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Turkey's Economy Driven by Faith and Financial Acumen

With a combination of faith and financial acumen, a new class of business leaders is driving Turkey's economy and providing a solid base for Prime Minister Recep Tayyip Erdogan's AKP government.

“We are called Islamic Calvinists,” says Boydak, who readily accepts the label. An energetic 52-year-old with jet-black hair, Boydak presides over a multibillion-dollar conglomerate that began in his father and uncle’s carpentry workshop in the 1950s. The company is investing heavily to boost furniture production and increase the size of its retail network even as it expands into new activities ranging from chemicals to banking. Sustaining the group’s robust growth is a pressure-filled job, but Boydak makes time for a pilgrimage to Mecca every year. This year he planned to spend virtually the entire month of August, which coincided with the Islamic holy month of Ramadan, in Saudi Arabia.

The combination of piety and entrepreneurship is a defining characteristic of Turkey’s Anatolian business class — and a stark contrast to the secular traditions of the country’s older business and financial elite, based in Istanbul. Boydak and other entrepreneurs in Turkey’s interior have injected fresh momentum into the economy over the past decade and begun to shift the country’s orientation from West to East by boosting trade with Middle Eastern countries.

The achievements of this emerging business class come at a time of growing doubt about Turkey’s aspirations for membership in the European Union, a goal that remains official government policy but seems to recede by the day. Membership negotiations opened in 2005 but have been stalled for more than a year because of fears in France, Germany and other EU states that Turkey’s Anatolian heartland is too socially and economically backward. Without any sense of irony, Boydak questions whether the EU — his largest foreign market — has the institutional and economic fortitude to navigate its current debt crisis. He hopes to start listing his family-owned companies on the Istanbul Stock Exchange next year. “But in Europe there is still an economic crisis, so we may have to wait for better market conditions,” says Boydak, who is chairman of the group.

Kayseri and other commercial centers in central and eastern Turkey, such as Konya and Gaziantep, are known as the “Anatolian tigers.” These thriving areas have provided the ideological, financial and electoral base for Prime Minister Recep Tayyip Erdogan’s ruling Justice and Development Party, which is known by its Turkish acronym, AKP. In June, Erdogan was handily reelected to a third term on a platform combining moderate Islamic practices and economic policies supportive of globally competitive businesses — the same values embraced by entrepreneurs like Boydak.

These Anatolian business leaders “have taken over Turkey — or at least the country has moved in their direction,” says Gerald Knaus, founder and chairman of the European Stability Initiative, an Istanbul-based think tank that coined the phrase “Islamic Calvinists” in a 2005 study of the transformation of Anatolia. This shift was underscored dramatically in July when Turkey’s military leadership resigned en masse, an effective surrender of the country’s old secular guardians to the power and popularity of the AKP and its supporters.

Anatolia’s fast growth has made it the backbone of the Turkish economy, says Ahmet Akarli, a London-based economist for Goldman Sachs Group. “It’s where a lot of the growth dynamism is coming from,” he says.

That dynamism has given Turkey the confidence to put itself forward as a regional power. The notion that a Middle Eastern country can be Islamic, democratic and prosperous has raised Turkey’s profile since the Arab Spring revolts shook the Muslim world from Tunisia to Bahrain. “People in the Middle East and North Africa are seeking to draw lessons from Turkey’s experience,” U.S. Secretary of State Hillary Rodham Clinton said during a July visit to Istanbul.

To be sure, the upheaval has posed challenges to Turkey’s regional ambitions. The government called on Muammar Qaddafi to cede power in Libya, only to be rebuffed by the regime. Ankara did recognize the rebel leadership, however, which appeared on the verge of taking control of the country last month.Turkey has some $14 billion worth of investment in Libya at stake. In Syria, President Bashar al-Assad’s crackdown on dissidents protesting his family’s four-decade-long authoritarian rule has strained relations with Ankara. Last month Foreign Minister Ahmet Davutoglu called on Damascus to halt its military campaign, which has driven thousands of Syrians to flee across the border into Turkey, and embark on genuine political reform, but Syria has only intensified its violence.

