Thank you very much for the invitation to speak to you today. I want to thank DEIK as a whole and Nail Olpak and Ebru in particular for everything they have done to deepen the already very close relationship between the EBRD and Turkey.
Some of you may be aware that my time as President of the EBRD is coming to an end.
I step down at the beginning of next month after eight very exciting years at the helm of what I believe, most strongly, is an institution of genuinely global value.
This, then, is one of my last public engagements as EBRD President.
How fitting that it should be devoted to Turkey and organised by a body which represents the country’s private sector at its very finest!
It gives me the chance to express my absolute faith in Turkey’s prospects as an economic powerhouse in its own region – and beyond.
And to emphasise once again the role the EBRD has played – and will continue to play – in the country’s historic journey.
I am immensely proud of the way the EBRD has been at Turkey’s side throughout all the recent volatility your country has experienced.
- Dark Times
That faith in Turkey and its future endures despite the dark times we are all living through.
It endures because I have huge confidence in the talents and energy of men and women such as yourselves.
And that confidence stems from everything we at the EBRD have learnt from our decade investing in your country.
But there is no denying the gravity of the situation we find ourselves in.
Indeed, there has been no comparable world crisis in my lifetime.
There is no disputing the shock inflicted on our economies and the population as a whole.
Value destruction is still a major threat as many economic activities are suspended and businesses fight potential insolvency.
At the same time, the sudden and significant growth of the state calls into question some of the principles that the EBRD was founded to champion, notably the paramount role of markets in sustainable economies.
The crisis also risks derailing many of the hard won achievements our countries of operation have secured – with our help – in recent years.
It sometimes feels as though this pandemic changes everything: the world of work, capitalism, globalisation, supply chains, trade, international travel and the modern city to name but a few of the areas of our world it is upending.
I am sure that many of your lives have been deeply touched by it too.
The pandemic hit Turkey at a difficult time, as you know. The economy was recovering from the 2018 volatility of the lira but remained fragile.
Tourism has been hit hard by border closures and disruption to travel.
Several Turkish industries, not least auto manufacturing, have suffered supply chain interruptions,
On the demand side, lockdowns depress domestic consumption, the driver of Turkish growth in recent years.
External demand will also fall, particularly if contraction in the EU is prolonged.
In the face of loss of revenues, corporates, particularly SMEs, may struggle to service their loans, increasing pressure on the financial system.
- The EBRD’s Rapid Response
The EBRD of course prides itself on the speed of its response to crises. And the coronavirus pandemic has proved once again how fast we can react to major upheavals.
By mid-March we were the first multilateral development bank to launch an emergency crisis response: our COVID-19 Solidarity Package, focussing on providing urgent liquidity to existing clients.
A few weeks later our shareholders had approved a comprehensive series of additional response and recovery measures to build on the initial package.
We will be committing practically all our activity this year and next to countering the impact of the pandemic and supporting economic recovery.
In financial terms that will amount to some €21 billion.
All international financial institutions are, of course, responding to the COVID-19 challenge. We coordinate very closely.
But every institution has its own strengths, and the EBRD is building upon its decades-long experience of swift and efficient crisis response.
Take Turkey. We started investing there in the immediate aftermath of the global financial crisis of 2008;
We have been with you in good times and in the more challenging times of the past several years, supporting the economy after the coup attempt and now responding immediately and strongly to the needs of the Turkish corporate sector and the banking system.
What all that means for Turkey is that we are already processing Covid-19 response projects worth some €1 billion.
We are doing so mainly through banks, but also through a liquidity and working capital facility for clients from the Infrastructure, Industry, Commerce, Agribusiness and Energy sectors.
Since the start of the pandemic we have channelled €440 million to key Turkish banks – Denizbank, Garanti BBVA, QNB Finanasbank, Yapi Kredi, Akbank – to boost lending to the private sector.
And we have provided €111 million in financing to Enerjisa to ensure the continuity of power distribution operations and investments during the pandemic.
Crucially, too, we are thinking ahead, beyond the urgent requirements of the here and now and towards the long-term challenges the Turkish economy faces.
They include such gender and economic inclusion, green transition and support for refugees.
So we are funding green upgrades at Turk Telecom with financing worth €89 million
We are investing € 44 million in financing energy efficiency in Turkey’s schools.
And we have supported Anadolu Etap, Turkey’s largest fruit producer, with a loan which will benefit farmers and rural communities, including women and Syrian refugees.
