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Turkey: Economic and Political Roundup (January 2021)

TURKEY MONTHLY ROUNDUP: JANUARY 2021

Latest Developments

President Erdogan stressed that the rate of increase of the pandemic has noticeably declined with the measures taken. The impact of the vaccination is expected to be felt in the second half of March and if the process goes according to the predictions, some restrictions may be eased in this period.  

Restaurant and cafe managers having difficulties in terms of rent and employee payments submitted a proposal to reopen, including entering restaurants with HES (Hayat Eve Sigar) code and opening with the harshest measures. Recently, Turkey Tradesmen and Artisans Confederation (TESK) Chairman Bendevi Palandoken met with the President Erdogan on January 24 to discuss the issues faced by small businessesdue to Covid-19. On the other hand, many experts do not agree with the idea of reopening. Science Committee Member Prof. Dr. Levent Akin said, “Restaurants and cafes should be opened only when the test positivity rates fall below 1%.”. Furthermore, Science Committee Member Prof Dr. Mustafa Necmi Ilhan suggested that the case number must fall below 2 thousand for the reopening.                                                                                                   

Minister of Education Ziya Selcuk announced their decision to gradually reopen schools as of February 15. However, Science Committee advised the reopening to be postponed to March 15. Science Committee Member Prof. Dr. Tevfik Ozlu suggested that regional or school-based arrangements can be made instead of a national decision. 

On January 24, Turkey temporarily halted flights from Brazil due to the increasing mutated Covid-19 cases. Flights from the UK, Denmark and South Africa remain suspended. 

Vaccine Developments

CoronaVac vaccine, developed by China’s Sinovac, was given Emergency Use Authorization (ATO) by the Turkish Pharmaceuticals and Medical Devices Agency (TITCK) on January 13. On the 6th day of vaccination, the number of healthcare professionals who received the first dose of vaccine exceeded 1 million. In line with the vaccination schedule prepared by the Science Committee, the vaccination of those aged 80 and over against the Covid-19 is planned to be completed quickly. These citizens can be vaccinated at their home or in health institutions by appointment, as is the case with citizens over the age of 90. Fahrettin Koca stated that the daily progress of the vaccination program in Turkey can be followed live via the Covid-19 Vaccine Information Platform. 

On January 25, the first part (6.5 million doses) of the second shipment of CoronaVac inactive vaccines, 10 million doses, arrived to Turkey. The second party of vaccine can be also started to administer after the analysis of TITCK.

In addition to the CoronaVac vaccine, Russian Direct Investment Fund (RDIF) announced that an agreement was signed with Turkey for the production of Russian Covid-19 vaccine Sputnik V. Viscorner Pharmaceutical Industries Chairman Ozturk Oran said, "After the transfer of technology and procedures in the Ministry of Health, it will be taken to permit the use of vaccines for the pilot production.” According to the HaberTurk columnist Fatih Altayli, a total of 5 million doses of the vaccine will be delivered from BioNTech by the end of April. However, BioNTech did not provide a risk guarantee for the vaccine, which causes the lack of full agreement. Thus, it is requested that the country purchasing the vaccine be responsible for all possible short and long term risks.

Turkey is expecting to roll out a domestic COVID-19 vaccine by the end of summer 2021. Industry and Technology Minister Mustafa Varank stated that they are working in coordination with the Ministry of Health to start the human study of the Covid-19 vaccine until the end of January.

GLOBAL: COVID-19 OUTLOOK

Vaccination Across Europe

The course of the vaccination process in the EU, which began in late December, is not living up to the expectations. Although BioNTech/Pfizer and Moderna vaccines were granted approval and distributed among the EU countries, the targeted number of vaccines was not achieved due to a lack of personnel and logistical problems. Italy, one of the countries which suffered the most fatalities. Although Italy has applied vaccines more than any other EU country, domestic political figures criticize the slowness of the immunization process. Germany launched its immunization campaign on December 26 and 1.05 million people have been vaccinated as of January 15. In the UK, 3.8 million people have been vaccinated as of January 17.

