- Yes won with 51.4% of the vote and an 85.4% turnout in the constitutional referendum of 16 April.
- The reform replaces the parliamentary system with a presidential one and lets Erdogan remain in office until 2029.
- For companies with business or suppliers in Turkey, it pays to watch political stability, the currency and trade conditions.
On 16 April 2017 Turks voted in a constitutional referendum proposing to replace the parliamentary system with a presidential one. According to the final results from the electoral authority, yes prevailed with 51.4% of the vote on an 85.4% turnout. The main opposition force, the CHP, alleged irregularities and asked for up to 60% of the ballots to be recounted, after it emerged that the electoral board had decided to accept as valid votes lacking the official stamp unless fraud was shown.
The reform abolishes the post of prime minister, gives the president the appointment of ministers and lets him govern by decree in his areas of competence and declare a state of emergency. The changes will not apply until 2019 and would allow Recep Tayyip Erdogan to remain president until at least 2029. The tight and contested result leaves a divided country with many open questions.
The political and economic context
Turkey had been under a state of emergency since July 2016, after the attempted coup, and in the preceding months its currency had depreciated markedly. It is also a trading partner of the European Union, with which it has had a customs union for industrial products since 1996, and a key country in managing migration flows towards Europe, after the agreement signed in March 2016.
For markets, such a referendum removes an immediate uncertainty but opens another in the medium term: how power will be exercised in the new system, how relations with the EU will evolve and what will happen to the economy and foreign investment. Analysts’ assessments vary widely, and no scenario can yet be taken as certain.
Why it may matter here
Turkey is a relevant market and supplier for European and Spanish companies in several sectors, such as textiles, automotive, construction or financial services. Companies with subsidiaries, customers or suppliers there may be affected by the exchange rate, regulation and their counterparties’ ability to pay, more than by politics itself.
Tourism and investment flows also respond to the perception of stability. A country that changes its institutions can keep trade running normally for years, but long-term investment decisions usually call for more caution and more information. That is why monitoring the situation becomes a risk-management task, not one of political opinion.
What to review
Anyone with business in Turkey can check in what currency they are paid and pay, what hedging they have against exchange-rate swings, what protection their credit insurance offers and what clauses their contracts contain for changes of law or circumstances. Exposure to the lira and to local counterparties deserves a specific review.
For investors, it should be remembered that this is general information and not a recommendation: concentrating assets in a single country or currency increases risk, and decisions should be taken with an adviser, in light of each person’s profile and objectives. With such a tight result, it is sensible to prepare for different scenarios.
When a country changes the rules of the game, prudence means looking at one’s own exposure, not predicting the outcome.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
