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Turkey’s Mounting Growth Ambitions Made Manifest In Borsa Istanbul

May 3, 2013

With above average growth, rising domestic consumption, thriving trade relations across the Middle East and a high-performing banking sector, Turkey is an economic powerhouse in the making. Its mounting ambitions are reflected, among other things, in the launch in April of the new $326 billion Borsa Istanbul.

This revamped stock exchange was born out of the merger of the Istanbul Stock Exchange, the Istanbul Gold Exchange and the Futures and Options Exchange, which had previously been headquartered in the western city of Izmir. It is part of a larger effort by the Turkish government to turn Istanbul into a prime financial center for the region and possibly the world. The plan also calls for the gradual relocation, from the capital Ankara to Istanbul, of major public banks, the Banking Regulation and Supervision Agency, the Capital Markets Board and the Central Bank.

While observers generally praise this initiative, they warn that Turkey has much left to do if it wants to compete with other emerging financial hubs, such as Dubai. “Many commentators have noted that the new law was put into effect hastily, is not transparent, and has the danger of giving arbitrary powers of control to the Capital Markets Board (CMB) over publicly traded companies,” notes Sumru Altug, economics professor at Koç University in Istanbul.

“As long as the tax system remains convoluted, Istanbul traffic congested, the English proficiency of the labor force low, regulatory environment unpredictable, and rule of law sketchy, Istanbul doesn’t really stand a chance of becoming a financial center,” adds Naz Masraff, the London-based Turkey analyst for Eurasia Group. “You need more than a tulip rebranded bourse to actually become ‘worth investing’ in.”

The biggest problem Borsa Istanbul faces right now is the lack of foreign stocks traded there. Only one out of 332 listed companies is non-Turkish (though it is a catering partner to Turkish Airlines). To address this flaw, authorities have launched an outreach campaign, “ListingIstanbul”, to attract listings from countries around the world. So far, they have signed partnership agreements with eight brokerage firms in Asia, Africa and the Caucasus, which are tasked with the recruiting effort.

At the end of the day, international competition will make or break Turkey’s aspirations, with a similarly aggressive bid coming, for example, out of Moscow in Russia. “Istanbul is not the only city hoping to become a financial center,” says Emre Deliveli, a Turkish economist, commentator, and independent consultant. According to him, if Turkey wants to succeed, it might need to make its intentions clearer. “They seem undecided on whether they want to be a regional financial center catered to the Islamic world, an Eastern European hub, or are trying to compete with the likes of Singapore.”

While global ascendancy seems out of reach for the time being, Istanbul might have a market-specific shot at the regional level. “The notion of developing Istanbul as a direct competitor of places such as London, Frankfurt, Hong Kong, Moscow or even Dubai does not seem realistic,” says Altug. “Where Turkey may have an advantage is in terms of creating a new center for Islamic finance.”
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