GROWTH HELPING ANATOLIAN BACKWATERS, BUT WORRIES ABOUT

UNCLAS SECTION 01 OF 02 ANKARA 001093 SIPDIS TREASURY FOR INTERNATIONAL AFFAIRS - JROSE SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON PGOV TU SUBJECT: GROWTH HELPING ANATOLIAN BACKWATERS, BUT WORRIES ABOUT MILITARY IN POLITICS 1.(SBU) Summary: Economic growth seemed to be having an impact in the North-Central Anatolian towns of Kastamonu and Cankiri, towns have traditionally been backwaters. The Chamber of Commerce Presidents in both towns implied displeasure with the military's meddling in politics even though they did not seem to be AKP supporters. End Summary. -------------- Kastamonu and Cankiri No Longer Exporting People -------------- ¶2. (SBU) On May 2 and 3, we visited the provincial capitals of Kastamonu and Cankiri, both north of Ankara in areas that have traditionally been economic backwaters. The government officials and businessmen we met told us that both provinces had long been sources of out-migration, mostly to Istanbul. Kastamonu province, in particular, was said to be the source of roughly a million residents of greater Istanbul. ¶3. (SBU) Our contacts uniformly told us that out-migration had stopped in recent years and that they saw increased local economic opportunity as an important factor. Both provinces are middle-income provinces by Turkish standards, largely dependent on smallholder agriculture, animal husbandry or forestry. In both provinces, government officials and chamber of commerce presidents described new factories, growing services sectors, increased raw material exports and other signs of an economic upturn. ¶4. (SBU) The Kastamonu chamber president said marble exports had increased 100% and there were prospects of new gold and copper exports. Garlic production continues to be profitable and Turkey's housing boom has helped the local wood products industry. A factory manufacturing doors had opened, and a new shipyard on the Black Sea was under construction. In Cankiri, there were new thermal power plants and salt factories tapping into the province's huge salt reserves. Both provinces had seen additional university and medical facilities open their doors. -------------- - Controversial Investment Incentives Spread the Wealth -------------- -- ¶5. (SBU) Interlocutors in both provinces cited the introduction of investment incentives in Turkey's lower-income provinces as having spurred local investment. These incentives, adopted in 2004 against the IMF's wishes were designed to provide job-creation incentives in the 49 lowest-income provinces. For firms creating new jobs, the incentives provide exemptions on employer payroll taxes as well as subsidized electricity and free land. The Cankiri chamber president complained about a (IMF-supporeted) revision to the law that made it harder for businesses to qualify. ¶6. (SBU) In the case of Cankiri province, the new investments seem attributable to the province being one of the most westerly and most accessible to Istanbul of the provinces covered under the investment incentive scheme. The province includes a piece of the major highway that crosses northern Turkey from Istanbul. By establishing plants in the town of Cerkes, near this highway, companies can benefit from the investment incentives yet have easy access to Istanbul. The Governor and Chamber of Commerce President told us one of the largest ceramic factories in Europe had recently been established in Cerkes, as had a Reebok factory. -------------- Unemployment "Yok" -------------- ¶7. (SBU) Not only did our interlocutors debunk the urban myth that provincial Anatolia is not benefiting from Turkey's growth, they also downplayed the unemployment problem in their provinces. Even the relatively negative Cankiri chamber president said it seemed there was not much of an unemployment problem and agreed with his Kastamonu counterpart and his own Governor that local businesses were having difficulty finding qualified employees. -------------- Angst About Economic Transformation -------------- ¶8. (SBU) Despite the generally positive economic news, several contacts voiced concerns about how local people were being effected by Turkey's economic transformation and its increased integration with the global economy. At the same time new factories were opening in Cerkes, for example, a factory that produces clothing for the UK-based Marks and Spencer retail chain was closing because of ANKARA 00001093 002 OF 002 Chinese competition. The Cankiri Chamber of Commerce President asserted it was not in the U.S. interest to allow Turkey's textile sector to be ruined by Chinese competition. The Kastamonu chamber president grumbled that the booming marble exports are processed in China before being re-exported to the U.S. -- value-added that Turkey has been unable to capture. He also said the expansion of mostly-foreign supermarket chains (a key sector for recent Foreign Direct Investment) has wiped out 70% of small grocery-owners. The Chief of Police in Cankiri said it was very difficult for the province's many retired people to get by on their pensions. -------------- Tourism Potential -------------- ¶9. (SBU) Both in Cankiri and Kastamonu, Government officials enthused about their provinces' tourism potential. Kastamonu, with its lush alpine slopes of pine forests, Black Sea coastline, and Ottoman houses and mosques seemed to have real potential. Instead of the private sector taking the lead, however, in both cities tourism promotion was the responsibility of the local offices of the Ministry of Tourism. The officials in the tourism offices struck us as lacking the marketing savvy needed to get the word out about the local attractions. Nevertheless, Kastamonu province has succeeded in attracting a modest flow of tourists, mostly from Ankara or people seeking relief from the intense summer heat in Mediterranean Turkey and Israel. Cankiri seemed to have further to go to attract tourists. -------------- Local Businessmen Support Democracy -------------- ¶10. (SBU) In both towns, the Chamber of Commerce Presidents expressed support for democracy, by implication criticizing the military's April 27 interference in politics. Both men distanced themselves from "fundamentalists," whom the Kastamonu president characterized as only 10% of the vote. The Cankiri President implied he was a supporter of the nationalist MHP party, but he said the worst democracy is better than the best dictatorship. The Kastamonu president commended the AK Party's stewardship of the economy and also highlighted the importance of democracy. -------------- Comment -------------- ¶11. (SBU) Like other recent visits to provincial Anatolian locations, we found anecdotal evidence that the rising tide of Turkish and global growth is lifting all ships, contrary to the urban myth that the growth is principally benefiting elites in big cities. The investment incentives may not be creating additional investment for Turkey as a whole but they do appear to be moving some investment out of traditional industrial centers like Istanbul, Bursa and Izmir towards lower- and middle-income provinces further east, thereby moderating regional disparities. On the other hand, the angst about structural change could undermine the political benefits to the ruling party of the broad-based growth, as grocers wiped out by supermarket chains or employees in textile factories that compete with China could express their disgruntlement at the polls. ¶12. (SBU) The two seemingly non-AKP Chamber of Commerce presidents' support for the democratic process suggests the April 27 military statement did not play well with provincial Anatolian merchants and could help AKP with this constituency in the elections. Wilson