Political Risk Assessment: Turkey

Economic Risks

There are several possible economic risks of doing business in Turkey. Especially for companies that sell products manufactured outside Turkey within Turkey, one economic risk is posed by the falling value of the Turkish Lira. The Turkish Lira has declined steadily against the U.S. Dollar and the Euro from 2011 onwards, and Turkey entered an ongoing currency crisis in the summer of 2018 (Sahinoz & Cosar, 2018). As a result of the falling value of the Turkish Lira, many Turks can no longer afford to purchase foreign goods (Sahinoz & Cosar, 2018). Companies doing business within Turkey on the basis of Turkish labor or Turkish-manufactured goods face the threat of inflation, which, as it rises, prompts goods and services denominated in the Turkish Lira to be increased in price, reducing possible demand among Turks (Sahinoz & Cosar, 2018).

Another economic risk of doing business in Turkey is the immaturity of both assets and human capital. The rise of the Turkish economy, starting in the late 1990s, has been driven almost entirely by a system of crony capitalism, the mass extension of credit, and large construction projects (Cengiz, 2018). During this time, the global ranking of Turkey’s institutes of higher education has declined, the number of academic articles published by Turkish scholars has fallen, and most workers have not been exposed to best practices in technical or professional education (Cengiz, 2018). Unlike developing countries such as India, Turkey has no large base of well-educated, English-speaking, science and technology graduates to call upon, thus presenting a major challenge to companies that are in the information, services, or business process sectors in Turkey (Cengiz, 2018). Turkey lacks the manufacturing maturity of China and other Far Eastern countries with long-established histories of manufacturing; therefore, undergoing manufacturing within Turkey poses a risk of its own, as businesses are highly unlikely to find world-class manufacturing facilities. 

Terrorism Threats

There are several extent terrorism threats in Turkey. Since the early 1990s, the country has been engaged in a de facto war against the PKK (Partiye Karkeran Kurdistan), a Kurdish separatist group whose base of support is in Turkey’s southeast but which has carried out major terrorist attacks in the western metropolis of Istanbul, Turkey’s largest and most important city (Yarkın, 2015). The PKK has been responsible for thousands of civilian deaths and has made large portions of Turkey’s southeast into no-go zones for tourists and international business activity (Yarkın, 2015). 

In addition to the terrorist threat posed by the PKK, Turkey has been subject to numerous terrorist attacks mounted by members of the Islamic State in Iraq and Syria (ISIS) (Parlar Dal, 2016). ISIS has a major operational presence in Syria and Iraq, both of which border Turkey’s southeast, and porous borders have allowed thousands of ISIS militants to utilize Turkey as a base of operations as well as to attack Turkey directly (Parlar Dal, 2016). ISIS staged a major airport bombing in Istanbul in 2015 and has also been responsible for other terrorist events (Parlar Dal, 2016). 

There is some evidence that the government of Turkey is largely unconcerned about ISIS, or possibly even allied with ISIS, given that ISIS is a primary opponent of the Syrian and Iraqi Kurds whom Turkey considers inciters pf separatism among Turkey’s own Kurds as well as supporters of the PKK (Parlar Dal, 2016). Turkey’s anti-Kurdish foreign policy is aligned with ISIS’s own interest in fighting Kurdish territorial and political aspirations. If the Turkish government is either unconcerned about, or actively allied with, ISIS, then the likelihood of ISIS terrorist attacks within Turkey—particularly on Western citizens and targets—will continue to grow.

Because of Turkey’s geographical position, it is also a hub for other kinds of terrorist activity. The terrorist group Hezbollah is active in Turkey, both because of the incursions of Hezbollah members from Lebanon and Syria and because of Turkey’s home-grown arm of Hezbollah (Ünal & Ünal, 2018). The Muslim Brotherhood, accused of being a crypto-terrorist group, is deeply embedded in Turkey (Ünal & Ünal, 2018). Islamist terrorist, therefore, appears to be well-established in Turkey alongside the older terrorist threat posed by the PKK (Ünal & Ünal, 2018).

