FT SPECIAL REPORT Investing in TurkeyThursday November 22 2012 www.ft.com/reports | twitter.com/ftreportsTaking its wares to the world Inside » Gas partnership Construction of aThe country has rebalanced its economy towards exports and away from domestic demand, writes Daniel Dombey crucial pipeline will help ease Turkey’sI n a factory on the outskirts of good reviews it has garnered for right- energy concerns Istanbul, a Turkish executive is ing its course from the boom years of Page 2 emphasising his readiness to sell unsustainable growth. Fitch, the rat- golden washing machines. As yet, ing agency, this month awarded the there have been no takers – country investment-grade status for Dash for growthalthough clients from the Gulf are a making the shift. Turkish officials dodefinite possibility – but a gold- not disguise their hope that another needs backerspainted mock-up has pride of place in rating agency will follow suit, so pav- New infrastructurea showroom crammed with some of ing the way for large-scale institu-the more than 1,000 different models tional investment. projects requirethat the factory already makes. The manufacturer, Arcelik, a sub- Yet, the true extent of rebalancing and the appropriate level of economic hefty investmentsidiary of Koc, Turkey’s largest com- growth remain fierce topics of debate. Page 2pany, sells to more than 100 countries Political risk is a factor at a timeacross the world and has made a par- when Turkey has been rocked by theticular mark in the European market. war next door in Syria and when NeighbourhoodNazim Kadirzade, a plant manager, Recep Tayyip Erdogan – the man who,boasts that under its Beko brand, the as prime minister, has dominated the mattersgroup has, for example, become the country’s political life for almost a Opportunity toleading supplier of washing machines decade – is preparing to move up toand fridges to Britain. become executive president, a posi- bolster rights or The company has come a long wayfrom the days, half a century ago, tion that does not yet exist. Even the question of where Arcelik build new orderwhen it sold only one basic model to a sells its washing machines reverber- Page 3largely captive market in Turkey ates at a higher level. Some countriesalone. Arcelik’s story, and the issues are constrained by their geography.that the company confronts, mirror By contrast, Turkey’s place on the Gold deposits tomany of the changes that have taken map, on the edge of southeast Europe,place in Turkey’s economic and corpo- bordering the Middle East, opens up a boost reservesrate landscape. world of possibilities. Billions raised In recent years, the country has In terms of trade, the country has abeen relying on surging domestic new focus on the growing markets to through preciousdemand, fuelled by an explosion incredit, as the motor of economic its south and east, a push that dimin- ishes its dependence on the often stag- metal accountgrowth. That has changed now as the nant economies of the eurozone and Page 3economy rebalances. This year, bolsters its ties with neighbours ondomestic demand will be a drag on which it long turned its back.growth; exports have taken its place And yet the sheer volume of Arce- EU hurdlesas the propulsive force behind the lik’s trade with the EU attests to thecountry’s economic success. unique advantage that Turkey enjoys Tortuous journey Even so, overall growth, which last Consumer society: inside by pushing banks to limit lending. foster the domestic capital markets as a neighbour of the bloc, with which towards Turkey’syear reached 8.5 per cent, has more Istanbul’s historic Grand “[This is] the first successful example that the country lacks. “Many compa- it has a 17-year-old customs union.than halved to about 3 per cent. The Bazaar Getty Images of doing this in Turkish history,” nies would be better off if they had Commerce with the countries of the Europeanshift is largely the consequence ofefforts by the Turkish author- Erdem Basci, governor of the Turkish central bank, said in a recent inter- the opportunity to borrow in domestic currency long-term; that is simply not Middle East, while booming, may be less stable than first meets the transformationities to effect a soft landing and rein view. He added that he was commit- available at the moment,” he said. eye – not least because Turkey has Page 4in Turkey’s current account deficit ted to bringing down inflation to Right now, Turkey is basking in the Continued on Page 2Crucial need to retain thecountry’s dynamismInterview get the executive style The President is asked and Turkish government presidency he wants. about one diplomat’s forces has been bloodierAbdullah Gul Although Mr Gul says recent observation that, this year than at any pointPresident it is too early to discuss while a year ago Turkey for over a decade; and hun- who will be the next prime was seen as a rising econ- dreds of Kurdish prisonersHeavyweight strikes minister, his comments, laden with English words omy with a growing world role, today it is perceived have only just ended a hunger strike.conciliatory tone, such as “grassroots” and as a country that jails jour- “This is one of the “checks and balances”, nalists – at least 61 by the most important issuessays Daniel Dombey contain glimpses of what count of the Committee to in Turkey,” says Mr Gul of could be an alternative Protect Journalists – and the Kurdish question, add- agenda to the country’s has problems with its ing the reforms introducedPresident Abdullah Gul, approach today. neighbour Syria. over the past 10 yearsone of the heavyweights of “If you look at the pic- Mr Gul does not contest leave no justification forTurkish politics, does not ture of Turkey 10 years this – he has expressed his violence.hold back on how far he ago when I established a concerns about freedom of He also insists on a con-considers the country has government as prime min- expression in the past. sensus-based approach tocome since his party began ister, and a picture of He adds that the political Turkish politics, particu-its stint in office 10 long today, broadly speaking larly with respect toyears ago. you would see the Turkey replacing the country’s But, speaking to the of 10 years ago as a nega- military-era constitution.Financial Times in an tive place . . . very spent, ‘We still need to But he returns to thehour-long interview in the living in a very uncertain do some work importance of the economypresidential palace last environment.” and the EU. He comparesweek, he does not gloss Today, Mr Gul main- on our economy; Turkey’s expectations ofover what he says isneeded to hold on to that tains, his country has conquered its once-chronic we still need average annual growth of 5 per cent with therecord – structural high inflation, produced structural changes’ projected 1-2 per centeconomic reform, a rates of growth that are for other European econo-consensual political the envy of Europe, and mies. He adds, nonetheless:approach and, above all, is a dynamic player on instability caused by the “We still need to do somefurther effort in Turkey’s the world stage. fighting in Syria, and the work on our economy; webid to join the EU. “Now what has brought unrest in the broader still need structural On topic after topic, about this change in the region have had other con- changes to ensure thisMr Gul’s remarks contrast last 10 years?” Mr Gul sequences as well. Those continued growth.”with Recep Tayyip asks. “The key for this circumstances have led Mr Gul describes theErdogan, his old comrade- has been political and the Kurdistan Workers country’s current accountin-arms, who, as prime economic reforms,” which Party, or PKK, an organi- deficit as “one of our mostminister, is the centre of have taken their inspira- sation classified by Turkey, important soft spots”,power in Turkey today. Mr tion and motivation from the EU and the US as ter- emphasising the impor-Gul’s role is largely Turkey’s EU bid, he says. rorist, “to think that they tance of reducing it byceremonial, but he has the “A lot has been done, but have perhaps found a his- boosting both Turkishability to veto legislation, there is a lot more to do.” torical opportunity”. The industrial productionapprove appointments and Big problems remain. fighting between the PKK and the country’s anaemicset the agenda in formal savings rate. He praisesaddresses. the efforts of current But nothing is for ever. economy ministers; AliMr Gul has already served Babacan, Turkey’s deputyas prime minister once – a prime minister, is oftendecade ago, when he was seen as a protege.keeping the seat warm for But his words sometimesMr Erdogan – and the job sound like a prospectusis set to become vacant for government at a timein 2015, by which time when Mr Erdogan’sMr Erdogan says he will plans to leave his poststep down. have increased political In a move reminiscent of uncertainty.the Vladimir Putin-Dmitry At the end of the inter-Medvedev switch in view, the president recallsRussia, the prime minister his long history with Mris widely thought to be Erdogan, with whomaiming to succeed to he set up both theMr Gul’s post when direct Islamist-rooted Justice andpresidential elections are Development party, asheld for the first time in well as the current govern-Turkey’s history in 2014. ment. Mr Erdogan is already But, asked if Turkeypushing changes that needs a stronger oppositionwould make the presidency in the face of such amore powerful ahead powerful prime minister,of that date, although it he doesn’t hesitate for ais far from sure he will Power play: Abdullah Gul, Turkey’s president Daniel Jones moment in saying yes.
