Turkey’s Elections – Can it grow outside the EU?
By Political Tours Staff and Analysts - April 8, 2011.
For over a decade Turkey’s economic prospects and political reforms have been driven forward by the desire for EU membership. But with that increasingly in doubt what are Turkey’s economic prospects outside the block?
Turkey is in the midst of election fever. Recep Tayyip Erdogan, prime minister and leader of the Turkey’s moderate Islamist Justice and Development Party looks set to win an unprecedented third majority in parliament.
If Erdogan wins he says he will reform the constitution and bring it into line with European norms – good news perhaps for investors who believe that EU membership, or at least the EU accession process, will provide stability and growth.
EU Membership in Doubt
But not everything is that simple. It now seems a distinct possibility that Turkey will not get in to the club of 27 amid opposition within Turkey as well as in the EU itself. Furthermore, Erdogan’s reformist zeal seems to have a lost its edge. In the run up to the polls the government has intensified a long running investigation into an alleged coup attempt that has seen journalists and critics of the government arrested or under investigation.
Where does all this leave outside investors?
“The prospect of EU accession has provided an anchor for foreign investors. It has not been the only thing, but it has certainly reassured them, contributing to Turkey’s economic and political stability,” says Piotr Zalewski, Political Tours’ Turkey analyst.
But Zalewski also says despite the medium term uncertainty over the EU accession process most analysts and investors with assets in Turkey are no longer as worried as before about the ramifications of non-membership.
“Initially when you talked about the relationship between FDI and Turkey’s EU perspective, people would say that if the EU bid were to fall apart, there would be this giant sucking sound. That no longer seems to be the case,” says Zalewski who is also an editor at European Stability Initiative, a think tank that monitors Turkey’s accession process.
Turkey – The Stealth Super Power
The consensus shows that backed by significant growth, Turkey is highly unlikely to return to the pattern of political instability that marked it in the 1980s and 1990s. One commentator, John Feffer, the co-director of the think tank Foreign Policy in Focus, has spoken notably about Turkey as a “stealth super-power”, whose economic growth puts it close on the tails of China.
“Take population out of the equation – an admittedly big variable – and Turkey promptly becomes a likely candidate for future superpower (status),” Feffer wrote in the Huffington Post last year. Turkey possesses the 17th largest economy in the world and, according to a Goldman Sachs, has a good shot at breaking into the top 10 by 2050, he wrote.
Growth has been steered by a series of economic reforms implemented by the government since the banking crisis of 2001. GDP per capita has doubled at least since 2002, according to Turkstat, the official Turkish statistical office, and has recently passed the 10,000 dollar threshold, representing a huge leap in purchasing power.
But alongside a growing middle class there are also huge disparities of income. Istanbul is now home to the fourth highest number of billionaires after New York, Moscow and London, according to Forbes magazine.
“While EU candidacy is one of the things that make Turkey an extremely attractive destination for FDI, it is far from the only one,” says Zalewski. “Although at this point investors are learning to grow comfortable with the fact that the EU prospect for Turkey is fading, a lot depends on how it ends. If it ends with a bang, as the result of a major political crisis, that would obviously be problematic.”
Turkey as Springboard to other Markets
The possibility of a shift away from the European Union has been mirrored by closer political and diplomatic ties with Turkey’s immediate neighbours. The so called “zero problems with neighbours policy” adopted by Turkey’s foreign minister, Ahmet Davutoglu, reflects the enormous increase in trade with the region, which has made Turkey a significant springboard into other markets.
“The Turkish economy is becoming increasingly dependent on trade,” says Zalewski. “In 1975 Turkey’s trade with the outside world stood at $6.1 billion, or 9 per cent of GDP. In 2010 it reached $300 billion, or 46 per cent of GDP.”
“Turkish policymakers, Davutoglu chief among them, are betting on the fact that trade and soft power is the key to interdependence and regional stability,” says Zalewski, explaining that Turkey is looking outside Europe for new markets. “While Turkey’s exports to Europe - as a share of total exports - have dropped by about 10 percentage points between 2002 and 2010 (to about 45 percent), its exports to the Middle East – again, as a share of total trade – has more than doubled (to 20 percent),” notes Zalewski.
In or out of the EU, it seems Turkey is highly unlikely to steer away from its economic reforms and its commitment to growth.
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