Erdoğan offers big discounts for Turkish citizenship

An amendment to Turkey’s citizenship law signed by President Recep Tayyip Erdoğan on Tuesday that offers huge reductions in the investment required for foreigners to gain Turkish nationality clearly demonstrates the extent of the quagmire the economy is now in.

The idea of selling Turkish citizenship to investors as a way of bringing in foreign currency and strengthening the lira originated in 2016 with the ruling Justice and Development Party (AKP) deputy prime minister of the time, Numan Kurtulmuş, a professor of economics.

A system based on this idea that set out the bottom limit for investment to qualify for citizenship was put into place in January 2017. Erdoğan’s amendment this week amounts to a discount of between four and six-fold.

The fixed investment capital required to qualify has been dropped from $2 million to $500,000. A previous requirement allowed owners of a property worth $1 million who did not sell it for three years to claim citizenship. That value has been reduced to $250,000. Previously, foreigners employing 100 people could get citizenship, now it has been halved to 50, and the amount of money held for three years as savings in Turkish banks or in Turkish government bonds required to claim citizenship has been reduced from $3 million to $500,000.

Erdoğan’s amendment has also removed the requirement that investment must be made in U.S. dollars, meaning that other currencies and Turkish lira will now also be accepted.

The decision to accept Turkish lira will make it easier for the many Syrian, Iraqi and Afghan migrants who have stayed in Turkey for a long period and opened their own businesses in the country, who earn mainly in Turkish lira.

These and any other applicants will have their path to Turkish citizenship hastened by a commission set up specifically for that purpose by representatives of the Interior Ministry and four other ministries. Special offices will be set up to deal with applications on a case-by-case basis and speed through the process as quickly as possible.

There has not been much interest from foreigners in applying for Turkish citizenship in spite of the new regulations, the first of which came into force in January 2017. Perhaps they found the initial $1 million expenditure on property too steep - the construction sector has been lobbying for the sharp reduction for months. 

Evidently the feeling is that only an influx of cash from foreigners seeking Turkish citizenship can prevent the bubble from bursting and keep Turkey’s economy afloat.

Real estate investors and contracting companies say the reduction in property purchase price to be eligible for citizenship to $250,000 will bring in as much as $20 billion in annual sales to foreigners.

The drive comes after figures released by the Turkish Statistical Institute (TÜİK) in August 2018 that showed a 12.5 percent fall in house sales the previous month.  

That shortfall has grown to 70 percent since then, despite the government’s efforts to encourage real estate and property purchases with a “national housing mobilisation” campaign that promises to reimburse buyers who pay with gold or foreign currencies in the event that a fall in the lira decreases the value of a property after its purchase.

The situation is no less grave in Turkey’s automotive sector, another driving force in the country’s economy. Figures released by the Automotive Industry Association (OSD) show a 42 percent reduction in automobile production, and a total drop in vehicle production of 34 percent, in the month of August. This corresponds to a decrease in the market for vehicles of 53 percent, and for cars specifically of 51 percent. 

Clearly, high interest rates have lowered demand for loans to buy vehicles. This severe contraction in the market and production is bound to result in many automotive workers losing their jobs or being forced to take unpaid leave, and a break in manufacturing that could last up to three months.

The 625-basis point interest rate hike announced by the Central Bank of Turkey last week has done little to calm this brewing crisis. After initially reversing a portion of the lira’s heavy losses over the summer, the currency fell away again to around 6.4 to the dollar, approximately the rate it had reached before the hike.

Turkey’s exporters, the country’s largest source of foreign currency income, have spoken out against another of the government’s initiatives designed to strengthen the lira – the president’s decision to impose a requirement that these businesses change 80 percent of their foreign currency to lira.

The Turkish Exporters’ Assembly has delivered a 10-article proposal to Treasury and Finance Minister Berat Albayrak pleading to change the terms laid out by the new regulation, and warned that in its current state this would result in high losses for the marketplace, exporters and customers.

This new legislation imposed on exporters has come shortly after another law was passed by presidential decree prohibiting rental, service and other contracts from being based on foreign currencies. People have been left wondering anxiously what the government will do next.

Meanwhile, TÜİK reports reveal a 1 percent increase since last year in the number of those who require government assistance, bringing the overall proportion to 19.7 percent. And while the figures show 14 percent as living in persistent poverty, a full 61 percent of the population are unable to afford to take a one-week holiday.

The richest 20 percent of the population control 47.4 percent of Turkey’s wealth, a two-point rise since last year. Yet the Minister of Industry and Technology, Mustafa Varank, calls this a “very good” level of income distribution.

In this economic climate, the number of Turkish citizens moving away from the country shot up 42.2 percent in 2017 to 253,640, according to statistics published by TÜİK. The largest demographic group among the emigrants are educated people aged 20-34 years, who made up 42.2 percent of those who left the country.

The amount of immigrants entering the country in 2017 jumped by 22.4 percent to 466,333 people, mostly from Iraq, Syria and Afghanistan. Meaning that the educated and cultivated Turkish citizens are being replaced by almost double the number of foreign citizens, a great many of whom have little or no knowledge of Turkey’s language or culture.

Official figures show citizens of Iraq, Iran, Saudi Arabia, Kuwait, Russia and Afghanistan have bought the highest number of homes in Turkey.

With official figures showing the desperate conditions many Turkish citizens find themselves in, and millions living in debt or with no choice but to turn to the state for assistance, with a rising number of businesses facing bankruptcy, and with Turks themselves pouring out of the country, the prospect of Turkish citizenship does not appear too attractive to foreigners.

Nevertheless, Erdoğan’s administration, hemmed in by mounting economic problems and a severely devalued currency, has been left with little option but to try and sell off Turkish citizenship to foreigners at a 400-600 percent discount as a last attempt to patch up its many gaping wounds.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.