2 ★ FINANCIAL TIMES THURSDAY NOVEMBER 22 2012 Investing in TurkeyPipeline offers Erdogan dashsecurity with for growth willdemand for need backersenergy growing form a significant portion of Infrastructure the €385m deployed by InfraMed, a Paris-based Turkey may struggle infrastructure fund backed to raise the billions by the European Invest- ment Bank, says Marian of dollars it needs, Bocek, associate director. says Shawn Donnan And, as it looks to expandTANAP Joint venture with Azerbaijan will – it has a target of having €1bn under management –secure supplies for EU, writes David O’Byrne Drill down at all into the ambition laid out by Prime he expects many of its new investments to be Turkish. Minister Recep Tayyip Its economic growth andI Erdogan to turn Turkey’s transformation into an n the world of natural gas, geogra- Hungary’s MOL and the state gas economy into one of the 10 emerging market champion phy is everything. And for Tur- companies of Romania, Bulgaria and largest in the world by 2023 are the main reasons. The key, located between the rich gas- Turkey, to carry gas from Eastern and you quickly discover country, says Mr Bocek, “is fields of the Caspian and north Turkey all the way to Europe’s main just how much the govern- just China next to Europe”. Middle East and the gas hungry gas hub at Baumgarten in Austria. ment is depending on trans- “Just looking at themarkets of the EU, geography is about But, with questions over whether it forming the country’s infra- macro fundamentals it isto become destiny with the construc- could succeed in persuading the BP- structure to get there. one of the most attractivetion of the planned Trans-Anatolian led consortium developing the Shah By 2023, the centenary of markets we have,” he says.gas pipeline (TANAP). Deniz field to favour the project over the fall of the Ottoman “We see a huge pipeline of A joint venture between Turkey and two rival pipeline projects, Azerbaijan Empire and birth of the new opportunities.”Azerbaijan, its eastern neighbour, and Turkey stepped in with TANAP. Turkish republic, the gov- Chief among those is theTANAP is expected to begin by carry- TANAP’S first phase is expected to ernment has set the goal of power sector which the gov-ing gas from the Azeri sector of the cost in the region of $8bn. It will be having in place 10,000km of ernment is aggressively pri-Caspian Sea with a possible later scalable to 30bn cu m/yr, with the high-speed rail track, one of vatising in order to attractexpansion to carry gas from Turkmen- extra capacity expected to be used to the world’s top 10 ports and investment to keep up withistan and other Caspian states. carry gas from other gasfields cur- an electricity grid that surging demand. Planned to be commissioned in 2018, rently being prospected in the Azeri draws a third of its power Turkey has already hadTANAP will initially supply 6bn cu sector of the Caspian. from renewable sources. some luck doing so. In 2005m/yr of gas from Azerbaijan’s Shah Hakan Turker, BP’s head of exter- It may, for now, have put it attracted just $4m in for-Deniz field to Turkey, with a further nal affairs and security for Turkey, a hold on plans to build a eign direct investment in10bn cu m/yr crossing Turkey on its says the Shafaq-Asiman block it is canal alongside the Bospho- electricity, gas, and waterway to Europe. prospecting in partnership with Socar, Supply lines: starting at Turkey’s western borders. demand is expected to exceed its cur- rus to ferry goods to and supply projects, according Good news for Turkey, where de- the state-owned oil and natural gas routine checks A truncated Nabucco West project rent 51.8bn cu m/yr import portfolio from the Black Sea, but to central bank data.mand is expected to exceed its exist- corporation of Azerbaijan, could alone are carried out aims to carry 31 billion cu m/yr of gas within the next two years. Turkey is not wasting time In the first nine monthsing import portfolio within two to hold as much as 1tn cu m of gas. at a natural gas to Baumgarten, while the Trans-Adri- This is an important consideration in rolling out other large- of 2011 electricity, gas andthree years, but even better news for However, such are the reserves control centre atic Pipeline, backed by the US group given that Turkey has few energy scale projects. water projects drew inthe EU which has long been looking available in the region that a second west of Ankara. EGL, Norway’s Statoil, and Ger- reserves of its own beyond low grade Work is under way on a $2.6bn in FDI, the bulk ofto secure access to new supplies to parallel line is already being planned. A new gas many’s Eon, is expected to carry up to lignite and some unexploited hydro $2.5bn third bridge across the $3.7bn in investmentsreduce reliance on existing sources. Gulmira Rzayeva, an analyst at pipeline is 20bn cu m/yr of gas through Greece potential and that power demand is the Bosphorus and a pair of that went into the infra-Chief among those is Russia’s Gaz- Azerbaijan’s official strategy research planned for and Albania and across the Adriatic expected to continue rising at about 8 tunnels where the strait structure sector during thatprom, which meets about 25 per cent centre, says: “There is the possibility 2018 to markets in Italy. per cent a year. Imported gas has long flows into the Sea of Mar- period.of EU gas demand, and in September of adding a second parallel line to Getty Images A decision on which line will carry been earmarked to meet much of Tur- mara. New motorways arebecame the subject of an antitrust double throughput to 60bn cu m/yr.” the gas is expected from the consor- key’s baseload. being built across the coun-case by the EU. That extra capacity could be used to tium developing the Shah Deniz field Already 21 new gas-fired plant total- try and airports planned. Since the late 1990s, EU hopes have carry gas from Turkmenistan, Kaza- by the middle of next year, with con- ling 21.3GW have been issued with The