|21 February 2023|
|NEWS RELEASE – FOR IMMEDIATE USE
Rebuilding Turkey will come with seismic risks for foreign investors, warn leading security and intelligence experts
KCS Group Europe says earthquakes have fractured Erdogan’s support base and President could pay the price at May’s elections – but only if they are held fairly
Leading strategic intelligence experts, KCS Group Europe, have warned that much-needed foreign investment to help rebuild Turkey following the recent earthquakes will be accompanied by a host of corporate security risks, amid growing economic and political uncertainty in the region.
KCS Group Europe’s analysis suggests that for President Recep Tayyip Erdogan, whose support base lies in the worst hit southeastern towns and villages, the earthquakes may also prove to be a political, as well as ongoing humanitarian, disaster.
The president was a ‘no-show’ for 21 hours after the first quake but on a visit to Hatay, one of the worst hit spots on February 6th, was quoted as saying: “It was not possible to be prepared for a disaster this big.”
The death toll from the earthquakes in Turkey and Northern Syria has passed 46,000 and is expected to rise further with many still trapped in collapsed buildings. Blocks have been reduced to rubble and there is a pressing need for shelter, fresh water, medical supplies and economic aid for survivors.
Erdogan came to power following an earlier earthquake in 1999 in which 17,000 people were killed and thousands more displaced.
KCS Group Europe CEO Stuart Poole-Robb said: “The recent earthquakes have been utterly tragic, and they have exacerbated underlying problems with the economy which remains vulnerable to both external economic shocks and worsening economic expectations. As a result the risks for foreign companies are seismic.”
It’s estimated that the earthquakes may represent a loss of 1% of the country’s GDP. All this comes at a time when Turkey’s national budget deficit for 2022 reached an all-time high of $48.8billion. External cash inflows have offset foreign deficits to the tune of $24.2 billion, with much of this coming from Russia, and sanctioned Russian entities are already attempting to increase their footprint in Turkey.
Turkish inflation reached 83% in September last year, causing the country’s credit score to be downgraded to B. Going against the advice of economists to raise interest rates to combat inflation, President Erdogan lowered the interest rate to 12%.
Poole-Robb added: “Some very large companies have gone bust in the last year which highlight the difficulties of trading in Turkey at present. It’s likely that we will see more of Erdogan’s unorthodox economic, political and social policies in the coming weeks and months as he seeks to hang on to power, which will create further risks for foreign investors.
“As the value of the lira continues to fall, foreign lenders may refuse to renew their loans to the Turkish banks and ultimately there’s a risk that Turkey may default on its debt.”
Elections are due in May, and it remains to be seen whether they are delayed or held fairly.
But people across the country are demanding to know why the government failed to enforce modern building standards or prosecute violations which occurred on a widespread scale. Planners have highlighted a 2018 government amnesty that meant violations of the building code could be swept away with a fine, and left some six million buildings unmodified.
In the ten most severely affected cities in the south-east over 100,000 applications were made for an amnesty to the code, says Dr Pelin Pinar Giritlioglu of Istanbul University. There was also a high intensity of illegal construction.
Meanwhile, levies raised by the fines have disappeared into government coffers without any indication of what they have been used for, leading to widespread anger and accusations of corruption.
“Recep Erdogan’s hopes of unifying the country ahead of the elections in May are likely to fall on deaf ears. It’s possible that he may seek to extend the current state of emergency or delay the elections to buy his party more time,” concludes Poole-Robb.
But after 20 years in power, the fault lines which run across Turkey may have fatally exposed Erdogan’s broken promises to the very people that have kept him in government.