And on top of the financial support we will, more than ever before, be providing the advice on policy reforms that assist governments and benefit you in the private sector.
One such area which is particularly important for Turkey is skills. We are working both with the government and our private sector partners on various skills and training programmes for youth and women across the country.
- What Hasn’t Changed
I mentioned earlier that it sometimes feels as though the coronavirus pandemic has changed everything.
Let me now stress what hasn’t changed.
What hasn’t changed is that the EBRD is still dedicated to building sustainable, open market economies and promoting private enterprise across three continents.
I might add that the EBRD’s capital position is extremely strong, stronger even than before the global financial crisis of 12 years ago.
We are triple A rated and our profits last year were a near record €1.4 billion.
That puts us in a better position than ever to work with our clients and partners, people such as yourselves.
It is always exciting to have Turkish businesses as partners.
Like those who came before you, you have always had a keen understanding of the opportunities to be had across the region and along the trading routes that cross it.
And remember, the EBRD is no fair weather friend.
We have been at your side throughout the turbulence of recent years, the volatility in the currency markets, for example.
We hope that this crisis can help to heal Turkey’s divisions and highlight the need for the rule of law and predictability that foreign investors – and you yourselves – want.
Turkey was, of course, one of the EBRD’s founding shareholders, back in 1991, when the country was first flexing its muscles as an economic power.
But the EBRD’s decision to start investing in Turkey was a historic one.
Historic because Turkey was the first country we began working in which had never belonged to the communist bloc.
Such a departure from previous practice was, at the time, not without its critics.
How mistaken those critics were.
In only four years we went from zero to €1 billion of investment annually, with even larger volumes later.
More than a decade after we began investing in its economy, the notion of an EBRD without Turkey as a key country of operations seems unthinkable.
The total volume of our investments in Turkey now stands at €12.6 billion in just under 320 projects.
It is by far the largest economy we currently work in.
Our portfolio here is much bigger than anywhere else where we invest.
For four years in a row Turkey was our largest country of operations and it is still the one where we achieve the highest transition impact.
So, what hasn’t changed only strengthens my faith that the relationship between the EBRD and Turkey will grow ever closer.
And that the way forward for my Bank and your country is one of enhanced cooperation and more and more impact.
- Turkey as an Example to the Rest of the World
Turkey is a leader in many other ways, of course.
The international community is still in awe of the way Turkey has opened its doors to one of the world’s largest refugee communities.
And its power to inspire and lead by example within the EBRD regions cannot be exaggerated.
Turkey is pivotal in linking East and West – not only because of its location, but because of its own knowledge and successful experience of transition.
We are proud of what we have done to help Turkey further integrate into regional trade networks and share its financial and commercial expertise more widely.
And Turkey has proved that the EBRD’s business model and its focus on the private sector can deliver change in many different kinds of countries.
Turkey is not afraid to expand to more difficult markets, in Central Asia or Sub-Saharan Africa, which need new investment and know-how.
We at the EBRD share this philosophy.
We highly appreciate the leadership of the Turkish authorities in supporting that vision of our future and its relevance to the world’s development goals. Our experience in Turkey has been a major factor in our success in the Southern and Eastern Mediterranean.
In 2012 we began operations in Egypt, Morocco, Tunisia and Jordan. The Lebanon followed later. We are also investing in the West Bank and Gaza.
And now another large country from the region – Algeria – will soon become an EBRD shareholder, and will, I have no doubt, become a country of operations before too long.
This will be decision for EBRD Governors, including our Turkish Governor.
Turkey is also active in the EBRD’s Board of Directors. I want to thank our former Turkish Board Director, Taskin Temiz, who is leaving the EBRD Board after three very fruitful years representing not only Turkey, but also Romania, Moldova, the Kyrgyz Republic and Azerbaijan.
Taskin’s successor, Cagatay Imirgi is about to join the EBRD Board from the Ministry of Finance and Treasury.
I am sure Cagatay will continue the great cooperation with my colleagues in senior management and my successor, and, like Taskin and his predecessors, Memduh Akcay and Evren Dilekli, will be an authoritative voice at the Board from our Countries of Operations.
- More Turkish Leadership
So successful has our experience of working in Turkey been over the decade of investment here that we have used it as a sand box – a laboratory – in which to experiment with and launch new products.
An excellent example of that is the EBRD’s ground breaking Women in Business programme, now rolled out in 18 countries but, in actual fact, ‘Made in Turkey’.