Turkey must also deal with a difficult economic outlook. The European debt crisis poses a growing threat to the country’s largest export market, while the global economy is showing signs of a slowdown. Meanwhile, authorities are struggling to contain overheating on the home front. Economic output grew 8.9 percent last year and accelerated to a red-hot 11 percent pace in the first quarter of 2011. Those figures were matched by current-account deficits that reached 8.7 percent of GDP in 2010 and a whopping 11 percent in the first quarter of this year. Inflation stood at 6.3 percent in July, above the Turkish central bank’s target of 5.5 percent.

The central bank has adopted an unorthodox strategy to contain the pressures, cutting rather than increasing interest rates. The bank reduced the one-week repurchase rate, its main policy rate, by one half point, to 5.75 percent, last month, the third cut since May 2010. Central bank officials believe that raising rates to cool the economy would only attract foreign capital and drive up the value of the Turkish lira, just as Brazil’s monetary tightening has sparked a sharp rise in the real. The central bank’s easing has succeeded in weakening the lira, which as of last month was down by 3.6 percent against the dollar and 17.5 percent against the euro since the end of 2010. Although capital inflows have slowed, lower rates have fueled an increase in borrowing by Turkish consumers.

“The economic growth rate is unsustainable,” says Goldman’s Akarli. “From early 2010 there were signs of imbalances building up, but the authorities kept the stimulus going too long.” The deficit was 3.6 percent of GDP in 2010 as the government maintained spending ahead of the election, but Erdogan has put on the brakes since the AKP’s victory in a bid to cut the deficit to 1 percent this year. The government collected revenues equal to some 1.2 percent of GDP with a recent tax amnesty and plans to impose additional taxes on luxury goods, housing and car loans. Meanwhile, the central bank has hiked reserve requirements on lira and foreign currency deposits in an effort to slow credit expansion.

An economic slowdown may be easier to pull off in Istanbul than in the revved-up Anatolian heartland. Boydak Holding projects that its sales will increase by 13 percent this year, to $3 billion, up from growth of 10.4 percent in 2010. And the Association of Furniture Producers in Kayseri expects sales to rise 11 percent for the city’s more than 3,500 furniture makers.

Kayseri is a pleasant city of 883,000 inhabitants, with broad, clean avenues and leafy squares. The muezzin’s call to prayer five times daily echoes beyond the grand Hunat Hatun Mosque and the even larger, adjoining Kayseri Fortress, a sixth-century stronghold made of black volcanic stone. But little else detracts from the majestic view of Erciyes, the 13,000-foot-high volcano 16 miles south of the city. Most travelers follow Fodor’s advice to spend no more than a couple of hours in Kayseri and “then hit the road again.” That usually means driving 50 miles west to the Cappadocia region, where wind and rain shaped volcanic formations into funnels that served as multistoried cave dwellings for early Christians in the pre-Islamic era.

Just beyond Kayseri’s southwestern limits lies the town of Hacilar, where nine of Turkey’s 500 largest companies, including Boydak Holding, have their headquarters. Hacilar was a village of fewer than 3,000 people in 1957, when Haci’s father, Sami, and uncle, Mustafa, began to handcraft doors and window frames for local customers. Residents cultivated wheat and raised sheep, and the town had more horses than cars.

Over the next two decades, the Boydak brothers expanded into sofas and armchairs. After a 1976 visit to European furniture fairs, Mustafa and Sami decided to plunge into machine-made furniture, using equipment imported from Germany and Italy. Business boomed when the brothers launched the çekyat, a sofa bed well suited to the cramped apartments built to accommodate Turkey’s burgeoning urban population, which quadrupled between 1950 and 1980. The çekyat remains a bestseller. “There are still many people who use it as a sofa during the day and a bed at night,” says Gülfidan Ya¸sar, a marketing and sales executive at Boyteks, a Boydak subsidiary that makes mattress covers.

