Jeff Pearce
corporate risk
The urgent riddle of Turkey | Canadian Insurance

The urgent riddle of Turkey

It’s a vital market for Canada, but it’s also a country struggling with faith versus secularism, refugees and tensions with its neighbours.

The problem with a postcard is that there’s no depth of field. Christmas of 2014, for instance, I was in Istanbul, joining the crowds that filled the Hagia Sophia (seen on our cover) and gazing out on the Bosphorus. The crisis over Turkey shooting down a Russian jet lay months away in the future, but there were other clues for me that all is not so happy where East meets West. At night, there was some kind of protest on the Istiklal Caddesi, one of the city’s major shopping boulevards, and I saw more black-clad and helmeted riot cops than folks actually carrying a banner.

More than a year later, things seem to have only gotten worse. The reasons are simple enough: polarizing politics, the war in Syria and the recent and highly controversial EU deal over Syrian refugees, the ongoing tensions with Russia… It all adds up. The religious, conservative Justice and Development Party (the AKP) is running the country, and though he lowered his profile for the recent elections in November, Erdogan is expected to keep pushing his right-wing agenda, one that would put more power into his own hands.

And we should care about all this. Turkey is more important to Canada than most Canadians might think. According to the most recent figures available from Ottawa, we imported more than $1.3 billion in goods from Turkey in 2013, and the Turks accepted more than $889 million in exports from us, most of it vegetables, paper products, iron and steel and energy-related products. We took in their gold, nuts, tubes and pipes.

According to a federal research paper, “In 2013, Canada had a trade deficit with Turkey in all product categories except forest products, and agriculture and food; it had a trade surplus with the country in those two categories.” And in early February of this year, the Canadian Pasta Manufacturers Association claimed more than five million kilograms of uncooked pasta were being unfairly subsidized and “dumped” in the Canadian market.

Meanwhile, Bloomberg reported back in early December that foreign investors had yanked about $7.6 billion in assets out of Turkey in 2015.

Back when I was there, I rang in the New Year in a Besiktas neighbourhood apartment, smack in the middle of a surreal tableau of twenty-something fashion models, many slamming Red Bulls with vodka to hip-hop tunes in the kind of heathen party display of which I’m sure the conservative elements in Turkey would disapprove. It’s an astonishingly young country, one where 60 percent of the population is under 30. Of course they dance.

But the Western presumption of a sophisticated populace—able to balance Muslim faith with secular state—is misleading. Even as we go to press, it’s reported that the country’s parliamentary speaker Ismail Kahraman, who is supervising the do-overs of a draft constitution, said Turkey should have a religious one as it’s a Muslim nation. It’s a stand that hits Turks, especially those young ones who were happily dancing on that New Year’s Eve, right where they live. Under the country’s founding father, Atatürk, the country was put on a secular path enshrined by law that’s lasted for close to a century. It’s worth noting, however, that the backlash prompted Kahraman to claim within a few hours that this was only his “personal view”— as if that should make it better.

I recall sitting one day in a shop in the Grand Bazaar, drinking tea while waiting for alterations on—what else?—a leather jacket, and I asked the proprietor what he thought of the controversial president, Recep Erdogan. Understand, this is a middle-aged fellow with a thick mustache, and I was expecting a conservative response. Beneath a portrait of the founder of the modern state, Atatürk, the shop owner grumbled. I was told, “He says, ‘Erdogan is an [expletive].” And that ended that.

Gareth Jenkins, a writer and analyst based in Istanbul, warns there’s a great deal of political uncertainty affecting foreign direct investment. While noting a recent reform package the Ankara regime says it’ll implement over the next year, he says that “some of the things there, superficially, they look very positive for foreign investors, such as improving the legal system, and it’s a vague commitment to making Turkey more attractive to foreign investors. But we don’t know how that’s going to be in practice. And certainly experience suggests that actually for FDI we should be cautious at the moment, unfortunately, although Turkey is a very attractive market in many ways, both in itself and because of its location. But because of these issues, political instability, questions about the rule of law, I would actually be cautious at the moment.”

Well, there’s that Hitler guy

One of the government’s favourite ways to voice its displeasure with a company is to slap it with a tax inspection. And on the very day I spoke with Jenkins, he told me of another series of arrests of alleged opponents of the government, including a university lecturer. “So far [all this] hasn’t really affected foreign investors here too much, but it does create the element of uncertainty, and you know, perception is a lot of this.”