country’s power infra- There are . . . thosebeen set on the creation of the “South- khstan or any other country in the sortium members BP, Statoil and generating licenses despite no new structure is being priva- who question theern Gas Corridor”, a bespoke pipeline Caspian region with gas reserves Total considering an offer to take a gas being available to supply them. tised. All in the name ofto carry gas from the ample reserves available for export westwards. combined 29 per cent stake in Applications for a further 60 total- Turkey achieving what Mr government’sof the Caspian and north Middle Eastthrough Turkey to markets in Europe. With the delivery of 10bn cu m/yr of Azeri gas to Turkey’s western borders TANAP, alongside Socar (51 per cent) and Turkey’s state pipeline company ling 29.2GW are on hold, with Turkish officials warning private sector devel- Erdogan this year dubbed its “bright future” as “one ambition, be it Until a year ago, EU hopes were now all but guaranteed for 2018, and Botas (20 per cent). opers will need to arrange their own of the greatest powers of its ever so gentlypinned on the Nabucco pipeline being with the promise of more to follow, As well as further enhancing Euro- gas imports if the plant are to be region and the world.”developed by a consortium of two projects are competing to carry pean energy security, TANAP offers constructed. An impasse that TANAP There is certainly moreAustria’s OMV, Germany’s RWE, the gas on to European markets the same for Turkey, whose gas should go some way to resolving. than a tinge of hubris to Mr But that still falls well Erdogan’s grandiose vision. short of what the govern- In 2011, the prime minister ment says it needs. Over proclaimed as “crazy and the next decade it estimates On FT.com » magnificent” his plans for Canal Istanbul, the 50km, 150-metre wide man-made it will require more than $100bn in investment in the energy sector to keep up waterway he wants to build with growing demand. Economic ties alongside the Bosphorus to There are certainly practi- draw tanker and other cal challenges facing Mr Business looks freight traffic away from Erdogan’s ambitious vision. to Gulf states the busy strait. Chief among them, in the “We are building the short term, may be a diffi- Oil-rich region is a canal of the century, a cult financing market for key source of funds, project of such immense size that it can’t be com- the flood of new projects hitting it. says Camilla Hall pared to the Panama or According to Martin Suez canals,” he declared. Spicer, head of the Interna- There are, therefore, tional Finance Corpora- those who question the gov- tion’s southern europe ernment’s ambition, be it infrastructure practice, Contributors » ever so gently. “What is more important than the sheer quantity of European banks have tradi- tionally dominated Tur- key’s project finance mar- [infrastructure] investment ket and they are still reel- Daniel Dombey Aban Contractor is the quality of that invest- ing from the effects of the Turkey Correspondent Commissioning Editor ment,” says one western Eurozone crisis. Steve Bird diplomat. That means Turkey may David Gardner Designer But there are signs that struggle to raise the $10bn- International Affairs Editor Chris Lawson and foreign investors are buying 15bn that it needs to keep Andy Mears into Mr Erdogan’s vision, up with its bold ambitions Shawn Donnan Picture Editors something they haven’t for the next three years. World News Editor always done before. “The financing market For advertising details, Private equity groups today is difficult and will be Camilla Hall contact: Jim Swarbrick, have been paying more and a constraint to meeting this Gulf Correspondent on +44 207 775 6220 more attention to Turkey aspiration of building all email: email@example.com or and people in the industry this infrastructure,” says David O’Byrne your usual FT representative. say they see a promising Mr Spicer. Andrew Finkel future in the country’s “All these projects take FT Contributors All editorial content is infrastructure plans. money from the same produced by the FT. Turkish projects now source.” Taking its wares to the world Continued from Page 1 is not just investment-grade many stripes, for politicians ing vocational training. It significant political prob- status and the demograph- it may not be enough. remarks that “Turkey still lems with two of its biggest ics of the country’s young Mr Erdogan, who has has the human capital char- trading partners, Iran and population that draw port- built his rule on the mutu- acteristic of a developing Iraq. The fighting in Syria folio funds to Turkey; like ally reinforcing accomplish- country.” has also reduced access to other emerging markets, ments of political stability Kemal Dervis, the archi- other markets in the Gulf. the country attracts capital and economic growth, has tect of many of the “It is important for Tur- let loose in the US and else- set out the much more economic reforms that key to diversify the markets where by continued quanti- ambitious goals of making pulled Turkey away from it is trading with, but I still tative easing. Turkey into one of the 10 crisis a decade ago, high- can’t see any