state with in a state a geopolitical an alysis gor kh...

GORKHALAND: DEMANDS FOR ASTATE WITHIN A STATE

TURKEY:A GEOPOLITICAL ANALYSIS

TURKEY: A GEOPOLITICAL ANALYSIS

TABLE OF CONTENTSExecutive Summary

Opportunities

Introduction

Forecast

1

2

4

7Challenges

Conclusion

12

14


EXECUTIVE SUMMARYThe Turkish economy recorded a dip in the GDP growth from a steady 4.0 percent in 2015 to 2.9 percent in

2016. This can be attributed to series of political upheavals including militant attacks in Ankara & Istanbul, a

failed coup attempt, as well as major constitutional reforms sanctioned in April. Despite these challenges,

the economy now shows preliminary signs of revival as witnessed by the latest World Bank's estimate of 3.5

percent growth in GDP in 2017, characterized by a surge in exports and nominal signs of strengthening of

the Lira. However, certain geopolitical factors continue to hold potential that could impinge on the

continuity of business and investment and thus the growth of the Turkish economy.

In this regard, the report focuses on the impact of the constitutional referendum, which presents both

challenges and opportunities in terms of offering a stable politico-economic environment which may

influence Turkish policies and determine the outcome in terms of ease of doing business. Moreover, given

its current stance, the ongoing diplomatic crisis between the members of the Gulf Cooperation Council

(GCC) provides a unique opportunity for Turkey to consolidate and expand its share of Foreign Direct

Investment (FDI) that is making its way in the region. Additionally, the report also analyses the continued

steady trend in trade and investment between Turkey and EU as well as the US which goes beyond the

political differences and rhetorics that have been witnessed over the recent months.

Finally, despite the aforementioned factors, the situation in the country in particular and region, in general,

continues to remain fluid. Turkey’s continued military involvement in Syria and its impact on bilateral

relations with US and Russia; upcoming referendum for Kurdish independence in the neighboring Iraq; as

well as persistent threat of militancy posed by Kurdish militant groups and Islamic State (IS) are some of the

factors which contribute to a cautious approach adopted by the international businesses from investing in

Turkey.

Based on the analysis of these aforementioned geopolitical factors, the report provides a short and mid-

term political, economic and security forecast that businesses involved in trade and other economic

activities in the country can expect in the upcoming months.

1


INTRODUCTION

Turkey's Freedom and Justice Party (AKP) came to power in 2002 and introduced multiple economic

reforms that helped strengthen the Turkish economy. This was followed by the introduction of series of

reforms to improve the existing judicial, civil-military relations, as well as human rights practices in line with

the EU norms, with the ultimate aim of gaining membership of the Union. The popularity of the party and

President Erdogan surged during this period both at home and abroad, given the steady rate of economic

growth that was recorded along with improvements in other economic parameters like decline in inflation,

increase in domestic consumption, rise in the per capita income which was recorded between 2003-11 as a

result of aforementioned reforms. The economic reforms also helped the country successfully manage the

2008 global economic meltdown. Macroeconomic and fiscal stability was at the heart of its performance,

enabling increased employment and incomes and making Turkey an upper-middle-income country. Poverty

incidence halved over 2002–12, and extreme poverty fell even faster. During this time, Turkey urbanized

dramatically, opened up to foreign trade and finance and greatly expanded access to public services.

However, series of geopolitical shifts in the region led to stagnation of the economy and stiffened growth.

The emergence of IS and the refugee influx, diplomatic standoff with Moscow following the shooting down

of a Russian Su-24 fighter jet in 2015, slowdown of global economic growth and an overall uptick in

sophisticated militant attacks coupled with political complications characterised by a failed coup and

constitutional referendum further contributed to the slow pace of the growth of the economy.

However, the relative improvement in the security situation, forecast of economic stability in the events

following the constitutional reforms as well as emerging signs of a revival of the global economy have aided

in the renewed revival of the economy.

