TURKEY - Finance
Country Director for Turkey, the World Bank
Martin Raiser is the Country Director for Turkey at the World Bank. He has a PhD in Economics from the University of Kiel and degrees in Economics and Economics History from the London School of Economics and Political Sciences. He has worked for the Kiel Institute of World Economics and the European Bank for Reconstruction and Development. Since joining the World Bank in 2003, Raiser held positions as the Country Manager in Uzbekistan and Economic Advisor in Ukraine. In his most recent assignment, Raiser served as Country Director for Ukraine, Belarus, and Moldova from 2008 until January 2012.
Our partnership with Turkey goes back many years; the first loan was extended in 1950, and since then we’ve been involved in a lot of different things. If you’re looking at things that stand out as successes, we’ve had a quite good run in the energy sector, including working with the regulator and the Ministry of Energy and Natural Resources. We have supported the renewables sector and energy efficiency among industrial companies and SMEs with credit lines, and have worked with transmission company TEİAÅž to upgrade the backbone of the transmission system. Now we’re working on a smart grid project with TEİAÅž and our colleagues from IFC are doing their own part by supporting private power sector investments. If you put all of that together, you get an idea of how the Turkish energy market has developed over the years, and we’ve been there every step of the way. We also worked with Turkey on its health reforms, which were so successful in ensuring universal access to healthcare that we are now using the Turkish case as a model for other countries to learn from. We also supported Turkey more than a decade ago in its very successful banking reform and stabilization program and have assisted the development of the sector ever since through the provision of long-term financing. Of course, we don’t only do financing; we do a lot of analytical work and, perhaps, one of our most interesting and exciting projects in recent times has involved working together with the newly established Ministry of Family and Social Policies to get more women to work. This is a clear business matter. You could argue that Turkey is only flying with one and a half wings as only 30% of women participate in the labor force. This is against the average 53.02% in the OECD. Our estimates suggest that if you close the gap between male and female labor force participation, which countries like Sweden have done very successfully, then Turkey’s GDP alone, as a result of that measure, could increase by 30%. This is significant.
In the short term, emerging markets are facing the normalization of global monetary conditions. This isn’t happening at maybe quite the pace people thought in May 2013, but interest rates will certainly go up at some point in the US and quite possibly in the eurozone, too. And, for a country like Turkey, which is so reliant on external financing, high interest rates are likely to dampen growth prospects. In the short term, there is not much room for macroeconomic policy to support growth. Policy makers have to be a little careful about pressures on the exchange rate and on inflation and probably need to accept lower growth. But if Turkey uses this as an opportunity to tackle the underlying structural reasons as to why it is so reliant on international finance, it may actually be a good thing. The structural issues around the current account deficit are relatively independent of global economic conditions. Turkey doesn’t save enough; it needs to boost its competitiveness and attract more long-term financing, particularly FDI. Why does Turkey not save enough? There are a number of reasons for that and the government is dealing with some of them, particularly on the consumer side. But, on the corporate side, some Turkish companies, particularly SMEs, are not profitable enough to save. And that’s related to them being not that competitive. If you want to be more competitive, you need to upgrade technology, and for that you need to invest more, and for that you need to have access to long-term financing.
On the FDI side, Turkey is now ranked 69th in the World Bank’s Doing Business 2014 report. Most of the high-income countries in the world, and several of Turkey’s high-middle-income competitors such as Malaysia, Mexico, and some of the countries in Eastern Europe, have done very well and rank much better than Turkey. Now, that is just one summary indicator, but it does suggest that Turkey has work to do to improve regulations and reduce bureaucracy; including making the courts work more efficiently so that more foreign investment comes in. If you want to upgrade technologically, you need people that have the skills to deal with modern technology. And there, Turkey has a huge catch up game to play by expanding the time people spend in education.
I think Turkey has done well in medium-tech sectors like automobiles, machinery, and, to some extent, metals over the last 10 years, having increased the quality of these products and, as a result, increased its global market share considerably. What Turkey hasn’t been very successful at yet is leapfrogging from the current technological mix to a high-technology mix. If Turkey is going to realize the ambitions of the government’s Vision 2023 strategy, this is absolutely essential. The government has some incentive schemes that may be attractive, although we have yet to see how much strategic investment they will bring in. The government has also boosted its own R&D spending, and opportunities will arise from that, too. Given high food prices globally, there could also be a lot of opportunities in agriculture and agribusiness, especially in relation to improving yields, upgrading water usage efficiency, and improving domestic food processing to meet international standards, particularly in meat and dairy.
Turkey is on the verge of moving into high-income status. Very few countries have actually have done this. Since the 1960s, only about two-dozen economies have managed it. One half of them are in Europe, and they benefited from what we call the European Convergence Machine. Turkey, in that sense, is part of Europe. In the short term, Turkey needs to moderate its growth ambitions simply because the international environment will force it to. However, if you take a five-year perspective or even beyond, I can possibly see Turkey growing at a rate of 5% a year if reforms are enacted now to strengthen its competitiveness. Indeed, Turkey has a few assets that are very much in its favor. First, it’s a very young country and it will still have a growing labor force until about 2040. In that regard, it still has quite a few demographic dividend years ahead. Turkey is also very well located. Here, you’re close to the largest integrated market; the EU. You’re also close to potentially very dynamic developments in the Middle East and Eurasia.
© The Business Year – November 2013
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