Covid-19 Vaccine Developments Across the Globe

More than 60 vaccines are still going through a three-stage clinical trial process that’s required before they are sent to regulatory agencies for approval. The WHO has approved the Pfizer-BioNTech vaccine for emergency use and is reportedly in late stages of reviewing the candidates from Moderna, AstraZeneca-Oxford, Sinopharm, and Sinovac.

On January 15, Pfizer announced that it will temporarily scale back the number of vaccine doses being delivered to the EU. The company says the disruption is the result of modifications being made to increase production capacity, according to CNBC. The disruption is expected to impact dose delivery through early February. On January 25, Moderna announced that its vaccine is effective in protecting against the SARS-CoV-2 variants that were first identified in the UK and South Africa. 

On January 7, Brazilian officials announced that an in-country trial of the vaccine pointed to an efficacy of 78%. However, results from the trial released on January 13 found that CoronaVac had an efficacy of 50.4%. The difference comes down to the earlier estimate’s exclusion of trial participants who got very mild infections but did not require clinical assistance.

TURKEY: POLITICAL UPDATES

The Exploratory Talks between Turkey and Greece

The first round of exploratory talks between Turkey and Greece in nearly five years concluded on January 25.Even the content of exploratory talks is kept confidential, it was claimed that issues related to territorial waters, continental shelf, disarmament of the islands, and national airspace were requested to discuss. On Twitter, Turkey's presidential spokesman Ibrahim Kalin underlined the importance of regional peace and stability. The dialogue is also expected to positively contribute to Turkey's relations with the EU. In other respects, according to Reuters, an anonymous diplomat from the EU stated that Turkey should do a remarkable gesture for the improvement of relations between the EU and Turkey. The US officials have welcomed the resumption of exploratory talks between Greece and Turkey by stating that they support all efforts to reduce tensions in the Eastern Mediterranean.

President Biden Takes Office

A new chapter has begun for US-Turkey relations following President Joe Biden’s inauguration on January 20. James Jeffrey, former US Syria envoy, believes the improvement of bilateral relations to be unlikely under the Biden administration. President Erdogan has failed to “seize the opportunities” and take compromising steps on a number of issues over which the former US President Trump offered Turkey concessions, said Jeffrey. In his first official statement, the US Secretary of State nominee Anthony Blinken said it was unacceptable for a “so-called strategic partner of ours” to buy the S-400 and “be in line with one of our biggest strategic competitors, in Russia.”. During a Senate Foreign Relations Committee hearing, Blinken added that Washington has to determine whether more pressure is needed following an impact assessment of the current sanctions. The S-400 will remain unresolvable in the near future, said Soner Cagaptay, director of the Turkish Research Program at the Washington Institute. Turkey can’t abandon the S-400 deal right now, said Cagaptay as Ankara’s interests in Libya, Syria and South Caucasus is closely impacted by Russia.

Turkey will drive a hard bargain with President Biden involving concessions on crucial topics such as S-400s and Syria, said a senior advisor to President Erdogan to Washington Post. The advisor stated that Turkey could be valuable for the US to achieve its interests in the Syrian conflict as Turkey is the “only country pushing back against Russian expansionism”. 

TURKEY: ECONOMIC UPDATES

Latest Developments 

According to the data announced by Turkey Statistical Institute (TUIK), the Consumer Price Index (TUFE) has increased 1.25% in December and was recorded as 14.60% change on an annual basis. In addition, TUIK explained the unemployment rate for the October 2020 period as 12.7% with a 0.7 point decrease compared to the same period of the previous year. DISK-AR also announced the broad unemployment rate as 27%.

