Jonathan Moore of the IFLR1000 discusses the
challenges facing Turkey as it seeks to overcome political and
economic turmoil and return to the path of economic
The last 12 months were always going to be a challenge
for Turkey. An election year, with economic forecasts
downgraded and one of the more brutal civil wars of recent
memory raging on its doorstep; that there have been obstacles
is unsurprising. Few would have predicted 12 months ago,
however, the difficulties the country is now facing.
"Things are not going very well and at this point we are not
very optimistic about the rest of the year," says Muhsin
Keskin, a partner at Esin Attorney Partnership in Istanbul.
"There will be a bit of activity in the Turkish market, of
course; there always has been, even in the worst times right
after the crisis and ever since then. But this won't be the
record high year some were expecting it to be last year."
The first few months of the year went reasonably well,
according to Keskin. After a difficult 2014, thanks in part to
the running of both local and presidential elections, the first
six months of 2015 were very positive by comparison.
However, from July onwards the problems started to mount. An
indecisive general election at the end of June left the country
politically in limbo for several months. Unable to come to any
kind of coalition agreement, the hung parliament was forced to
form an interim government made up of all parties and
independents until new elections were called in November.
"We have new interest from clients in the eastern part
of the world, China, the Gulf, Japan and Korea"
At the same time, the fragile peace that had lasted for
almost two years with the country's Kurdish militias began to
break down and the conflict on Turkey's south-eastern border
had an increasing impact on domestic policy. On top of the
refugee crisis – Turkey is currently home to almost 2
million displaced persons – Daesh and the Kurdistan
Workers' Party (PKK) have between them engaged in several acts
of aggression since July 2015 (there were no recorded attacks
by either group in the first half of 2015).
Then, as if to double down on existing problems, in late
November Turkish forces downed a Russian Sukhoi Su-24M bomber
aircraft near the Turkey–Syria border. While the
incident did not escalate into a full-scale conflict, it did
lead to a significant cooling in Russia-Turkey relations. As
one of the country's most significant trading partners and a
major source of tourist revenue, this incident represented a
significant blow to the already struggling economy.
The political and security concerns that now engulf the
country have, unsurprisingly, had a negative impact on its
already stumbling economy. Among those working in the financial
and corporate sectors there is a strong feeling that this could
again be a difficult year.
"[Not so long ago] I was talking to some merchant bankers
and they were saying that 2016 will be a record high year in
terms of M&A and banking activity," says Keskin. "That is
not a reality anymore. Yes, there will be activity and we will
still be busy, but this activity will only serve to recover the
wounds of last year. Things are not great, but we'll still
Despite the gloom, and despite the many challenges the
country still faces, there is some optimism in the market, most
notably in the energy sector. While corporate activities and
direct foreign investment have taken a hit, Turkey's
unquenchable need for new sources of energy remains unchanged
and this sector may be the one shining light in the economy in
"We are receiving less and less foreign investment from
clients in the western part of the world," says Kemal Mamak, a
partner at Hergüner Bilgen Özeke. "That's a given due
to the elections and the question marks related to the
political climate," he adds.
But Mamak believes there are reasons to suggest things might
go well. "First, we have new interest from clients in the
eastern part of the world, China, the Gulf, Japan, Korea. We
also have seen at least two projects, M&A deals, where the
private purchase price was over $1 billion, which is
interesting as in both deals the investor was not from the
western part of the world, neither North America nor
Mamak is also seeing a number of refinancing deals and bond
offerings. "If you are a lawyer working in Turkey these days
you need to be able to work with clients from all different
places. Until now, we have been used to working with mainly
western clients from America or Europe, but I think the client
portfolio is changing the culture."
"The renewable energy side is becoming active"
Each year Turkey brings online new capacity equivalent to
the entire output generated by small-to-mid-sized nations. That
is largely fuelled by new demand so there is activity in the
energy sector across the board. Even where some sectors face
challenges – three years of lower than average
rainfall have left the hydro industry struggling, with many
companies undergoing restructuring or refinancing –
others look to pick up the slack, whether in renewables or the
landmark nuclear projects at Akkuyu and Sinop.
"The renewable energy side is becoming active," says Mamak.
"The Energy Market Regulatory Authority (Emra) has announced
they will be adopting a new regulatory regime, but it has not
come up yet. It will be introducing the concept of unlicensed
generation, which will have an impact on the market."
Unlicensed generation has, without doubt, been the hot
button issue in late 2015 and early 2016. By removing the
administrative burden on small-scale generation, the government
has opened up the market to thousands of new potential
investors and seen a surge in interest in solar, the most
cost-effective method of generating on that scale.
The original draft proposals underwent significant
amendments when it became clear large-scale investors were
buying up multiple projects looking to profit from the feed-in
tariffs designated by the government. These changes are
designed to ensure small-scale investors are able to maintain
Outside of that, Keskin also sees the potential for activity
in the financial sector. "There are a couple of small banks
that are on sale," he says. "We might expect some more activity
in financial institutions next year. Of course, not the major
ones. The smaller ones, Islamic banks especially, because
Islamic banking is becoming more popular in Turkey and the
government is really getting behind it."
There is no question Turkey is facing a number of
challenges. But those on the ground are confident there are
still potential avenues of growth and sources of work. While
the challenges are many, they believe the country can still