Turkish Unrest No Deterrent To U.S. Companies -- Yet

Political unrest in Turkey isn’t deterring U.S. companies like Sukup Manufacturing, a family-owned Sheffield, Iowa, maker of grain storage and moving products, from seeking to enter that rapidly expanding market.

Yet.

“They grow grain there and they need grain storage and grain drying products. That’s why we're there. We certainly hope the politics don’t get in the way. It has not, as yet,” said John Bowes, Sukup’s international sales director.

In the midst of the political turmoil that has pit thousands of protestors against the government of Prime Minister Recep Tayyip Erdogan, several Sukup employees, including President Charles Sukup, are traveling in Turkey as part of a U.S. Department of Agriculture trade mission to promote U.S. agricultural exports.

Bowes said Charles Sukup told him in an e-mail that the protests and upheaval have so far not interfered with the trade mission. “He had some good meetings last night and found some prospects. For us it’s been good so far,” said Bowes.

Nevertheless, Bowes undoubtedly echoed the cautious tone of other U.S. businesses seeking opportunities in Turkey’s once-flourishing economy when he said, “It’s a wait and see attitude.”

The escalating turbulence now entering its second week threatens to upend a decade of economic prosperity and political stability in a region of the world not known for either. Analysts say it’s precisely that prosperity, which has fostered a growing middle class of consumers, and sense of stability that has attracted foreign investment.

Prolonged political turmoil poses threats both to purely financial investors who might be considering investing in bonds issued by the Turkish government, as well as companies like Sukup that wish to expand their operations into Turkey.

Under Erdogan, Turkey has initiated a number of big infrastructure programs and issued bonds to pay for them. International investors have flocked to the bonds because they currently provide better returns than U.S. Treasuries, for example, due to the historically low interest rates in the U.S. But those investments could dry up if investors fear the unrest could somehow prevent those bond debts from being paid off on schedule.

Furthermore, political unrest often leads to regime change and regime change can lead to dramatically different policies -- tax rates, for instance -- toward foreign businesses seeking to do business in a given country. So the business friendly environment fostered for the last decade under Erdogan could shift to less-friendly policies under a new government.

“The risk now is that a renewed period of political uncertainty dents confidence and causes investment flows to reverse,” Neal Shearing, chief emerging markets economist at Capital Economics, said in an interview with the Associated Press.

The U.S. has taken full advantage of Turkish economic opportunity. For instance, the U.S. Department of Agriculture reports that U.S. agricultural exports to Turkey, with a population of 75 million, have tripled in the last decade. In 2012, two-way agricultural trade between the two countries topped $2.4 billion.

Now that progress is being jeopardized by a growing sentiment among secular Turk’s that Erdogan’s policies are too conservative and his style of ruling too authoritarian.

“The shine on Turkey has been taken off in the last two weeks of protest. It’s not the stable environment it was a year ago,” said Sean Harrison, IHS Global Insight’s Turkey analyst.

Harrison acknowledged the obvious – that the protests and rising sense of instability is already damaging investor sentiment towards Turkey and will continue to do so if the turmoil persists.

Ironically, it’s been Erdogan’s economic policies over the past decade that have helped foster the growth that foreign investors have sought to tap into. Those policies have created a young, consumer-driven market, a fairly stable banking system, low unit labor costs and a number of competitive industry sectors, not least a thriving clothing manufacturing sector.

Add to those factors Turkey’s advantageous geographic location straddling both Europe and the Middle East, and it’s hardly surprising investors have flocked to the country in recent years.

Now Erdogan may be squandering those gains which had seen Turkey’s economy grow at about 5% annually for nearly a decade until the past year or so, when Europe’s financial crisis cut into exports.

Harrison said Erdogan has grown “over confident” as a result of his political successes and now threatens to squander the economic successes his policies have generated. “It doesn’t make sense for him to push the envelope too much and test investor sentiment,” the analyst said.

That hasn’t happened so far. But another week or two of fiery protests in Istanbul, the capital of Ankara and other urban centers across Turkey met by violent responses from government forces and the economic tide could turn more dramatically.