Turkish economy to continue growing in 2011

FARUK ?EN*
 

The projects undertaken by the Housing Development Administration of Turkey boosted the economy, allowed a million people to live in more modern and resilient houses and also curtailed the rise of slums at least to some extent around the country.

Turkey was able to avoid the damage that could have been inflicted by the global economic crisis of 2008 and 2009. Given the developments in the Turkish economy from 2002 until now, we can see that it is performing particularly well for the following five reasons:
Turkish currency reforms: In 2002 Turkey successfully eliminated six digits from the Turkish currency. Despite the popular inclination to still refer to millions, Turkey managed to position the Turkish lira (TL) as a strong rival against the US dollar and the euro in many aspects. EU and world economists watched this move by Turkey with interest. As a matter of fact, the number of countries that have been successful in their attempts to remove zeroes from their respective currencies is very small.
TOK?-led acceleration: The second important development in the Turkish economy came with the housing projects of the Housing Development Administration of Turkey (TOK?). More than 1 million people bought houses from these projects, undertaken by TOK? in cooperation with private construction companies. This not only gave a good boost to Turkish construction companies, but also ensured that people could acquire new and stronger houses and that the proliferation of shanty houses could be curtailed at least to some extent. The TOK? projects featured a good implementation of “win/win” system.
Social security and healthcare reforms: Despite the fact that the social security and healthcare systems of many EU countries are suffering significant problems, Turkey saw a number of promising developments in these areas. Thus, with the establishment of the Social Security Institution (SGK) to unify three major social security institutions — namely Social Insurance for the Self-Employed (BA?-KUR), the Social Security Authority (SSK), and the Pension Fund — under a single roof, and a slew of noteworthy developments — such as free healthcare services to the elderly — virtually no registered worker in Turkey is left outside the social security system. Turkey’s remarkable performance and success in social security and healthcare services has the potential to serve as model for EU countries in some respects.
Support for SMEs: The support and incentives provided to the small and medium-sized enterprises (SMEs) that make up 97 percent of the Turkish economy made it possible for SMEs and producers to have a better picture about the future and perform better within the general economy. Government support to the major holdings and corporations was gradually decreased and the resulting funds were transferred to the SMEs, which brought about certain positive developments in the job market as well. These incentives gave a good boost to the Anatolian Tigers, leading to the emergence of new trade hubs in Anatolia, adding to existing ones such as Denizli, Gaziantep and Kayseri.
Africa and Near East initiatives: Turkey has taken some good steps in its foreign policy as a concrete element of its economic policy. It established a number of embassies in Africa and Latin America. In addition, Turkey’s exports to and economic ties with African and Near Eastern countries have significantly improved. The share of our exports to these regions within our general exports is increasing with each passing day. In light of the positive developments in Turkey, the problems in the EU countries become more apparent. After two waves of expansion in 2004 and 2007, the EU currently consists of 27 countries with a total population of 500 million. The first problems arose in Hungary and Romania in 2009. This was followed by Greece, which needed 135 billion euros in aid to recover. Later, we saw similar negative developments in Spain, Portugal and even Ireland, which used to be the exemplary EU member country. Currently, Ireland needs more than 85 billion euros in economic aid, and EU officials know well that these countries, particularly Greece and Ireland, do not have much chance of recovering from the crisis. In addition, the situation in Greek Cyprus, Italy and Belgium will be more critical in coming years. It is estimated that Turkey’s growth rate for the year 2011 will be 7.5 percent.
On the other hand, the average growth rate for the EU countries is estimated at 3 percent for the same year. Having noted the positive economic developments in the country, what are the economic problems Turkey may encounter in the coming years?
Income distribution: Despite all these positive developments, Turkey cannot keep up with the EU countries in terms of income distribution. It only falls within the same category with Egypt and India in this regard. In Turkey, a country with a population of 72 million, 1 percent of the population earns 49 percent of the national income, while the remaining 99 percent earned only 51 percent. The lowest earning quintile receives only 4 percent of the national income. Another aspect of unequal income distribution is that while there are 49 million voters among 72 million people living in the country, the number of taxpayers is only 7.5 million. A comparison with Germany reveals the extent of the problem in Turkey. In Germany, with a population of 82 million, there are 61 million voters and 65 million taxpayers. Even young Germans over the age of 15 who are receiving vocational education are taxpayers. The first thing Turkey should do to solve the income distribution problem is to introduce a serious tax reform to prevent tax evasion. The fact that the unregistered economy is still as high as 55 percent is striking in this context. Furthermore, introducing frequent tax amnesties is taking its toll on Turkish people’s tax obligations.