Boydak and other Kayseri businesses grew rapidly in the 1980s as the government of then–prime minister Turgut Özal, who was born near Kayseri and attended school there, embraced a more open economy and encouraged businesses to compete abroad. “With liberalization, the small family-owned businesses in Anatolia started to develop export-oriented policies,” says Huma Kalin, a London-based analyst at Eurasia Group, a political consulting firm. Taking advantage of a government-subsidized industrial zone in Kayseri and nearby villages, hundreds of workshops expanded into full-fledged factories, most of them producing furniture and textiles.

The go-go years of the 1980s gave way to stagnation in the ’90s as a series of unstable, military-influenced coalition governments focused on repressing Islamic movements and battling Kurdish separatists in eastern Turkey. A military coup deposed Necmettin Erbakan, Turkey’s first openly devout Islamic prime minister, in 1997 and banned his Welfare Party, a forerunner of the AKP. Amid the instability, inflation ran at an average rate of more than 120 percent between 1997 and 2001. “It was a lost decade, and all of Özal’s exciting economic ideas took a backseat to this political turmoil,” says Gülnur Aybet, visiting professor of international relations at Izmir University. Ultimately, Turkey would go to the International Monetary Fund in 2002 for a $16 billion bailout and tough fiscal and economic reform measures to end the country’s hyperinflation.

Anatolian entrepreneurs did not stand still during this period. In 1990 they created Müsiad — the acronym means Independent Industrialists’ and Businessmen’s Association — to keep Özal’s thinking alive. Representing mostly small and medium-size enterprises, the group became a counterweight to Tüsiad, the Istanbul-based Turkish Industrialists’ and Businessmen’s Association, which represents the country’s largest enterprises. “Tüsiad is a club for rich businessmen,” says Haci Boydak. “And I say this even though my three brothers are members. We in Müsiad have more than 20,000 members and are more democratic. That’s why Müsiad has more power in Anatolia.”

Backed by Müsiad, Erdogan established the AKP in 2001 and led the party to a landslide victory in elections the following year, enabling it to form Turkey’s first single-party government in nearly two decades. Banned at the time from holding office because of a speech he gave that supposedly incited religious hatred, Erdo?gan installed his AKP colleague Abdullah Gül, an Özal disciple and Kayseri native, as prime minister before taking the post himself in 2003. (Gül then served as Foreign minister before winning election as president in 2007.)

The new government pursued the Anatolian business community’s agenda of a liberal market economy and moderate Islamic values. Erdo?gan carried out the IMF program and revived Turkey’s ambitions of EU membership, steps that unleashed the biggest economic boom in a generation. He also chipped away at Turkey’s secular establishment, lifting the ban on women wearing head scarves in universities and steadily reducing the influence of the military, the longtime enforcer of secularism.

In the June elections the AKP won a third straight mandate and gained 50 percent of the votes nationwide — and more than 70 percent in Kayseri, Konya and Gaziantep. The results left the party just short of the two-thirds parliamentary majority it needs to replace the 1982 constitution, which was imposed by the military. The AKP’s long reign seems to be softening the long-­standing polarization between Turkey’s secularists and Islamists. “Now even in secular quarters there is a growing tolerance of head scarves,” says professor Aybet.

Instead, political controversy has shifted to opposition claims that Erdogan is becoming increasingly authoritarian. According to the Turkish Press Association, more than 60 journalists are in jail, many of them for publishing articles that angered the government. The government maintains that only 26 journalists are imprisoned, accused of disclosing state secrets or being linked to terrorism. Some of them are among the nearly 300 people — active and retired military officers, businesspeople, professionals — who have been formally charged with membership in the so-called Ergenekon terrorist group that allegedly seeks to provoke a military coup. “For the opposition, Ergenekon is becoming an excuse to indict anybody who says anything against the government,” asserts Aybet.

These controversies barely seem to resonate in economically buoyant Kayseri. “All everybody talks about here is the football scandals,” says Deniz Boydak, 28, a cousin of Haci’s who is the sales and marketing manager at mattress-cover maker Boyteks. Police this summer have arrested more than 60 people, including Aziz Yildirim, chairman of Turkish football champion Fenerbahçe, for allegedly seeking to fix the results of 19 matches.