other market Public debt of about 38 biggest economies in the lights the country’s low sav- by itself replacing Europe,” per cent of GDP shines in world by 2023 and of bring- ings rate – recently at about says Umit Boyner, the head comparison with European ing per capita income up to 14 per cent of GDP or less – of Tusiad, Turkey’s biggest levels of 80 per cent or $25,000 by that point. as a constraint on its ability business confederation. more. Nor do traditional A recent Organisation for to achieve the growth goals Adding that the country exports such as white Economic Co-operation and that it wants. only accounts for less than goods, televisions and cars Development paper argued Pointing out that the 3 per cent of total EU represent all of Turkey’s that the country’s growth lower a country’s savings imports, she argues there is international economic over the past decade had rate, the higher its current still space both to increase dynamism – Turkish com- two causes: productivity account deficit, the former Turkey’s market share and panies now take second growth in the export- minister of economic affairs achieve higher value-added. place after their Chinese oriented west – the greater adds that Turkey’s deficit “People felt the Middle equivalents in the interna- Istanbul region around the remains largely financed by East region was a low hang- tional construction sector. Sea of Marmara accounts relatively fickle portfolio ing fruit; we are seeing that But the longer-term chal- for 45 per cent of GDP – and investment, and that it has that is not the case,” she lenges remain. One underly- employment growth in the attracted markedly less adds. “In terms of political ing dilemma is that, after a Anatolian hinterland. foreign direct investment stability we see that they decade in which Turkish For Turkey to grow more over the past two decades are not such easy markets.” per capita income tripled in in the coming decades – by than countries such as Mex- Meanwhile, Ms Boyner dollar terms, the country is closer to 6 per cent a year ico and Brazil. urges Turkey to keep up facing the same scenario as rather than 4 per cent – the “There are no miracles in with economic reforms and other upper-middle-income paper argues that the coun- economics,” he says. “If the infrastructure investment, states: a lower, though still try should loosen the labour savings rate does not go up to boost its capacity to substantial, rate of growth. restrictions that inhibit to at least 17, 18, 19 per grow. While growth of 4-5 per em-ployment in the formal cent, the Turkish growth In the short term, the cent is attractive to multi- sector and push ahead with rate will be mediocre, not news is likely to be good. It nationals and investors of educational reforms, includ- spectacular.”
FINANCIAL TIMES THURSDAY NOVEMBER 22 2012 ★ 3 Investing in TurkeyNear neighbours can still become good friends “market fundamentalists and defence pygmies”. At this year’s AKP conference, Mr Erdogan managed to speak for more than two hours without mentioning the EU, to an audience that included Arab Islamist leaders such as President Mohamed Morsi of Egypt and Khaled Meshaal of Hamas butDavid Gardner no front-rank European figures.E “It’s getting harder and harder to gemen Bagıs, the Turkish defend the EU in Turkey, let alone minister for Europe, is in defend Turkey inside the EU,” where the habit of describing Germany and France have kept Turkey as the most eastern raising the barriers to Turkish part of the west and the accession, one official says.most western part of the east. In Yet, there are ties that bind.that sense Turkey should be an The economic integration ofinvaluable ally to an EU fumbling Turkey and the EU, to the benefit offor answers on its periphery – a both, proceeds apace. There are nowMiddle East and north Africa in more than 14,000 Europeanupheaval. companies in Turkey, giving them an Instead, Turkey is fast losing extra competitive edge as well asinterest in a European club that access to Turkish engineering skills.appears to spurn its once EU officials say there are nearlyenthusiastic drive for membership, at 60,000 Turkish students currentlythe same time that its ambitious studying in Europe with EU funding.plans to help reshape its The European Investment Bank hasneighbourhood in light of the Arab become an important source ofSpring are in danger of being and influential regional power. needs to keep to the path of reform The prime minister exemplifies Recep Tayyip infrastructure funding. Turkey’sunravelled by the bloody conflict in What matters now are his traced by its bid for EU membership. Turkey’s winner-takes-all political Erdogan, Turkey’s large army plays a full part inSyria, which has set alight its intentions in drawing up a new “We should not stop here; it’s not culture in which the AKP has prime minister, and international peacekeeping, fromsouthern border. constitution to replace the army- sufficient”, he said. resorted to the same methods its Angela Merkel, Afghanistan to Lebanon. Just as importantly, the paralysis dictated charter of 1982. The question Very much in contrast to Mr enemies used to try to deny it power. German chancellor If President