2


3


OPPORTUNITIES

The successful referendum on constitutional reforms held in April witnessed a transition from the existing

Parliamentary system to executive Presidential system and worked considerably in favor of President

Erdogan and his Freedom and Justice (AKP) Party. It thus significantly enhances the President's judicial,

executive and legislative powers. Parallely, given the narrow margin of votes which helped secure a

majority ‘Yes’, alongside a ‘No’ vote in major cities like Istanbul, Ankara, and Izmir, indicates that there

continues to remain some amount of apprehension among the Turkish electorate on this issue. It further

highlights a slight dip in President Erdogan’s popularity, which had witnessed a peak following the failed

coup attempt. In light of this, in order to revive the electoral confidence, certain economic reforms including

a surge in interest rates and increased autonomy to the Central Bank for a limited period of time remains

likely in the coming months. A similar measure was recorded in the days leading to the referendum as part

of the larger attempts to woo the electorate to vote ‘Yes’ for the constitutional reforms.

4

Constitutional Referendum

*Source: Anadolu Agency


Three weeks into the GCC diplomatic crisis, involving an air, land and sea blockade of Qatar by Saudi Arabia,

UAE, Bahrain, and Egypt; Turkey as of now has managed to maintain a balanced stance in the situation.

However, given the convergence of interest in sensitive issues between Ankara and Doha, including

support for Muslim Brotherhood, support for anti-Assad militias in Syria, setting up of Turkish military base

in Qatar and expected increase in the share of bilateral trade, combined together indicates that despite the

balanced diplomatic approach, Turkey’s favor slightly tilts towards Qatar in this situation. That being said,

given the changing contours of political dynamics in the region, Turkey's neutrality is expected to be

challenged sooner or later if the crisis continues to simmer over the coming weeks and months. Though the

possibility of it remains less likely at the moment, in a bid to put additional pressure on Qatar, Saudi Arabia,

and its allies may put Turkey ‘on notice’ which may have implications on GCC’s trade and investments in

Turkey. But, the impact of such measures though notable still remains likely to be limited in the mid to long

run as the majority of Turkey’s trade and investment originate from EU, China, and the US. Additionally, a

surge in Qatari investments and trade may also be expected in the light of the loss of inter-regional trade

for Doha as a result of the blockade. Additionally, the drop in market share of Qatari carriers, logistics, and

FDI as a result of relative instability caused due to the diplomatic standoff and the blockade may prove

beneficial for Turkish entities in the short to mid-term.

5

Gulf Crisis

*Source: Turkstats


6

Growth of EU’s economic prospects and low oil prices

Despite the rhetoric, Turkey is likely to continue to engage the EU. This move aimed at supporting

burgeoning trade relations and investments and also continue to enhance bilateral engagements with Russia

targeting the revival of the tourism sector and FDI in the country. This strategy seems to have worked so far

in Ankara’s favor. According to the EU Director General for Trade, the total trade between Turkey and EU in

2016 valued at approximately 147 billion USD or 42.8 percent of total Turkish trade, with imports

comprising roughly 78.19 billion USD (39 percent) and exports comprising around 68.98 billion USD (48

percent). Additionally, according to the official Turkish Statistical Institute, Exports to the EU increased by

2.2 percent in April from 5.652 billion USD to 5.779 billion USD, comprising roughly 45 percent of the total

trade in April 2017. Germany was the largest export destination for Turkish exports comprising roughly

1.140 billion USD, followed by UAE at 1.21 billion USD.

Moreover, according to a World Bank report, economic growth is expected to strengthen gradually in the

course of 2017 and to be 3.5 percent for the year as a whole. Furthermore, exports are likely to grow in 2017

due to stronger growth in the EU, while imports are expected to increase at a moderate pace as domestic

demand recovers. Finally, the continued depression of oil prices at roughly 45.87 USD/bbl as of June 2017 is

likely to facilitate the revival of the economy and also facilitate balancing the rising budget deficit which is

pegged at roughly 7.8 billion USD.

