DW: Less German investment in Turkey – Erdoğan’s economic model has failed

It was another routine appearance for Turkish President Recep Tayyip Erdogan last weekend in Samsun, his home, where he has always had full support. At least until recently this was the case as the Turkish president is now increasingly nervous. He is not sure of victory. Women now have an important role in his election campaign.

Going door to door, AKP women solicited votes from disaffected pensioners, housewives, conservatives and religious people. Successfully indeed. The president himself wants to bet on women this time as well. “Don’t leave any apartment without a visit. A castle can be conquered from the inside and who can do that? The women!” said the Turkish president characteristically.

As he mentioned in his speech, he is asking for the support of the people for the last time, so that he himself can inaugurate the “new century of Turkey” and then hand over the “blessed” baton to the youth. The country’s tense political and economic situation is pushing Erdogan to win back those who have turned their backs on the ruling party in recent years. The country’s inflation is a never-ending headache for him. Although it has not risen further for the first time in a year and a half, it is still an alarmingly high figure of over 84%. As a result his voters are suffering, which may cost him the victory this time due to the country’s economic problems.

Erdoğan’s economic model has failed

He presented his economic model a year ago, with which he wanted to bring more investment into the country through a policy of low interest rates, in order to stimulate the economy and fight inflation. But it failed miserably. However, the central bank of Turkey – close to Erdogan – continues to reduce the key interest rate to 9%, while it should do the exact opposite.

The fear of households is huge. Despite the fact that many are working, the money cannot even cover their basic needs and for this reason many are forced to flee to other countries. Social media is flooded with calls from citizens asking for donations and support, half of the country’s workers receive the minimum wage of around 300 euros and, fearing that the pound will depreciate further, they immediately exchange their money for euros or dollars.

The exchange rate is also a major concern for German companies in Turkey. According to the German Chamber of Foreign Trade (AHK), the “risk” factor amounts to 74%. More than half of German companies located in the Bosphorus expect a deterioration in economic growth next year. On the other hand, 60% of respondents still consider their business situation “good”, despite the conditions, 38% consider the situation “satisfactory” while only 2% of German companies consider their business situation to be “bad” ».

The crisis in Turkey threatens future investments

The country’s economic quagmire is slowing German companies’ employment plans, with only 22% planning to hire new staff, while 16% of companies surveyed are even considering job cuts. The majority of companies believe that the level of employment will remain the same.

The economic model of the Turkish president seems not to have convinced German companies as more than 30% want to reduce investments, although the majority of German companies still consider Turkey an attractive location. In an interview with DW, the Secretary General of the German-Turkish Chamber of Commerce, Tilo Pal, stated that only 10% of respondents expect an improvement in the Turkish economy in the next twelve months. He also mentioned that German companies in Turkey are feeling the effects of the war in Ukraine.

The obligation for companies based in Turkey to exchange a percentage of export earnings in Turkish lira is of equal concern. In fact, this percentage increased in the spring of 2022 from 25% to 40%. Germany, however, remains Turkey’s largest trading partner to this day. According to the Turkish Statistical Authority, most exports from the country go to Germany.

Pinar Ersoy, president of the German Foreign Chamber of Commerce (AHK), told DW that the sanctions against Russia and the ensuing consequences also worry companies, as both German and Turkish companies are closely monitoring the developments. According to the Federal Ministry of Foreign Affairs, there are currently around 7,700 companies in Turkey, which are supported, at least in part, by German capital.

DW – Elmas Toptsou/ Aram Ekin/ Iosifina Tsagalidou

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