Gul, who drove EUin negotiations on accession to the is whether he wants to use this Erdogan’s belligerent attitude As Mustafa Akyol, a Muslim liberal Reuters policy in his previous role as foreignEU, now in their seventh year, has opportunity to strengthen individual towards his critics, Mr Gul writer says, “it is not that the AKP minister, gets his way, Turkey mayshut down what for Turkey had been rights – and craft a consensus giving acknowledges the need for a strong is too Islamist, it’s that it’s too just swivel back westwards –a formidable engine of democratic Turkey’s large Kurdish minority opposition to counterbalance the Turkish”. especially since its ambitions in therenewal, at a time when the cultural and self-government gains – dominance of the neo-Islamist ruling This sense of entitlement, as a new neighbourhood have been hit badlyauthoritarian tendencies of Recep or to mould a new order in his own Justice and Development party elite rooted in the dynamic by the intractable and bloody realityTayyip Erdogan, the prime minister, image, stepping up from the (AKP) he and the premier founded. capitalism of the Anatolian of the Syrian civil war on itsare beginning to worry not just his premiership to an executive Turkey’s political drama is not the bourgeoisie elbows aside the doorstep. Some Turkish officialsopponents but some of his presidency on the French model, secularists’ spectre of creeping secularist establishment of Kemalist believe the EU’s apparent movesupporters. thereby to claim a mantle to rival theocracy but that the opposition has and metropolitan Turkey, now comes towards a multi-tier Europe – with Mr Erdogan, who triumphantly that of Mustafa Kemal Ataturk, the proved unelectable, trapped in the with more than a tinge of disdain the eurozone at its core and awon his third election last year on a secularist founder of modern Turkey. past and hitherto reliant on generals towards an EU mired in crisis. ‘It’s getting harder and British and Scandinavian outer ringrising share of the popular vote, can Abdullah Gul, the current and judges to win back what it Turkey, with the long conditioning harder to defend the EU in – may make it easier for Turkeylook back on a decade of China-style president and Mr Erdogan’s only keeps losing at the ballot box. of its NATO membership and eventually to slot in.economic growth, the sidelining of rival on the national stage, who The paradox is that Mr Erdogan vestiges of dirigisme, does not see Turkey, let alone defend “If we’re in the same room as, say,the army as the final arbiter ofTurkish politics, and the re- might take over the premiership in 2014, has told the Financial Times and the AKP, although now lords of all they survey, behave as though itself easily reflected in a European landscape peopled by what one Turkey inside the EU’ the UK or Sweden, that is something I can explain to Turkish publicemergence of Turkey as an admired that, for its own reasons, Turkey they were still in opposition. former minister derides as opinion”, one says.Gold deposits couldmeet credit demandBankingThe central bank’spolicy is also a way toboost savings, writesDavid O’ByrneAlthough much criticisedfor its use of “unconven-tional measures”, fewwould argue that the deci-sion last year by Turkey’sCentral Bank to allow thecountry’s banks to buy goldwas anything less than a Stock pile: Grand Bazaar’s gold souk in Istanbul Getty Imagesroaring success. Beginning in October 2,200 tonnes or about utilised at the CBT any-2011, the CBT has allowed $12.2bn at current prices. way,” says Mr Demir. Rais-banks to hold part of their With the figure appar- ing that cap and attractingreserve requirements in ently based on recorded further gold into the bank-gold, while at the same time gold sales over the past ing system would free up aallowing them to collect the three decades, analysts tranche of lira liquidity.gold themselves. point out that it fails to “It will open up a sizeable The rationale is straight- account for “heirloom gold” savings pool which theforward. With many Turks already in circulation and banks would be able tohistorically preferring to passed down through fami- extend as credit,” says Inaninvest their wealth in physi- lies, suggesting the true fig- Demir (no relation), chiefcal gold rather than more ure could be as much as economist at Turkey’s Fin-traditional banking instru- 5,000 tonnes. ansbank.ments, analysts estimate Whatever the true figure, With loan growth in Tur-there may be as much as opinions differ as to how key static extra liquidity is5,000 tonnes of gold being much of that gold might be not an issue, but with ana-held “under the pillow” in available for deposit in the lysts predicting the Turkishthe country. banking system. economy growing faster in These investments, which Can Demir, banking ana- 2013, many are anticipatingare effectively held outside lyst at Renaissance Capital, increased demand forthe economy, could be con- says much of the “under credit, which could be metverted to bank deposits the pillow gold” is jewellery by increased gold deposits.while simultaneously allow- with cultural traditions mit- But the benefits for theing banks some leeway on igating against