July 26, 2010 4:16 pm

Turkey focuses on its backyard

Has Ankara given up on the EU?

Paul Doany recalls that before his boss, the billionaire and former Lebanese prime minister Rafiq Hariri, was assassinated in 2005, he had recommended his companies invest in Turkey, which he had spotted as a future success story.

That year, Oger Telecom, a Hariri company, paid $6.6bn for a majority stake in Turk Telekom. Two years later, BankMed, another company in which the Hariri family was the big shareholder, teamed with Jordan’s Arab Bank to acquire a 91 per cent stake in Turkey’s MNG Bank. “As a market for Middle East investors, Turkey started to be taken seriously in 2005,” says Mr Doany, chief executive of Turk Telecom. And for good reason. After the spectacular crash of 2001, economic growth rates were high, runaway inflation had been tamed and, more important for Arab investors sensitive to currency exchange risks, the lira had stabilised.

As Turkey has expanded its influence in the Middle East, with an energetic foreign policy that has rattled western allies and surprised traditional heavyweights in the region, policymakers and analysts have been probing with growing curiosity the perceived shift to the east.

Has Turkey, a Nato member and aspirant European Union member, given up on Europe? Or is the conservative ruling Justice and Development party (AKP) rediscovering its Islamist roots and trying to revive the Ottoman past? As relations with more hardline states in the region (Iran and Syria) have warmed, ties with Israel have deteriorated and some analysts have concluded that Ankara’s foreign policy has reached a tipping point, pulling it dangerously away from its western allies.

While there are elements of truth to all these assumptions, the one consistent factor behind Ankara’s revived interest in its neighbourhood is economics.

Secular Turks might see sinister Islamist designs in AKP intentions and the army, the traditional power behind the throne, might lament the party’s attempts to curb its authority. But the most visible impact of the AKP since it reached power in 2002 has been the liberalisation and stabilisation of the economy, which produced average economic growth of about 6 per cent between 2003 and 2008.

To be sure, the economy has a long way to go and high unemployment (officially at 12 per cent) and endemic corruption will be haunting the AKP in next year’s election.

But with European economies still struggling in the post-global crisis environment, and enthusiasm for the inclusion of a more than 70m Muslim country into the EU club wanting, Ankara can be forgiven for exploring new markets closer to home. Even the soft line on Iran is seen through an economic lens: sanctions, say officials, are simply bad for business.

Not unlike many western banks and companies that have sought Gulf capital during the global crisis, Turkey, the fastest growing economy in Europe, also sees greater opportunity in attracting private equity capital from Gulf states. Analysts on both sides expect the share of Arab foreign direct investment – which is still a tiny 7.5 per cent of total flows into Turkey – to grow steadily.

Turkish exports, meanwhile, are still predominantly destined for Europe but exports to the Arab world reached $28bn in 2008, up from a mere $3.2bn in 2002. The most phenomenal growth has been in Iraq and Syria, two countries with which political relations have improved, so driving better economic ties.

Mehmet Simsek, the country’s finance minister, says Turkey will still look westward when it comes to strengthening its institutions. “But our southward march in terms of exports and attracting [foreign direct investment makes sense economically and politically because it will also strengthen Turkey vis-à-vis Europe,” he says.

The question that people should be asking, he says, is not what Turkey is up to but why it has taken so long for it to discover what is in its own backyard. “We have ignored our immediate neighbourhood for decades and decades, and I don’t understand the logic behind it.”

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