When Japanese drinks firm Dydo Drinco said last week it would spend $110 million to acquire three Turkish beverage makers, it marked a rare bit of positive news for an economy that lately seems to have few foreign admirers. Once a darling of overseas investors, Turkey's star has fallen dramatically this year as political uncertainty and the collapse of a cease-fire with Kurdish militants have helped send the lira currency and economic confidence to record lows.
Yet Turkey still boasts a young and rapidly growing population of savvy consumers who keep on spending. For Dydo, at least, that long-term demographic allure appears to outweigh any immediate political worries. The Osaka-based company said it would acquire 90 percent of three beverage firms owned by unlisted food group Yildiz Holding, in a deal it described as a bet on the Turkish consumer. "Bolstered by an expanding population and healthy consumption, the Turkish beverage market is expected to continue to grow in the coming years," Dydo said.
The deal will give Dydo, which has a range of canned coffee drinks in Japan, ownership of eight beverage brands, including Cola Turka, known for television adverts that featured US actor Chevy Chase speaking broken Turkish. Turkey's population is expected to rise to more than 93 million by 2050 from over 76 million in 2013, according to government statistics. The median age is just over 30, lower than anywhere in Europe. That may well represent an opportunity for everyone from Japanese companies, who are saddled with an ageing population and few prospects for growth at home, to Turkish retailers.
"Our customers are often young. Young Turks spend a lot of money on shoes, T-shirts and sport products," said Ozgur, a 28-year-old manager at a sports store in Ankara, pointing to rows of basketballs and training equipment. In 2002, Turkey's per capita GDP averaged $3,600, just ahead of Equatorial Guinea. By 2013 it had trebled to $11,000, higher than Malaysia. Today, Turkey sits comfortably among the world's top 20 economies. But economists expect that growth is likely to fall well below official government targets of 4 percent this year and 5 percent next year.
Turkey's economic confidence index took a record plunge in September, data showed on Tuesday, the starkest evidence yet of the damage political uncertainty and escalating violence have done to its long-term outlook. The AK Party founded by President Tayyip Erdogan was deprived of its single-party majority at polls in June. That marked its biggest electoral setback since coming to power in 2002, establishing stable government after many years of fractious coalitions and abandoned IMF support plans.
It is now set for a re-run of the vote after Prime Minister Ahmet Davutoglu failed to find a junior coalition partner, but investors fear a similar outcome, which would mean continued deadlock. The collapse of a cease-fire with Kurdish militants in July has meant almost daily deadly clashes between security forces and insurgents. There are also deep structural problems, analysts warn.
"A rising population may be beneficial for a company looking for an expanding market size where the demand will not vary much because of income levels," said William Jackson, an emerging markets economist at Capital Economics in London. "But looking at Turkey's investment case more broadly, you need jobs for these people and incomes and living standards need to be rising too." The number of young people not in employment, education or training has been rising, as has unemployment in general.
The rate of youth unemployment has risen to 17.7 percent, according to the latest data for this year, compared to an overall unemployment rate of 9.7 percent. Turkey has not taken advantage of its "demographic dividend" and is failing to boost saving and net foreign direct investment, said UBS strategist Manik Narain. Instead, it has largely relied on banks borrowing from overseas. "If you've got a large and young population you will have companies interested in that. But you should be able to do a bit better, - make structural changes to your economy," he told Reuters. He said Turkey could simplify the framework for foreign investment, accelerate privatisation and work to create greater political certainty to lure foreign investors.
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