INSIGHT - Part II of Turkey trip

INSIGHT - Part II of Turkey trip


(sent out first part of insight last week. this is the second part)

After meeting with the group of energy experts, Emre and I headed to Istanbul*s business district, where I had a meeting scheduled through Isbank with the CEO of Sabanci Holding Co. Sabanci is the largest business conglomerate in Turkey * it is, essentially, the Turkish economy.  Sabanci, along with Koc, are the two big business groups that really matter in the country and belong to the traditional, Istanbul elite, ie. the Kemalist-nationalists.

The office building is, as expected, overwhelmingly gorgeous. We were shown to a fancy meeting room with a view of the entire city. In walks in the Sabanci CEO, dressed very refined, spoke perfect English. He was obviously the elite of the elites. 

Overall, I felt pretty intimidated in this meeting. The Sabanci guy was oozing with confidence and made very clear that his company has been and will remain the driver of the Turkish economy. We discussed how Turkey was able to cope so well with the financial crisis. He described how extremely flexible Turkish businesses were, and how his business agents went out looking for new markets when the European markets started crashing. He said they found markets in random places like Ivory Coast and Togo. Sabanci*s cement company recorded profit in 2009 by finding new customers in Africa.

He kept emphasizing how more competition is good for business. Otherwise, businesses can grow complacent. He acknowledged there is a power struggle happening, but how the growth of the Anatolian business class was good. He
didn*t seem the least bit threatened. His whole attitude was that no one could compete with Sabanci. If you look at the numbers, he*s right. Sabanci is huge compared to the others.

At the same time, AKP makes up for their lack of financial leverage in sheer numbers. The support of all these Anatolian small and medium businesses adds up. He said how Sabanci dominates the overseas markets, but doesn*t really have many guys along the Turkish borders in the Mideast where the AKP is lifting visa regimes and opening the borders. That policy is designed to help the Anatolian business class loyal to AKP. Overall, we didn*t learn anything particularly new from this meeting, but it helped immensely just to get a direct impression of what Turkey*s nationalist/secularist/elitist business class looks and feels like. They still act like they can*t be touched by the government and that they*re unstoppable.

That night I was supposed to meet with the head of Dogan media group at my hotel. At the last minute, he cancelled saying he had something come up at work. It felt a little suspicious to me, though. I got the feeling that Dogan was still really nervous about talking to us since they*re under attack and he knew I had been talking to Gulen people.

A side anecdote * That night, Emre and I went to the grand bazaar. I wanted to find one of those old Ottoman maps. I found the guy that sells them and bargained hard with him for a good hour. We ended up becoming friends afterward and went to smoke sheesha and have tea after we made our deal. I asked him about how business has been in the past few years and he said it*s been hard, they have to pay really high taxes, but that they have benefited from having more Arabs coming to Turkey with the lifing of the visa restrictions * a good example of AKP strategy working to help the small business owners.


Friday, March 12

Early in the morning, we had a breakfast meeting with TUSKON, the main business association loyal to AKP and dominated by Gulenists. These are the guys who are raising the Anatolian business class. This meeting was arranged by Cehan Usak from the Gulenist organization we visited. We met with Hakan Tasci, the US representative of TUSKON, and Dr. Mustafa M.
Gunay, TUSKON*s Secretary-General. They were in a modest office building in a not that great part of town (huge contrast to the Sabanci group), but they laid out a huge Turkish breakfast for us and were extremely welcoming and forthcoming.

Tasci was very familiar with Stratfor. He*s an example of an Anatolian businessman who has been well educated, raised in a Gulenist school and then sent abroad for the organization. Dr. Gunay made it seem like he didn*t really know much about Stratfor. After I explained a bit about the company and what I hoped to learn from them, they both launched into their
own speeches. Again, I was struck by how they answered my questions without me even having to ask them. The breakfast lasted for nearly an hour and 40 minutes.. they weren*t in a rush to see us leave, despite how busy they were. They were clearly told to spend time with us and give us the full treatment.

At first, the discussion started out as very business-focused with Tasci, the US representative. They talked about how rapidly Tuskon has grown in Turkey just over the past 5 years as part of the AKP*s strategy to raise its own Anatolian business class. They say that they understand that they*re nowhere near the level of the Istanbul giants like Sabanci, Koc, etc.,but that they just want to share a small piece of the pie to make Turkey more democratic, shared among equals, etc.

Tuskon doesn*t try to compete as much with the markets that the Istanbul giants dominate. Instead, they have found new markets in Africa, Middle East, Central Asia, etc. This is why the AKP has been lifting visa restrictions in places like Syria, Jordan, Lebanon, etc. They want to open the borders and use commerce to spread Turkish influence. Tuskon is the main vehicle for this effort.

