STEP only has a presence in one of the four fast developing MINT nations – a chapter in Mexico, with no presence for STEP in Indonesia, Nigeria nor Turkey. There are good reasons for the lack of a presence in those last three. STEP is not strong enough to develop everywhere without getting developmental indigestion and, anyway, needs to focus on completing its offer in already established jurisdictions such as the US, Germany and Australia; as well as on building a high standard of consistency across all existing STEP jurisdictions.
However, now certainly is the right time for STEP to carry out initial reconnaissance of future MINT opportunities; in a few years’ time they will certainly be coming to STEP if STEP is open to them, and the first part of openness is knowledge…
Thus when invited to participate in a focused trade mission lead by the Lord Mayor of the City of London, Alderman Fiona Woolf, looking at legal and financial services, the opportunity for medium-term analysis at low cost to STEP was difficult to resist.
Representing the City of London in the broadest sense, the Lord Mayor runs a number of small trade delegations to explore new opportunities for London business. The visit was an opportunity to understand how the fastest growing West Asian nation might be a strong bet in the medium term, but how political uncertainty poses challenge in the short term. Turkey has seen GDP growth at 9%, 8%, 2%, 6% and 6% over the last five years, with a 5.2% average growth between 2002 and 2011. There is now a substantial middle class primarily founded on family businesses grown in Anatolia, as Turkey becomes one of the world’s leading producers of agricultural products, textiles, motor vehicles, ships and transport equipment, construction materials, consumer electronics and home appliances. There is also a big shift from state to private sector, although the state still plays a major role.
Of course, presently Turkey faces political challenges, with the rumbling conflict between secularists and the more conservative supporters of Prime Minister Erdogon, with myriad crosscurrents beneath. It’s no wonder that few of those that I met are looking at big investment decisions this year. Most will wait for current issues to quieten down, yielding hopefully to a degree of greater certainty.
The Turkish legal system is built on a codified approach derived from German law, with rigorous forced heirship, reinforced by Ottoman cultures with Sharia principles. This, of courses, poses an enormous challenge for family business succession and effective wealth transmission. The chair of Istanbul’s embryonic finance centre shared the view that thousands of family businesses will be transitioned across the generations in the next few years. However, short of a public listing that at least offers the chance for family members to take their money and exit, there are few real ways to build family enterprises for the long term and there are no secondary markets for smaller businesses. Litigation amongst family members is common and often vastly damaging to business prosperity. It’s simply not in any way straight-forward to organise family wealth to ensure that the common family wealth vision can be developed across the generations within the family. For inheritance purposes everybody gets their allotted share in an extremely rigid way.
The Turkish legal profession, on the other hand, is somewhat more informal; working largely on the principle of ‘get a degree, put up a shingle’. As members of the impressive executive committee at the Istanbul Bar Association explained for us, anyone with a law degree can practice, which, of course, discourages high standards and subsector specialisation. The group of officers and leaders of the Istanbul Bar, whom I met, are pushing hard against government policy. They want entry exams to the profession to be compulsory as any of us would find in most countries where STEP members do business.
So Turkey is a tough prospect for STEP and there are many other priorities for STEP and easier opportunities. This means that Turkey probably will not see a STEP chapter any time soon. However, while discussions with a range of stakeholders suggest that legal and professional changes won’t come today, they will come. The explosive growth of family enterprise means, I suspect, that Turkey will come knocking at STEP in the next five years and offer powerful network opportunities to STEP members, not just across Europe, but wherever Turkish families do business. I look forward to it.
David Harvey is Chief Executive of STEP