The Colour of Money


Economic News

22 Jul 2010
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While foreign direct investment (FDI) tends to be greeted with open arms by most politicians, irrespective of whether or not they are in office, Turkey's political opposition has recently bucked this trend.

Instead, Prime Minister Recep Tayyip Erdogan now stands accused of having helped Arab and Israeli businessmen channel their money into the country at the expense of Turkish interests - a charge that not only baffles many economists, but is also one that the prime minister vehemently denies.

The story began when the premier met Israeli businessman Sami Offer prior to his Offer Group being awarded a $3.5bn tender for the Galataport development in Istanbul.

This triggered an immediate response from the leaders of the opposition Republican People's Party (CHP) and Motherland Party (ANAP), who fingered the prime minister for interfering in the tendering process.

Both ANAP leader Erkan Mumcu and his CHP counterpart, Deniz Baykal, also accused the prime minister of lying. Indeed, after initially denying that he had met Offer, Erdogan back-peddled and acknowledged that the meeting had taken place, thus causing doubts to multiply.

Baykal then launched his own attack on the prime minister after Dubai International Properties, a leading property developer in the United Arab Emirates owned by Dubai's Crown Prince Sheikh Mohammad bin Rahsed Al Maktoum, agreed to invest $5bn in projects across Istanbul. The agreement had followed rapidly on Erdogan's recent tour of the Gulf.

"You're not one of the Middle Eastern sheikhs," Baykal said. "You came to power through elections and you will leave power through elections."

The investment will have a major impact on Istanbul, with the construction of three 200-storey skyscrapers jarring against Istanbul's minaret-speckled skyline. Many see this as something of an eyesore in waiting.

Yet most analysts doubt whether the skyscrapers will even take off.

"Consider the permission required for such an undertaking, with architects and environmental groups involved," Zeynel Erdogan, Managing Director of Koray Group of Companies told OBG. "Then there is the problem of earthquakes."

Whilst protecting Istanbul's picturesque skyline is certainly an honourable mission, less can be said for the rest of the arguments presented by the political opposition. Their ongoing attempts to find a chink in the ruling Justice and Development Party's (AKP's) armour, let alone seize any opportunity to criticise Erdogan and his ministers, have raised as many local eyebrows from traditional supporters as from political foes.

"I have to market my country," Erdogan explained after the furore had broken out. "I can meet with any entrepreneur of the world in any place."

Criticism of the fact that Arab and Jewish investors were involved was nothing short of racism, Erdogan retorted. Indeed, why had the Jewish partner of the company that won the Galataport tender received such negative attention, while the Turkish partners - Turkey's Global Investment Holding - received next to no coverage?

Turkey's business community has in the meantime provided their unwavering support for the government in this affair.

"What is important about privatisation is not whether the company is Turkish or foreign," Omer Sabanci, president of the Turkish Industrialists' and Businessmen's Association (TUSIAD) says. "What matters is the amount of money that the treasury will receive."

The remark is particularly apt as Turkey's current account deficit threatens to breach $23bn by year-end, while the trade deficit is projected to hit $40bn, making the need for foreign direct investment all the greater. This is also something the government recognises.

"The treasury wants to widen its investor base, with oil windfalls in the Gulf making investment from that region a logical target," AK Securities economist Hakan Aklar recently told OBG. Capitalising on business confidence in Turkey following the start of EU accession negotiations has also proven a must for the government.

It is little surprise then that Erdogan and an entourage of 130 Turkish businessmen jetted off to Oman and the UAE in late September as part of a bid to encourage wealthy Arabs to invest in Turkey, and for Turkish businesses to seek opportunities in the East. Now trips to Kuwait and Yemen in late October have been pencilled in to local business diaries.

These endeavours are likely to bear fruit, with more and more companies from the Arab world eying Turkey. A consortium led by Saudi Arabia's Oger Telecom purchased a 55% stake in Turk Telecom worth $6.5bn back in July. Six Arab companies have also been short-listed for the Telsim tender, with Eksioglu-Algurair Investment LLC, Etisalat and Dubai's Emaar stepping up to the plate. Kuwait's Mobile Telecommunication Corporation, National Mobile Telecommunications (KSC) and Egypt's Orascom have been equally eager to struggle against 10 non-Arab contenders, all of which are bidding at a starting price of $2.8bn.

Meanwhile, the potential offered by Arab investment has been equally reflected in trade statistics.

"Turkish exports to the Arab world reached $11.7bn last year, while they were $2.8bn in the year 2000," Turkish Minister of State Kursad Tuzmen told the Arab Turkish Economic Forum back in May 2005. "Our imports from the Arab countries increased during the same period from $4.5bn up to $7.6bn."

Trade volume between Turkey and the Arab world is expected to reach a whopping $24bn this year, according to official estimates.

But most of all, the government is rubbing its hands in anticipation of some fresh foreign investment, with the number of foreign companies investing in Turkey having increased by 50% over the last two years alone.

The Turkish government, therefore, has some reason to be pleased with the scale of incoming FDI this year, whether it comes from the Middle East or elsewhere. As for Turkey's political opposition, it will need to pull a bigger punch than this to knock out Erdogan.

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