What’s wrong with doing business in Turkey?

Washington, DC

Turkey is the 17th largest economy in the world. Yet, on the Fortune list of dollar billionaires, the country hit number six recently. In other words, Turkey is not yet the 10th largest economy of the world as envisaged in the 2023 objectives of the government, but it is already easily in top 10 in terms of the number of Turks in the global billionaires list. The country now has 43 billionaires on the 2013 list. The figure was 34 in 2011 and 35 in 2012. 2013 saw a leap forward. Why? The global crisis certainly does not seem to have affected Turkey’s performance in creating new dollar billionaires.

What is more interesting to me is a comparison to the number of Turkish companies in the Forbes Global 500 list. It is 1. Let me write it also. Just one. Historically there was only one Turkish company on the list of the world’s largest 500 companies. There is still only one. No change. Koç Holding is the only Turkish company on the Forbes Global 500 list of the world’s largest companies. So let’s make the point: Turkey is the world’s 17th largest economy, sixth in the list of global dollar billionaires but only has one company in the world’s largest companies list. That looks systematic to me. There appears to be a problem in terms of institutional development. Why do Turks refrain from investing their wealth into their companies? How do Turks get richer if not by enlarging their companies? What’s wrong with doing business in Turkey?

Firstly, Turks do refrain from investing their wealth in their companies. That is the way it has been in the past, and that’s the way it still is. In the 1994 crisis, the government turned to the past performance of companies and actually asked for an additional tax on the revenues of the past. Outrageous? Yes, but it happened. The authority to levy taxes has never been independent from the political process; so it happened and it can happen again. Let me correct my mistake regarding the past: At least the 1994 incident did not have a selection bias. It was the same treatment for everybody. It may be outrageous, but at least there was no bias.

Secondly, the individual wealth created in Turkey still does not occur through companies’ growth strategies. If not through good and timely investments in different companies, where does individual wealth come from? Still from land, if you ask me. That is why changing zoning rules is the major preoccupation of city councils. Just compare Istanbul City Council meeting minutes to New York’s and see the difference.

Thirdly, innovation does not have any role in getting rich in Turkey. In an era when innovation is important to lead the global race, having no good role models is definitely bad. There is a lot of fuss about innovation in Turkey, but little substance. Here is an anecdote to illustrate why: When a venture capitalist trying to establish a new fund visited a prominent billionaire in Turkey to ask for a contribution to the fund, he got a rather succinct answer: “I just got all the permissions to construct a high rise on the Anatolian side of the Bosphorus, why bother with these very uncertain startups and innovation to create wealth?” Unfortunate, but this is the way businessmen think over here.

Why bother? It is a persistent question. In it, we can see what is still wrong with doing business in Turkey.