Qatar rushes to AKP’s aid ahead of local elections
As Turkish President Recep Tayyip Erdoğan feuded with his U.S. counterpart Donald Trump over Turkey’s lengthy detention of American pastor Andrew Brunson this summer, U.S. sanctions and threats sent the Turkish lira into a tailspin that drove it at one stage to as low as 7.2 against the dollar.
As the Turkish economy seemed on the brink of imploding, a surprise visit to Turkey on Aug. 12 by Qatari Emir Tamim bin Hamid Al Thani brought a welcome show of support. The emir and his finance minister met Erdoğan and his son-in-law, Finance and Treasury Minister Berat Albayrak, for a four-hour meeting at the presidential palace in Ankara, after which they announced that Qatar had agreed to $15 billion in direct investment in Turkey.
The lira stabilised to 6.5 against the dollar after this show of support. Then, on Sept. 6, Turkey’s economy received a further boost when the two countries’ central banks carried out a currency swap deal that injected $3 billion into the Turkish central bank’s reserves.
The flow of good will from Qatar to Turkey continued the next week, as the emir sent an ultra-luxurious Boeing 747-8 VIP jet worth over half a billion dollars to Erdoğan, apparently as a gift. The arrival of such an expensive vehicle in Turkey naturally proved controversy, with opposition politicians raising fears that the gift would bear hidden costs. The emir, however, said he had heard of Erdoğan’s interest in the plane when it went for sale, and, unwilling to take money from his friend the president, decided to gift it to the nation of Turkey.
With all this as a backdrop, Qatar and Turkey came together again in Istanbul on Nov. 26 to hold the fourth meeting of what is termed the High Strategic Committee. A large number of agreements were reportedly signed at the meeting, which was attended in person by Sheikh Tamim and several of his ministers.
Erdoğan opened his speech after the signing ceremony by welcoming the emir and his entourage to their “second home” in Turkey, before going on to stress the importance of his country’s 45-year relationship with its “true friends” in Qatar, thanking his guests for their support against what he called the “speculative attempts on the Turkish economy” that the Turkish government blames the country’s recent travails.
The day after the meeting, Erdoğan announced during a speech at parliament the names of 20 new candidates for the local elections next March. As news of the candidates captured the nation’s focus, some other significant details from the president’s speech escaped notice.
Erdoğan said that in December, alongside his electoral manifesto, the government would announce a new “investment and employment mobilisation” plan, which appears to be a set of incentives to voters similar to those offered before the referendum in 2017 and the elections last June.
The president talked in glowing terms about the country’s economic recovery – this despite the fact that sky-high inflation had forced the government to take the drastic measure of raiding onion warehouses where suppliers were supposedly stockpiling the staple – and said it was time to seize opportunities and capitalise on foreign investors’ mounting interest in Turkey.
“The $15 billion in direct investment and funds pledged by Qatar should come into play before the local elections,” Erdoğan said
The timing of these comments has led many to believe that a rumoured central bank and Treasury-funded plan to save Turkey’s floundering construction sector as well as the incentives to be offered prior to the local elections will be funded with the help of Qatar.
In a drive to increase employment by 1 million in 2017, the government pledged to pay the employers’ share of national insurance and income tax for new employees until the start of this year.
In the current economic climate, however, which has seen some of Turkey’s largest firms seeking bankruptcy protection, companies closing down in their droves, and a sharp fall in industrial production capacity, it is difficult to see who will take on new employees if a repeat of that programme is attempted.
On the contrary, many expect mass layoffs in the near future, and if unemployment continues to rise in the run-up to the local elections, this will pose a serious challenge for Erdoğan’s government.
For this reason, the Union of Chambers and Commodity Exchanges of Turkey will likely again be called on to support the government’s initiative, after the organisation – which boasts a membership of 1.4 million companies - threw its weight behind the Treasury’s anti-inflation campaign calling on companies to reduce prices by 10 percent this winter.
Another measure by the government has seen a two-month reinstatement of VAT discounts on furniture, white goods, housing and yachts that was seen in the run-up to the 2017 referendum.
Tax reductions are likewise expected to be extended by two months until next April when the government announces its package in December.
Another incentive that will be reinstated – this time from a package introduced before the elections in June – is the guaranteed reduced interest rate offered to mortgage borrowers from public banks of 0.98 percent monthly. That deal ended on Oct. 31, but the government will likely extend it until the end of 2019 in December. Besides this, the government is looking at “interest subsidies” to stimulate the housing market.
Turkey’s Credit Guarantee Fund (KGF) was called into play before the 2017 referendum to distribute loans worth almost 220 billion Turkish lira to 392,289 companies, 196 billion of which was guaranteed by the KGF and Treasury – a record amount for the government fund.
That amount had fallen to 76 billion lira by the end of September this year, but the KGF will likely again be called on to provide funds to Turkey’s struggling businesses with another massive round of loans in December.
As for employment figures, the contrasting figures published in the most recent report by the Turkish Statistical Institute showed unemployment at 11.1 percent, but a 20 percent rise in public employment over the same period. The rise is likely the result of public institutions taking on employees for seasonal or fixed-term contract work.
A precursor to this is found in the two general elections held in 2015, when municipalities controlled by the ruling Justice and Development Party (AKP) took on 150,000 temporary labourers to plant trees and clean public spaces.
This year, motivated either by the June elections or the prospect of the local elections next March, the Education Ministry has employed 50,000 temporary school janitors. More of the same can be expected in the run-up to March.
With the Treasury at the moment already stretched to breaking point, the government will be forced not only to take on more debt, but also to rely on help from Qatar in order to fund all of this.
After a meeting between the Qatari and Turkish trade ministers in September, the two sides said they would disclose which sectors would receive the $15 billion Qatari direct investment very soon.
This will most likely take place in December, when Erdoğan reveals his government initiatives for the “investment and employment mobilisation”.
The latest word from economic circles in Turkey is that $5 billion of the amount the Qataris have pledged to invest will come in December.
Speculation has mounted that the funds could be presented in exchange for shares in Turkish Airlines, Turkish Telecom, and other major companies controlled or partly owned by the Turkey Wealth Fund, a sovereign wealth fund that is headed personally by Erdoğan and Albayrak. Purchases of the large swathes of prime publicly owned land might also become part of the equation.
Qatar has long had its eye on Turkey’s state-owned tea company Çay-Kur, and this is another possible asset that could be used as compensation for the funds.
What is beyond doubt is that an injection of $5 billion of Qatari money into the Turkish economy will be a vital boost to Erdoğan and his party in the run-up to the local elections, and will soften the impact of attacks made by the opposition on the government’s patchy recent economic record.