Erdoğan’s War on Koç Empire: How It Really Started and How It Will End

Claire Berlinski, a prominent journalist and a political analyst, has suggested me to write about the squabble between Koç Group (KG) and the government. I have accepted the challenge. So, late I may be but here I am, keeping my promise. On October 11th, Claire sent me Svante E. Cornell’s article “Erdogan VS. Koç Holding: Turkey’s New Witch Hunt” on Twitter which drew the attention of Turkey’s Finance Minister Mehmet Şimsek who dismissed what the title suggests.

I only partly agree with S. E. Cornell. But I strongly disagree with the Minister. Here’s my take.

Genes of the Turkish Bourgeois
When the Turkish Republic was founded 90 years ago, it was in need of a national upper class to realize Atatürk’s plan to have a private sector based economy. Moderately rich trading families enjoyed state support, flourished and over years some of them turned into the conglomerates that are now the biggest players in the Turkish economy. So, Turkey’s billionaires are not 1789 type bourgeois class whose interests historically clashed with those of the ruling class/state. And as a result, they didn’t really develop a tradition of standing up to the governments. Koç Group (KG), the biggest conglomerate of the country, more or less fits to this profile, too. Seeing it challenging the government for people would indeed be a very unusual thing. Though, as I will try to explain, that is not the case at all.

Ali Koç, member of Koç Group's Board of Directors.

Ali Koç, member of Koç Group’s Board of Directors.

People’s Desperation, the King’s Paranoia and Threats
During massive Gezi Park protests, KG’s Divan Hotel opened its doors to the protesters who had been terribly gassed by the police. This immediately sparked indirect and direct threats by the PM Erdoğan to the KG. “We know who sent food supplies to Taksim Square, who sheltered whom at their hotel. We know who collaborates with terror, welcomes it in their hotel. They’ll be brought to account for this.” he said in a speech to his voters. He also pointed out that “it’s against the law to harbor criminals.” In fact, Divan Hotel only did what common courtesy required and helped people, offering them space to breathe and get medical attention. We say ‘people’ or the ‘protesters’ yet the PM has a slightly different terminology (!) For him Gezi protesters aren’t just normal citizens using their rights to assembly and protest but criminals, rodents, looters and modern bandits, therefore helping them was defying his legitimate rule…

Although what Divan Hotel did was just a little more than a common good deed, protesters tended to turn it into a kind of legend. Stories of how Ali Koç heroically said “I’ll fire you all, if you don’t help people” to the hotel’s staff –which he denied–, rumors of him getting into politics –which also turned out to be false–, circulated in social media for quite some time. As politicization in favor of AKP and Gülen Movement got even deeper in judiciary and the police force, and the media ridiculously failed the public; in desperation, people romanticized Divan Hotel story and perhaps, I daresay, they saw the KG as a house of power that could speak for them. This is surely another reason that stirred up the paranoia of the PM whose deputy chairman and top advisor openly expressed that Gezi protests were a coup attempt.

İzmit Facility of Tüpraş.

İzmit Facility of Tüpraş.

Rain of Lawsuits
Then came the lawsuits and inspections… First, a tax probe on Koç-owned gas firm Aygaz and oil refinery Tüpraş, the largest company of Turkey, was launched by the Ministry of Finance. The probe drove the shares of the Koç-owned firms down, causing a 900 million-lira (around 450$ million) fall only in Tüpraş’s value. The reports of the probes being unprecedented and carried out by an army of inspectors, were denied by Finance Minister Mehmet Şimsek and Energy Minister Taner Yıldız, who claimed the inspections on Koç firms were “routine” and not related to Gezi protests. Understandably, because of the timing, what the probes cost to KG and Erdoğan’s open threats, the wave of inspections was perceived by the public as a punishment.

Pro-government daily Star reported that Ministry of Forestry and Water Affairs demanded 30 million lira for the land on which Koç University is located and would act against the university. But KG denied the report saying that the land was not rented. Also, the $2.5 billion MİLGEM national warship contract that KG’s RMK Marine won, was cancelled. The decision was made by the Defense Industry Implementation Committee presided by the Prime Minister himself. But I also should point out that even before Gezi Park protests there were signs that RMK Marine would lose the contract, like complaints by suppliers and cheaper offers from other competitors. Another lawsuit accusing Koç and Doğan Group of backing 1997 military intervention was filed. It was initiative of an individual. As I know, the government didn’t make a statement about the case. But we know Erdoğan thinks that KG had an undemocratic influence in Turkish politics. While slamming KG but without specifically giving its name, he said “They were used to the governments that could be controlled. They used to bring down or lift up whomever they want.”

I think it would be wrong to present every lawsuit or a negative report as evidence of a witch hunt, as the details, in some cases, don’t support that argument. So, although there’s enough evidence to suggest there’s great pressure by PM Erdoğan on the KG, the examples above are partly open to interpretation.

F-511 TCG Heybeliada corvette, manifactured by Koç Group's RMK Marine.

Turkish Navy’s TCG Heybeliada (F-511) corvette, manufactured by Koç Group’s RMK Marine.

What is to happen next?
So, how is this going to end? Will Koç Family be finished off like really shady Uzan Family? It’s highly unlikely. Because KG is simply too big to fail, as statement of Ali Koç reveals: “As Koç Holding, we make 9% of the Turkey’s GDP, 10% of (the country’s) exportation and 9.4% of total tax revenues of the government.” Erdoğan would surely not want to kill the goose that lays golden eggs. That’s why the “strategic investment” incentives, mentioned in Minister Şimsek’s tweet, were given to Tüpraş. Not because Erdoğan and his party like KG, but it was not wise to exclude the largest enterprise of the country that has a new expensive project to produce higher performing fuel, from incentives for strategic investments. Especially unwise if that enterprise controls all of Turkey’s refining capacity and the taxes on fuel constitute a big source of revenue for the government. So big that because of this over-taxation Turkish people use the most expensive fuel in the world.

Traditionally, business dynasties get on well with governments and that’s what Koç Family intends to do. Just after Erdoğan accused the KG of making moves against him, Ali Koç explicitly told “We have no goal or desire other than developing Turkish economy, making Turkey the leader of its region and an important player of the global economy.”

In short, Erdoğan’s paranoia made him punish Koç Holding over a humanitarian action of Divan Hotel’s management. It’s not likely that he’ll go further than punishment. But going this far is more than enough to suggest that freedom of enterprise –along with freedom in many other areas– is not sufficiently appreciated by him. He gave good deal of foreign investors second thoughts about Turkey. He revealed that, like the model of presidency in his mind, the way he wants to run the economy is also very Russian-style.

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2 thoughts on “Erdoğan’s War on Koç Empire: How It Really Started and How It Will End

  1. Pingback: Emerging Markets series part 2: Koc Holding ADRs (US49989A1097) – the best of Turkey in one stock ? | value and opportunity

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