EM Thematic November 08, 2021 / 11:31 am UTC

Does Growing Income Inequality Threaten Turkey's Populist President Recep Tayyip Erdogan

By Francesca Beausang

For outsiders, an economy with 20% inflation should not make for good election material. Yet Erdogan's contentious policy of lowering interest rates and a record low Turkish lira is allowing property investors and manufacturers to enrich themselves. Will their voices drown those of the masses who fall deeper into poverty?

Poverty reached its highest level in a decade last year, with the 2019 currency crisis and COVID pushing 1.5mn people below the World Bank’s threshold of USD 5.5 per person per day, while wages failed to keep up with prices. Hence Erdogan’s repetition of his favorite strategy for election success, i.e. that of skyrocketing real GDP growth rates based on credit, does not guarantee success this time as it no longer trickles down to the masses. When 27% of voters claim they cannot fulfil their food and basic needs, it kills off a significant segment of votes despite cronies in the property and tourism sectors benefiting from Erdogan’s policies. Indeed, those who can are buying property as a hedge, resulting in home prices rising 13.2% q/q in Q3, the fastest growth in Europe according to KPMG. Exporters are thriving. This social imbalance is turning many voters against the AKP, although they still do not know who to vote for. Company bosses are reportedly seeking out the center right IYI party, which could form a government with the mainstream opposition CHP, to hedge their political bets as the tide seems to be turning against Erdogan. In this macroeconomic and social context, we think that if the opposition can question the ability of the AKP elite to govern without falling into ideology and identity politics, it stands a chance of dislodging the AKP, especially as Erdogan’s succession is unclear, given Erdogan’s son-in-law Berat Albayrak and interior minister Suleyman Soylu have been discredited. 

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Analyst Declaration
I, Francesca Beausang, the lead analyst declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.