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Turkish Economy at Odds With the World



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It seems that the economic fundamentals are breaking away from the very fabric of rationality ever since the pandemic upended the world last year. While the world is lumbering to tighten the monetary policy after awarding trillions to expand undeterred, there is a country operating on a completely different tangent. Growth is beginning to stagger around the world as the delta variant spews uncertainty yet it seems some defy the laws of economics – at least to an unobservant mind. And while inflation spares no country today, the policy in question to quench the damage somehow varies significantly. This fascinates me since globalization and subsequent economic interconnectivity have set each country on a trajectory that makes it surprisingly difficult to variate in decision-making – especially in terms of monetary policymaking.

I was recently taken aback when I came across a study regarding the economic health of Turkey. I was fortunate enough to have recently observed the European economy in detail (ECB’s Historic Shift in Inflation Targeting) to realize that Turkey defied the regional dynamics and continues on the path unapologetically. The Turkish economy grew by about 7% year-on-year in the first quarter of 2021. It was a healthy yet expected rebound as Turkey stood robust in the face of the pandemic last year – one of the few European economies – when it grew by 1.8% year-on-year. As covid restrictions eased in April, the Turkish economy boomed past expectations: expanding at a beleaguering rate of 21.8% year-on-year. Now take a moment and compare that to the plunge of 10.3% in the Turkish economy in the second quarter of 2020. Clearly, the economy rebounded spectacularly despite undergoing brief lockdowns in April and May.

Recently, Turkish President, Mr. Recep Tayyip Erdogan, cast his optimism in the performance of the Turkish economy: touting the annual growth to surpass the figures clocked in the first quarter. However, he substantially overlooked the growing threat of burgeoning inflation.

With an official inflation targeting of 5%, the Turkish economy is anything but close to containing the price increases. In fact, Turkey is on the verge of experiencing hyperinflation on the back of hiked commodity prices as the economy opens up. The Central Bank of the Republic of Turkey (CBRT) reported that inflation has bloomed to double digits, inching closer to 18.5% in July. It astonishes me that while the CBRT has hiked policy rates since last year – by as much as 10% – it has done next to nothing to contain the inflation responsibly. The CBRT policymakers have claimed that the surging inflation could be devoted to high consumer demand coupled with rising international commodity prices. However, while supply constraints are the clear culprit behind the raging inflationary pressures around the world, rising commodity prices could be attributed to another factor as well – specifically in the case of Turkey.

Another legitimate reason behind soaring domestic inflation and blooming dent in the Turkish exchequer relate to the massive depreciation in the Turkish Lira that has contributed to high import costs and in-affordability at the ground level. The devaluation of the Turkish Lira is one of the main reasons driving some of the sharpest price rises in the world. My analysis is concurred by the recent data released from the Turkish Statistical Institute revealing that while exports have climbed by 10.2%, imports have jumped by 16.8% compared to July 2020. However, the devaluation in Lira has broadened the Turkish trade deficit by 51.3% year-on-year in July, standing at $4.278 billion. It is apparent that despite a tight monetary policy and growing exports, the imports are driving inflation to nearly unstoppable levels – all while a plunging Lira is exacerbating the deficit.

Nonetheless, the CBRT has pledged to keep the policy rate at the highs of 19% – above nominal inflation rate – to subdue the raging prices and retain the purchasing power of the national savers and investors. However, President Erdogan seems persistent to campaign rate cuts later this month. Apparently, he feels that the economy needs more stimulation despite growing beyond expectations. While the central banks around the world are clambering to draw down dovish policies to curb inflation, Turkey seems to be pondering over a perverse strategy amidst catastrophic inflationary pressures. No doubt, it is a problematic situation. Over-the-top pressure from Mr. Erdogan to ease the policy later this month could drive inflation beyond the sinister 20% mark – as we observed that the consumption demand currently stands extremely strong. Therefore, while it seems enticing to prolong the growth regime and guarantee re-election in 2023, President Erdogan is simplistically overlooking the cons of searing inflation wreaking havoc over the emerging economy. Primarily, he is massively undermining the currency crisis that could worsen if inflation persists at such a high level. As a result, Turkey could turn into another Venezuela when the global economy rebounds while the inflation refuses to diffuse – even with conventional monetary policy tools.

I anticipate that when the CBRT convenes on 23rd September, the policymakers would be undertaking a crucial question: could Turkey afford interest rate cuts? Nevertheless, the economy is growing at a substantial pace. And despite inflation raging way past the conventional 5% mark, unemployment has contracted by an impressive 2.5% to stand at 10.6%. While I truly comprehend the urge to fuel the growth further, the economy is already overheated. For example, the Turkish economy is expected to further expand by 10% by the end of 2021 (unless intermittent lockdowns impede speedy recovery).

