Turkey - the Gulf to the rescue

A potentially really significant set of agreements were announced today yielding a total commitment from Abu Dhabi of $50bn to support Turkey.

It beats expectations which had been set by comments by the Turkish trade minister suggesting numbers in the order of $30bn.

There will be some scepticism that these are soft investment pledges and much of this money won’t come or be constrained by deal availability.

However, the $8.5bn for earthquake bonds and $3bn for export credits announced should be made readily available.

This is a real triumph for Erdogan and his team and, if combined with similar commitments from other Gulf states - Saudi Arabia, Qatar and Kuwait, could cushion the impact of the on-going and much needed policy adjustment we are seeing now with the Simsek team. It buys them some time.

I think these deals reflect a new strategic relationship between Turkey and the Gulf states which itself reflects a number of factors:

First, Erdogan’s concession to downgrade support and leadership for political Islam in the region. This means less conflict with the rival agendas of Saudi Arabia and UAE which have sought to counter the activities of the Muslim Brotherhood et al across the region.

Second, I think recognition of Erdogan’s electoral prowess - he is seen as a winning brand in Turkey and the wider region. Erdogan is seen as being there to stay and to be worked with.

Third, I think in recent years we have seen in the Gulf less focus on foreign policy adventures and more focus on delivering economic progress and reform at home and in the region. The Gulf states have big cash balances and they want to put them to work in the region to generate good returns. Turkey is seen as offering opportunities in tech, defence and manufacturing more generally. Perhaps much more than peers such as Egypt. Turkey might be in the doldrums at the moment because of unorthodox macro policies but there is a sense that with guidance and the allure of Gulf money this can be put right and there is real value. This money will come with strings and conditionality attached - the Gulf guys will demand a competitive exchange rate and policy rates set to ensure a stable macro outlook.

Fourth, I think it reflects a Gulf desire to tap into Turkey’s new found prowess in military technology - Bayraktar drones key there. The Gulf sees Turkey as providing some longer term diversification potential there away from the US.

Fifth, I think there is genuine warmth between the respective families and teams, affirmed by recent visits by MBZ to Istanbul to the Champions league final and then Erdogan and his team back to the Gulf.

Let’s see if the $50bn UAE support is not mutually exclusive with Saudi money but if the total Gulf support is $100bn plus for Turkey that’s game changing and gives Simsek et al a potential route out of the current economic crisis.