(Photo taken from businessht.com.tr)
by Eren Alp
With only a few days to go before Turkey’s pivotal parliamentary elections, the main opposition party, the CHP, announced on the 21st of May its plans to build a ‘mega city’ in the country’s Anatolian heartland. The proposed city is to be established by 2035, would be home to some 2 million inhabitants, and comes with an estimated price tag of almost $200 billion, $40 billion in the form of government investment in infrastructure, and $160 billion coming from private investment. Although it may seem like a pipe dream, the plan does have merit. But can it deliver?
Mega projects and infrastructure investments are hardly new in Turkey, whose Ottoman ancestor saw the construction of the Suez Canal, the Hejaz and Berlin to Baghdad Railways. The ongoing Southeastern Anatolia Project (GAP) is the most recent attempt to find the magic formula to fast-track Turkey’s social and economic development.
Under the AKP however, similar huge building projects have taken a bizarre turn, perhaps best exemplified by President Erdoğan’s ostentatious and costly new palace in the Ataturk Forest Farm on the outskirts of Ankara, in spite of court orders halting work. It appears that the mega projects underway today have just as much to do with clientelism and rent-seeking attitudes, respectively among the ruling AKP’s leadership and wealthy construction consortiums. Economists, urban planners, and environmentalists have all raised objections and questioned the feasibility and need for such projects as the third Bosphorus bridge, a third Istanbul airport, and the so-called Kanal Istanbul, an artificial canal linking the Black Sea to the Marmara.
These projects, along with many smaller land-development ones, are closely linked to the upswing of crony capitalism, in which construction consortiums are given large contracts by the government, often with irregular tender processes if any at all, and in turn provide political support. The most obvious example of such support has been the acquisition of media outlets, including those critical of the government, by AKP-friendly construction consortiums that were given lucrative contracts, and their subsequent transformation into government mouthpieces. The widespread allegations of kickbacks to AKP officials which reach right up to President Erdoğan and his family merely exacerbate perception that the party is corrupt. This has snowballed on the damage done by the December 2013 bribery and corruption scandals, which implicated AKP officials, their relatives, and billionaire construction magnate Ali Ağaoğlu and Iranian-Azerbaijani businessman Reza Zarrab, among others. The scandal cost four ministers their jobs, but also triggered a massive government campaign against the police and judiciary, in an apparent coverup or struggle against a coup-plotting ‘parallel state’, depending on your point of view. The fight against the so-called ‘parallel state’ has since taken on the appearance of a witch-hunt as much as an investigation affecting national security.
Crony capitalism in Turkey is nothing new, but it appears to have reached a new height under the AKP, particularly after 2007. Government interventionism against opposition and opposition-linked businesses and media has become increasingly overt, such as the cancellation of a warship contract originally given to the Koç group after Gezi Park protestors sought refuge in a hotel owned by the group. The Koç group also owns many of Turkey’s opposition media through the Doğan Media Group, which has recently come under intense government pressure. The excessive focus on the government-friendly construction sector, and in Istanbul in particular at the expense of other regions, is unproductive investment and is diverting resources away from what the Turkish economy needs most: investment in high(er) value-added sectors. This diversion is a significant contributor to Turkey’s ever-present trade deficit and consequent growing debt, which when combined with an over-valued and over-supplied real estate sector runs the risk of creating a Spanish-style real estate bubble. Worse yet, crony capitalism has had the effect of stunting wage growth in Turkey in favour of enriching a select few, leaving much of the population with unsustainable and growing debts, despite the economy continuing to grow. This middle income trap appears to be recognized by all political parties in Turkey, even the AKP, but it remains to be seen whether the latter will be able to take any action against its own interests in favour of the greater good.