Security, Trading And Investment Update For Turkey

31 May 2019

Security Trading And Investment Update For Turkey Turkey’s local elections in March 2019 saw President Recep Tayyip Erdoğan’s Justice and Development (AKP) party lose key municipalities, including Ankara, to the opposition. A re-run of the disputed Istanbul mayoral election will take place in June 2019, amid a worsening economic recession, currency volatility of the lira and a protracted diplomatic stand-off with the United States.

Security Environment

Sporadic, largely peaceful protests occurred across Istanbul in May 2019 following a government announcement that the Istanbul mayoral election would be re-run. In Istanbul, more than 8 million votes were originally cast, with the opposition Republican People’s Party (CHP) declared the winner by a margin of less than 14,000.

The decision to annul the result was based on unsigned results documents from the 31 March poll and the fact that some ballot box officials were not civil servants.

However, demonstrations in relation to the mayoral election are unlikely to escalate into a mass opposition movement unless economic stability significantly declines in the one-year outlook.

Erdoğan remains the most popular political figure in Turkey with approval ratings hovering above 50%.

Security, Trading And Investment Update For TurkeyThe territorial decline of Islamic State (IS) during 2018-19 has reduced its capacity to launch attacks in Turkey. The group has been unable to conduct a successful attack since January 2017.

In the five attacks during the year preceding that, including the 28 June attacks on Istanbul Atatürk airport, 64 people were killed and at least 309 injured, the majority of whom were civilians.

In the 12 month outlook improvised explosive device and shooting attacks are likely, targeting party offices, transport infrastructure, entertainment venues and public squares.

Attacks are also likely to target Western diplomatic and commercial assets in Istanbul and Ankara.

Trading Environment

The Central Bank of Turkey has bolstered its foreign currency reserves with billions of dollars of short-term borrowing, to offset a real decline in net foreign currency reserves since February 2019.

Foreign exchange reserves rose to US$27.2 billion on May 10, 2019, up from US$25.9 billion the previous week. However, once short-term borrowing is excluded, Turkey’s net foreign exchange reserves stand at just US$12.7 billion (4.2 months of import cover), triggering speculation that the Central Bank was using reserves to prop up the Turkish lira in the run-up to the Istanbul election.

The real decline in net foreign exchange reserves means the Central Bank will have limited space to intervene to support the currency in the one-year outlook.

The Turkish economy contracted by 3% in Q418. This followed US sanctions in September 2018, which caused the value of the Turkish lira to fall by more than 30% against the US dollar by year-end. The economy is expected to contract a further 2% in the first quarter of 2019, reflecting a sharp deterioration in domestic demand and placing greater emphasis on export-driven growth.

However, inflation will remain high at 20% through 2019, curtailing consumers’ purchasing power and hurting industrial and retail activity. In March 2019, manufacturing production had contracted by 5.3% y-o-y and retail sales were down 5.1% y-o-y.

However, the slowdown in economic activity will moderate import demand, resulting in a narrowing of the current account deficit to approximately 2% of GDP in 2019, a decrease from 3.5% of GDP in 2018.

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Investment Environment

Pricing outlook website TurkeyWidescale corruption at the local government level remains the greatest barrier to investment in Turkey. Despite the adoption of a series of anti-corruption laws in accordance with European Union accession requirements, implementation has been limited and bribery facilitation payments remain common.

Large investments into Turkey are frequently accompanied by donations to the ruling Justice and Development Party (AKP) or the inclusion of individuals with close links to the government as business partners to accelerate bureaucratic procedures.

Contract alteration threats remain a distinct possibility, with an elevated risk of contract cancellation for oil and gas companies engaged in exploration in the disputed territories around Cyprus. Turkey, which is not a signatory to the 1982 Law of the Sea, has objected to Cyprus exploiting offshore hydrocarbons without including Turkish Cypriots in the exploration stage.

The Turkish government has previously blacklisted multinational oil and gas companies for their involvement with the Cypriot government. However, the Turkish government is highly likely to honour rulings against it by international bodies, such as the International Centre for Settlement of Investment Disputes (ICSID).

Expropriation risks are elevated for domestic firms associated with the opposition Gülen movement. Foreign businesses, although highly unlikely to be targeted overall, face moderate risks of confiscation and deprivation if contracted into a joint-venture with a Turkish company that is perceived to have links with the Gülen movement or the CHP.

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5 Key Takeaways

  • President Erdoğan’s AKP party lost control of the capital Ankara for the first time, in March’s local elections
  • A weak Turkish Lira and high market interest rates will weigh on the near-term growth outlook
  • The current account deficit will narrow to 2% of GDP in 2019
  • Contract cancellation threats will remain elevated for oil and gas firms operating in the disputed territories around Cyprus
  • There is an elevated risk of expropriation for foreign firms with links to the opposition Republic People’s Party (CHP).

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Bolivia, Pakistan, Ukraine, and Maldives all of which have been the subject of recent enquiries from our client base.



  • Eleanor SmithEleanor Smith

    Eleanor Smith is a Senior Political Risk Analyst within Marsh JLT Specialty’s Credit Specialties team. At Marsh JLT Specialty, Eleanor analyses developments in political risks, and advises clients on their effect in a range of sectors. Eleanor is also responsible for delivery of World Risk Review, JLT’s country risk ratings platform, to clients and prospects.

    Eleanor has a first-class degree in History with Spanish from UCL, and a Masters in International Public Policy from the same institution. With experience in a range of sectors, including diplomatic missions and not-for-profit, Eleanor can help clients understand their risk exposure.

    If you would like to talk about any of the issues raised in this article, please contact Eleanor Smith, Senior Political Risk Analyst on
    +44 (0)121 626 7837.

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