Tuskon organizes these major conferences and business summits all over the world and they do this thing that they call *match-making*, where they*ll match the Anatolian businessmen with a customer in each of these countries, and thus incorporate them into a lucrative supply chain. They organize conferences for various geographic regions, then merged all of
them and created a *World Trade Bridge* where they gather Turkish and international businessmen as well as translators to facilitate their communication. They showed us a video on this. The video had the exact same dramatic music and narrator as the first Gulenist propaganda film that we saw a couple days earlier. Emre and I got a big kick out of that. From then on, we had to say everything in the Gulenist propaganda voice.

After we talked about the business model for some time with Tasci, Dr. Gunay took over and then launched into the Gulenist propaganda. Again, I was surprised by how they were very openly representing themselves as Gulenist. Dr. Gunay kept talking about what a brilliant man Fethullah Gulen was. At the same time, he dismissed the idea of this being a battle between Islamists and secularists. He proclaimed himself to be a secularist and then said secularists don*t even know the meaning of secularism. He said that Tuskon includes Armenians, and even Atheists. The main message was that they are not fundamentialists.

Then he goes into that same exact speech we heard before about peace, love, harmony, humanity, democratic ideals, etc. He kept telling me how they approach everything with humanistic ideals. They are out to create world peace, distribute soup to hungry Haitians, etc. He kept saying *our friends* do this and *our friends* do that, referring to the Gulen movement. He said when Hurrican Katrina hit and they received a check for some business summit expenses, they returned the same amount of money and made it a donation. When I asked about the financing, he said it*s all done
independently. Tuskon pays its own way for these summits, doesn*t take money from the government, etc. (how much of that is true is up for debate, of course).

They also talked a lot about the Gulenist schools. They say that the curriculums focus on the sciences, English language, etc., not necessarily an Islamist agenda. The goal is raise well-bred kids in these schools. Plus, they learn Turkish and develop an affinity to the Turkish state. Again when I asked about financing for all these top notch schools, he kind of waved it off and said that it*s not expensive to build schools in places like Africa.

The basic model is this: Anatolian businessmen have family firms that produce salt shakers, t-shirts, whatever. They want to be able to produce and sell. Tuskon gives them clients. They then send Gulenists to live in these countries where they*re selling and set up schools. That way, they learn the local language and overcome the language barrier when Turkish
officials comes to visit. They raise their kids in the best schools and then when they come back, they take the lead of the company or are integrated within the government. Thorughout all this, Gulen ensures they maintain conservative, *family* values while being exposed to a globalized world.

.When we talked about the relationship between the Gulen movement and the state, Dr. Gunay was insistent that the government does not give them any breaks. He said it*s the government that*s dependent on them. He said they use the Gulenist schools like embassies. President Gul will ask Tuskon to organize his visit to Africa, they then work with the schools they have set up there to gather represenatives and organize facilities for the events. He also openly acknowledged that they*re used as intelligence posts, though he didn*t say that directly. He said that they have many deep connetions in these countries with the government, business, opposition, etc. So, when Turkey has a problem in X country, say Kazakhstan, then they call on the GUlenist school representative or Tuskon rep for information.

I brought up the fact that not all countries are comfortable with the ideas of these Gulenist schools. Uzbekistan, for example, has banned them. Azerbaijan has been trying to get rid of them. He downplayed the whole thing, saying that even where the schools have been banned, the governments are still *our friends* and allow us to work with other schools.

Tasci, who is based in DC, didn*t seem as hardcore Gulenist as the other guy. I caught him making some cringing looks when Dr. Gunay was unleashing the propaganda. I think he could tell we already knew quite a bit about the movement. Tasci seems a lot more business-minded than ideologically-motivated. I*ll be meeting with him again soon in DC.


Cengiz Candar

Cengiz Candar is a highly respected political analyst and journalist in Turkey. He was a former advisor to Ozal from 1991-1993. Whenever he writes an article, every major newspaper in Turkey prints it and listens to what he says. Ask Emre, he*s a huge fan of his as well. Everyone I talked to in Turkey about Cengiz said he is the best analyst they have. He is still highly connected in the current government and seems to be involved in various negotiations, particularly when it comes to anything
related to the Kurdish issue. Cengiz is an older man, very blunt, to the point, geopolitically-minded. He*s basically the Turkish version of George.

Cengiz attracts a lot of controversy because of his views on the Kurdish issue. He is one of the rare Turks who openly speaks about a *Kurdistan* region and acknowledges Kurdish history. He is very close to the Iraqi Kurdish leadership as well. I focused the discussion on the AKP*s strategy toward the Kurds both inside Turkey and in the broader region, particularly Iraq.