However, while the CBRT deems inflation as perfunctory – expecting inflation to dip down to 14% by the end of 2021 – economists expect the inflation to hold its ground and mist around the 18% mark by the fourth quarter. Thus, the real risk exists and would continue to haunt until the CBRT convenes later this month. I fear that if the policymakers truly end up downplaying the persistence of inflation and heed the pressure from President Erdogan to ultimately slash the policy rate, then the Turkish economy would be on the verge of another currency crisis – extending economic instability unlike ever before and long far into the future.


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Inquiry on General Babangida’s Involvement in Conventional Banking despite Introduction of Islamic Finance in Nigeria




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Dear Editor,

I hope this letter finds you well. I am writing to express my curiosity and seek clarification on a matter that has caught my attention, specifically pertaining to General Babangida’s involvement in the conventional banking industry despite his role in introducing Islamic finance during the financial reforms of his military government in Nigeria. Vide your special article commemorating his 81st Birthday published in your esteemed news website:

It is indeed noteworthy that General Ibrahim Babangida played a pivotal role in shaping the economic landscape of Nigeria by introducing Islamic finance principles. It is fascinating to witness the implementation of Islamic finance in Nigeria, as it promotes principles that align with religious and ethical values. General Babangida’s efforts to introduce this form of finance were undoubtedly commendable, reflecting his commitment to establishing an alternative financial system that adheres to Islamic principles.

However, recent observations suggest his active participation in the conventional banking sector in Nigeria. Certainly, it is intriguing to see General Babangida’s continued involvement in the conventional banking industry, which operates under different principles. While some may argue that his involvement in both sectors is simply a matter of personal choice, it raises questions about the compatibility of his actions with the ideals and principles of Islamic finance. While the former is interest driven, the latter prohibits interest related transactions completely.

I wonder if General Babangida has ever publicly addressed this matter or explained his reasoning behind being active in both sectors. It would be enlightening to hear his perspective on how he reconciles his involvement in conventional banking with his efforts towards promoting Islamic finance. This has raised questions in my mind and perhaps in the minds of others as well.

I am keen to understand the rationale behind General Babangida’s dual engagement in both Islamic finance and conventional banking. Does this reflect a strategic approach to diversify Nigeria’s financial sector, or are there specific reasons behind his involvement in conventional banking despite advocating for Islamic finance principles?

Additionally, it would be interesting to explore the potential impact of his dual involvement on the perception and growth of Islamic finance in Nigeria. Does his presence in the conventional banking industry hinder the progress of Islamic finance, or does it have the potential to bridge the gap between the two sectors?

I believe that delving into these questions could provide valuable insights and generate constructive discussions within the Islamic finance community in Nigeria. By shedding light on General Babangida’s dual involvement and the potential implications, we can further enhance our understanding of the challenges and opportunities faced by the Islamic economy in our country.

Thank you for considering my questions, and I look forward to reading more about this topic in your esteemed Focus on Islamic Economy.



Abba Musa Mamman Lagos


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10 Megatrends Shaping the World in 2024




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The report, “Navigating Megatrends Shaping Our Future in 2024”, was launched during the first day of the World Governments Summit (WGS) 2024, being held under the theme “Shaping Future Governments” from 12th-14th February in Dubai. The report examines the indicators that shape these megatrends, supported by evidence from today as well as future expectations. These trends inform decision-makers and foresight experts about various sectors and the potential opportunities in each.

Khalfan Belhoul, CEO of Dubai Future Foundation, said, “This report has been launched in line with DFF’s efforts to identify and communicate those trends with the most potential to shape opportunities and strengthen local and international partnerships to overcome current and future challenges.”

“The challenges that face us on our journey to the future require that we are agile enough to be able to adapt to rapid change. It is vital we pay attention to the signals we detect – only then can we be prepared to overcome challenges and seize opportunities. The World Governments Summit provides a platform for discussing these challenges and exploring the opportunities.”

Materials revolution

New types of materials will create a shift in the industry, with solutions based on artificial intelligence (AI) such as biopolymers, biorefineries, and chemical recycling paving the way. These solutions will facilitate the development of new biological and novel materials that could rival plastics.

Boundless Multidimensional Data

Enabled by developments such as 5G and 6G in addition to advanced connectivity, the availability of raw data will vastly increase. The Internet of Things (IoT) will continue being deployed in healthcare, agriculture, and smart cities, especially in the Middle East.

Technological Vulnerabilities

The cybersecurity sector will boom amid a sharp rise in smart home devices and wearable tech. According to a report by Allianz, the annual cost of ransomware is projected to reach around $265 billion by 2031. Meanwhile, the debate on the future of decentralised finance will continue.

Energy Boundaries

Advances in tech and the growing demand for energy will drive the pursuit of alternative sources of energy. Novel materials and machine intelligence will enhance current sources of energy, including their distribution around the world – and in space.

Saving Ecosystems

Approaches to conservation will be more interdisciplinary and future-focused, taking into account both societal and environmental factors. Driven by resource scarcity, climate change, and shifts in social values, environmental impact management will become increasingly holistic.