Growth targets: It would certainly be beneficial if Turkey’s growth targets comprised more sectors. The current growth performance of the country is largely attributable to the housing and automotive sectors. Recently, a number of sectors have experienced notable growth, particularly textiles. Given this context, in the coming years, Turkey should identify 20 sectors and ensure their growth based on exports and without reliance on imports.
Negative signals in livestock production: Turkey is not successful in livestock production despite the 777,000 square kilometers of land that can be used for this purpose. The annual meat production per capita is 86 kilograms in Germany compared to 19 kilograms in Turkey, which has resulted in a number of adversities particularly with regard to the nutrition of people in Turkey. Turkey needs to follow a serious policy concerning dairy and meat products. Indeed, a kilogram of beef is three times more expensive in Turkey than in the EU countries. In this regard, it would be beneficial for Turkey to take the EU’s Agricultural Guidance and Guarantee Fund as its model. A total of 45 percent of the EU’s 130 billion euro budget for 2010 was allocated to finance what is known as the union’s Common Agricultural Policy (CAP), and significant investments were made in the dairy and livestock industries. This is particularly impressive given that the EU countries that agriculture and livestock production were allocated some 60 billion euros are industrialized countries. Still, they heavily subsidize agriculture and livestock production. This is an area largely neglected by Turkey, and as a result of this, the sector is on the brink of total collapse.
Tourism: Turkey invested heavily in tourism and adopted a series of rational policies to support these investments in the 1990s. Quality services are provided to tourists in five-star hotels at considerably competitive prices. While in the past some Europe-based Turkish tour operators caused some damage to Turkish tourism with their “all inclusive model,” this is no longer the case, and some successful Turkish tour operators such as GT? have made worthwhile contributions to the country’s tourism. However, Turkey is not likely to see a further increase in the number of tourists arriving in summer months in the coming years. Accordingly, Turkey must create strategies for attracting upper middle class tourists. Moreover, winter tourism, as well as what Europeans refer to as “third-age [senior] tourism,” is not sufficiently developed in Turkey. Let alone those in Bodrum or Marmaris, even the hotels in Antalya are left idle in winter, retirees from Europe tend to spend three to six months in hotels in various countries during winter, making big contributions to the economies of those countries. Islamophobia and lack of sufficient promotion prevents the third age group from preferring Turkey in winter. Serious strategies and advertising campaigns can be developed that even target homes for the elderly. In the same vein, Turkey performs poorly in city tourism. Despite the fact that ?stanbul, a world-famous city, was named a European Capital of Culture in 2010, we have not sufficiently marketed it abroad. In 2008, 13 million Germans visited Barcelona, a city that lacks the qualities of ?stanbul, while the number of the Germans who visited ?stanbul was barely 450,000. In this context, Turkish Airlines (THY) and tour operators should make ?zmir, ?stanbul and Bursa brand cities with respect to city tourism. Even small initiatives can make this possible for ?stanbul. A similar campaign can be launched for ?zmir thanks to the direct flights by SunExpress. Likewise, special emphasis can be placed on Bursa for city tourism as it is possible to market this city in Europe with direct flights from Germany offered by Lufthansa.
Logistics sector: Turkey has very powerful logistics companies also operating in Europe. However, the EU countries seek ways to promote Bulgaria as a rival against Turkey, and in this context, they pursue a number of adverse policies including visa requirements. Germany poses a number of visa difficulties for Turkish truck drivers for whom routes with higher toll fees, such as those in Hungary, are picked. Given the already good position of the Turkish logistics companies such as T?rsan and EMS in Europe, we can assume that they will grow further with support from Turkey. In the early 2000s, the Çetin Nuho?lu-led International Road Transport Union (UND) conducted successful lobbying efforts and took concrete steps. The new management is unfortunately not equally successful. Serious lobbying efforts at the United Nations and the EU, also with support from the Turkish government may give a good boost to the Turkish land transport sector. As for air transport, Turkey really could be ranked first in terms of airline quality in Europe. In addition to the successful and smart policies adopted by THY, a number of private airlines such as SunExpress, Pegasus, Atlas Jet, Onur Air and GT? have reinforced Turkey’s achievements in this sector.