Image of Turkish President Recep Erdogan after the constitutional referendum


CHALLENGES

A flip side to the constitutional reform has been the continued arrests and detentions of political opposition

activists which continue to be recorded with high frequency. In this context, one Member of Parliament

(PM) of the Republican People’s Party (CHP) was sentenced to 25 years on June 14 on charges of leaking

sensitive information to the media. This led to an ongoing protest involving a march from Ankara to Istanbul

by supporters of the CHP. Multiple such arrests and closure of media outlets perceived to be ‘deviating’

from or critical of the government policies have been recorded over the preceding months.

In this vein, as precedence suggests, President Erdogan is expected to attempt to quell the political

opposition, which is expected to pose some serious challenges to his bid in the run-up to the Presidential

elections scheduled in November 2019. This means additional arrests of opposition leaders and closure of

opposition-aligned media outlets remains likely in the coming months. This, in turn, might result in

additional anti-government protests, including in major locales, which in turn are liable to be forcefully

dispersed by the security forces as the state of emergency prohibits crowd assembly.

7

State of emergency and restriction on political freedom

Engagement in Syria & Iraq

At the time of the conclusion of ‘Operation Euphrates Shield’ in March, Turkey-backed forces managed to

secure the pocket from Jarabulus to al-Bab, north of Aleppo in northern Syria from IS militants.

Furthermore, a report released on June 21 by the Syrian Observatory for Human Rights indicates of a

buildup of Turkish-backed forces in the southern countryside of Azaz which highlights an intention to

counter the US-backed Syria Democratic Forces (SDF) presence between cities of Azaz and Merea. The

larger goal of the Turkish-backed forces to capture Manbij remains unaccomplished at the moment.

However, if the escalations continue, the localized clashes are likely to draw hostilities from the US as well

as Russians supporting the Syrian government forces, that are also deployed in the region.

Moreover, continued difficulties in maintaining the loose militia coalition which comprises the Free Syrian

Army (FSA), supported by Ankara has resulted in infighting which may compromise the gains made over the

preceding months. This is likely to result in greater entanglement of the Turkish security forces in the Syrian

imbroglio. All in all reports from the ground highlight the fact that Turkish intervention in northern Syria is

likely to continue for the time being thus significantly increasing possibility of clashes between other anti-IS

coalitions operating in the region. Turkey’s targeting of the US-backed YPG forces is likely to draw ire from

Washington which has adopted a more aggressive stance under President Trump, as has been recorded in

other sectors of the Syrian conflict.


8

Turkish F-16 fighter jets in action

The latest visit by President Erdogan to the US can at best be classified as inconclusive. The US continues to

remain unresponsive to the Turkish demands for the extradition of cleric Fethullah Gulen, who has been

alleged to be the perpetrator of the failed coup against President Erdogan by the Turkish authorities. This

has led to a notable increase in anti-US sentiments in the country, especially among the supporters of

President Erdogan. However, the anti-US sentiments have not manifested in incidents of violence against

western nationals as of now.

Furthermore, the US support for anti-IS militias including the Kurdish People’s Protection Units (YPG)

especially in northern Syria, in close proximity to the Turkish border continues to remain contentious

issues. Turkey alleges the YPG of being a part of the Kurdistan Workers Party (PKK), which has been

responsible for multiple militant attacks across Turkey. This has also resulted in Turkish-backed forces

launching attacks against the YPG in and around the Azzaz region which has greatly strained relations

between Ankara and Washington.

Uncertainty over US-Turkey bilateral relations


9

Peshmerga supporters holding pro-US placards

Finally, clashes between President Erdogan’s bodyguards and protesters during his visit to the US has

received widespread criticism as it highlights the lack of tolerance to criticism of the Turkish authorities.

Though no serious diplomatic actions have been taken following the incident, except the Turkish

ambassador to the US being summoned by US authorities. Yet the incident adds to the already strained

bilateral relations.

