Coup Aftermath Turkey Instability Threatens Investment

Turkey’s post-coup crackdown is a risk to its economic and political stability, meaning that German companies, who play a key part in its economy, are watching developments closely.
Turkey's President Erdogan is popular at home but worrying investors abroad.

The president of Germany’s main business chamber has warned that the instability in Turkey may affect German investment in the country.

Ulrich Grillo, of the Confederation of German Industry (BDI), said “We are watching developments in Turkey closely and with great concern. The attempted coup and the many acts of terror are maximizing political instability,” he said.

He added that German companies could be expected to curtail their activities in Turkey, due to the protectionist measures being adopted by the government.

His comments come as Turkey’s president Recep Tayyip Erdogan declared a state of emergency in the wake of the failed putsch on July 15.

Mr. Erdogan’s actions since the failed coup attempt have the potential to put the already ailing economy still further under pressure.

German companies play a key role in Turkey’s economic development. Germany is Turkey’s most important trading partner, accounting for a good 10 percent of Turkish imports and exports. German-Turkish trade has a volume of €37 billion ($40.7 billion) per year. There is German investment in as many as 6,635 companies in Turkey, and German companies have their own production facilities in Turkey, some employing several thousand people.

Bosch, for example, the Stuttgart-based technology giant and automotive supplier has had a regional headquarters in Istanbul since 1910. It has 16,600 employees in seven factories in Turkey, four of them in Bursa, 90 kilometers south of Istanbul and one each in Tekirdag, Manisa und Kocaeli. Last year Bosch invested €300 million in its Bursa plant, where the company manufactures injectors for diesel vehicles and fuel injection units as well as components for drive and control technology. In total Bosch generated revenues of €1.5 billion in Turkey in 2015.

And it is not the only German company operating in the automotive sector there. The car parts supplier Aunde, based in Mönchengladbach near Düsseldorf, employs 3,500 workers in Turkey and is ranked in 178th place among the 500 biggest companies in the country.

Textile companies are also heavily invested in Turkey. In the year 2015, the German textile and fashion industry imported more than €4 billion worth of goods from Turkey, about 80 percent of which was clothing.

For Hugo Boss, Turkey is one of the most important manufacturing locations, with Izmir its biggest wholly owned factory anywhere, with a workforce of 4,000. Around a third of all Boss suits are made in Izmir, a facility which the company expanded only two years ago. And for many years Boss has also outsourced sewing work to a number of subcontractors in Turkey.

Ingeborg Neumann, president of the association of the German textile and fashion industry, warned that any further deterioration in Turkey “would be toxic for bilateral business relations.” She added that everything should be done “to avoid uncertainty on the part of investors and customers,” and that Turkey needed stable business relationships with Germany and the whole of Europe for its further economic development.

She also pointed out that democratic structures governed by the rule-of-law were of great importance. Even before the escalation brought about by the attempted coup, conditions had already deteriorated. “In recent years I’m afraid we have experienced a more restrictive Turkish trade policy, which has put German textile, clothing and shoe companies at a disadvantage despite a common customs policy,” said Ms. Neumann.

Anton Börner, president of the Association of German wholesalers and exporters (BGA), pointed out that prospects had already deteriorated in Turkey before the attempted coup. He said that the country’s problems were “enormous, quite apart from current developments. The political climate has deteriorated considerably. There are the disputes with the Kurds in their own country and huge problems on the border with Syria.”

He added that these factors had nothing to do with the attempted coup and its consequences. “So whatever happens, investments will have to be looked at very carefully indeed,” he said.

But there is no denying the fact that Mr. Erdogan’s actions since the failed coup attempt have the potential to put the already ailing economy still further under pressure. The intervention in the education system could prove particularly serious. The problems for companies to find qualified personnel are enormous, and German companies complain there is a major shortage of young people with a fundamental knowledge of technology and science. The antiquated school system is holding back economic development.

But Mr. Erdogan shows no sign of wanting to implement the educational reforms called for by so many people. On the contrary: This week the president fired several thousand teachers, and 1,577 principals and deans were forced out of the country’s universities. This weakening of the schools’ and universities’ human resources is likely to impede any reform of the education system.

 

Martin-Werner Buchenau reports from Stuttgart as Handelsblatt's Baden-Württemberg correspondent. Georg Weishaupt covers the luxury and fashion industry for Handelsblatt. Klaus Stratmann is the paper's deputy bureau chief in Berlin and covers the energy market. To contact the authors: [email protected], [email protected][email protected]