He started out with a very long history of the Kurds and the territory they claim. He explained how following the Treaty of Sevres, Turkey could not afford to give Kurds an identity that would undermine the post-Ottoman identity of the Turkish state created by Ataturk. But, he said, the Kurdistan region is the natural area of competition between Turkey and Iran. He explained how in the first Gulf War, the debate in Turkey was over how Iran could use the situation to fill a power vacuum in Kurdistan and challenge Turkey. At that time, there were discussions of addressing the Kurdish issue openly within Turkey to facilitate Turkey*s strategy in northern Iraq. But that strategy didn*t get very far, especially with the following uptick in PKK violence.

But again, in 2003, when the US invaded Iraq, the same security concerns arose. Turkey wanted to keep Iran at bay and didn*t want to create a power vacuum in northern Iraq. But before Turkey could address the Kurdish issue as a security issue in Iraq, it had to first deal with its own Kurdish problem at home. It wouldn*t make sense to deny the existence of Kurds in Turkey when you are fighting Kurds in an insurgency emanating from Iraq.

This is when we saw the idea taking root again that Turkey has to acknowledge the Kurdish cultural identity and integrate them into society. Cengiz appears to be a major driver behind the AKP*s efforts to continue with this Kurdish initiative and forge closer ties with the KRG leadership. In essence, the idea is that Turkey can guarantee the economic and political security of the Iraqi Kurds, and in return the Iraqi Kurds will have to respect Turkey*s territorial rights.

But this isn*t just about northern Iraq for Turkey. The Turks know that Turkmens in Iraq are not the sufficient outlet for Turkey to expand its influence in Iraq and in the Gulf. Turkey also works with Iraqi Sunni and Shiite leaders, but at the end of the day, the Shiites turn to Iran for guidance and the Sunnis turn to Saudi Arabia, Egypt, etc. He says Iranian influence in Iraq is not as much as people might think.

Therefore, Turkey needs Kurds in Iraq. They also need Turkey to export their goods. By using Turkish influence over the Kurds in Iraq, Turkey can expand its influence in the country and then use Iraq as a launchpad for influence in the Gulf. They can*t just skip over Iraq to reach the Saudis. Turkey has made progress in areas around its own borders in places like Syria, Jordan, Lebanon, etc. But to reach the Gulf, they need Iraq first.

We talked about how the AKP stumbled a bit in its Kurdish opening initiative, but it isn*t dead. He said that the MIT (national
intelligence) led the effort in negotiating with Ocalan and PKK to allow PKK rebels from Maghmur and Qandil to return to Turkey. That caused major blowback inside Turkey, though. After that, the PM had the police take over the initiative. This is when we saw the crackdown on DTP/PKK in Turkey as well as in Europe.


Will be seeing Cengiz again in DC in a few weeks.

IsBank

We met Friday afternoon with the representatives at Isbank. Caglan had with her their senior banking and economic analysts. Again, the contrast between the humble Gulenist organizations and these huge fancy corporate buildings was remarkable. At Isbank, everyone was very young, attractive, hip, modern.

They had a full presentation prepared for us on Turkey*s macroeconomy, which they had done for their clients. Most of what they showed us confirmed what we already had prepared in our own economic assessment, but they really helped us to understand what allowed Turkey to cope with the financial crisis so well. A lot of Turkish businessmen were able to react
quickly to the crisis and find new markets. Still, they a long way to recover their losses from 2009.

Our question about the cyclical downturn in industrial production was answered. The econ researcher said the automotive industry constitutes 50% of Turkey*s industrial production. In times of financial stress, people usually sacrifice their automobile expenses. They don*t need to get that second car for their wife, kind of thing. Also everyone knows that car dealers usually give discounts at the end of the year, and so plan for that. Automobile industry is also huge for Turkish employment rates since
2.5 million people work in this industry.

Turkey passed more than 100 legal arrangements after the 2001 banking crisis with the aim of increasing transparency in the banking sector. They described how they have to report their transactions on a daily basis, and how that transparency really helped Turkey in this crisis whereas the European states were dealing with major transparency issues. Turkey also wasn*t exposed to toxic assets like the others were. NPL concerns are also calming down. Their main concern is inflation... they expect further rate hikes this year as the government will be spending heavily in the lead-up to elections.

I asked about how the power struggle plays out in the banking sector. They were all pretty clearly anti-Gulenist so it was easy to talk to them about it. They said the government doesn*t have a concrete channel within the banking sector to support their own allies, but they are in a position to influence banks through individual channels. Ziraat bank is an example of this. They said that they don*t really see cases in which the big banks like Isbank, traditionally dominated by the nationalist/secularists, have denied financing to the Anatolian businessmen and to AKP projects. They don*t create obstacles for investment. At the same time, they see the struggle play out when you see businessmen like Calik getting contracts with AKP*s help.

I have a lot more detailed info on the Turkish economic assessment, but all that info is in my suitcase, which is floating around Frankfurt still. The Isbank people are also putting us on their private client mailing list so we can get their monthly econ assessments. They are really thorough and are a great resource for us to monitor Turkey's economic health.