TBY talks to Ümit Boyner, President of Turkish Industry & Business Association (TÜSİAD), on Turkey’s investment environment, measures to combat the current account deficit, and regulatory changes.
TBY What is TÜSİAD’s strategy to ensure a sustainable Turkey by 2050?
ÜMİT BOYNER The Turkish economy has been moving toward the top ranks of the world economies since the beginning of the 21st century, and has set the goal of being amongst the top 10 world economies by 2023. This goal can only be accomplished through sustainable development policies. In order to implement the sustainable development vision, a platform for dialogue must be established by creating awareness among all members of society, such as the state, civil society, and the business world. The business community, which already possesses the know-how, technology, skills, financial resources, and necessary means for spreading sustainable development principles to society, has a significant role to play in leading the sustainable development vision to success. Therefore, the sustainable development vision cannot be achieved without the inclusion of the business world in a participatory process.
TÜSİAD attaches special importance to sustainability and has therefore launched the “Vision 2050 Turkey” project, aiming to shed light on the next 40 years with a vision of sustainable development. The first phase of this project was preparing the “Vision 2050 Turkey” report, which provides universal coverage and assessment of sustainability issues from the perspective of businesses and other stakeholders. The report develops recommendations for the achievement of a sustainable Turkey by 2050 and assesses Turkey’s future opportunities as well as the potential risks that may arise along the way. Entrepreneurs who foresee these opportunities will gain a competitive advantage. We believe that increasing the awareness of the business world, especially focusing on the opportunities of sustainability, is crucially important. In light of this, TÜSİAD will continue to work on issues pertaining to sustainability. The “Vision 2050 Turkey” project will be enhanced with studies on “Energy Efficiency in Buildings,” “Sustainable Tourism,” and “Mobility” in 2012, as well as “Energy Efficiency in Industry,” and “Sustainable Agriculture” in 2013 and beyond.
What are the most significant constraints on growth for Turkish businesses?
While strong growth and a sound fiscal stance are Turkey’s strengths, the widening current account deficit is the soft spot. More specifically, Turkey’s weakness is its structural trade deficit. With a relatively low level of savings, its growth is dependent upon the availability of foreign savings. Turkey is a net energy importer—energy imports account for roughly two-thirds of the trade deficit—and the manufacturing industry is mainly import dependent, while the current account inevitably reflects GDP growth.
How important would Turkey’s accession to the EU be?
Turkey, Europe, and the world will experience important changes in the upcoming period. From this perspective, the EU has the challenge of enhancing its global economic competitiveness, institutional efficiency, political integrity, and democratic credibility. Each of these points will be strengthened with the accession of Turkey.
How would you assess government measures to address the current account deficit?
Although there is still a long way to go in terms of fixing structural weaknesses, massive GDP growth rates above 8% per annum in 2010 and 2011 placed Turkey as one of the top growth countries in the world after fast growers like China and Argentina. However, in the existing macroeconomic framework, high growth rates have some costs, especially in terms of the current account balance and, naturally, the savings-investment balance. Until the Turkish economy finds a way to shift into higher value-added exports, the most credible way to smooth the business cycle and slow down the widening of the current account deficit in the short term is to formulate the right macroeconomic policy mix that helps the rebalancing of demand, while focusing on structural reforms. In the medium to long term, high and sustainable growth rates require substantial structural reforms to improve productivity and enhance competitiveness.
What are the most important changes to the Turkish Commercial Code (TCC) that foreign investors should be aware of?
The new TCC brings a whole new structure to the business world; therefore, there are several articles that both foreign and local investors should be aware of. The new TCC is based on the corporate governance approach. The regulations parallel to the corporate governance principles regarding transparency, management, and control mechanisms will definitely improve the business and investment environment in Turkey for foreign investors.
The new TCC requires at least one board member to be a Turkish citizen and resident in Turkey. This means that a new Turkish member must be appointed to the board of directors if all the board members of the company are currently foreign. Secondly, the new code allows for “one-man companies.” The former code requires at least five shareholders, both for limited and incorporated companies. In other words, the main shareholders will not be obliged to distribute small amounts of shares to establish a limited or incorporated company. One man can also be a legal entity.
The new code will set out a more transparent business world both for local and foreign investors. We believe that the regulatory framework is crucial to improve the business and investment environment in Turkey. Therefore, we have strongly supported the enactment of the TCC and continue our support for secondary legislation. We believe that there is still room for improvement in legislation of this magnitude. For that reason, we continue to work on our position in the due process.
What sort of regulatory changes still need to be made to improve the business environment in Turkey?
Unemployment still ranks as one of the top priorities in Turkey. In order to fight unemployment, the burdens on employment should be decreased further. Decreasing non-wage labor costs will also contribute to efforts to integrate the informal economy into the formal economy. In order to satisfy this objective, we believe that efforts aimed at decreasing non-wage labor costs and increasing the transition to a formal economy should be implemented simultaneously.
On the other hand, laws regulating work life should be consistent with and respond to the needs of the labor force. Flexible working methods, which were included in the revised Labor Law in 2003, are not common in practice. The “flexicurity” approach can contribute to the maintenance and improvement of employment, the reduction of the informal economy, and the creation of jobs for specific groups like women, the young, and the disabled.
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