Borderless World – Fluid Economies

The world is witnessing a rise in unmediated transactions in finance, health, education, trade, services, and even space, which are blurring boundaries and creating more cross-border communities. Advances in communications, computing, and advanced machine intelligence will accelerate the creation of a borderless world that will change the way we work, live, and connect.

Digital Realities

The spread of 5G and 6G networks will enhance the applications of autonomous technologies and IoT. As quantum technologies become scalable and reliable, immersive experiences will become even more realistic.

Living with Autonomous Robots and Automation

Robotics and automation will increasingly be deployed across industries beyond automotive, manufacturing and supply chain logistics. This will provide opportunities for efficiency and innovation, although there will also be ethical challenges to address.

Future Humanity

New workplace norms will emerge, with people needing to adapt to non-traditional skill sets in areas such as digital literacy, communications, culture and sustainability.

Advanced Health and Nutrition

Accelerated progress in advanced machine intelligence, nano- and biotechnology, additive manufacturing, and IoT will transform health and nutrition, improving health and wellbeing for people of all ages. Technology will reduce, if not eradicate, some communicable and non-communicable diseases and enhance the sustainable use of and access to water and food.

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Africa’s New Online Foreign Exchange System will Enable Cross-border Payments in Local Currencies – what you need to know




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The high cost of making cross border payments on the African continent has driven governments on the continent to seek options of settling trade and other transactions in local currencies. This has given birth to the Pan-African Payment and Settlement System which was formally launched in Accra, Ghana, in January 2022.  Development economist Christopher Adam, who has studied the exchange rate policies of African countries, answers some key questions.

Why are African countries exposed in the international currency market?

Three main reasons. First, African economies are small and as such are highly dependent on trade with the rest of the world. Their exports are dominated by primary commodities including oil and gas, minerals and cash crop agriculture. On the import side, they purchase a whole range of goods – from essential commodities not produced at home such as fooddrugs and medicines, to capital goods and energy. A large proportion of these are sourced from China and other major economies of the global north. But because African countries are small relative to their trading partners they rarely have the power to determine the prices of imports and exports. They are “price takers” in world markets. And with world prices being set in the major reserve currencies of the world (the US dollar, euro, yen and renminbi), African countries are exposed to movements in these world prices. Second, “intra-African” trade is still a relatively small proportion of the total trade of African countries.

Finally, since African countries’ currencies mostly can’t be directly exchanged in international transactions, the dollar remains the most widely used currency in trade, even between African countries.

What’s required for the system to get off the ground?

The basic idea of the system is to be able to settle trade between African countries without having to use the US dollar.  There are two major challenges with that. First, intra-African trade accounts for less than 15% of Africa’s exports at present (although supporters of the African Continental Free Trade Area expect this to grow significantly over the coming decades). The African payment system therefore does not eliminate the role of the dollar (or other foreign currencies) in trade settlement entirely.

The second issue is that trade is not balanced between African countries. For example, Kenya exports goods of higher total value to Ethiopia than it imports from Ethiopia. If Ethiopia paid in its own currency, Kenya would end up with Ethiopian currency that it didn’t need. Some form of settlement currency that is acceptable to all is required – most likely the US dollar.

What are the challenges and potential risks?

Since trade rarely occurs instantaneously, some institution in the trade financing chain carries the exchange rate risk. Because of the gap between placing an order for imports and receiving them to sell in the local economy, there is a risk that the value of local currency will change relative to the currency in which the import is denominated.

In the “old” system, this risk is borne by the trader because everything is priced in dollars. The local currency value of the income from exports or the local currency cost of imports will change with movements between the local currency and the dollar, but the banks and those counterparts pricing in the dollar are protected.

Under the new system the same allocation of risk will remain in “external trade”. This currency risk is also present for intra-African trade.

An important question for the new African payment system is: who bears the exchange risk if one African currency depreciates relative to another? Should the importer carry the risk, or the exporter? Can and should the African payment system bear this risk of exchange rate movements itself? Where both currencies are volatile, traders might still prefer the relative stability of settlement through the US dollar.

The success of this system also depends on scale. The more trade settlement is routed through it, the easier it will be to settle in local currencies. Large currency imbalances will be less common. But until the system achieves this scale, the African payment system will need a strong balance sheet so that traders and participants can have confidence that settlement will be swift and risk free. It is unclear at the moment how this is to be achieved.

What is the best case scenario?

If the system can address the trade imbalance problem, provide clarity on risk management and reach scale, it could be very successful. But this is all going to be driven by underlying economic performance. Improved settlement will help but what is really driving this is the structure of trade. The more the economies of Africa can develop intra-African trade and the less dependent they are on extra-African trade, the less will be dollar dependence in trade. This growth in trade depends to some degree on trade settlement and trade financing but much more on production, consumption, trade policy and fiscal policy.

Christopher Adam is a Professor of Development Economics, University of Oxford

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