Promise of prosperity disappointed
Erdogan’s construction boom and the bitter consequences
05/11/2023, 2:11 p.m
When Recep Tayyip Erdogan first took office 20 years ago, he led Turkey into a broad, long-lasting upswing. The basis for this was a breathtaking construction boom. Its indirect consequences now endanger Erdogan’s re-election.
On August 17, 1999, an earthquake in north-west Turkey killed more than 17,000 people. The disaster also contributed to the rise of the AKP of current Turkish President Recep Tayyip Erdogan. On February 6, 2023, the earth shook again, killing more than 50,000 people in south-eastern Turkey. The political consequences could again be significant.
“They came to power with an earthquake – and an earthquake could take it away from them again,” says sociologist Melih Yesilbag from Ankara University about Erdogan and the AKP. “Upgrading infrastructure has been one of their key promises from the start. And now, 20 years later, something like that is happening.”
The 1999 earthquake ruthlessly exposed the country’s structural and economic problems. The AKP promised a fresh start and finally won the elections in 2002. Erdogan became head of government for the first time in 2003. Under him, a construction boom and a growth-oriented economic model began, which benefited millions of people for more than a decade and which fundamentally changed Turkey. A group of construction companies that formed under Erdogan’s government and has always supported him built more than ten million apartments within 20 years. “That’s an unbelievable number,” says Yesilbag. “That’s more than half of what was built in the entire EU in the same period.”
Some of these houses collapsed in the February earthquake. The catastrophe made a systematic, blatant disregard for building standards in many places visible to all. At first, however, things went well for Turkey under Erdogan. The construction boom picked up speed after the financial crisis of 2007/08 and the subsequent easing of interest rate policies in Europe and the USA. Skyscrapers were built with the cheap money, highways and airports were built. Thousands of jobs for low-skilled workers have been created in the construction sector.
Wealth almost tripled
“It really worked for Turkey,” says Atilla Yesilada of consulting firm Globalsource Partners. “Prosperity emerged and a new class of wealthy AKP supporters moved to the cities and rose to the middle and upper classes.” Turkey’s economic output literally exploded. Per capita gross domestic product increased from $3,640 in 2002 to $12,507 in 2013. Construction and related industries accounted for almost a third of that.
But then the tide turned. From 2013, foreign investors began to withdraw from Turkish investments. As a result, the currency, credit and debt markets of the emerging country, which was once considered a star among Western fund managers, are now heavily state-managed. Diplomatic tensions with the USA and rising interest rates led to a massive depreciation of the Turkish lira from 2018. This made the repayment of loans denominated in dollars much more expensive.
“Construction costs rose sharply,” says sociologist Yesilbag. A dilemma arose that has not been resolved to this day: The construction companies continued to stand by Erdogan, whose government gave them orders that were no longer economically viable. In addition, Erdogan’s adherence to his growth policy fueled inflation, which had already increased sharply with the collapse of the lira. Under pressure from the President, the Turkish central bank lowered its key interest rates to the astonishment of financial experts worldwide. Although this boosted production, it also contributed to the further depreciation of the lira.
Observers largely agree that Erdogan’s original election promise of prosperity for the general public has been broken. Inflation has eaten up savings. Turkey is financially heavily dependent on the rich Gulf States, with whose help Erdogan supports the lira.
Then there was the earthquake. “The damage was enormous and has shaken the image of prosperity and development that Erdogan and his party wanted to convey,” says Osman Balaban, professor of urban planning at the Middle East Technical University. “But I’m not sure yet if that’s enough to bring him down.”
The decision is expected to be made on Sunday when Turkey’s new parliament and president are elected. Turkey’s electorate is highly polarized and opposition leader Kemal Kilicdaroglu is likely to have a hard time with some groups with deeply rooted views.