Understanding Turkey’s Four Step Strategy For Rapid Economic Development

With the Turkish Lira stabilised and the United States having lost many of its always dubious arguments against Turkey in the aftermath of both the release of convicted terror supporter Andrew Brunson and the murder of Saudi born journalist Jamal Khashoggi, it becomes necessary to understand Turkey’s renewed growth and development model for the future that has been set out across several sectors by President Recep Tayyip Erdogan.

Energy independence

While Turkey has vowed to continue its purchases of Iranian energy in spite of the threat of sanctions from the US, Turkey’s long term goal is to become increasingly energy independent. In April of this year, President Erdogan and his Russian counterpart Vladimir Putin watched the groundbreaking of the Akkuyu Nuclear Power Plant. The Russian built power generation plant is Turkey’s first nuclear power facility with initial reactors set to be online by 2023. Turkey is also expected to work with Japan on building a second nuclear power plant in the northern city of Sinop.

Furthermore, Turkey is beginning a long term programme of oil and gas extraction in the eastern Mediterranean. As new offshore gas and oil fields have been discovered in the region, there has already been a “scramble for energy” in the eastern Mediterranean that has pitted Lebanese interests against Israeli interests, the interests of Athens and Nicosia against Ankara as well as Egypt against Turkey.

While Lebanon and Israel have been the only nations to overtly threaten one another with military action over disputed gas fields, tensions between Turkey and the Hellenic powers of the region have also flared up over disputed drilling fields, particularly off the coast of the island of Cyprus. That being said, a full out war for energy between Turkey and the Hellenic states is highly unlikely. In all likelihood, most states in the region including Turkey will stand to benefit from cooperative measures regarding oil and gas rights.

Economic openness 

Turkey continues to invite further foreign direct investment (FDI) from throughout the world. China in particular has become a highly important sources of both credit and sustainable investment in Turkey.

A recent report from Turkey’s Daily Sabah details how over 1,000 Chinese firms are now active in Turkey across a variety of sectors. According to the report,

Chinese firms that have been operating in Turkey’s logistics, electronics, energy, tourism, finance and real estate sectors are expanding their businesses in the country. With the entry of Bank of China and Industrial Commercial Bank of China (ICBC), the flow of Chinese companies into Turkey has accelerated and also expanded into the e-commerce sector in the recent period.

The world’s second largest trader, China invests $120 billion annually in various countries across the world and Turkey has been enjoying China’s overseas investments in the recent decade.

Accordingly, the number of Chinese firms operating in Turkey had neared 1,000 by April, according to the data of Economy Ministry.

Drawing attention to the significance of Turkey within the “Belt and Road Initiative” (BRI), an infrastructure development project designed and launched by Chinese President Xi Jinping in 2013 and spanning over 65 countries, Foreign Economic Relations Board (DEİK) Turkey-China Business Council Chairman Murat Kolbaşı stressed that the entry of two Chinese banks to the Turkish financial sector and the acquisition of a port by Chinese investors indicate the country will expand its investments and business operations in Turkey in other sectors, as well, including in energy, logistics, tourism, transportation, infrastructure and e-commerce.

Turkey’s unique position in the BRI makes the country a gate to Europe and Africa for China’s trade operations on the project’s route. Therefore, Kolbaşı highlighted that Turkey will naturally become a logistics hub for trade on the three continents.

With the aim of expanding Turkish-Chinese cooperation in the logistics sector, Turkey’s national flag carrier Turkish Airlines (THY) announced that it will form a logistics company in Hong Kong in partnership with China’s ZTO Express and Hong Kong’s PAL Air.

The partners aim to make the new joint venture one of the world’s largest integrator, and generate revenue of $2 billion within the first five years of its operation. They expect growth performance in proportion to the rising demand in the e-commerce sector.

The new joint venture and Istanbul as a mega transport hub is expected to enable THY to deliver to its customers around the world with excellent service quality“.

