With the manifestation of the national will evident, it is now time for Türkiye and the West to reframe the post-election concordance path, create a new road map, resume economic cooperation and revisit the political common ground. The approach should focus on a renewed consensus on economic and political collaborations. They will undoubtedly be better off with more cooperation, rather than competition or just a loose liaison. The political (even ideological) differences should not cloud coherence, the ability to cooperate, and post-ballot collaboration.
Türkiye is already an upper-middle-income country with an over 10,000 per capita gross domestic product (GDP), a trillion-dollar economy, and an almost 90 million population, and thus has a bright future. The longer-term economic prospects are promising. The country is already the most populous and dynamic in Europe. The population could soon hit the 100 million threshold, and together with a strong infrastructure, high human capital base and high-quality institutions, it could be well in the top 10 economies of the world by the 2030s.
Türkiye is a dynamic, vivid economy with huge political, logistical, strategic, historical, economic and cultural advantages. However, the post-election Türkiye offers even more, with its strategic location, political bargaining power, low debt/gross GDP ratio, low budget deficit, huge export potential, and most importantly, a strong democratic culture and political stability. A stronger post-election economy could be built on trust and stability. An even more resilient real economic structure has been built over the past two decades.
Self-reliance is on the rise (in energy, defense, manufacturing, chip production, even agriculture and so on). A strong, dynamic and competitive economy with higher value-added, a new national tech initiative, huge export capacity and new strategies to open to distant markets is set. The post-2000 Türkiye has risen as a regional economic and global political powerhouse.
Industrial and structural transformation, energy and infrastructure investments, defense and manufacturing initiatives, chip production, a national electric vehicle, housing sector initiatives and falling commodity dependence have all recently helped Türkiye transform into a more stable and independent economy. Decreasing external reliance, on the other hand, is helping increase resilience to external shocks.
Türkiye has recently been considered a challenging ally for the West. This miscommunication has even spread to the financial markets. Turkish elections have long been considered the most important election of 2023. And the relatively negative image in the Western media has instigated anger and backfired in the ballots. However, the problem with the Turkish economy has predominantly been practice, implementation and communication. Therefore, as a Turkish saying goes, policymakers should probably talk more to the markets.
Türkiye: A rising power
Strong infrastructure, manufacturing industry, industrial transformation, energy sector and agricultural reforms, decreasing external dependence, strategic investments in energy, chip production, and nuclear and defense industries have all helped Türkiye reposition itself in the global economy. The “Century of Türkiye” vision is a critical stimulus to help the country concentrate on, recall its potential and unite once again under a strong leadership.
Türkiye, with its strong institutional structures, increasing technology investments and new successful endeavors, dynamic entrepreneurial culture, solid venture base, and close commercial ties with Europe, could indeed be the star of the next few decades. Deep historical ties and close-by markets in the West, Central Asia and the Middle East are other factors to count on. A booming domestic tech sector with a number of new unicorns, even decacorns, is another reason to be optimistic.
Business dynamism is strong; but nominal volatilities should also be tamed. The current unorthodox policies (low rates, huge investments, triggered production and employment base), although highly challenging in the short-term, are likely to strengthen the long-term prospects and real base of the production economy. A war-torn backyard, new energy equations and renewed supply chains further increase Türkiye’s importance.
Meanwhile, Türkiye also needs huge international capital inflow to finance its growth and huge funding deficit. With a new course of policy reforms and built-in trust, a new phase of inward investments, FDI and a new huge value-added creation potential could be activated. And together, they could lead to physical, human, financial, social and even democratic capital accumulation. But to that end, enhanced rule of law, economic and political stability, renewed trust and high-quality institutions are required.
The chronic current account deficits are still simply the sword of Damocles hovering above the Turkish economy. Türkiye does not have its own reserve currency. But the savings deficit (current account deficit) is huge. Hence, it does always need external finances. Yet, the external finances are ever much costlier today. Even the so-called low-cost financing option such as the International Monetary Fund (IMF) loans are no free lunch.
Savings also need to increase, but for that, less uncertainty, lower inflation and reasonable real interest rates are needed. Moreover, international reserves should also be rebuilt. Türkiye could, in that sense, follow the footsteps of Asian tigers. And start accumulating huge reserves. It would be a much wiser monetary policy reminiscent of the Great Moderation period in the G-7 countries.
Türkiye could be the rising star of the postwar, post-inflationary trends and post-pandemic era (potentially even a new post-recession period) and, most essentially, of the new century. With the continued reforms and the “Century of Türkiye” vision nudge, Türkiye could, once again, be an economic paragon. However, for that purpose, Türkiye might need more than the standard, conventional textbook solutions. It will need to think out of the box.
Türkiye will certainly need to do much more, starting with political and financial stability, rebuilt trust and the rule of law. The country also needs to focus on its institutions. It could, indeed, rise from the ashes (of economic wooziness and the recent earthquake devastation) once again. However, for that matter, an economic or academic dream team and more assertive economic management may be needed.
Strong fundamentals and a strong entrepreneurial base will help. Still, technological transformation, human capital, regained trust, and political and financial stability (as well as reduced external dependence) will all be needed. More to the point, a renewed process of coherence and consensus, improved relations with the West and a well-planned distant markets strategy will be needed for the growing Turkish economy.