Jenkins has put his analysis in much stronger terms for The Turkey Analyst website: “Most pernicious is the climate of fear that now pervades large sections of society. Until a few months ago, it was commonplace to hear those who do not vote for the AKP express fears about losing their freedoms. Now many talk about the fear of losing their lives.”

If that sounds hyperbolic, it becomes more plausible on a closer look at the regime. Its shades of paranoia range from sinister to downright goofy. Back when Erdogan was prime minister, after all, he and his cabinet members thought that everyone from Germany to the Jewish lobby in the U.S. to Lufthansa (yes, really) was out to get them. After a journalist named Yigit Bulut claimed on television that foreign enemies were trying to assassinate Erdogan through telekinesis, the PM promptly hired him as a political advisor. And the day before Jenkins and I spoke, Erdogan got himself a new chief advisor—a former Olympic wrestler named Hamza Yerlikaya.

As the year came to a close, Erdogan was asked about making the presidency stronger and told reporters, “There are already examples in the world. You can see it when you look at Hitler’s Germany.”

The government already has a habit of shutting down those it doesn’t like. Alev Scott reported for the UK’s Guardian in October how it went after Bugün TV, a broadcaster that’s part of a company linked to Fetullah Gülen, a Muslim cleric once chummy with Erdogan, but later branded by the police as the leader of a terrorist group. Scott says “the newsroom of this company was literally raided on live TV. As it was broadcasting, police entered and just switched everything off. It was the most dramatic television I’ve ever seen. And that’s… not normal, exactly, but becoming more and more normal.”

Scott has a British father and Turkish mother, and having moved to Istanbul in 2011, she’s written Turkish Awakening, a book that should be packed in every executive’s carry-on luggage if they’re trying to figure out the country for doing business. In the book, Turkey comes into focus as a place still highly dependent on a cash economy, with a substantial percentage of Turks employed off the books: “This is because for every employee in Turkey, their employer must pay the equivalent of their salary in tax and social security to the government; an official employee is twice as expensive as an unofficial one.”

It’s little surprise then, as Scott told me, that a factory owner would pay a Syrian refugee about half what’s paid to a temporary Turkish worker, who would get “about 80 to 100 lira a day perhaps without a long-term contract. And a Syrian you would get away with paying 40 lira a day, which is nothing…” That’s $19 Canadian. For the whole day.

Turkey’s prime minister, Ahmet Davutoglu, promised recently to raise the minimum wage by 30 percent, but Scott believes that won’t do much for a large chunk of the population working off the books. She points out that the way the government makes up for lost revenue is “they just very heavily tax other things, like alcohol and foreign imports in general—cars, technological gadgets, mobile phones, that kind of thing are taxed. Petrol—absolutely sky high.”

And yet despite any impediments, as Scott suggests in Turkish Awakenings with possibly an ounce of cultural pride, “Put simply, Turks can sell anything, no matter what the obstacles.” And sometimes those obstacles come from others. The EU has been incredibly patronizing and scornful, willing to take a broke, basket-case state like Greece into the club when Turkey would have arguably made a better fit. But as Scott has pointed out, the actual picture is more complicated. As an accession state, the country takes in more than €700 million, and if Europe doesn’t want more of what it has to offer, Turkey can—and does—teach British and American companies how to get more business in the Middle East.

If Erdog an has needlessly divided Turks into factions of conservative vs. liberal, faithful vs. secular, Scott for one reminds you “there’s always been a tendency towards polarization in Turkish society.” And she’s right; there have, after all, been three military coups since 1960, nasty feuds between left and right, states of emergency, and let’s not forget Kurdish insurgents and the invasion of Cyprus in 1974.

While Turkey is sometimes held up in the West as a model for a Muslim democracy, Scott says, “It’s not really a democratic system. It’s democratic in name, but not really in reality. And I think those kind of objections to what’s going on at the moment are getting stronger, or louder, whereby people say, ‘Okay, yes, officially, we had this election in November… but actually when you look at how much the media is controlled, when you look at the sort of finger-pointing that goes on in the rhetoric, how can it be fair? People aren’t really exposed to all the elements that they should be when they’re going to the polls. So there’s definitely a sense that the public has been manipulated, and it isn’t really a fair system when a lot of the population are told how to vote by their local sort of village elder.”

All that being said, Scott strikes a final optimistic note. “Turkey is an incredibly interesting place to be, and I’m deeply committed to the country, to the people, despite some of the challenges. It has a huge amount to offer.”

Copyright © 2016 Transcontinental Media G.P. This article first appeared in the Summer 2016 edition of Corporate Risk Canada magazine