The report goes on to detail further Chinese investment in Turkey’s shipping and rail sectors while China and Turkey are also cooperating in the energy sector.

The following major Chinese projects in Turkey look to help elevate both Turkey’s internal economic connectivity and energy independence while readying the west Eurasian power to play a vital role as a key hub in One Belt–One Road:

–A high-speed Ankara to Istanbul railway 

–A third nuclear power station to compliment those presently being constructed by Turkey’s Russian partner

–The modernisation of Turkey’s Kumport container port which is now operated by the Chinese company Cosco Pacific

–Working cooperatively to expand Turkish eCommerce platform Trendyo which just received an investment from Chinese global eCommerce leader Alibaba.   

Additionally, China and Turkey plan to conduct bilateral trade in a combination of Lira and Yuan in a move that will ultimately make the growing trade between the two nations Dollar free and thus sanctions proof. In 2017, China sold $23 billion worth of goods to Turkey while China imported $3 billion worth of goods from Turkey. Officials in both countries have expressed their desire to rapidly increase these numbers.

Furthermore, while Russians continue to represent one of the biggest single national groups to visit Turkey as tourists, Ankara and Beijing are working to expand the number of Chinese tourists in the country who last year increased their spending in Turkish businesses by 166%. Turkish authorities have already begun work to make the country increasingly appealing to both Chinese visitors and investors. Last year, Ankara ordered a clampdown on provocative Sinophobic media outlets who seek to stir unnecessary tensions in China’s Xinjiang province.

Today, Turkey is taking the next logical step in strengthening its already strong and growing economic partnership with China. On the 1st of July I further stated,

“The next big step for Turkey is to gradually divest financial assets from the US and EU and move them towards Shanghai and other Asian financial centres that are more comfortable with working with Turkey as a partner for mutual development throughout future decades.

While the American military-industrial complex is keen not to alienate Turkey further, other forces of the broader US deep state including intelligence agencies, the financial sector and many powerful ethno-confessional groups have already begun acting and speaking as though Turkey is a rival or adversary of the US”.

Just over one month later, this suggestion become the new status quo for Turkey’s economic relations and its monetary strategy. With Erdogan further stating that small and medium sized businesses are the economic engine of the Turkish economy, this helps give an indication that there will be no immediate plans for rapid hikes in domestic interest rates. Instead, Turkey is opting to continue existing policies aimed at economic growth while further encouraging foreign investment including and especially from China in order to off-set inflationary spirals caused by a combination of normal Keynesian growth trends, a surprisingly strong US Dollar and moreover, western financial speculators looking to weaken the Lira.

As is the case in many nations wherein China is a substantial foreign direct investor, many other nations are quick to follow suit. Such prospective investors from other nations including Russia, Korea, Japan, Singapore and the EU will have responded positively to a recent study which found that Turkey has climbed 17 places in the World Bank’s Ease of Doing Business list since last year. Standing currently at number 43 in the world in terms of ease of doing business, Turkish officials plan to work further to make the country an efficient place for the world to conduct commerce.

Among areas where Turkish officials plan to create an even more attractive environment to prospective investors include:

–easy to use forums for contract dispute resolution 

–relaxation in the bureaucratic hurdles for purchasing property 

–the digitalisation of document processing 

With Turkey’s exports continuing to rise, freer trading arrangements with nations like China, the de-facto Russian led Eurasian Economic Union, multiple African nations and ASEAN will become a vital step in helping to propel Turkish exports to even higher numbers in future months and years.

Belt and Road 

Turkey has likewise been an eager participant in the Belt and Road initiative.

In terms of linking China’s Pacific ports with the wider Afro-Eurasian space, the China-Pakistan Economic Corridor (CPEC) represents a key artery in making this all important journey possible. A future China-Myanmar Economic Corridor will help to compliment CPEC, while an Arctic maritime belt based on the strong Chinese partnership with Russia also holds a great deal of promise for the future.

