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1/25/17

Turkey: Walking on Eggshells in Turkey – BY Philipp Mattheis

The Trump Towers in Istanbul’s business district of Sisli are a symbol of Turkey’s economic upswing. The 155 and 145 meter-high (476 ft) towers were constructed in 2010. They were financed by 80-year-old billionaire Aydin Dogan, founder of the eponymous holding, which also owns the daily government-critical newspaper Hürriyet.

Last week, police stormed the building and arrested the former head of the holding and its legal department chief, making them the most prominent victims in the latest series of crackdowns. The recent wave of arrests included 380 business people accused of having ties to the organization of U.S.-based cleric Fethullah Gülen, who Turkey’s government accuses of being the mastermind behind last year’s failed coup.

Such crackdowns, along with judicial despotism and a series of terror attacks, are straining the economic climate in Turkey, leaving companies to suffer from the downturn. Increasingly, also German companies feel the pinch.

The country appears to be on the path to a dictatorship. The governing conservative Justice and Development Party (AKP) of President Recep Tayyip Erdogan is planning to reform the constitution and turn Turkey into a presidential system with all powers concentrated in the hands of the president. The parliament would then have little say.

So far, German business people have not come into the vengeance-seeking president’s line of fire. But these days, just the suspicion of having contact to the Gülen movement is enough to draw the ire of the commander-in-chief. And no company is able to protect itself against the attacks.

“Turkey was once a good country to live in,” said a German businessman, who runs a medium-sized company. “That’s no longer the case. The living space is becoming increasingly more restricted,” he added, declining to provide his name for fear of reprisal.

In modern day Turkey it is no longer advisable to put one’s head above the parapet. Business people only dare to voice their criticism in private for fear of becoming the next victim of Mr. Erdogan’s increasingly unpredictable sanctions. “A widespread uncertainty prevails,” another German business owner told WirtschaftsWoche, a Handelsblatt sister publication.

Last summer, one of the few business owners to still venture an opinion was Dirk Rossmann, the head of the German eponymous, family-run drugstore chain, which operates some 3,500 stores across Europe.

“An awful lot reminds me of the days of Hitler,” 70-year-old Mr. Rossmann said in August last year, commenting on the mass arrests that followed the attempted July coup.

He would likely refrain from repeating such words today. His two sons, who co-run the company with Rossmann senior, had criticized him internally and reminded him of the fact that he also bore responsibility for the employees stationed in Turkey, Mr. Rossmann said in an interview.

Mr. Rossmann was a pioneer when he ventured onto the Turkish market in 2010 and his company now operates a chain of 66 drug stores there. So far, there has been no fallout as a result of his Nazi comparison. Nevertheless, the group is putting the brakes on its expansion in Turkey for the time being.

But some of the first companies are even leaving the country. Shortly before Christmas, Europe’s largest shopping mall operator, Germany’s ECE, ended its management contract for the Modern East shopping center in Istanbul. The complex was only opened in the spring of 2016, but the center’s former owners were suspected of having links to the Gülen movement, a connection which saw their assets confiscated. The Modern East is now run by a fiduciary, but with ECE being dependent on an active landlord to sign store leases, the German firm was forced to give up the location.

Other German companies, such as Vorwerk, are not even entering the country. The house appliance maker, known for its Thermomix food processor and its vacuum cleaners, has for now postponed its planned market entrance due to the unstable situation, Reiner Strecker, one of Vorwerk’s managing partners, said.

The repercussions of the political crisis already make their presence felt. With a trading volume of €37 billion ($39.25 billion), Turkey is one of Germany’s 20 most important trading partners. 6,500 German companies, more than from any other country in the world, operate in Turkey. But foreign trade is shrinking, with the German Chamber of Industry and Commerce expecting a 5 percent drop this year.

Mechanical engineering, car production and chemicals account for roughly 60 percent of German exports and it is these groups that feel the squeeze most.

“We have noticed since November that it has become increasingly difficult to sell in Turkey,” said Friedrich Wagner, the foreign trade expert of VDMA, Germany’s Mechanical Engineering Industry Association. The rate of new orders is dropping by double-digits, Mr. Wagner said.

“The weak lire is making Turkish products more expensive, rising interest rates are making financing more expensive and prospects for the political situation remain unclear,” the VDMA expert said. “Most Turkish customers are just sitting on the fence for now.”

Adding to the mix of political uncertainty is the fear over further terror attacks. In 2016, hardly three months went by without a bomb exploding in Istanbul. On New Year’s Eve, a terrorist killed 39 people in Reina, an upmarket entertainment and dance venue popular among foreigners, in an attack claimed by Islamic State (IS). Attacks also killed and injured dozens of people in other Turkish cities, such as Ankara, Gaziantep, Izmir and Antalya. Each attack exacerbates concerns at company headquarters over whether Turkey is still a safe location for factories, offices and staff.

For complete report click here: Walking on Eggshells in Turkey – Handelsblatt Global

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