October 12, 2015

Investment stalls as Erdogan clamps down on critics

A political struggle between Turkish President Recep Tayyip Erdogan and his opponents has begun to spill over into the country's business community, heightening social tensions and dampening investor sentiment.

In mid-September, Turkish police arrested Memduh Boydak, the chief executive of Boydak Holding and former honorary consul to Japan of the central Turkish province of Kayseri, and other executives of the company. They were arrested for illegal site acquisition by a university for which Boydak serves as director. However, many believe that the arrests of Boydak and others were triggered by conflict between Erdogan, who leads the ruling Justice and Development Party, and Islamic preacher Fethullah Gulen, who lives in the U.S.

Boydak Holding's major strength is in the fields of furniture making and energy. The conglomerate is said to have close ties with the so-called "Gulen movement," led by Gulen, which is known for its critical stance toward Erdogan's administration. Boydak is also an influential entrepreneur who is the director of the Turkish Industry and Business Association, the main business lobby in Turkey.

With a snap election scheduled for Nov. 1, a Gulen-linked media group has been under investigation. Boydak and others have already been released, but the recent arrests could be a sign that the Turkish business community is under pressure from the ruling party to refrain from criticizing the administration.

After the Justice and Development Party took power in 2002, Erdogan and Gulen had cooperated with each other in eliminating the influence of the military and other efforts. However, the relationship between the two deteriorated after a corruption scandal involving some of Erdogan's cabinet members came to light in 2013. The government moved to eliminate the influence of Gulen-linked organizations because they are allegedly trying to set up a "parallel state" within the bureaucracy, putting quite a few officials in the central government and security authorities, who had close ties with Gulen movement, out to pasture.

An ongoing political battle has kept investors both at home and abroad away from Turkey. The country's currency, the lira, has dropped more than 20% against the dollar since the start of the year, marking the second largest decline after the Brazilian real among major emerging market currencies. Direct investment in Turkey fell 9.6% on the year to $6.3 billion in the January to June period.

Foreign companies doing business in Turkey are keeping a close eye on whether or not the November election will help stabilize the political situation in the country.

Editor’s note: Hizmet Movement Blog reaffirms its non-endorsement policy of the various viewpoints expressed throughout the articles that are solely shared for the convenience of the readers.

Published on Nikkei Asian Review, 9 October 2015, Friday