Managing Director & Senior Partner
Between 1991 and 2001, Turkey had nine different coalition governments and three major economic crises. The period following that decade of volatility and low growth, however, has been a prosperous one for Turkey. Political stability and financial reforms, combined with declining interest rates and declining inflation, powered real annual GDP growth of 5 percent from 2002 through 2013. And this hot streak is likely just the beginning.
On the eve of the World Economic Forum meeting in Turkey in September 2014, it is clear that the nation is poised to emerge as a regional economic powerhouse. Turkey's ascendance will be driven by a host of strong fundamentals, including:
Certainly, despite these strong fundamentals, Turkey also has some very real challenges. The country's proximity to the multivariant volatility of the Middle East is one such challenge. Its current account deficit, while declining, continues to be another major concern. The government has taken solid steps to incentivize exports and private investments in industries that have import substitution potential. And the government is also taking measures to make private pension investing more attractive (it is still very low, at 15 percent of GDP), an effort that will support a more appropriate source of funding for the current account deficit.
There is opportunity to do more, of course. The value of Turkish exports is only $1.50 per kilogram, very low compared to other developed countries. In order to develop a truly export-focused economy and decrease its current account deficit significantly, Turkey must boost high-value exports. To this end, it should increase R&D spending, which currently equals only about 1 percent of GDP—one of the lowest levels among similarly developed countries with aspirations to become global economic leaders.
In addition, there is room for progress when it comes to the role of women in the workforce. Female labor-force participation in Turkey is only 30 percent (it is even lower in rural regions of the country), well below that of other developed countries. Finally, there is a clear need to speed up the reforms that started with the EU accession process and to invest more in infrastructure, especially railways and ports. Addressing this latter issue is critical to support Turkey's expected trade growth and to fully exploit the unique geostrategic position of the country.
As Turkey assumes the presidency of the G-20 and hosts the Business 20 (B-20) Summit next year, the country's economic role will be in the spotlight more than ever. And this will not end with the summit. With powerful fundamentals at work and continuing structural reforms, Turkey's prominence on the world stage will only grow in the decade ahead.