead, he has blamed an "interest-rate lobby" for the lira's plunge and for inflation and has summoned his compatriots to exchange their dollar and euro savings for liras. "Let's not contribute to making foreign currencies even stronger," is his doctrine.

Yigit can only shake his head. The investment banker has participated in several conference calls with AKP politicians in recent months and he believes that the government doesn't fully appreciate the gravity of the situation. Erdogan, he notes, continues to claim that Turkey is a global power and that all other countries are just jealous of its success. "Our president," says Yigit, "is now living in his own world."