it being banking system of buyingtheir reserve requirements. banked to be melted down up Turkey’s “under the pil- Initially set at 10 per cent for bullion. A better meas- low” gold, are not confinedof reserve requirements, the ure of how much gold is to reserve requirements andlevel has been successively credit pools. It also servesraised to its current 30 per to increase the level of bankcent as the policy has suc- savings in Turkey which,ceeded in attracting gold ‘The ratio of assets according to World Bankback into the economy with in the financial figures, fell from 23.5 perhigh street banks initiating cent of GDP in the mid ’90sopen “gold days” – when system to GDP is a to 12.7 per cent by 2010.anyone holding gold cantrade it in for a replacement quarter of that of “The ratio of assets in the financial system to GDP isinvestment in a “gold the EU average’ only a quarter of that of thedeposit account”. EU average,” says Suzan The effect has been dra- Sabanci Dincer, chairmanmatic, with Turkey’s bank- available for banking would of Akbank, adding thating regulator reporting an be the weight of Turkish with 19m Turks withoutincrease in the banking sec- gold coins in circulation, he bank accounts, there is stilltor’s collective precious explains. “They are pro- plenty of room for the sec-metal account rising from duced only for saving, they tor to grow.TRY1.8bn in September 2010 have no other use,” he says. But, with the easing ofto TRY15bn by September But, with the state Dar- Basel II capital adequacy2012 and individual banks phane mint having already ratios and the scarcity ofreporting gold collections produced 39 tonnes of gold capital since 2009, banks aremeasured in tonnes. coin in the first nine trying to generate non- But the initial rush of in- months of this year, the capital consuming businessterest appears to be slow- same as it produced in the opportunities through crossing, with Is Bank, Turkey’s whole of 2010, questions marketing rather than bebiggest high street bank, remain over how much of restricted to savingstelling the Financial Times this gold is likely to be accounts, explains Canthat it expects to collect banked. And over what Demir, pointing out thatonly $50m in gold deposits banks will do with the buying gold is a way ofby the end of 2012. gold they collect, with utili- reaching out to Turks who Similarly, doubts have sation of the Central Bank have never set foot inside asurfaced over just how facility for swapping bullion bank.much gold is likely to be for lira reserves approach- “If you have a good goldavailable for deposit. ing capacity. deposit product, then once Speaking earlier this “Unless the cap is raised you initiate the relationshipmonth, Erdem Basci, gover- it’s difficult to see what else with the customer, younor of the CBT, estimated banks can do with the addi- have the opportunity to sellTurkey’s “under the pillow” tional gold, because the cur- them credit cards, mort-reserves at being about rent gold deposits can be gages and other products.”
4 ★ FINANCIAL TIMES THURSDAY NOVEMBER 22 2012 Investing in TurkeyErdogan and High society does lunchGul differ on in Istanbulcountry’s EU Lifestyle Duben, an anthropologist ataspirations Bilgi University in Istanbul. In the comfortable seaside Confidence aplenty neighbourhood of Florya is in a changing city, the famed meat restaurant, Beyti. Its owner, Beyti says Andrew Finkel Guler, began with a simple roadside grilled meat res- taurant, which has evolved Tucked into a busy Istanbul into a palatial, gilded empo- side street, beside the city’s rium, with its Ottoman tiles Spice Bazaar, is one of and stained-glass windows. the masterpieces of the Among the photos of classical Ottoman age. The celebrity diners is one of Rustem Pasha Mosque, with Turgut Ozal, former prime panel after panel of decora- minister, who battled Tur- tive Iznik tiles, is a happy key’s way into the global marriage of aesthetics and economy. But it was Beyti faith, as well as a mid-16th who tutored Turkey’s post- century expression of bling. war citizens in the pleas-Europe The president hopes that joining will “It displays great wealth with great confidence,” says ures of Sunday lunch. Very much an institution, it is as Lucien Thys-Senocak, an much a clubroom as a res-complete the country’s transformation but architectural historian at taurant, with a bar and Istanbul’s Koc University. drawing rooms to lingerhurdles abound, writes Daniel Dombey The mosque is a peaceful before and after a meal. sanctuary above the shops – That disappearing world –I which gave it an income – a in particular its polite envy t is a matter, President Abdullah increased complaints within Turkey Abdullah Gul, “There may be new mechanisms He adds that the dynamic could literal attempt to move reli- for the instant coffee, Marl- Gul tells the Financial Times, of about such issues as media freedom president (right) that emerge in the EU, and Turkey yet be changed with the opening of gion into the marketplace. boro cigarettes and depart- completing the country’s transfor- and the rule of law. and Recep Tayyip should take its rightful place within new negotiating chapters, something The current generation’s ment