New relations and new markets: The latest statements from the EU do not bode well for the economies of the Union’s countries for the coming five years. The 3.5 percent growth rate for Germany in 2010 notwithstanding, the EU has virtually turned into a union of countries with shrinking economies. The emerging global economies and markets, on the other hand, are India, China, South Korea and Indonesia. India and China constitute promising markets for Turkish tourism. While attaching great importance to Switzerland, a country with a population of 7 million, it is unreasonable not to concentrate on India, where 35 million Indians tend to spend their holiday abroad. Moreover, the BRIC bloc, consisting of Brazil, Russia, India and China, has evolved into BRIIC with the inclusion of Indonesia. Turkey should pursue a rational Far East policy and focus in particular on the markets in Pakistan and Bangladesh as brotherly countries. Like Turkey, these countries are characterized by small segments of the population taking the greatest share of the national income. In the 21st century, given the economic decline of the EU and US, the BRIIC countries may prove more important as partners for Turkey.
Regional and social support: A total of 40 percent of the EU budget is allocated to regional and social infrastructure. The most realistic and best implementation of this model, applied in many parts of Italy, Spain and Poland, has been in place in the Ruhr basin of Germany since 1980. Here, regional and social infrastructure funds are provided as loans to freshly established SMEs, with a grace period of three years and payable in 20, with an interest rate of 4.5 percent. Moreover, if these businesses hire young people between the ages of 18 and 29, or citizens ages 50 and above, or women, half of these people’s wages are sponsored by the state. This model is particularly suitable for Turkey. It can be implemented as a new development model in the Western Black Sea region such as Zonguldak and Karabük, as well as in the Southeast such as in Diyarbak?r and in eastern Anatolia including Erzurum. Using a five-year pilot study, its effectiveness can be measured and its flaws, if any, can be identified.
TOBB’s resources: The Turkish Union of Chambers and Commodity Exchanges (TOBB) is the wealthiest business organization in Turkey. In addition to the skyscrapers it owns, it can provide economic assistance to the state, such as by buying helicopters. Directing TOBB’s resources efficiently into new industrial investments may be accompanied by a parallel empowerment of the chambers of trade and industry in their respective regions. In this context, TOBB may select several pilot regions and bring about the changes witnessed in three or four other cities such as Kayseri, Gaziantep and Denizli. It is high time for this organization that exists on membership fees to lend investment support to its current and future members.
Tax reform: Turkey is a tax haven for the self-employed. No physician or lawyer in Europe can have a chance to evade tax while it is a rarity to find a tax-paying self-employed person in certain professions in Turkey. In this context, people in Turkey should see taxes as their economic and ethical responsibility. The number of taxpayers, excluding public servants and laborers, is unfortunately not high. An improvement is certainly needed in this area.
University openings: Turkey has 95 state and 45 privately run universities. By putting the exam to select foreign students under the control of individual universities, Turkey may turn into a higher education hub just like the US, Switzerland, the UK and Austria. The policy of seeking to attract students from Kyrgyzstan, Georgia, Pakistan and Lebanon, as well as from Europe and Africa, may create a good source of income for the country. At the same time, these students could serve as lobbying groups for Turkey in political and economic terms. In this regard, the Turkish Republic of Northern Cyprus (KKTC) can serve as a good model for Turkey. About 50,000 students, the majority of whom are foreigners, attend the four universities of this small country. Turkey should seriously consider implementing this model.
2011 is an important year for Turkey. We will have general elections in June. The current government is successful in many areas of economy while there are also some serious tasks that must be handled carefully. In this context, the main opposition Republican People’s Party (CHP) should formulate new economic policies and develop views concerning the aforementioned 10 areas. This applies to the Nationalist Movement Party (MHP) as well. Turkey must realize serious economic growth and lower unemployment and ensure social justice and regulate tax matters. If it can do this, it may become part of the BRIIC countries, turning it into TBRIIC, and will then certainly be the envy of EU countries.

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* Chairman of the Turkish-German Foundation for Education and Scientific Research (TAVAK) and an executive of REMA.

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