As far as businesses are concerned, the various terrorist threats in Turkey are likely to have a negative impact on business. A terrorist bombing or attack that strikes a particular brand, especially the kind of Western brand hated by terrorist groups such as ISIS, is likely to reduce foot traffic to stores and otherwise degrade the image of a company. Terrorist attacks also contribute to the stagnation of the Turkish economy and therefore to the ability of ordinary Turks to consume. 

Human Rights

The Turkish human rights record has been worsening in human years. From the early 1990s onwards, the intensification of the government’s battle with the PKK has added to anti-Kurdish sentiments that are both officially and unofficially expressed in Turkey (Sarigil & Karakoc, 2016). Kurdish-language education, very briefly allowed in Turkey, is once more illegal, and there is also a ban on Kurdish-language media, including radios, television, movies, and books (Sarigil & Karakoc, 2016). Attempts to stifle the use of the Kurdish language have been interpreted by some observers as constituting systematic discrimination against Turkey’s Kurds, who, by some counts, represent between 15 and 20% of the population (Sarigil & Karakoc, 2016).

The Turkish human rights record is also stained by the country’s treatment of its Alevi religious minority population. Alevis, who represent perhaps 15% of the population and many of whom also identify as ethnically Kurdish, practice a religion that is akin to Shi’ite Islam and that also included many elements of Anatolian folk religion (Arslan, 2016). Alevis are not formally recognized as a distinct religious sect by Turkey’s Directorate of Religious Affairs, which, while spending millions of dollars a year on the construction of mosques for the use of Turkey’s Sunni majority, does not fund Alevi places of worship (known as cemevis) or religious activities (Arslan, 2016). 

Under the rulership of the increasingly authoritarian (Wilks, 2019) Ak Party and its leader, Recep Tayyip Erdoğan, Turkey has become the leading imprisoner of journalists in the world, surpassing China for this dubious distinction (Ahval, 2019; Cagatay, 2017). For 18 years, the Turkish political system has been characterized by one-party rule, with Erdoğan as the presiding strongman, and the country’s security forces have imprisoned not only journalists but tens of thousands of ordinary Turks for daring to criticize Erdoğan (Cagatay, 2017). A thwarted coup attempt in 2016 gave Erdoğan the political leverage to fire or imprison hundreds of thousands of Turks deemed to be politically opposed to his authoritarian rule (Cagatay, 2017), underscoring the decline of human rights. 

Bribery and Corruption

Bribery and corruption are rife in Turkey. The ruling Ak Party presides over a highly nepotistic structure in which large government contacts routinely go to politically connected individuals, many of whom happen to be relatives or in-laws of the President of Turkey and the head of the Ak Party, Recep Tayyip Erdoğan (Cagatay, 2017). Currently, for example, the country’s Finance Minister is the son-in-law of Mr. Erdoğan (Cagatay, 2017), and, according to the leaked Panama Papers (Obermayer & Obermaier, 2016), Mr. Erdoğan himself is likely to have a surreptitious fortune of tens of billions of dollars generated from bribery and corruption payments. 

Companies doing business in Turkey that are in any way reliant on government or public sector contracts will be disadvantaged when competing against local, politically connected companies. Even when companies are not reliant on government business, they will likely have to bribe various layers of government in order to, for example, obtain permission to build new manufacturing facilities. The Ak Party itself has been described (Cagatay, 2017) as a family mafia disguised as a national government; in such an environment, it is highly unlikely that businesses will be able to thrive on the basis of merit. Instead, bribery and corruption are likely to take a heavy toll on companies. 

