Peace dividends

The letter written by imprisoned Kurdistan Workers' Party (PKK) leader Abdullah Öcalan, read during the Nevruz festivities in Diyarbakır, opened a new era for Turkey as well as for the Middle East, as Öcalan stated it. It is the truth that we are only at the beginning of the peace process and that many difficulties wait ahead. We should be ready for ups and downs, but I believe that the process is irreversible. This paper is full of political commentary by its writers about this historic event. As an economist, I would like rather to share with you my views about “peace dividends” that may be expected.

Kurdish woman celebrating Newroz A “peace dividend” is defined in economics literature as the economic benefit resulting from a transition from war to peace. In the case of Turkey it is the question of a transition from a “low-intensity regional war” to peace. Yesterday the Turkish press reflected the euphoria expressed by the business community. “Farewell to arms, hello to investments” and “Peace will allow the region to take off” are some examples of statements made by the top Turkish businessmen. Obviously, the winds of optimism are blowing in the economic sphere as strong as they are in politics. Peace will certainly have its dividends. But I am afraid that we risk being disappointed, since expectations seem to be too high. Let's start with a short list of direct peace dividends limited to the economy that could be reasonably expected if the armed clashes with the PKK are terminated definitively. I think there are two main dividends: First, higher economic growth, particularly in the East and Southeast, the least developed regions. Second, a decrease in military expenditures that would allow an increase of public expenditures in productive activities would be possible. There are different channels boosting economic growth, but the most important is the investment-employment channel. Could we expect an investment boom in the region if armed clashes are to end? I do not think so. An investment boom could have been considered a possible result if it was proved that investments would have been constrained due to an adverse business climate in the East and Southeast. Now, there is no evidence that is the case. According to research conducted last April on regional labor markets by Bahçeşehir University's Center for Economic and Social Research (BETAM), from 2005 to 2011 non-agricultural employment rose by 20 percent across Turkey. The rates of increase in the East and Southeast regions were much higher than this national average, with 44 percent in Mardin, Batman, Şırnak and Siirt; 38 percent in Şanlıurfa and Diyarbakır; 72 percent in Van, Muş, Bitlis and Hakkari; 48 percent in Malatya, Elazığ, Bingöl and Tunceli; and 26 percent in Ağrı, Kars, Iğdır and Ardahan. The strong improvement in non-agricultural employment does not mean that the unemployment problem has been alleviated in these regions. In some provinces, like Ağrı and Van, unemployment rose despite employment increases due to strong pressure from a labor force growing as a result of migration from villages to cities. In others areas, like Şanlıurfa and Diyarbakır, unemployment decreased, contrary to widely held beliefs. There will still be a positive impact of post-conflict investments, but we should moderate our expectations. The astonishing boom in exports to the Middle East, particularly to northern Iraq, pushed investments and employment in some regions, while at the same time, the ongoing “low-intensity war” has not prevented them. I believe that as much as peace with the PKK, the opening of the Armenian border to trade could contribute to the economic development of Turkish provinces nearby where unemployment is quite high. That said, the two major peace dividends regarding economic growth would be, I believe, the revival of cattle and sheep breeding and the full integration of northern Iraq, with its immense oil and natural gas potential, into the Turkish economy. As for military expenditures, the lack of figures, jealously kept confidential, prevent us from making quantitative estimations. Nevertheless, the number of conscripts will certainly drop and savings on ammunition is a possibility. The share of the defense budget in gross domestic product (GDP) is about 4 percent (probably 5 percent if confidential expenditures were added). Even 1 percent saving will free up $7-8 billion. This is quite a lot of money that can be used, for example, for the education and social integration of previous PKK militants.