In the report of the Inflation Research Group, ENAGroup, the inflation rate in December was announced as 4.08% and the annual inflation rate as 36.72%. Treasury and Finance Minister Lutfi Elvan said, "With a holistic approach in the fight against inflation, 2021 will be a year of reform focusing on macroeconomic stability."

Central Bank of the Republic of Turkey (TCMB), the first Monetary Policy Committee (PPK) meeting of 2021 held on January 21. Keeping the policy rate constant at 17% in line with the market's expectations, the TCMB stated in the decision text that it was decided to maintain the tight stance for a long time and additional tightening could be made if necessary. Some economists stated that the TCMB opened space for the decision to raise interest rates, so it continues the process of restoring its credibility by relieving concerns about entering an early and hasty loosening cycle.

President Recep Tayyip Erdogan said "I am absolutely against high interest rates" during his speech on January 22. Stating that low interest will increase employment, production and exports by supporting investments with the statement “Interest is the cause, inflation is the result” for a long time, Erdogan emphasized in his speech that the interest rates should decrease by referring to regions such as the US and Europe.

Economic Predictions for Turkey

The World Bank has downgraded Turkish 2021 GDP growth forecast to 4.5% from 5%. The US-based investment bank Goldman Sachs reduced its 3-month dollar/lira rate expectation from 7.50 to 7, and the year-end expectation from 8 to 7.50 lira.

The International Monetary Fund (IMF) was more optimistic -raising its 5% growth forecast to 6%. IMF emphasized that the measures taken at the beginning of the pandemic accelerated loan growth, so inflation remained above targets and the recent policy transformation away from rapid money and loan growth contributed to the recovery of the country. Some economists expect that the upward trend in this expectation will support the continued interest in Turkish lira assets and have a positive impact on the economy.

GLOBAL: DAVOS REMARKS

World Economic Forum’s (WEF) Davos agenda was held virtually between 25-29 January. The summit’s main focus was the pandemic recovery and shaping the post-pandemic world via stakeholder capitalism. Key themes were climate change, fairer economies, technology for good, society and future of work, better business, healthy futures and beyond politics. The main trends that will shape the world economy in 2021 will be inequality and digitalization, according to WEF Chief Economists Outlook 2021. The acceleration of inequality, the increase in the market dominance of tech platforms, and the remote working are predicted to be long-term effects of the COVID-19 crisis.

The UN Secretary-General Antonio Guterres emphasized the private sector’s role in both the pandemic and climate crisis recovery. Secretary-General stated that the key goal this year is to build a global coalition to achieve carbon neutrality by 2050 and called businesses to put pressure on governments to build a sustainable for all as “every action, big or small counts”. 

Stakeholder capitalism gained traction as companies commit to new ESG metrics. 61 companies, including Unilever, agreed to adopt a new reporting framework for environmental, social, and governance standards (ESGs) in partnership with WEF. This move signals that private sector leaders view environmental, social and governance factors as as critical to the success and long-term viability of all businesses and a unified voice is gathering pace on a global solution for non-financial reporting. “Common metrics will help all stakeholders measure the progress we are making and ensure that the resources capitalism can marshal – from companies, from investors, and others – are directed to where they can make the most difference.” said Brian Moynihan, Chairman of the International Business Council.

The pandemic and accelerated technological developments risk creating a “double disruption in labour markets, warned Angel Gurria, Secretary-General of OECD and Klaus Schwab, Founder and Executive Chairman of WEF. The employment risk is becoming long-lasting and the overall projections for job creation in the next five years are still higher than those for job losses. On the other side, new are expected to emerge due to shifting demand patterns and the use of new technologies in sectors such as the green economy, care economy and the education sector. Gurria and Schwab stressed that the governments must act now to shape a new labour market that supports workers to thrive in the jobs of tomorrow. Reskilling and upskilling are considered to be an urgent task for stakeholder capitalism as it is predicted that 50% of the currently employed workers will need reskilling by 2025 to meet the needs of a changing labour market. 

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