Summary Statement

Turkey, which is still nominally a member of the Northern Atlantic Treaty Organization (NATO) and a country that aspires to be both developed and Western, has been, since the 2001 ascension of the Ak Party, a country that is run by a corrupt Islamist tyrant who has been caught shipping arms to ISIS and who might himself be a member of the Muslim Brotherhood, which is recognized as a terrorist organization by six countries. Since 2018, the Turkish Lira has lost over a third of its value against the dollar; the Lira is nearly six times weaker against the dollar in 2019 as it was in 2011. The Turkish economy is in recession; in addition, Turkey is fighting a de facto civil war against the PKK, is a hotbed of international terrorism, has very limited or non-existent world-class manufacturing capabilities, as jailed more journalists than any other country, and is experiencing a brain drain of the country’s best and brightest (MacGregor, 2019). Given factors such as these, the risks of doing business in Turkey are substantial.   

Summary of Articles

The first article can be found here:

https://www.aljazeera.com/indepth/features/recep-tayyip-erdogan-power-180527112426783.html

Wilks’ article describes the authoritarian trends in the rule of Recep Tayyip Erdoğan and how these trends have negatively impacted human rights in Turkey. The article does not demonstrate the depth of research in the other citations utilized for the writing of the paper but reflects the acknowledgment, even in mainstream journalism, that Turkey is now an autocracy with limited human rights.  

The second article can be found here:

https://ahvalnews.com/press-freedom/turkish-courts-charge-journalists-terrorism-over-reports-and-articles

The second article offers an overview of the detention of journalists in Turkey, highlighting the deteriorating state of human rights in that country under the Ak Party. 

The third article can be found here:

https://www.infomigrants.net/en/post/15049/fears-of-brain-drain-as-turkey-s-brightest-flee-to-germany

The third article highlights Turkey’s brain drain, one of those results is a decrease in the quantity and quality of human capital available to companies doing business in Turkey.

References

Ahval. (2019). Turkish courts charge journalists with terrorism over reports and articles Retrieved from https://ahvalnews.com/press-freedom/turkish-courts-charge-journalists-terrorism-over-reports-and-articles

Arslan, Z. (2016). The Alevi Diaspora–Its emergence as a political actor and its impact on the homeland. Border Crossing, 6(2), 342-353. 

Cagatay, S. (2017). The new sultan: Erdogan and the crisis of modern Turkey. Amsterdam: IB Tauris.

Cengiz, F. Ç. (2018). The proliferation of neopatrimonial domination in Turkey. British Journal of Middle Eastern Studies, 3(2), 1-19. 

MacGregor, M. (2019). Fears of brain drain as Turkey’s brightest flee to Germany. Retrieved from https://www.infomigrants.net/en/post/15049/fears-of-brain-drain-as-turkey-s-brightest-flee-to-germany

Obermayer, B., & Obermaier, F. (2016). The Panama papers: Breaking the story of how the rich and powerful hide their money. New York, NY: Oneworld Publications.

Parlar Dal, E. (2016). Impact of the transnationalization of the Syrian civil war on Turkey: conflict spillover cases of ISIS and PYD-YPG/PKK. Cambridge Review of International Affairs, 29(4), 1396-1420. 

Sahinoz, S., & Cosar, E. E. (2018). Quantifying uncertainty and identifying its impacts on the Turkish economy. Empirica, 2(4), 1-23. 

Sarigil, Z., & Karakoc, E. (2016). Inter-ethnic (in) tolerance between Turks and Kurds: Implications for Turkish democratization. South European Society and Politics, 1(1), 1-20. 

Ünal, M. C., & Ünal, T. (2018). Recruitment or enlistment? Individual integration into the Turkish Hezbollah. Turkish Studies, 19(3), 327-362. 

Wilks, A. (2019). What keeps Recep Tayyip Erdogan in power? Retrieved from https://www.aljazeera.com/indepth/features/recep-tayyip-erdogan-power-180527112426783.html

Yarkın, G. (2015). The ideological transformation of the PKK regarding the political economy of the Kurdish region in Turkey. Kurdish Studies, 3(1), 26-46.