Devastation accentuates widening economic gap between country’s east and west
The 7.2-magnitude earthquake that struck eastern Turkey points up the great economic divide between the country’s thriving west and an east in long-term decline.
The October 23 tremor and a series of aftershocks took an estimated 600 lives as of the latest count and left thousands more homeless, but the area at the epicenter – the city of Van with a population just over one million – is so bereft of industry and infrastructure that the cost of reconstruction will have little impact on the country’s economy.
Reconstruction efforts may give a boost to the economy but it might just as well deter development by serving as a reminder of how risky the area is, not only to natural disaster but to renewed conflict between militants and the Turkish army in the largely Kurdish region.
“It happened in a place there almost no industrial manufacturing, no major economic activity, mainly in rural areas so it won’t be significant in such a big economy,” Yarkin Cebeci, economist at JP Morgan Chase in Istanbul, told The Media Line. “It could facilitate some investments into the region. The capacity in the region has been to a large extent limited. Rebuilding will be done with new technology.”
The earthquake brought economic activity to a halt in the eastern province due to the destruction and closure of banks. Many lenders, both state-owned and private, have said they will postpone repayments owed by farmers and small business owners in the province.
A week later in Ercis, the town hit hardest by the quake, the Reuters news agency reported that some shops had finally reopened, electricity was back on line in some parts of town and one bank’s ATM was put into service. But concerned about aftershocks, barely any of the city’s nearly 100,000 residents have returned to their damaged homes.
EQECAT, a California.-based catastrophe modeler, estimates that total damage caused by the quake is likely to be in the “low single-digit billions” of dollars, compared with Turkey’s nearly one-trillion-dollar economy. That’s about one-tenth of the damage that was caused by the 7.6-magnitude 1999 Izmit earthquake in Turkey’s west that left nearly 20,000 dead.
In the intervening years, the gap between east and west has only grown as the economy boom Turley has enjoyed since 2002 has mainly benefitted the metropolitan areas along the country’s Mediterranean coast. In spite of programs to develop the southeast, the region suffers net migration as people seek industrial jobs in the west, according to a report by Euromonitor International, a London-based market research firm.
Between 2005 and 2010, greater Istanbul’s population expanded by almost 38% to 12.1 million and is projected to reach 17.8 million by 2020, or more than a quarter of the country’s total, Euromontor said. The value of goods and service produced by Istanbul and environs amounted to 28% of the country’s total, it said.
By comparison, the southeast is mired in poverty and unemployment. Nearly a third of the country’s poor – defined at 50% of median household disposable income – lived in the southeast, Euromonitor said. Its unemployment rate in 2010 was 12.4%, 0.5 percentage points higher than the national average. But that understates the extent of the problem because the proportion of economically active people in the southeast was low.
Households in Istanbul spent an average of $43,670 on consumer goods in 2010, versus $19,294 in southeast Anatolia. A nationwide minimum wage level has probably had the effect of lifting incomes, but may also be discouraging investment in the region, which can’t make up for its deficiencies by competing for lower-wage jobs
“With poor infrastructure, less affluent consumers and yet an equally high minimum wage, the east in unable to compete with the west,” the report said.
Southeast Anatolia’s woes are likely to be compounded by a sharp slowdown in Turkey’s economy that was already on its way even before the earthquake struck. The International Monetary Fund is projecting gross domestic product growth will decelerate to 2.2% next year from 6.6% in 2011.
Last week, Turkey’s central bank struck another blow to economic growth by effectively ending its low-interest rate policy by reducing the availability of loans at the benchmark weekly rate of 5.75% and making banks more reliant on shorter-term rates of up to 12.5%,
”The latest moves by the central bank certainly trigger a slowdown in monetary lending and credit extension, which will have a negative impact on the country’s growth prospects,” said Sinan Ulgen, an expert on Turkish politics at the Carnegie Endowment for International Peace in Brussels, told The Media Line.
Lying at the intersection between the Arabian and Eurasian tectonic plates, Turkey is prone to earthquakes. Besides the 1999 shaker in the west, eastern Anatolia was struck in 1976 by a magnitude-7.3 earthquake that destroyed several villages and killed 3,000 to 5,000 people. In 1939, a magnitude-7.8 earthquake near Erzincan killed some 33,000 people. On a smaller scale, a magnitude-6.0 earthquake in March 2010 in the east took 51 lives.
Chris Rowan, a geologist specializing in tectonics at the University of Chicago, said in a comment for Scientific American that while all of Turkey faces a high risk of earthquakes the Van region where last week’s tremor was felt has a more complicated geology than in the west. The “mish-mash of lots of smaller faults” makes it hard for scientists to say where the next will occur.
“The stress changes in the region due to this earthquake may interact in complicated and hard-to-predict ways with other faults in the area, and may lead to a heightened chance of further large earthquakes in the months and years ahead,” he said.