Turkish economy faces another year of turmoil

Turkish economy faces another year of turmoil
Double-digit inflation, a currency in freefall and growing joblessness are creating headaches for Turkey. (Shutterstock)
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Updated 23 November 2020

Turkish economy faces another year of turmoil

Turkish economy faces another year of turmoil
  • Ankara’s growth strategy — based largely on easy credit — is well past its expiry date, analysts warn

ANKARA: It has been a tumultuous year for Turkey’s economic management with a currency crisis and interest-rate volatility rattling investor confidence.

The recent dismissal of the central bank governor via an overnight presidential decree and the resignation of Berat Albayrak, the Turkish finance minister and son-in-law of President Recep Tayyip Erdogan, contributed to the mood of trepidation.

Now investors are hoping 2021 will bring an improvement to the country’s economic outlook.

Albayrak, who took the finance reins in mid-2018, has been blamed for defending the currency with foreign exchange interventions and depleting foreign reserves of the central bank with costly policy interference in the currency markets.

Turkey is also running a serious current-account deficit — expected to be as much as $2.7 billion in September.

Turkish state banks are reported to have sold about $100 billion in dollar reserves this year to support the currency. Inevitably, such moves by the central bank triggered a rush for dollars among individual depositors seeking a safe haven throughout 2020.

Foreign currency reserves of the country reached their lowest point for the past two decades, resulting in the credit rating agency Moody’s warning in September that Turkey had “almost depleted the buffers that would allow it stave off a potential balance-of-payments crisis.”

As a move to win the trust of investors following the lira’s plunge, the central bank governor was replaced by Naci Agbal and the
finance ministry position was filled by Lutfi Elvan — two close allies of Erdogan. The Turkish lira rebounded against the euro and dollar after the reshuffle of the economy team, however some experts believe this positive direction may be short-lived.

In his first public appearance on Tuesday, Elvan made assurances that the government’s growth policies would not threaten its fight against double-digit inflation that continues to erode the savings of citizens.

“Turkey’s growth process will be planned and controlled in a way that doesn’t contradict our fight for macroeconomic stability and against inflation,” he said, promising that the country would experience a sustainable growth path in two years’ time.

Amid the prospect of early elections and political shakeouts, the economic turmoil is worsening with the currency sinking to record lows as the central bank, under political pressure for not raising rates, held key interest rates steady at around 10.25 percent.

Erdogan is known as a staunch opponent of raising interest rates, branding such monetary policy as “the mother and father of all evil.”

As a critical moment, the central bank will hold its next meeting today to decide on interest rates in a keenly anticipated decision.

Real rates are considered as much higher than the official figures, with inflation around 12 percent and unemployment rates gradually increasing, especially among youth. More than 10 million people are jobless in Turkey.

The Turkish lira, by far the worst-performing currency, has lost almost 30 percent of its value this year. Under the new Joe Biden administration in the US, the Turkish government may face possible US sanctions over its previous purchase of a Russian missile system.

Wolfango Piccoli, co-president of London-based Teneo Intelligence, said 2020 had shown that Turkey’s model of economic development — largely based on easy credit — was no longer sustainable and was well past its expiry date.




Turkish President Tayyip Erdogan strongly opposes raising interest rates. (AFP)

“Looking ahead, the key question is whether Turkey has officials and politicians able to devise and implement a new economic strategy and whether Erdogan is willing to embrace these changes despite their political cost,” he told Arab News.

With the stakes so high, market watchers expect rate hikes and an end to credit-driven growth of the country that has prevailed for the last three years. The ongoing political pressure on the country’s central bank is also a source of concern for investors.

According to Piccoli — who felt that the new appointments to the economy team did not signal a sudden return to economic orthodoxy — the longer Turkey sticks with the old strategy, the bigger the hole it will find itself in.

As the coronavirus disease (COVID-19) pandemic triggered an annual contraction for the first time in Turkey for more than a decade, Turkey’s economy was this year expected to shrink by 3.4 percent, according to a new Reuters poll. The economy shrank 10 percent in the second quarter.

The last time Turkey’s economy contracted on an annual basis was in 2009, during the financial crisis, when it shrank by 4.7 percent.

Reuters also predicted that the current account balance would post a deficit at around 3.8 percent of gross domestic product this year.

In the meantime, amid the coronavirus outbreak, the latest official figures show Turkey’s tourism income has decreased by more than 70 percent, a slump that has negatively influenced the current account balance.


KBW Ventures increases stake in US cellular seafood company

Prince Khaled bin Alwaleed bin Talal, KBW Ventures' founder and CEO, at the Milken Institute. (Supplied)
Prince Khaled bin Alwaleed bin Talal, KBW Ventures' founder and CEO, at the Milken Institute. (Supplied)
Updated 38 min 50 sec ago

KBW Ventures increases stake in US cellular seafood company

Prince Khaled bin Alwaleed bin Talal, KBW Ventures' founder and CEO, at the Milken Institute. (Supplied)
  • BlueNalu produces a variety of seafood products directly from fish cells
  • KBW Ventures invests in companies with transformative technologies and business models

DUBAI: KBW Ventures, the company founded by Prince Khaled bin Alwaleed bin Talal Al-Saud, was among a group of backers who agreed to refinance $60 million of debt held by a Californian cellular agriculture seafood company, it was announced on Tuesday.

BlueNalu produces a variety of seafood products directly from fish cells. In addition to the latest debt financing, it previously raised $4.5 million in early 2018 and $20 million in 2020.

The San Diego company aims to use the funding to open a 40,000 square foot pilot production facility as part of its bid to launch a pilot program and eventually distribute its products across the US.

“The team at BlueNalu is driven to produce cell-based seafood products that are healthy for consumers, humane for animals, sustainable for our planet and provide increased food security to each nation in which we go to market,” said Lou Cooperhouse, BlueNalu president and CEO.

“This recent round of funding will allow us to continue advancing our mission and the next phase of our commercialization plans, while we continue to develop strategic partnerships that we expect will provide us with global market reach during the coming years.”

Prince Khaled bin Alwaleed bin Talal Al-Saud, founder and CEO of KBW Ventures, added: “We have increased our stake in BlueNalu by investing for the second time. Our commitment to inject further capital is based on the company’s impressive forward roadmap, detailing a clear path to ramping up production and bringing its first product to market at this crucial period in the pandemic. KBW Ventures is pleased to play a role in the largest round ever for a cell-based seafood company, aligning ourselves with mission-driven businesses that seek to solve the world’s food security issues sustainably.”

Amir Feder, BlueNalu’s CFO, said the company is confident it can penetrate the lucrative $200 billion global seafood market and that it is in the process of signing up a series of international strategic partners.

Last month, KBW Ventures also increased its investment in a Singapore-based biotech company aiming to produce lab-grown dairy products. TurtleTree Labs raised $6.2 million as part of its latest round of funding. Besides KBW Ventures, other investors included Green Monday Ventures, Eat Beyond Global and Verso Capital.

Founded in 2019, TurtleTree Labs, which has offices in San Francisco and Singapore, will use the funds to accelerate research and production of functional, bioactive proteins and complex sugars found in human milk.

The company hopes these will have potential benefits in gut and brain health, which can be applied to both infant and senior nutrition and offer a viable alternative to animal-based dairy products.

KBW Ventures invests in companies with transformative technologies and business models. Its other investments include the Colorado-based pet food firm Bond Pet Foods and California’s Beyond Meat.