As economy worries mount, Turkey prepares to battle it out

The Akasya mall on Istanbul's Asian side is built with the city's moneyed residents in mind. The Brooks Brothers, Armani and Burberry stores on site can be found only at select locations in the city. When it opened in 2014, a metro stop and dedicated cross-city bus line were opened nearby to allow shoppers more easily reach its 257 stores. Inside, on the first floor, the Apple Store occupies the best-positioned space in the mall.

Last Tuesday, Turkey's president Recep Tayyip Erdogan called for a boycott of US electronics in a spat with Washington fuelled, in part, by Turkey's ongoing detention of American pastor Andrew Brunson. The president singled out Apple's iPhone by name in his combative speech. The call to boycott follows deepening worries around Turkey's economy that's seen the lira lose one-third of its value against the US dollar this year alone.

But if Mr Erdogan had visited the Apple Store at Akasya mall last Thursday afternoon he might have come away very disappointed indeed. The store's dedicated Today at Apple section is jammed with customers and interested onlookers. Over the weekend, the store held 90-minute information sessions on how to best use "shadows and light" when shooting with your iPhone. A "kids hour", whereby children can bring along their iPad or iPhone to be taught how to use iMovie, was held Sunday afternoon. Speaking fluent English (something almost unheard of in similar such stores in Istanbul), a member of staff who asked not to be named as they're not authorised to speak to the press, referred to the crowded scene as reflecting a "normal" day. Clearly, for the dozens of people here, the president's call has been ignored.

Costly infrastructure

The high consumption of products – iPhones included – that’s helped drive the Turkish economy over the past decade has in reality been facilitated and encouraged by Erdogan and his ruling AK Party government. He sought to make fast economic growth, fuelled by costly infrastructure projects, a cornerstone of his political message. For more than a decade, it worked splendidly. In Istanbul, Turkey’s largest city, two underground transport tunnels and a new Bosphorus bridge built at a combined cost of €8 billion have provided thousands of construction jobs and allowed residents commute more easily across the city.

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Residential construction has boomed countrywide with almost 800,000 housing units built every year. The government has vowed to spend $200 billion in total modernising the country and never have Turks had more access to cash.

But now the wheels are starting to come off. Deteriorating relations with the US and the actions of market speculators have served only to highlight Turkey’s precarious economic position; its real problems are in-built, systematic and tied to political meddling by the president, who refuses to raise interest rates to combat inflation. Unemployment remains stubbornly high at more than 10 per cent and the cost of living has rocketed. According to Turkey’s central bank, long-term, private sector foreign debt stands at $221 billion.

"Some measures taken in the last few days have helped, but they are temporary solutions," says Emre Deliveli, an independent economist. "The real solutions are that they need to make peace with the US and make a huge interest rate hike – 5 per cent. The central bank knows that it needs to do this, but the president is very unwilling to see this happen. And unless things get extremely desperate, I think this won't happen."

As the ninth-biggest steel producer in the world, US president Donald Trump's declaration on August 3rd that the United States would hike taxes on Turkish steel by 50 per cent is another reason fuelling the economic wobbles. Just 5.6 per cent of US steel imports originate in Turkey, but that puts it ahead of Germany, China and Japan, at a value of about a billion dollars.

Qatar assistance

In recent days Turkey's currency has stabilised, back to 5.70 from 7.24 lira to one US dollar – in part because of a $15 billion pledge of support from Qatar and the central bank's promise this week to provide liquidity to banks as required. Bloomberg reports that Turks cashing in dollars – as Erdogan has pleaded with them to do – has also helped.

Turkey’s minister for finance held a teleconference with 6,000 international and other investors on Thursday afternoon at which he ruled out the prospect of an IMF bailout and capital control measures, as well as suggesting that investment portfolios would be reviewed. Further evidence of Turkey’s combative stance appeared on Wednesday when it issued new tariffs on US alcoholic beverages, vehicles, leaf tobacco and other products.

Certain aspects of Turkey’s economy remain robust. Though inflation is at its highest in 14 years, household spending and consumption is still strong. Turkey is partly cushioned from international market fluctuations because it manufactures and exports high volumes of vehicles, household products and agriculture and electronic goods.

Billboards across Istanbul that previously displayed the image of Erdogan's face now depict adverts for the Turkish-made Casper mobile phone. Vestel, a major Turkish electronics manufacturer that employs more than 15,000 workers at its main site, has also come out with a range of phones that should be purchased, according to Erdogan, in place of the iPhone.

But Turkish-made smartphones hold a tiny share of the market (the iPhone has about 17 per cent, with Android-operated units far out in front of all competitors).

Economist Deliveli says that Turkish consumers will have to curb spending because relative to their earning power, they have become much poorer.

“Erdogan doesn’t need to ban iPhones because no one is going to be able to afford them anymore. Unemployment is starting to increase; certain companies will go bankrupt because they can’t pay off their foreign debt,” he says.

Worryingly, a government-conducted survey of 1,650 people found that only 13 per cent of those polled actually contributed to savings last year.

In turmoil

Back at the Akasya mall, the apparent serenity among shoppers as their buying power crumbles before their eyes could be down to a couple of factors. That no mainstream Turkish media outlet has reported on the woes facing the lira for fear of attracting the wrath of the authorities may have lessened their perception of the turmoil. At the same time, many believe that Turkey is the victim of an international conspiracy, including a provincial AK Party politician who photographed himself burning a roll of US dollar bills as a sign of loyalty to the lira.

At a small electronics store on the mall’s basement level, Turks’ consumption addiction is perhaps best illustrated by the fact that basic iPhone accessories such as leather cases can be bought in nine instalments of €4.30 a month. A young shop employee and proud iPhone X owner says he doesn’t expect the president’s threat to ban Apple products to come to fruition. That’s despite the fact that BIM, a major supermarket chain store, this week cancelled upcoming sales of iPhones.

The uncertainty surrounding Turkey in recent weeks may lift in the short term but is not going to go away. Last week, the US treasury secretary vowed further sanctions if imprisoned pastor Brunson is not released soon. With neither side looking like standing down, there are more rocky days ahead for Turkey.