In between CPEC and the Arctic however lies a trans-central Asian road which will ultimately stretch from China’s border with Kazakhstan to Turkey via a southward turn in the Caucasus. Such a road represents a close approximation to some of the most widely used paths of the ancient silk roads which linked the Mediterranean cultures with those of the north Pacific.

As part of China’s plans to intensify building works on this particular road, Beijing intends to construct a modern Kazakhstan to Baku railway which will then merge with the existing Baku-Tbilisi-Kars railway. From there, China intends to build a railway linking the eastern Anatolian city of Kars to Edrine on the European side of the Bosporus. In this sense, a trans-Anatolian railway into continental Europe will help to complete this central leg of Belt and Road, thus replicating one of the most important ancient trading routes whose modern benefits to the world are substantial.

Against this background, it is not surprising that Chinese investment into Turkey and bilateral trade between Ankara and Beijing continues to grow. The modern infrastructure and economic health of Turkey are clearly vital to the central leg of Belt and Road just as sure as Pakistan’s economic health is vital to the all important Pacific to Afro-Eurasian portion of the global megaproject.

Turkey’s President Erdogan was among the earliest and most enthusiastic backers of the Chinese One Belt–One Road initiative which was originally introduced in 2013. Since then, the economic partnership between two of Asia’s most important powers has continued to blossom.

Turkey looks set therefore to form the most important terminus of Belt and Road in western Eurasia. This will help to increase the attractiveness and the material proliferation of Turkish goods throughout the wider world while also bringing in more jobs in the important shipping industry as Turkey sits on one of the most important transport routes in the world.

Independent weapons manufacturing 

President Erdogan has prioritised a drive to transform Turkey into one of the top weapons manufacturers in the world. This will help Turkey to achieve better balance between its multiple security partners ranging from fellow NATO nations to its vital Russian partner, while also helping Turkey to become a major exporter of weapons in the comparatively near future.

While Turkey looks set to take delivery of the Russian made S-400 missile defence system in under a year despite US objections, Erdogan just announced that Turkey is building its own long range air defence system known as Siper. Speaking about Turkey’s holistic drive to become a major weapons producer, Erdogan said,

“We have increased our locality rate in the defence industry from 20 percent to 65 percent … We will reach the target of an independent and strong Turkey by uninterruptedly continuing our national defence moves we have initiated in the defence industry.

Our need for long-range regional air defence missile system comes up on different occasions. National long-range regional air defence missile system works were initiated by TÜBİTAK SAGE, Aselsan and Roketsan. Their first deliveries are scheduled to take place at the end of 2021…

…Our defence industry sector has turned into a national structure with the participation of small- and medium-sized enterprises (SMEs), research institutions and universities alongside more than a thousand companies today”.

Turkey’s weapons exports continue to rise as major cities throughout the country host ever more elaborate weapons expos that have seen attendees from every major continent. In addition to creating more jobs and bringing in added revenue through international weapons sales, Turkey’s drive to become a top manufacturer of weapons will also help to solidify Erdogan’s policy of multipolar alignment across the world as Turkey will be able to better leverage both friends and those acting against Turkey in the diplomatic sphere if the country works to further advance a credible domestic weapons manufacturing industry.

Conclusion 

By combining a drive towards energy and security independence with a more open embrace of foreign direct investment, free trade with long standing and emerging partners and positive participation in the Belt and Road initiative, Turkey’s future outlook as a robust regional economic and diplomatic power looks to be assured. The policies of the current Turkish government have struck the important balance between one’s regional self-interests and global realities that are necessarily reliant on holding an open view of modernising connectivity measures.

Therefore, while some continue to obsessively monitor the largely stabilised Lira, the penultimate conclusion of President Erdogan’s pro-growth model has not plateaued, it has in fact entered a new phase where growth is likely to accelerate more than in the previous decade

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