It provides access to finance through credit lines to local banks dedicated to women-led small and medium-size businesses, and business advice, training and support for women entrepreneurs and women-led businesses.
In Turkey, the land of its birth, it has reached 20,000 businesswomen and has been a huge success elsewhere too.
Another EBRD ‘Made in Turkey’ innovation was the credit enhancement scheme we put together to finance the state-of-the-art hospital in Elazig via the country’s first ever green field infrastructure bond.
Elazig is one of the three operational hospitals that we have financed in Turkey and we like to think that we have therefore played a role in the healthcare sector’s excellent performance during the pandemic.
And one very recent example of an EBRD innovation which is being trialled in Turkey and was announced last week is our partnership with the JP Morgan Chase Foundation to support small businesses, especially those led by women.
This is the result of our first ever grant from a private philanthropic organisation and a very exciting development for us, as well as Turkish SMEs.
- Opportunities and the Way Forward
So, ladies and gentlemen, what is now the way forward for EBRD in Turkey?
Our country strategy, approved long before the pandemic, envisages four main priorities for our work in Turkey:
- strengthening the resilience of the financial sector and developing domestic capital and financial markets;
- fostering Turkey’s knowledge economy and higher value-added activities, as well as promoting good governance;
- promoting economic inclusion and gender equality through private sector engagement; and
- accelerating Turkey’s green economy transition and regional energy connectivity.
Here again nothing has changed, except perhaps the overriding imperative to use the situation we find ourselves in to ‘tilt to green’ even more boldly.
Not to lose momentum in our efforts to reduce carbon emissions and manage the long-term climate emergency.
We will be pushing for a “just transition” as well, with funds, policies and skills invested in diversification and creating new, sustainable jobs in the low carbon economy.
At the same time, I do want to highlight one new opportunity which arises from our current predicament and one which, I know, will be of particular interest to you.
It is clear that one of the most important consequences of the pandemic and the disruption it has inflicted on global supply chains is much greater scrutiny of supply chains.
In the new world we are now entering companies will be putting considerable emphasis on resilience and diversification.
They will have to - to survive, to recover, to once again flourish!
It is no secret that in many sectors, a single economy, often China, is currently the dominant global supplier.
The EBRD regions as a whole have therefore the potential to significantly scale up their exports.
Indeed, Turkey is one of the countries which stands to gain most from this new dynamic.
Using a concept known as ‘revealed comparative advantage’ we have looked at all the countries where we work to measure the extent to which they could benefit from a shift of supply chains away from China.
For the economists among you, revealed comparative advantage, or RCA, is defined as the ratio of a product’s share in a country’s total exports and the share of that product in global trade.
Our study found that of all our countries of operation, Turkey has a RCA in the largest number of product groups, no less than 189.
Apparel and textiles stand out as one sector in which Turkey could benefit from diversification away from China.
Turkey’s clothing sector exports stood at almost €16 billion last year compared to China’s €151 billion.
There is clearly scope here for trade diversion, particularly as Turkey has a significant delivery deadline advantage over the Far East.
And I would also take this opportunity to argue for changes to the Turkey-EU Customs Union to ensure that it works better for both parties – and allows Turkey to make the most of this trend.
In a world of increased regionalisation of economic activity, shortening supply chains and geopolitical uncertainty, the development of closer relationships between Turkey and the EU would benefit both parties.
I am sure most of you would agree!
Ladies and gentlemen, I hope you now understand why I have such absolute faith in Turkey’s future as an economic powerhouse both in its own region – and beyond.
Yes, we expect Turkish GDP to contract quite sharply this year.
But we also forecast a robust recovery of 6.0 per cent growth in 2021.
The way forward for the EBRD and Turkey is one marked by closer and closer cooperation, in particular with the private sector, with partners such as yourselves. It is one marked by more and more impact.
As I suggested earlier, it really does feel sometimes as though the pandemic has changed everything.
Here I am, speaking to you from my home in Oxford, in the UK. This has now been my office for three months.
In another example of the way everything has changed, I see that even The Economist, not known for its fondness for modern Turkey’s policies, recently conceded that your country has ‘handled the pandemic better than most’.
More seriously, I leave the EBRD safe in the knowledge that the relationship between the Bank and Turkey, with both the authorities and the private sector, is stronger than ever before.
I look forward to watching – from the sidelines – that relationship mature and blossom in the years ahead.
Thank you very much.