For Turkiye’s government, the Iran war has complicated efforts to turn around an economy still reeling from one of the worst financial crises in the country’s history. But even as the conflict has driven up Turkiye’s fuel prices and forced authorities to dip into their precious foreign currency reserves to defend the lira, it has also presented an opportunity. As the fallout of the war has reverberated across the Middle East, Ankara has jumped at the chance to promote Turkiye as a model of security and stability for businesses and investors.
While Iranian missiles and drones have inflicted significant damage on infrastructure in the United Arab Emirates, Saudi Arabia and Qatar, Turkiye, which is protected by NATO air defences, has emerged largely unscathed from aerial attacks blamed on Tehran. Turkish officials have made little secret of their desire to capitalise on the shadow that the conflict – which is officially on pause until Wednesday under a two-week ceasefire between the United States and Iran – has cast over regional business hubs such as Dubai, Doha and Riyadh. In remarks earlier this month, Turkish President Recep Tayyip Erdogan, who last month met with 40 global CEOs to discuss ways to boost his country’s competitiveness, cast the war as a boon to Ankara’s ambitions to transform Istanbul into one of the world’s leading financial centres.
Turkish Treasury and Finance Minister Mehmet Simsek confirmed soon afterwards that the government was preparing “radical” incentives to lure foreign capital. Turkiye’s improving economic stability and various financial incentives have helped to reposition the country as a regional hub and “safe haven”, said Bilal Bagis, head of the economics department at Fatih Sultan Mehmet Vakıf University in Istanbul. While Ankara has yet to confirm the measures in the pipeline, they are likely to involve tax breaks for companies that sell goods through Turkish entities without importing them into the country, said Guney Yildiz, a Turkish-born adviser at Anthesis Group who has clients in the Gulf.
The special economic zone offers tax incentives to financial institutions, including a 100 percent exemption from corporate tax on export earnings until 2031. An IFC spokesperson said the district has recently seen “growing and concrete” engagement from both foreign governments and private institutions. We remain in close contact with Japan and South Korea, while our discussions with the United Kingdom continue,” the spokesperson said, adding that Istanbul has a “powerful triple advantage built on geography, innovation and economic depth.
Still, Istanbul faces a steep climb to seriously compete with hubs such as Dubai. Istanbul currently ranks 101st on the latest Global Financial Centres Index, compiled by Z/Yen Partners in collaboration with the China Development Institute, far behind Dubai (7), Abu Dhabi (21), Doha (48) and Riyadh (61). Turkiye’s economy has been plagued by double-digit inflation and a depreciating currency since the onset of the 2018 crisis.
You’re constantly managing FX exposure in a way you simply don’t have to in a pegged-currency jurisdiction like the UAE or Singapore.” Critics have also accused Erdogan’s administration of economic mismanagement, pointing to a since-abandoned policy of maintaining low interest rates despite soaring inflation. The government said the policy was aimed at boosting the economy and ending foreign currency manipulation. While the IFC has reported growing interest from firms, less than half of its office space has been filled, though officials say they expect occupancy to reach 75 percent by the end of this year.
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