Erdogan’s Edge Leads To Investor Disappointment

He’s not going anywhere. That was the message from Turkey’s longstanding leader, president Recep Tayyip Erdogan, whose support fell just short of the amount needed to win outright in the first round of presidential elections May 14, now heading for a second round May 28. According to Turkey’s High Election Board, Erdogan won 49.5% of votes and Kilicdaroglu secured just under 45% support (Sinan Ogan, with 5.2%, was eliminated). With these numbers, plus the advantage of his incumbency, Erdogan has the edge. Financial markets sold off at the result, underscoring how, in this case, the prospect of political continuity is not leading to investor confidence; quite the opposite.

The result highlights that even after 20 years in office, a catastrophic earthquake with a death toll exceeding 50,000 (after which his party was hit with political fallout) and inflation that saw prices spike as much as 85% at one point, Erdogan remains a potent political force. Opposition critics lament his centralization of power and “illiberal” tendencies (in political science terminology), illustrated during a campaign that featured considerable marshalling of the power of the state—from monopolizing TV air time, to populist giveaways such as free gas, to strident critiques of the Kurdish ethnic minority and LGBTQ rights.

Although mobilizing the power of his office may well have contributed to the disadvantage of his 74-year old opponent, longstanding opposition leader (and member of the non-Sunni Alevi religious minority), Kemal Kilicdaroglu—who memorably filmed a campaign video from his kitchen table while holding an onion to illustrate both Turkey’s skyrocketing food costs and contrast Erdogan’s palatial residence with his own modest home—election observers appear to regard the conduct of the first round of elections as largely free and fair, albeit with irregularities.

So why are markets and leaders in many global capitals so nervous? After all, business usually fears left-wing populists, not right-wing leaders like Erdogan. The answer lies partly in Erdogan’s unorthodox economic policies, cutting interest rates despite skyrocketing inflation, partly his personalisation of power, with family members occupying key posts (his son-in-law previously served as finance minister) and partly his very longevity in office; after 20 years at the helm, prospects for reform are low.

As the world’s 19th-largest economy, with a huge, young consumer market of 85 million inhabitants, a NATO member state and still-official EU candidate country, the continuation of Erdogan’s rule for another 6 years—possibly with a parliamentary majority given the direction of polls—means Turkey’s geo-strategic and economic potential will continue to underperform, remaining captive to the whims of a leader pre-occupied with controlling the levers of power and maximizing advantage: witness the fact that Erdogan has counter-intuitively managed to position himself both as an ally of Russia, and Turkey has sold Ukraine Bayraktar TB2 armed drones, used openly in its defense against Russia’s invasion (a “private decision”, not a government one, according to Ankara).

Of course the election isn’t over yet, and CHP candidate Kiricdaroglu’s 5-point gap isn’t insurmountable. The period between now and May 28 will likely prompt more lira volatility and potentially a revival of street protests: since the Gezi Park protests in 2012 and subsequent clashes, tensions between Turkey’s opposition and Erdogan’s AKP have been high, especially in large cities like Istanbul and Izmir. The resulting discord has been an additional factor (alongside the erratic economic policy and challenges to central bank independence) that has largely kept foreign investors out of Turkey since.

Erdogan, for his part, has notably said he will respect the final outcome, in contrast to Jair Bolsonaro in Brazil, who vowed to challenge a loss at the polls and sent his supporters to the Presidential palace to do so on his behalf.

In a global political era marked by democratic backsliding and challenges to the rule of law, the conduct of the Turkish elections highlights how the standard for democracy continues to fall. The next round will be watched closely from Washington to the Kremlin to Beijing and Brussels as a clue for the future direction of not only Turkey, but a world gripped by rising great power tensions, energy and food insecurity and conflict in Europe, leading to what I called earlier this year the New Geopolitical Supercycle. Turkey, as ever, is at the heart of these interlinked themes. The final result May 28^th will be another crucial data point in the direction this constellation of risks takes.