Despite all of the above factors, US continues to be one of the crucial trade partners for Turkey with the

bilateral trade being roughly 17.68 billion USD in 2016, comprising 5.1 percent of Turkey’s total trade

including exports worth 9.3 billion USD and imports worth 8.04 billion USD. North America as a whole also

contributed to roughly 4 billion USD worth of FDI in 2016 alone.


10

Image of a Kurdish Peshmerga fighter

The Kurdish referendum for independence is slated for September 25 and has already raised opposition

from the regional players including Turkey, Iran, and Iraq. Moreover, the ruling Kurdish Regional

Government (KRG) has maintained cordial relations with Turkey for economic and security reasons.

Additionally, the current Turkish presence in Iraq is under the pretext of supporting the KRG linked

Peshmerga units in its fight against IS in the region. Furthermore, the referendum is not the declaration of

independence but a crucial step towards the larger goal of establishing an independent Kurdish state in the

future. Notably, the referendum is confined to Kurdish region currently under the KRG in Iraq and does not

involve Kurds in Turkey. However, despite cordial relations between the two entities, the Kurdish

referendum has drawn opposition from Turkey which believes that such a development will fuel separatist

sentiments within its own Kurdish-dominated southeastern states which are already witnessing a raging

insurgency aimed at achieving autonomy. That being said, given that the issue continues to face stiff

opposition both from within the multiple Kurdish political parties as well as the regional players, it remains

unlikely that the referendum will significantly alter the regional power balance, at least for the time being.

However, any significant political development towards the issue of Kurdish independence may provide the

pretext for a Turkish intervention in the region.

Kurdish referendum in Iraq


11

KURDISH INSURGENCY

Following a relative decline in attacks by the PKK militants targeting Turkish security forces in the initial

months of 2017, a surge in the militant attack has been recorded throughout Kurdish-dominated

southeastern parts of Turkey. In this context, one security officer was reportedly killed, six wounded in a

rocket attack along the Cukurca-Van Highway on June 19. With this in mind, additional security operations

involving the killing of militants and discovery and dismantling of militant infrastructure along with regular

airstrikes in northern Iraq targeting PKK-linked logistics centers remains likely. Despite this, the recurrent

attacks highlight the militant groups continued operational capabilities in the region. Moreover, in light of

President Erdogan's statements aimed at completely destroying PKK’s operational capabilities, security

operations remain likely to continue. This may result in further exacerbating the sense of marginalization

among the minority Kurds which may facilitate recruitment for more radical groups like the Kurdish

Freedom Falcons (TAK), which are known to undertake more sophisticated attacks including those in

central locales like Ankara in the upcoming months.

IS MILITANCY

Regular reports of the arrest of IS-linked militants across the country, including in central locales highlights

the persistent threat and intention of the Sunni jihadist militant group in perpetrating attacks in the

country. However, the absence of any major attack since the January Istanbul shooting can be attributed to

heightened security measures in these locations as well as the ongoing state of emergency, which has

vested additional powers to the security forces to undertake pre-emptive arrests of suspected militants.

Despite this, the possibility of another successful attack by the militant group cannot be completely ruled

out at this time.

Perpetual threat of militancy

Image of a bombing in Suruc District on July 20, 2015


12

The transition period till March 2019 has been catered for, in which local elections will be held, followed by

Presidential and Parliamentary elections in November 2019. This period along with the months following

the aforementioned elections are likely to be characterized by a status quo in terms of the political and

economic situation. This thus significantly limits the scope for major economic restructuring or reforms as

more focus will be invested in the political transition. The economic restructuring is more likely to be

introduced in a phased manner and will be significantly contingent on the domestic and international

situation prevailing at the time. That said, continued arrests of opposition members and militants, as well as

limits to freedom of expression, remains likely, including forceful dispersals and arrests of anti-government

protesters.

Meanwhile, the Turkish troop presence is likely to continue in Syria to deny IS from capitalizing on the

security vacuum that may potentially be left behind following the retreat of Turkish forces. Moreover, given

the notable uptick in Kurdish militancy perpetrated by the PKK as well as its splinter group, security

operations including airstrikes in Iraq are likely to continue with the aim of capitalizing on the positive

momentum gained against the militants in the region. Rehabilitation and reconstruction of infrastructure in

areas damaged as part of security operations are likely to continue in the southeast, alongside continued

security operations as part of the broader Turkish government’s ‘carrot and stick’ policy to tackle the

Kurdish militancy in the region.