Boydak Holding is a company that manages to grow no matter what is happening in national politics. Sales rose to 4.1 billion Turkish liras ($2.65 billion) last year; net income declined 22.1 percent, to 271 million Turkish liras, mainly because of increased investment in machinery and retail outlets. The company, which has 12,000 employees, has expanded into textiles, cable manufacture, finance, chemical products, iron and steel, and an air-taxi service, “but our main sector is still furniture,” says group chief executive Memduh Boydak, 44, who is Haci’s younger brother. Furniture and upholstery textiles generated 61 percent of revenues last year.

In the 1990s, Boydak revolutionized its sales and marketing strategy to gain control of its own distribution rather than relying on outside retailers. During the past two decades, Boydak opened 2,000 stores in Turkey and an additional 250 abroad to sell furniture under its mass-market Istikbal label and its more upscale Bellona brand. Boydak is by far the leading furniture company in Turkey, with some 30 percent of the branded furniture market.

According to Haci Boydak, most of the holding’s new businesses were launched to cover supplies and services for the core furniture company, then began selling the surplus to other Turkish and foreign enterprises. A prime example is Boyteks, the subsidiary that produces mattress covers and other upholstery fabrics. Last year it exported 80 percent of its $140 million in sales. Among its biggest foreign clients is Swedish furniture giant IKEA Group, which buys 6 million mattress covers a year. The weaving machines are the latest models from Germany and Italy — and are operated entirely by men. In Boydak Holding overall, only 3 percent of blue-collar employees are women, though their numbers grow to 16.5 percent at secretarial and other office jobs. At Boyteks there is even the rare midlevel female manager, like Gülfidan Ya¸sar, 31, a marketing and sales representative.

Ya¸sar, a Kayseri native, is the first woman in her family to attend university. Her mother, a teacher, was the first girl in the family to attend primary school. “All my woman friends went to university and are now working in companies,” says Ya¸sar. “I think a big part of the change in our mentality came when a woman, Tansu Çiller, became prime minister” in 1993.

This is Ya¸sar’s second stint at Boydak. After working there for three years, she left in 2007, seduced by the bright lights of Istanbul and a sales job at a subsidiary of another Kayseri-born conglomerate, Sabanci Holding. But at the beginning of this year, she returned to Kayseri and took her post at Boyteks. “I like the energy of this company — it’s growing fast and never dull,” says Ya¸sar, who regularly works 12-hour days, including some Saturdays. Housing is cheaper in Kayseri than in Istanbul, and the smaller city has none of the traffic problems that make commuting in Istanbul such an ordeal. “And if I need something in Istanbul, there are four flights a day,” she says.

Besides lagging in female employment like other Kayseri businesses, Boydak Holding has remained a tradition-bound Anatolian enterprise in another important respect: its family structure. Not only is it family-owned, but six of the nine board members are Boydaks, as well as a dozen executives, all of them men. Haci Boydak insists there are more advantages than drawbacks in having all these relatives in the workplace. “The family is like an orchestra — if the conductor does his job, you get a good sound,” he says. “There are only problems when relatives don’t get along, and that’s not the case with us.”

Nonetheless, Haci Boydak is moving to transform the group’s enterprises into publicly traded companies, beginning with HES Cable, Turkey’s largest manufacturer of aluminum and copper cables. “Next year, Inshallah [God willing], we will list HES Cable, if there is no economic crisis in Europe,” he says. “Then, if that goes well, we will list the other Boydak companies and someday even Boydak Holding. But the family will maintain majority control.”

For the past two years, the Istanbul Stock Exchange has courted Anatolian family enterprises, extolling the benefits of going public to finance rapid expansion. “Although until now we have always been able to grow with our own cash flow, in the future we may need the additional capital that comes from a stock market listing,” says Boydak.

Yet many Anatolian entrepreneurs remain reluctant to seek outside financing through IPOs or even from banks. Attempts by leading banks such as Akbank and Garanti Bank to extend business and retail lending have met with limited success. “In many Anatolian cities loans per capita levels are less than half of Istanbul’s figures,” says Fatma Melek, Akbank’s chief economist.