Furthermore, it will need to invest more in new technologies, transform its industrial production and the manufacturing sector, decrease its over-dependence on external production, and raise its productivity. Investments in high-tech and new tech should also keep up productivity and efficiency of factors of production.
Türkiye’s competitive advantage should also be increased, together with the industrial transformation. The value added to exports should continue to rise. Financial deepening is also of the utmost importance. Surging borrowing and strong demand should also surely be controlled. High domestic demand should be replaced with international demand. Renewed political relations will be of critical importance at this point.
Energy and defense investments, domestic key industrial inputs (as in electric cars, micro unmanned aerial vehicle (UAV) cameras and chip production) will also help decrease over-dependence and the negative impacts of the external supply shocks and price movements. With the help of these types of (mostly) supply-side policies, Türkiye aims to bring down the chronic current account deficit and decrease inflation to single digits again.
Institutions should also definitely be strengthened. Management of expectations should follow. Ensuring and enhancing the rule of law is another critical priority and a prerequisite for institutional quality. Financial stability, price stability, institutional quality, independence of the central bank and building the much-needed trust will all be vital. They will all help regenerate cooperation with the long-time allies in the West too.
What’s in it for the West?
A new boost to foreign policy, relations with the EU and the West in general (arguably, at their worst level) would help regain trust in the Turkish economy and its institutions. Yet, such a new pull and further economic and political collaboration would matter for the West too. After all, Türkiye is already repositioned at the heart of post-pandemic, post-broken supply chains and the post-war (in Ukraine) new trade, global economic and supply routes.
In addition to the strong domestic infrastructure built in the past two decades, Türkiye is at the crossroads of Asia, Europe, Africa, Caucasus, the Middle East, the Black Sea region and the Mediterranean mess. High-speed train networks, new seaports, airports, tunnels, highways and new trade deals (as well as the foreign policy shifts) are helping Türkiye gain a stronger competitive advantage in the region and the broader international arena.
Türkiye is becoming a new global and regional transit, transportation and logistics center. New-generation silk roads are built around (and through) the country. And its critical role in the Belt and Road Initiative (BRI), the Middle-Corridor Initiative and the new Development Road project to Basra Gulf are already crystal clear. Decreasing external dependence and increasing political and economic independence are helping the county bloom once again.
Hence, Türkiye could transform into a new production, supply and logistics hub for the world (and the West). It could replace Germany as the new secure energy hub and should be a critical alternative global growth engine to the BRICS economies (including China). Natural gas, oil discoveries, nuclear reactors and investments in green energy sources are all helping Türkiye strengthen this critical role bestowed upon the country.
Updating and improving the customs union agreement (and advancing the membership negotiations) with the EU should also help complete the integration process with the West. Türkiye will also need to revise its dependence on energy imports, trade and tourism inflows from particular sources, including Russia. The West, on the other hand, also has a lot to gain from cooperation with the newly rising economies such as Türkiye. After all, recessionary expectations are booming again (first in the U.S. in 2022 and now in Germany in 2023).
Meanwhile, the distant countries’ strategy and other regional plans (including the Development Road and the Middle Corridor) will all help eliminate being in a regionally trapped case. Türkiye’s relations with the Turkic world, and potentially further closer relations (trade-wise, energy and other aspects of finance and economics) with the Caucasus and Central Asia, could facilitate its bargaining power and contributions to the global welfare.
A positive-sum ballad?
Let’s be honest: You can’t achieve all of these targets Türkiye has set just by appealing to some old-fashioned neo-liberal, standard textbook solutions. You would need to think out of the box. To some extent, even some sort of unorthodoxy, partially unconventional approaches would be needed, just as the Western world did after the 2008 global financial crisis. But the road map, signals and communication would also be extremely important. More importantly, a renewed process of negotiations and consensus and improved relations with the West would also be needed.
However, if Türkiye is to build an alternative approach, it must set a proper (and detailed) model. It will need to talk to and convince the markets that the newly proposed offer will work out. Better communication and effective signaling are a must. Furthermore, more transparency, accountability, consistency and predictability might also help bring back the long-hesitant FDI, decrease financing costs, and weaken CDSs, risk perceptions and related premium payments.
Meanwhile, the one-size-fits-all policy approach does not usually work in the rest of the world. Rising economies such as Türkiye cannot follow the policy prescriptions of the most advanced world economies. Their needs are a lot different. For example, Türkiye still needs more investment, production, employment and export. And it needs lower-cost finances to achieve these targets. The U.S., on the other hand, currently has historic low unemployment rate and dealing with historically high strong demand-driven inflation.
Furthermore, just as in the recent monetary policy divergence trend, countries are implementing independent and, many times, differing economic policies. Considering its own dynamics and the domestic challenges, Türkiye has recently embraced a new unorthodox model, dubbed Türkiye Economy Model, focusing on production, employment and exports. However, looking forward, it will probably need to balance more between inflation and growth.
Türkiye still has a chance to focus on structural and longer-term institutional issues and hence target longer-term growth and development. However, for that, it will need to reconsider rebuilding institutional quality, forming a new high-meritocracy economics management team that would give trust to the markets. Improved relations with the West are another critical and integral part of the policy-making process in the post-election era.
Most critically, the political disagreements should not cloud the much deeper and stronger common values and the potential the world could gain with more cooperation and mutual understanding. Newly rising, dynamic economies and strategic countries such as Türkiye have much to offer to the rest of the world.