The existing fluid situation is likely to force foreign investors to adopt a wait and watch approach. Parallely,

the absence of any major political or security incident in the following months may potentially revive the

tourism industry, alongside investors confidence in terms of investments in the country. However, the

continued tension between EU majors like Germany and Netherlands with the Turkish regime may limit the

scope of the complete revival of the overall economy. That said, Turkey is likely to maintain close ties with

Russia and increase economic engagements with regional players like Qatar, UAE, Iran and other Central

Asian countries. In a scenario involving continued economic difficulties coupled with an unforeseen major

militant attack by either the IS or Kurdish militant groups, the authorities are likely to step up its military

presence, most likely in northern Iraq, under the pretext of safeguarding national security. It is thus aimed

at stoking the prevailing sense of nationalism which will provide legitimacy for the aforementioned

intervention. Additionally, at least temporarily, this may provide a distraction to the local population from

the government’s failure to deliver on the economic front. A similar trend was observed before launching

Operation Euphrates Shield in northern Syria. Moreover, following the latest territorial advances in the

region by Russia and US-backed forces, Ankara now has virtually very limited scope to maneuver in

northern Syria. In this case, given the operational presence of Kurdish groups, coupled with a relatively

compliant government in Baghdad thus makes northern Iraq a likely area for future Turkish military

intervention.

FORECASTS

Short-term economic, political & security scenario


13

The midterm is characterized by the duration leading up to the Presidential elections in November 2019. As

precedent suggests that shelf life of nationalistic sentiments as a tool for gaining legitimacy is limited and

the Turkish government will eventually have to introduce credible reforms aimed at reviving the economy.

Among other things, given that boosting the economy is high on Erdogan’s agenda list and filling gaps left by

the diminishing foreign investment, Turkey is likely to continue with the devalued currency, aimed at

boosting exports and discourage imports that will facilitate the revival of the domestic industry. It may also

help in improving the unemployment rates, providing the government additional support at the grass root

level. However, the measures are likely to have a short shelf life as inflation is likely to have an impact on

popular support and in the worst case scenario may result in civil unrest, something the President will

prefer to avoid, as it provides cannon fodder for opposition groups to pressurize the government.

At the political level, this may translate into a temporary pause or slowdown in ‘aggressive’ stance of the

Turkish government. The period is more likely to witness attempts to reboot relations with EU and US,

including deeper economic engagements and less of inflammatory rhetoric given that foreign investments

will be one of the most crucial elements in the economic revival. At the same time, cordial relations with

Russia remains likely to continue. Domestically, though a crackdown on opposition forces under the pretext

of counter-militancy will continue, albeit at a slower pace. However, it may possibly witness temporary

cessation of hostilities with the Kurdish population as was witnessed before 2015.

Mid-term economic, political and security scenario

CONCLUSIONTo conclude, it can be said that in the politico-economic situation in the country remains fluid forcing

investors to adopt a wait and watch policy to ensure the preliminary signs of a revival of the Turkish

economy is sustainable in the first place. Keeping in mind the ongoing geopolitical shifts in the region the

primary focus of the Turkish government in the short run will be more focused towards political transition

with the credible possibility of a limited military intervention in Iraq aimed at diverting domestic attention

from the politico-economic difficulties by the Turkish authorities. However, in the mid-term economic

compulsion may force the Turkish authorities to adopt a relatively more conciliatory approach and re-

establish relations with EU and US.

CONTACT US C 1003, ONE BKC, G BLOCK BANDRA-KURLA COMPLEX BANDRA (EAST) MUMBAI-400051INDIA

T: +912262364401 E: [email protected] W: www.grid91.com

state with in a state a geopolitical an alysis gor kh...

Documents