The ‘peace dividend’ and Cyprus

SEYFETTİN GÜRSEL

These two subjects are not related. It is only the expression of an attempt to fit the two topics in one column. I have difficulty selecting a topic in weeks when the agenda is busy, so this week when I was undecided between these two important topics, I told myself to write about both of them. The expression “peace dividend” is used by economists to explain the economic benefits obtained when war turns into peace. Last week, statements and predictions about the potential peace dividend in Turkey covered a significant space in the media. As we always tend to do, we again exaggerated. On the other hand, the economic crisis in Cyprus will have important consequences, especially from the point of reaching a solution to the half-century old problem.

“We are expecting a boost in investments. Turkey will fly. Growth will skyrocket to 6 or 7 percent.” Such sentences demonstrate how high expectations about the peace dividend are. However, peace is not being made just because it will be beneficial to economy; the fact that young people of this country will not die anymore because of this bloody clash, which has lost all its meaning, is a sufficient dividend in itself. Again, if peace is going to have a contribution – and it will - to the economy, then it would be good to discuss it without exaggerating. Otherwise, we will experience gross disappointment.

Basically, peace could have a contribution to the economy through two channels: The channel of investment-employment in the region and the budget channel in the nationwide sense. Will investments, and consequently employment, in the region explode? The answer is no, it will not explode. For it to explode, it must have been very negatively affected in the past from the “low intensity war.” However, it doesn’t look as though this is the case. There is no regional investment data, but we can use employment as an indicator. In the period between 2005 and 2011, non-agricultural employment increased 20 percent nationwide in Turkey. On the other hand, rates of increase in the eastern and southeastern regions occurred at 26 percent and 72 percent respectively. (For details, please see BETAM’s research note April 2012 on Regional Workforce Markets.) Findings show that the export boost to the Middle East has a significant role in these rises. What I’m trying to say is this: Peace, no doubt, will increase investments in the region, but nobody should expect any explosion. More importantly, nobody should hope that “if peace arrives we will be saved from the inconvenience of structural reforms.” Military expenditures are 4 percent of the Gross Domestic Product. When the hidden portion is added to this, it may even be 5 percent. If we save 20 percent (one percentage point) then it would make approximately 15 billion Turkish Liras. Not a small amount, but not big enough to sweep us off our feet.

Crisis may bring solution

Daily Radikal’s economy desk has monitored the Cyprus crisis very well. There is no need to remind readers of what has happened. As you know, one third of the bill of about 17 billion euros has been sent, primarily to the Russians, and to bank depositors and bank owners. Two thirds of it is on the Greek Cypriots. With a rough calculation, the rate of public debts will reach 130 percent, which is the highest debt rate in the EU after Greece. Greek Cypriots will be tightening their belts for years. The welfare era created by being a tax haven and by black money has ended. From now on, it is doubtful that they will be able to afford extremely high defense expenditures.

Greek Cypriots have set their hopes on the rich, newly discovered natural gas fields on the south of the island. For the natural gas to seriously increase Greek Cyprus’ income, it has to be seriously profitable. However, because it will be drilled from deep, its average cost is already high. If you add to this the extremely high cost of the fluidization investment that is needed in order to ship the gas to Europe by tankers, there might be nothing left for the Greeks. The shortest and the most profitable way is to send the gas through Turkey. This way can only pass from an agreement with the Turkish Republic of Northern Cyprus. It’s the Greek Cypriots’ choice.

Seyfettin Gürsel is a columnist for daily Radikal in which this piece appeared on March 27. It was translated into English by the Daily News staff.

SEYFETTİN GÜRSEL - seyfettin.gursel@radikal.com.tr