Turkey government at odds with big business

Turkey's business elite gathered last month on the mountain top from which the Greek god Zeus is said to have watched the Trojan war. The meeting was Turkey's answer to Davos, but bore an uncanny resemblance to a dissidents' conclave.

Explicit criticism of President Recep Tayyip Erdogan was not on the agenda at the Uludag Economy summit. Turkey's corporate elite knows too well the risk of antagonising the government. No one needed reminding of the initial $2.5bn tax fine levied in 2009 on Dogan Media Group after Mr Erdogan was angered by its flagship newspaper's coverage of a corruption scandal. The government denied any political motive for the tax investigation.

Memories are still more fresh of how in 2013 the president reversed a €1.5bn warship construction deal with Koc Holding, the country's biggest group, after denouncing it for sheltering anti-government protesters.

Instead, attendees at the summit took surreptitious potshots at the president and his agenda, stressing the importance of manufacturing over the construction projects he champions, or by insisting on the need for the rule of law.

Those attending, who included more members of Turkey's old corporate elite than the construction moguls and Anatolian entrepreneurs who have prospered under Mr Erdogan, ex­pressed nervousness about future policy after the June general elections, which Mr Erdogan's AKP is expected to win, and about the economic implications of his style of government.

His pressure on the central bank to cut interest rates has led to particular concern. "We can only have [sustainably] low interest rates if inflation is under control, not just through an order given by the president," says one leading industrialist.

Muharrem Y?lmaz, chief executive of Sutas, a dairy group, and former head of Tusiad, Turkey's leading business organisation, said that, when measured in nominal terms, manufacturing has fallen to just 15 per cent of GDP, compared with about 23 per cent in 1998 and higher levels abroad. "We are ignoring the manufacturing industry and we cannot continue like this," he said to vigorous applause from the audience.

Under Mr Erdogan, several big groups have diversified from manufacturing into construction. Its relatively small export-orientated manufacturing sector is one reason why Turkey persistently has a large current account deficit.

Still, the president may not welcome criticism from Mr Y?lmaz, whom he labelled a traitor last year for suggesting foreign direct investment would not come to a state without the rule of law.

Umit Boyner, another former Tusiad chief and a board member at Boyner, a big retail group, says that, with the prospect of US interest rate rises already reducing the inflow of funds to emerging markets, the need for increased export earnings is more acute than ever.

"Now that the flows are less, Turkey can't just rely on construction and services," she says, signalling an internal government debate between technocratic proponents of structural reforms and supporters of interest rate cuts.

The leading technocratic voice is Ali Babacan, deputy prime minister for the economy. He has been seen as business's best ally in the administration. But his future is in doubt, as is that of his childhood friend Erdem Basc?, Turkey's central bank chief - another man branded a traitor by Mr Erdogan, for maintaining relatively high interest rates. Mr Basc?'s current term ends next year.

Mr Babacan, who is not running in June's elections, issued what sounded like a valedictory warning at the summit: "In a country where law is lacking, democracy itself will not suffice. Without law, the power of the people may become meaningless after a while."

Uludag executives worry Mr Babacan would be replaced by a more pliable figure. Other executives have wider concerns about the economic consequences of the country's politics. Begumhan Dogan, chairwoman of Dogan Holding, a large conglomerate, says: "Turkey ranks 54th in the global innovation index, 64th in the social progress index, 154th in the world press freedom index and 77th in the world happiness report."

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Not everything has gone Mr Erdogan's way. The government controls three state banks and has sway over groups such as Turkcell and Turkish Airlines. Mr Erdogan also champions a number of construction groups, notably those building Istanbul's third airport, while the Musiad business confederation has many companies close to the ruling Islamist-rooted AKP.

But Mr Erdogan still faces a big business sector that often has a different approach to the world.

"The government would definitely want to see big business groups much more aligned with it," says an executive at a company that has suffered the president's wrath. "Erdogan's frustration is that he cannot control such groups as much as he would like."

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