Can Turkish Investment in Africa be sustained? Turkish engagement with Africa has increased considerably in recent years, but the country's financial crisis could affect its ability to invest in the continent.

Author:Berti, Giorgio
Position:COUNTRYFILE: Turkey
 
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Over the last decade, Turkey has become one of the largest investors in Africa, with investment coming from both the state and the private sector. Security, economics and politics have been the driving factors.

Yet as the Turkish economy lurches into a financial crisis, questions are being raised about whether existing levels of investment can be sustained on the continent. Turkey's economy has shown classic signs of overheating: a construction boom, a large trade deficit and mounting foreign owned debt.

This has been further exacerbated by President Recep Tayyip Erdogan's unorthodox relationship with the central bank and his reluctance to increase interest rates. The detention of American pastor Andrew Brunson--released in October--saw the Trump administration launch an economic war against Turkey, including a doubling of tariffs on aluminium and steel. As a result, external debt boomed as the Turkish lira collapsed.

Recent years have seen a blossoming relationship between Turkey and the continent. Turkish African investment has increased from $100m to over $6bn since Erdogan's ascension to power in 2003, while trade has grown to $20.6bn. Turkish Airlines, in which the state maintains a 49% stake, now flies to 52 African destinations in 33 countries. The Turkish government has 41 embassies on the continent, compared to China's 47.

The relationship extends into infrastructure, with Turkish firms undertaking numerous projects across the continent. Yapi Merzkei, a construction company, pipped the state-owned Chinese Railway group to a $1.7bn contract for the 400km Awash-Weldiya railway in northern Ethiopia.

Professor Sedat Aybar, head of economics at Istanbul's Aydin University, says that the devaluation of the Turkish currency may begin to impact projects carried out by the Turkish private sector. An underlying problem with Turkey's economy is that many large infrastructure projects were purchased on foreign credit. As most of this debt is held in foreign currency, there is an increased risk of default. In June, Reuters reported that global banks held $200bn in Turkish debt, a potential risk to private investment in Africa as credit becomes harder to obtain and debt servicing becomes more expensive.

Alongside inflation, the poor economic situation has dampened the overall investment climate. If a general crisis were to engulf Turkish loan repayments, the government has stated that it would support the banks who, earlier this month, agreed to...

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