Zülfikar Doğan
Mar 28 2018

Super incentives for the “super election” year of 2019

As Turkey heads towards crucial elections in 2019, the ruling Justice and Development Party (AKP) has wasted no time ensuring the country’s media, and the business interests that largely control it, reflect well on the ruling party.

One decisive move that will shape the country’s media in the 20 months before the elections took place with the pro-AKP businessman Erdoğan Demirören’s purchase of Turkey’s last independent mainstream media company, Doğan Media Group.

At a price of $890 million after the company’s debts have been paid off, Demirören has made the purchase on deeply favourable terms.

In 2008 two popular daily newspapers, Sabah and Takvim, plus the nationwide channel ATV were sold for $1.1 billion to Ahmet Çalık, a businessman with close links to the Turkish government.

Ten years later Demirören has come away with Hürriyet, Posta, and Fanatik, each a leading newspaper in its own field; two important national television channels in Kanal D and CNN Türk; and Doğan Haber Ajansı, the top news agency in the country after the state-run Anadolu Ajansı.

Even more significantly, the deal includes Yay-Sat, Turkey’s largest media distribution company, covering more than half of the nationwide newspaper and magazine market.

Not to mention D-Smart, one of the country’s leading digital broadcasting platforms, and the dozens of local and international channels it has licensed.

All that for $890 million! Besides which, the amount will clearly not be paid directly from Demirören’s coffers.

Rather, it will come from a pool set up by a consortium of domestic and international banks, including Turkey’s largest state bank, Ziraat. Banking circles have widely discussed the prominent place taken in the financing by “Gulf capital.”

The presence of a state or government in this type of large-scale financing pool provides an assurance to creditors that the debt is safe.

Given that Doğan Media’s new owner, Demirören, is so closely linked to the ruling party that the sale is seen as a state operation, and given the flow of money from publicly owned banks to finance the purchase, finding credit should be child’s play.

Government-friendly businessmen will likely find similarly fruitful opportunities elsewhere in the near future. The year 2019 is shaping up to be a “super election” year, with the local, parliamentary and presidential elections all to be held.

The government has prepared packages of “super-incentives” for investment projects to boost the economy in the run-up; incentive certificates for 19 of these will be presented to companies by President Recep Tayyip Erdoğan himself at the Presidential Palace in Ankara on March 29 this year.

The building plots, infrastructure, building licences, and duty expenses will be covered by the state. The Treasury will cover energy, transport and water expenses; VAT, customs duties, income and corporation tax; the Treasury will also ensure that workers earning up to 20 times the minimum wage will be exempt from income tax and insurance premiums.

Foremost among these projects is the Akkuyu nuclear power plant, the incentives for which practically begged investors to put their money in.

The man who stands to profit from this grand prize is Russian President Vladimir Putin.

After Erdoğan presents the incentive certificates to Rosatom, the Russian company with the majority stake in Akkuyu, the Turkish president and his Russian counterpart will travel to the project site near the southern Turkish city of Mersin to conduct a foundation-laying ceremony.

The project was signed in April 2015, but had been put on hold after a crisis was sparked between the two countries when Turkey shot down a Russian fighter jet on the Syrian border in November that year.

When Erdoğan moved to heal that rift with a letter of apology, Putin held all the aces. While Russia had been set to meet the project’s $22 billion expenses in full, it dragged its heels. Now Turkey is set to meet 80 percent of costs, with an all-time record-breaking 76 billion Turkish lira super-incentives package.

Clearly, the much-vaunted discussion around recovering the $30-40 million of fruit and vegetable exports Turkey lost when its relations soured with Russia has been mere window dressing. In fact, with the Akkuyu plant and the $3 billion purchase of S-400 missile defence systems, Erdoğan has handed Putin everything he could want.

U.S. President Donald Trump, likewise, will be pleased with his country’s trade with Turkey. In spite of Erdoğan’s stridently anti-U.S. rhetoric, and in spite of the potential damage to Turkish industry caused by Trump’s imposition of tariffs on steel and aluminium, Turkish Airlines agreed a $7 billion deal to purchase aircraft from the U.S. aerospace corporation Boeing on March 13.

Having noted all of this, we should consider another pertinent trend in Turkey’s economy. With the lira’s falling value against the dollar, around 50 percent of money deposited in Turkish banks has been converted to foreign currencies, rising since last year from $183 to $206.7 billion.

Erdoğan, his advisers and economy ministers had warned against buying foreign currencies, saying they would depreciate in value against the lira. But the opposite has happened, and those who stood by the lira have taken the hit.

In other words, the economy may be on shakier ground than it may appear from the government’s own projections, or its lavish expenditure on incentive packages.

The AKP may try to distract from this reality by prolonging Turkish military operations in Syria and Iraq; it may seek deals with powers like the United States or Russia to help shore up the economy in the short term. The one certainty is that the party will do everything in its power to keep the wheels turning until it has safely cleared the electoral hurdles of 2019.