Leadership and Democracy LabWestern Social Science

Turkish Military Coups: A Political Risk Assessment

Primary Contributor: Mark Farfan

Team Leader: Ernest Tam

26/01/2017

Turkey has a long history of military intervention in civilian politics. There have been 4 attempted coups since 1960, 3 of which were successful. Moreover, the military has repeatedly exerted influence through the threat of action. In 2007, for example the Turkish military threatened to influence the outcome of the presidential election unless the government took concrete steps to combat the development of Daesh. The use or threat of violence has thus become a regularity in Turkish politics over the past 60 years.

Turkish military forces are politically active because the military conceives of itself as the secular “guardian of Turkish democracy.” In fact, Turkey’s constitution explicitly states that the military has the authority to intervene in times of civil unrest or unstable government. Consequently, top military officials have repeatedly used their power to step in and exercise control of the government. It is worth noting, however, that after each successful coup, political power has been returned to civilian hands in relatively short order. In any case, a military coup implies significant change, which has implications for economic activities. The Harvard Business Review notes that military coups are “highly discouraging for a country’s economic development.” As such, it can be said that the risk from future attempted coups in Turkey to the country’s textile industry is at least medium level and should be monitored closely.

The most recent attempted coup occurred in 2016, when factions of the Turkish military that were opposed to President Recep Erdogan’s government attempted to take over strategic infrastructure. The uprising began when the military stormed broadcast centres and parliament buildings, shut down bridges, and attacked police. In the end, the attempted coup was unsuccessful. Erdogan managed to rally support and prevent the rebels from securing their positions. The brief skirmishes resulted in 290 deaths and over 1,400 injured. In the aftermath of the coup, tens of thousands of President Erdogan’s political and military opposition members have been arrested and over 100,000 government workers have been let go from their positions. Some in the international community have decried these mass detentions and firings as excessive, believing the attempted coup is being used as a political tool to silence opposition. Others believe that Erdogan himself may have staged the coup in order to allow his government to crack down on dissidents. Regardless, the event has proven to be a destabilizing force with impacts on business dealings.

Turkey plays an important economic role as the country is situated between both Europe and Asia. As has been noted, there is a tension in the country between Western principles of trade liberalization, democracy, and accountability, and other, illiberal restrictions on liberty or strong government influence in economic affairs. In the past 10 years Turkey had been steadily adopting Western governance institutions, norms, and economic policies in a bid to become a member of the European Union. The post-coup actions of President Erdogan’s government, however, demonstrate a weakening commitment to Western ideals such as free expression and an increase in the centralization of power. Doubts have been raised about Turkey’s commitment to support economic and trade liberalization. This does not bode well for economic growth, which, in turn, negatively affects the textile industry. In fact, Turkey’s per capita income has decreased by approximately 10 percent since 2013 – an alarming statistic that will not be quickly improved in the post-coup environment. Within hours of the 2016 attempted coup, the Turkish lira’s value on the international market dropped precipitously. As a key tenet of the Turkish economy, the textile industry is inherently tied to the macroeconomic forces that influence the country.

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Aside from broader macroeconomic trends, the political instability caused by coups or attempted coups has an inverse relationship with growth in trade. Foreign companies and investors perceive an increased risk of committing financial resources in Turkey and as a result industry can suffer. For example, Ingeborg Neumann, the president of the Confederation of the German Textile and Fashion Industry stated after the recent attempted coup that, “Further negative developments would be poison for bilateral economic relations.” Since Germany is Turkey’s most significant trading partner, the potential harm to the Turkish textile industry must not be understated.

Another risk specific to the textile industry is the threat of direct government intervention in business. For example, following the attempted coup in 2016 the government seized several hundred companies in trust, including textile giant Suvani Menswear. Moving forward, it is not unreasonable to prepare for additional government incursions into private enterprise during periods of unrest and instability.

It will be difficult for a textile business in Turkey to a) predict a military coup, and b) exercise much control over the effects of the coup on the business. Some successful risk mitigation strategies may still be pursued, however. First, businesses can insulate themselves from government intervention by remaining apolitical. If smooth continuity of business is desired, large textile companies and their leaders should refrain from entering the public political arena. Second, businesses can attempt to diversify their supply chains and markets in order to hedge risks of a Turkish economic slowdown. Third, efforts can be made to store cash reserves in more stable currencies when possible. This will help to alleviate the stresses of post-coup currency fluctuations.

Aside from risk mitigation, some may actually see the post-coup environment as an opportunity. Business Insider notes that the reduction in the value of Turkish currency and assets on the international markets could prove to be attractive to those with the ability to take advantage of the situation. An investor in the textile industry in Turkey might therefore commit more resources during times of uncertainty, depending on their appetite for economic risk and their ability to do so.