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June 04, 2008

Globetrotting: Privatization in Turkey

John Shoaf '10 and Irem Oral '10
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This post is part of a series following the “Pre-MBA World Tour,” organized by Shoaf and members of the class of 2010.

This week the Pre-MBA World Tour traveled to Istanbul in order to better understand the current business environment in Turkey and to see what types of opportunities might be available to CBS students and alumni during the next decade.

Before arriving, we knew that (as the song goes) Istanbul was once Constantinople. But we didn’t know that Turkey is currently undergoing a significant social, economical and political transition. And somewhere in these winds of change lie several interesting opportunities.

For nearly 25 years, Turkey has been attempting to transfer its state-owned businesses to the private sector. Following a financial crisis in 1994, and another in 2001, the country’s financial system has finally shaken off hyperinflation and has begun to privatize many sectors of its economy.

Furthermore, since 2005 Turkey has been in negotiations to join the European Union. Many of the requirements to join the EU have provided an incentive for Turkish policymakers to change the way business is done.

Among these changes has been a significant movement toward privatization, and this movement (along with a new currency to curb inflation) has made foreign investors more confident. Private equity has begun to flow into the economic system, and GDP has been growing at nearly 8 percent per annum.

Although many people believe that Turkey won’t be admitted into the EU for another five to seven years, the changes that have been made to prepare for this transition have positively impacted the economy.

Whether Turkey should join the EU remains a controversial issue, yet there are clear benefits. One is that Turkey has a young and dynamic population that can contribute immensely to the workforce in Europe (where the average age of the population is increasing every year) and thus can play a role in increasing Europe’s competitiveness with such countries as China and India.

In addition, an interesting political shift has arisen relating to the election of the conservative AK Party. The AKP won the election in August 2008 for the second time, which led to the stabilization of the Turkish economy and an increase in foreign direct investment. The AKP has very strong connections with the United States and has a vision of using aggressive economic growth vision to gain admission into the EU, yet ongoing judicial debates and the party’s nonsecular policies have created uncertainty about its sustainability.

While these controversial topics remain to be tackled on an international level, Turkey is experiencing GDP growth, a stronger currency (fluctuating between 1.18 and 1.39 USD/TRY) and a lower inflation rate, leading to increased urbanization and development at the intersection of Europe and Asia.

The natural beauty and historical richness in this melting pot have increasingly attracted tourism in the past 10 years, and Istanbul remains the center of Turkish history, culture and business. We have found Istanbul to be a wonderful city full of diversity and opportunity.

Next stop: Dubai