Mar 23 2018

Turkish media takeover rings alarm bells for economy

The takeover of Turkey’s biggest media group by an ally of President Recep Tayyip Erdoğan renders the country less democratic and may unnerve investors already concerned by Erdoğan’s drive for autocracy.

Erdoğan Demirören, 79, who once sobbed on the phone as Erdoğan chastised him for a story written by one of his journalists, is about to assume control of the media arm of Doğan Holding. Doğan owns CNN Turk, the Turkish franchise of CNN, Posta and Hürriyet, the country’s two best-selling newspapers, and Doğan Haber Ajansi (DHA), the last remaining mainstream news agency not under the control of the pro-Erdoğan media.

Turkey, once an ambitious candidate for membership of the European Union and a successful International Monetary Fund client, is turning away from the West under Erdoğan, who is seeking to carve out a place for Turkey in world politics inspired by past Ottoman glories and autocratic leadership.

Jonathan Hawkins, Vice President for Communications, CNN International told Ahval that CNN executives will be meeting with the new owners in due course to discuss the implications for its Turkish franchise.

Erdoğan’s stifling of the media, through takeovers by his business allies and the jailing of scores of journalists, is just one example of Turkey’s autocratic turn that is causing foreign investors to shy away from Turkey. The European Union has frozen membership talks with the government citing its shift towards authoritarianism and drift away from the rule of law.

In recent years, Erdoğan has rolled back the very reforms that led foreign companies to pile billions of dollars of investment into the country just prior to the financial crisis. Much like countries of the former eastern bloc, such as Poland and Hungary, the country had taken advantage of its convergence towards Europe to tap into financial markets abroad, effectively borrowing from foreigners at cheaper rates on the promise of future economic prosperity and stability.

But as Erdoğan concentrates more power in his own hands, Turkey is becoming the weak link in emerging markets. His government, which is increasingly favouring business allies in large-scale contracts for airports, roads and bridges, is seeking to grow the economy at a similar pace to India and China without either of those countries' natural resources or technological innovation.

And while Turkey is reliant on foreign capital to fund its widening current account deficit, it is basing its economic management on a rejection of IMF-backed policies that had once tamed inflation and strengthened the independence of the central bank and regulators.

The takeover of Doğan by Demirören, which already owns the Milliyet and Vatan newspapers, may contravene competition laws.

The purchase will create a “big monopoly” in the media market and Turkey’s regulators must not allow it to go ahead, according to Ozgur Ozel, a lawmaker from the main opposition Republican People’s Party (CHP).

The Ankara-based antitrust body is tasked with considering every merger and acquisition deal in Turkey to guard against the creation of monopolies and cartels.

Once Turkey’s dominant media group, Doğan Holding ran foul of Erdoğan over claims of corruption in his government during the lead up to the financial crisis. The firm received a $3.3 billion tax fine in 2009 that was widely seen as politically motivated.

Doğan then sold some of its newspapers, closed others and adjusted its coverage to a more pro-government line. In 2011, it sold Milliyet and Vatan to the Demirören and Karacan group for $74 million.

Last year, Aydın Doğan, the owner of Doğan Holding, was summoned to appear in court over accusations that his energy companies were smuggling fuel. The summons came the day after Erdoğan criticized Hürriyet for a story that said there were tensions between the army and his government.

It is not clear whether Doğan’s legal troubles influenced his decision to sell the company.

In a statement to Hürriyet Daily News this week, Doğan said the point had come to end his publishing career after four decades in the business.

Aydın Doğan
Turkish media mogul Aydın Doğan

“These are difficult times. Everyone is sad. But I think people recognise that it was inevitable,” an official at Doğan told the Financial Times on Thursday.

The sale of Doğan’s media outlets signifies “the death of media pluralism in Turkey”, Reporters Without Border said in a statement this week. The sale will bring the proportion of media with affiliations to the government to a staggering 90 percent, it said.

Erdoğan’s Turkey is like Prime Minister Viktor Orban’s Hungary, which suffers from its own autocratic leanings, but without the anchor of European Union membership.

And unlike Hungary, which runs a current account surplus, Turkey relies on external financing in the form of direct investment and portfolio inflows to fund economic growth.

Concern about mismanagement in the government and economy has caused the lira to slump against the dollar and euro in recent weeks. The currency reached a record low of 4.03 per dollar on Friday. The concentration of power under Erdoğan is making economic policy less predictable and compromising the independence of the central bank and other institutions, economists warn.

Moody’s downgraded Turkey’s debt one notch to two steps below investment grade on March 7, citing the erosion of institutional quality under Erdoğan. Standard & Poors and Fitch Ratings, which also rank the country’s debt as junk, are likely to follow suit in the coming months.

While Erdoğan says Doğan’s media group represented the “old Turkey” dominated by the country’s secular former elite, Erdoğan’s “new Turkey” is being run on a personality cult and autocratic politics.

Direct investment in Turkey has more than halved since the global financial crisis and has dropped 60 percent since 2015, according to central bank data.

The takeover of Doğan by Demirören, with its repercussions for democracy and the market economy, is likely to do nothing to reverse the trend.