In Gaziantep, 155 miles southeast of Kayseri, enterprises are even more dependent on cash flow to cover financing and are noticeably reticent about disclosing their financial results. “We are not considering listing our company,” says Kemal Çakmak, general manager of a pasta-producing subsidiary of Be¸slar Group, a food-processing conglomerate that is one of Gaziantep’s largest employers and exporters. The group, which has more than 1,000 employees, does not disclose sales or profits but claims a 2.5 percent share of the city’s exports, which would have been worth about $81 million in 2009. “There has been a market boom for us in the Middle East, and we hope it will get even better in the next few years,” says Çakmak.

A city of 850,000 inhabitants only 28 miles from the Syrian border, Gaziantep has become a magnet for Middle Eastern tourists since the Turkish government introduced visa-free travel with neighboring countries two years ago. Hordes of Syrians and Iraqis clamber up the hilly slopes leading to a 13th-century fortress for a panoramic view of the coppersmith arcades, bazaars and coffeehouses of the old city center and the factories and high-rise offices on the new industrial outskirts. By early evening restaurants in the city’s winding streets and alleys are crowded with families sampling delicacies such as chickpea and yogurt soup, kebabs in eggplant sauce and baklava, which have established Gaziantep as Turkey’s culinary capital.

According to the Gaziantep Chamber of Commerce, the turmoil in Syria hasn’t yet dented commercial or tourist revenues. Gaziantep is Turkey’s sixth-largest exporting city (with $3.26 billion in total exports in 2009). Its three biggest markets are Iraq, Saudi Arabia and Syria. Although trade with these countries has surged in the past few years, it is deeply rooted in history. In ancient Roman times Gaziantep was an entrepôt for caravans on the Silk Road from Asia, and until the end of the Ottoman Empire in the early 20th century, it was part of a vibrant commercial network that included the Syrian cities of Aleppo and Damascus.

Over the past three decades, Gaziantep has reemerged as an economic force thanks to a strong industrial base on the city outskirts, built on textiles, food processing, plastics, metals and machinery. “We don’t have much suitable agricultural land, so instead of farming, many people here went into business and industry,” says Figen Çeliktürk, assistant director of the Chamber of Commerce. Last year the city accounted for almost 70 percent of Turkey’s machine-made carpet exports, 50 percent of pasta exports and 90 percent of pistachio exports. Construction materials and machinery destined for Iraq in 2009 helped make it Gaziantep’s top export destination, with $1.3 billion, or almost ten times the value of the city’s exports to second-place Saudi Arabia. With Iraq’s internal conflicts easing, those sales could rise further, says Çeliktürk. “Iraq is a very large market; it needs a lot of things,” she says.

For now most Gaziantep exports to Iraq go mainly to the northern part of the country, dominated by the Kurds. Prime Minister Erdogan has enjoyed more success dealing with northern Iraq’s Kurdish government than he has had wooing separatist Kurds on his side of the border. “The so-called Kurdish opening hasn’t gone very well,” says political analyst Aybet. The initiative, launched by Erdogan in 2009, is aimed at putting an end to the decades-long conflict with Turkey’s Kurds by granting them more cultural rights, funneling public investment into their communities and negotiating with the Kurdistan Workers’ Party (PKK) to lay down its arms. Television broadcasting in Kurdish is now allowed. Kurdish politicians may talk openly about more autonomy. And heavily Kurdish communities like Diyarbakir, 190 miles northeast of Gaziantep, have shared in Anatolia’s rising prosperity. But PKK violence continues to erupt, including an ambush of Turkish soldiers outside Diyarbakir in July that killed 13 troops.

Such episodes haven’t dented the optimism of the Anatolian business community, or its members’ confidence that Turkey’s prosperity lies with their brand of Islamic Calvinism. Müsiad publishes a booklet, Homo Islamicus, that extols the Prophet Muhammad as an accomplished merchant. “But always remember that it doesn’t matter how religiously observant you are if you don’t work hard at your business, open yourself to new ideas and follow market tastes,” says Haci Boydak. • •

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