Efe Kerem Sözeri
May 20 2018

Dutch business in Turkey soaring despite political crises: Ahval series "Business as usual" (4)

The story of one of the biggest European investors in Turkey began with police violence.

Back in 1972, a young Turkish international law graduate walked up to a group of policemen and asked them to stop honking their car horn as his baby daughter was trying to sleep. Instead of listening, the police arrested and beat him.

That was when Ünal Aysal, the founder and the CEO of the Dutch energy company Unit, decided to leave Turkey and start a business in Brussels. Now a Belgian citizen, he manages more than $10 billion worth of investments in Turkey, Iran, Croatia and Bulgaria.

The Netherlands is Turkey’s biggest investor, responsible for almost a quarter of all foreign direct investment (FDI) in the country in 2017, according to the Turkish Economy Ministry.

Since President Recep Tayyip Erdoğan came to power in 2003, Dutch companies have poured nearly $24 billion into nearly every sector of the Turkish economy.

During the same period, Turkey experienced a significant decline in political rights and civil liberties, as a result of what the D.C.-based rights group Freedom House said “the culmination of a long and accelerating slide” to being a not-free country.

In recent years, restrictions on freedoms have likely hurt FDI as investors worry about accountability and the centralisation of decision-making under Erdogan.

The academic research on the relationship between a country’s regime and the inflow of investment suggests that “democratic countries are predicted to attract as much as 70 percent more FDI than their authoritarian counterparts.”

While the total volume of FDI to Turkey has decreased since 2011, Dutch companies have increased investment in the Turkish market. The following graph shows the almost steady increase in Dutch investment in Turkey compared to other EU countries that have seen an overall decline since 2011.

 

https://lh5.googleusercontent.com/EO8ZX98RTh3Oh_3nP3d5CQ4hoq2nWxXgiLzgWqS2XjfKnjYJ3o9Mk8M55Jzs9XB6YRNrYTJGTxcrDVqEUkE-cFFfx1REKhShUS87J0lmU7nXDl94SvlS6zjPzCpLDdRCEHbJoNor

[Source: Turkish Ministry of Economy]

Bilateral trade between the Netherlands and Turkey almost doubled in the last 10 years, reaching $7.6 billion by December 2017 according to the Turkish Statistical Institute.

The good business relations are all the more remarkable given the recent history of diplomatic crises between the two countries following a string of disputes over human rights issues.

In April, 2016, popular Dutch columnist Ebru Umar, who is of Turkish descent and a dual citizen, was detained by the police in Turkey where she was on holiday. Together with Erdoğan’s earlier uproar to a German comedian, the arrest of a Dutch citizen for ‘insulting Erdoğan’ received extensive media coverage in the Netherlands for almost a month.

Around the same time, Turkish diplomatic mission in the Netherlands caused a scandal for asking fellow Turks to snitch those who ‘insult Erdoğan’. After the July 2016 failed coup, Turkish imams were revealed to collect information on Erdoğan’s opponents in Europe, at the request of the Turkish government. These incidents were condemned by the Dutch government and the opposition alike, and Ankara had to summon its religious attaché in The Hague. The spy imams scandal later extended across Europe.

Yet the year of 2016 saw the largest increase in Turkish imports to the Netherlands by 14 percent, reaching to $3.6 billion.

In 2017, diplomatic relations hit the bottom after the Dutch government prohibited Turkey’s ruling party from holding rallies in the Netherlands for the 400,000 strong Turkish dual-citizen community, Erdoğan called the Dutch “Nazi remnants” and threatened sanctions.

At the height of the dispute, Turkey's Minister for EU Affairs Ömer Çelik’s told Reuters that “Dutch businessmen who invest, have businesses and create employment in Turkey are ... definitely not part of the crisis”.

Turkey’s ambassador to the Netherlands formally returned to Turkey in June, and the Dutch government officially withdrew its ambassador in Turkey in February 2018.

But despite the rows, the Dutch government has supported businesses in Turkey. The Netherlands state development bank (FMO) has loaned nearly $400 million to Turkish companies in the last three years. Dutch FDI to Turkey increased by 72 percent in 2017, and the trade volume by 15 percent, compared to the previous year.

“The Netherlands and Turkey continue to cooperate in many different areas. This does include trade, but also for example security and migration,” a Dutch Foreign Ministry spokesperson said.

“The Netherlands supports the dialogue between the EU and Turkey on important issues such as human rights. We believe that modernisation of the EU-Turkey Customs Union should go hand in hand with improving the rule of law in Turkey,” spokesperson said

While Ankara has used large-scale infrastructure projects to lure European investors and lenders, the participation of Dutch companies in Turkish mega projects is fairly limited.

Except for Aysal’s Unit, which invests in power plants across Turkey, large-scale projects do not seem to lure the Dutch investors. But long-term investments do, such as ING Bank’s Turkey branch, AkzoNobel and Unilever.

Sceptical of the EU’s public criticism on Turkey’s human rights record, Atilla Yeşilada, a political analyst at Global Source Partners, told U.S. public broadcaster VoA that while European banks financed Erdoğan’s mega construction projects, they were given revenue guarantee in dollar terms by the Turkish treasury. “Whether the project is profitable, does not make a difference - the government makes up the difference,” Yeşilada said.

Political scientist Cengiz Aktar told Ahval that the end of Turkey’s EU prospects lifted any remaining burden on bilateral trade, as the objections raised during accession talks are now obsolete. “Turkey is now any other third country for the union,” Aktar said.

But as the Turkish lira has plunged to record lows against the dollar, Aysal and other big investors in the Turkish market are struggling to repay their dollar-denominated debts.

Aktar said foreign investors may be willing to ignore human rights violations, but authoritarian practices may eventually risk property rights.

“Turkey is currently stumbling in providing confidence especially after it confiscated property from businesses close to the Gülen network and decision-making procedures were reduced to a single authority. When the system of checks and balances is ignored, principles of transparency and accountability are disregarded, this creates a risk for business,” he said.