Page 48 - Buy Russia - bne IntelliNews monthly magazine April 2017

48 I Southeast Europe bne April 2017
Investors brace as Erdogan stakes
economy on pursuit of one-man rule
bne IntelliNews
Turkey is set to hold a referendum in April that may change the entire political landscape, with knock-on effects for the economy and investors.
If the ‘Yes’ vote prevails in the upcoming popular vote, then the country will move to an executive presidential system, which critics claim will mean the “one-man rule” of President Recep Tayyip Erdogan without proper checks and balances. The continuing slide towards authoritarianism would
deter foreign investors and stunt economic growth.
The government’s counter argument to all this is that once the executive presidency is established, Turkey will never go back to those bad old days
of weak coalition governments and feeble economic growth. The executive presidency will bring more stability,
a stronger economy and more foreign investment, says the country’s ruling AKP party.
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Turbulent years
Stability – strong one-party rule – was key to Turkey’s economic growth from 2002, when the AKP came to power, up until 2015.
A booming economy, strong one-party rule, good relations with the EU, and the favourable global economic/financial environment all boosted investor and consumer confidence in the first years
of the AKP rule, helping Erdogan win con- secutive elections with an ever-increasing share of the vote. Turkey’s GDP growth averaged 6% between 2002 and 2012.
However, growth has been disappoint- ing in recent years. The economy even shrank by 1.8% y/y in the third quarter, in the first contraction in seven years.
The International Monetary Fund
(IMF) warned in February that “Turkish growth is projected to be below potential in 2016 and 2017”. The fund estimated that that the dramatic decline in foreign tourist arrivals took a percentage point
of GDP from the country's economic growth last year. The fund expects Turkey’s economy to expand at just 2.9% this year and at 3.3% in 2018, after growth of 2.7% in 2016.
There are some promising signs, though. Confidence in the economy rose in
February, recovering from a near- seven-year low in the previous month. Industrial output expanded for
the fourth straight month in Janu- ary. But these signs could be extin- guished by the political turbulence.
“The political focus on transitioning to a presidential system; renewed questions over the future of EU-Turkey relations; and the tense security situation in the southeast and conflicts in neighbouring countries are expected to prolong the uncertainty, keeping domestic demand subdued,” the IMF said.
Investor darling
The stable political outlook and vibrant economy also made Turkey a darling