stores of western con- mation – and yet Turkey’s bid to “There should be no doubt with Erdogan, prime this overall picture.” that can be achieved if, as European nostalgia for the Ottoman sumerism – is captured in join the EU could hardly be more respect to the determination of Tur- minister Getty Images In a likely reference to Turkey’s diplomats hope and expect, France period, reflected in the Dis- the display cabinets oftortuous, or its outcome more uncer- key to successfully complete negotia- ambitions as a rising power on the lifts reservations put in place during neyland-style office blocks Istanbul’s new Museum oftain. tions,” says Mr Gul, who talks about world and regional stage, he adds: the presidency of Nicolas Sarkozy. or Ottoman-themed housing Innocence, a shrine by the Recep Tayyip Erdogan, prime minis- Turkey’s EU aspirations in a mark- “The EU countries should also appre- “The EU has to give signs that we estates, appears sympto- writer Orhan Pamuk to hister, once put membership at the heart edly different way from Mr Erdogan. ciate the fact that there is no substi- still care, this is really important,” matic of a longing to show novel of the same name.of his project of government, but as “This is what is going to complete the tute for Turkey; they have to recog- Mr Ripert says. off Turkey’s new-won pros- The novel’s centrepiece isEU states’ reservations about Turkish transformation of Turkey.” nise the contribution that Turkey can But even that hope depends on the perity with a time-proven an engagement party inmembership have hardened into for- Mr Gul concedes Turkey may add to the EU.” government of Francois Hollande yardstick of good taste. the Hilton Hotel, a placemal blocks on talks, so Ankara’s finally decide not to proceed with But while Mr Gul speaks of a virtu- detaching Turkey’s EU aspirations After years of running to where “so many Westernardour has cooled into indifference. membership and that a country such ous cycle in which the possibility of from the vexed issue of whether catch up to Europe, the innovations made their On a recent trip to Berlin Mr as France or Austria could veto its EU entry serves to speed Turkey massacres of Armenians in Anatolia Turkish haut monde now first appearance . . . that theErdogan said the bloc would have to accession at the last gasp. But he along the path of reform, today a almost a century ago constituted feel they may be even leading newspapers evenadmit Ankara by 2023 or “lose Tur- argues that the mere fact that it will vicious cycle applies: the EU censures genocide, a controversy that has put ahead in the race. The posted reporters there.”key” and has floated the idea of have completed the talks will have Ankara for its failings, yet those very Ankara at loggerheads with Paris. rivalry is now less with the The novel begins in thereintroducing the death penalty, brought Ankara up to EU standards. ‘They have to failings make it more difficult to Marc Pierini, Mr Ripert’s predeces- outside world than between 1970s, but the Hilton waswhich would sound the death-knell He also insinuates that Turkish recognise the revive the negotiations. sor, is worried Mr Erdogan’s govern- home-grown rival elites. finished in 1955 in the nickfor his country’s bid. entry, as potentially the biggest mem- The EU’s most recent report on Tur- ment may have decided for religious A new, more conservative of time to cosset the dele- And yet Turkey’s EU talks, troubled ber state, may be less threatening to contribution key, issued last month, was its most and ideological reasons that it does haute bourgeoisie is on an gates to that year’s IMFthough they are, are still vital for thecountry’s orientation. Three-quarters other Europeans at a time of flux in the EU, when the bloc may be reshap- that Turkey critical yet, raising serious concerns over the country’s jailing of journal- not want to be too close to Europe. And yet he, too, thinks greater EU accelerated learning curve. “They may be even over- meeting. Its week-long opening warranted its ownof foreign direct investment comes ing along the lines of a eurozone inner can add to ists, the legitimacy of high-profile attention could still change the confident, but they feel that commemorative stamp.from the EU, even though sales to the core and an outer periphery. court cases and internet censorship. country’s course, for economic rea- Turkey has a status. Thebloc are now little more than a third “We are very closely following the the EU’ “The progress report was basically sons among others. “Look at Gulf newly affluent look at a The writer is the author ofof total Turkish exports. difficulties that the EU is facing at the President raising one question: ‘Where is this investment in Turkey; it is shopping Europe in crisis and think ‘Turkey: What Everyone The loss of EU influence, as talks moment – the ongoing political and Abdullah Gul country going?’” says Jean-Maurice malls,” he says. “The future of Tur- to themselves: ‘We’re not a Needs to Know’, publishedhave stalled, has coincided with economic restructuring,” he says. Ripert, EU Ambassador to Ankara. key as a Bric is with Europe.” failure after all’,” says Alan by Oxford University Press