Turkish President Tayyip Erdogan at a news conference following the Nato summit, in Brussels, Belgium, on March 24. Reuters
Turkish President Tayyip Erdogan at a news conference following the Nato summit, in Brussels, Belgium, on March 24. Reuters
Turkish President Tayyip Erdogan at a news conference following the Nato summit, in Brussels, Belgium, on March 24. Reuters
Turkish President Tayyip Erdogan at a news conference following the Nato summit, in Brussels, Belgium, on March 24. Reuters


An opportunity for Erdogan in the Ukraine war


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March 28, 2022

Nearly five weeks into Russia’s war in Ukraine, Turkey has emerged as the West’s favoured fulcrum, maintaining strong ties with both combatants and doing the diplomatic heavy lifting that could broker a sigh-inducing ceasefire.

Turkish President Recep Tayyip Erdogan on Friday said the warring states had made progress on several key points of negotiation, including Ukraine expressing willingness to partially disarm and accept Russian as an official language. Ukraine Foreign Minister Dmytro Kuleba quickly clarified that Ukrainian is his country’s only state language, while the President, Volodymyr Zelenskyy, on Sunday said his government is ready to consider neutrality and accepting Russian forces returning to previously occupied areas of eastern Ukraine.

Turkey is set to host a new round of peace talks on Tuesday, and Mr Erdogan may well have a bounce in his step in these first days of Spring. For starters, he seems to have been welcomed back into the western fold. In the past fortnight, a steady stream of dignitaries has come a’ calling, including the leaders of Nato, Germany, Israel and Greece.

Turkish President Recep Tayyip Erdogan (L) welcomes German Chancellor Olaf Scholz in Ankara on March 14. AFP / Turkish Presidential Service
Turkish President Recep Tayyip Erdogan (L) welcomes German Chancellor Olaf Scholz in Ankara on March 14. AFP / Turkish Presidential Service

Despite a trip to nearby Poland, US President Joe Biden was not among the visitors. But after a phone call with Mr Erdogan last week, he praised Turkey’s diplomatic efforts and talked of seeking ways to strengthen bilateral ties.

Mr Erdogan may have sought to take advantage of his turn in the spotlight last week when he urged the EU to restart Turkey’s accession talks, which began in 2005 and have been stalled at least since Ankara and Brussels agreed to a refugee deal in early 2016. Ankara has also been working with Paris and Athens to open a humanitarian corridor in southeastern Ukraine, to help rescue thousands trapped in the besieged port of Mariupol.

There has even been talk that the long-gestating eastern Mediterranean pipeline may get fresh energy as Europe seeks to wean itself off Russian oil and gas. Since the US backed out a few months ago, Turkey has been talking with the Israelis about building a pipeline carrying Israeli gas to Europe through Turkish territory.

Nato-member Turkey has not joined western sanctions on Russia, and has in recent days rolled out the welcome mat for Russian oligarchs seeking sanctuary

The Ides of March have also been good domestically. Mr Erdogan and his ruling AKP have lost political ground in the past three years mainly because of a lingering economic crisis and the presence of millions of mostly Syrian refugees. Many Turks see them as taking too many jobs during a period of high inflation and unemployment. But as tens of thousands of both Ukrainians and Russians have arrived in recent weeks, Turkey’s opposition parties have largely refrained from protesting against the open-door policy.

Perhaps the sight of nearly 4 million Ukrainians pouring into Europe has spurred new sympathy for refugees in Turkey – a greater willingness to continue shouldering the burden.

Or maybe it’s linked to Turkey’s unemployment rate, which fell sharply in 2021, from a high of 13.8 per cent in April to 11.4 per cent by January 2022, which is not far off the pre-crisis rate of 10.9 per cent.

Either way, all this has given Turkey’s longtime leader a boost. In December, as the Turkish lira hit record lows, Mr Erdogan’s approval rating sunk to 38 per cent, his lowest in more than six years. A poll last week put him back above 43 percent – a significant reversal after more than two years of steady decline.

The old adage appears to be holding true: in times of war, people rally around their leader. When fearing an external threat, Turks, in particular, seem to prefer a strong leader unafraid to call on his military.

Yet the other shoe may soon fall. Economists largely agree that the war and Russian sanctions will inevitably hurt the Turkish economy, which relies on Russian tourists, grains and gas, as well as billions in trade and business deals.

There could also be a spillover of violence. On Saturday Turkish authorities picked up a spiked mine bobbing near the northern end of Istanbul's Bosporus, some 620 kms south of Odessa, where both Russian and Ukrainian forces have reportedly deployed mines. Hours later reports emerged of another mine in the area, which Turkish security services soon dismissed.

A snow-covered square outside Hagia Sofia in Istanbul, on March 11. AFP
A snow-covered square outside Hagia Sofia in Istanbul, on March 11. AFP

For all the snow that blanketed Istanbul on the weekend, within a matter of weeks sunbathers and boaters will start descending on beaches just a few miles from there. More importantly, the Bosporus is one of the world’s busiest shipping routes, and any extended shutdown would further undermine Turkey’s economy.

Nato-member Turkey has not joined western sanctions on Russia, and has in recent days rolled out the welcome mat for Russian oligarchs seeking sanctuary. Many analysts now fear Turkey may seek to find ways to help Russian firms evade western sanctions.

It wouldn’t be the first time. Starting in 2012, Turkish banks helped Iran evade western sanctions and ended up buying some $13 billion in Iranian gas with gold. Turkey also has a more recent record of questionable financial dealings. Last October, the Financial Action Task Force, the world’s leading anti-money laundering body, put Turkey on its grey list of countries that need to swiftly resolve several financial deficiencies.

Israel, which has also refrained from joining western sanctions, has vowed not to enable Russians looking to evade sanctions. Turkey has yet to make a similar pledge. But this is likely more an attempt to remain in the good graces of Russian President Vladimir Putin as peace talks hint at a breakthrough, rather than any expression of interest in sanctions evasion.

Some months ago, I outlined Mr Erdogan’s remarkable resilience, after nearly two decades in power, and wondered how he might bounce back from record-low polling numbers. We may now have our answer: by leveraging a war that has rendered his leadership more valuable at home and abroad.

Of course, a great deal may happen between now and the elections in June 2023.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Updated: March 28, 2022, 2:00 PM