Why Turkey Is a Beacon in a Globalizing World

July 5, 2011 - PRLog -- In 2009, as the global financial crisis was hitting full force, the country looked as if it were going to be one of the prime victims. After six years of heady growth, foreign investment plunged. The economy contracted by a record 13.8 percent in the first quarter, the nation’s budget deficit skyrocketed, and pressure was mounting on Turkey to negotiate an International Monetary Fund bailout.
But now, Turkey’s economy is surging forward, having grown by 8.9 percent in 2010. In May, The Boston Consulting Group’s worldwide officer group gathered on the banks of the Bosphorus and there found an amazingly vibrant, cosmopolitan city brimming with confidence. In Istanbul, one can tangibly feel the excitement of an expanding and globalizing world.
Turkey’s impressive rebound owes much to sound fiscal policies and financial-sector supervision put in place well before the global financial shock came. Remarkably well capitalized, with few toxic assets, Turkish banks did not fail. As a result, the country needed no help from the IMF, and the economy was ready to boom when the crisis passed. This is a major reason why Recep Tayyip Erdoğan, the prime minister, and his Justice and Development Party won their third consecutive election on June 12, 2011, taking 326 of 550 seats in the parliament.
The country now seems poised to emerge as one of the world’s most important growth economies. From 2002 through 2008, before being hit by the global recession in 2009, Turkey was the fastest-growing economy among the 34 members of the Organisation for Economic Co-operation and Development. Its economy tripled during that period. By 2015, the economy is projected to pass $1 trillion in size, from $729 billion in 2010.
Yet, for all its success, Turkey is commanding less attention from CEOs than China or India. That needs to change.
Turkey’s economic performance is built on strong foundations. It has a young and increasingly well-educated population of 74 million, a fast-growing middle class, a broad export-manufacturing base, and an enviable geographic location that connects Europe and the Middle East. Turkey also has one of the Muslim world’s few stable secular democracies and is led by a government investing in all the right things—education, innovation, infrastructure, and energy.
Perhaps one reason for the country’s low profile is that many executives remember the Turkey of old. Founded as a republic in 1923—after the collapse of the once-great Ottoman Empire—Turkey endured decades of short-lived governments, hyperinflation, and IMF bailouts. After a banking collapse in 2001, the economy contracted by nearly 6 percent, the lira collapsed, and the IMF intervened.
The new Turkey began with the first election of Prime Minister Erdoğan in 2002. In Istanbul, we met with Mehmet Şimşek, a former top Merrill Lynch economist and strategist who serves as finance minister and is among a team of gifted young technocrats who have ushered in reforms. Şimşek recalled that when the Erdoğan government took office, interest payments consumed 86 percent of total tax revenues and Turkey had to spend one-quarter of GDP to recapitalize its banks.
To get its house in order, the government made some painful decisions, slashing spending to close budget deficits. It also cleaned up the banking sector, liquidating 22 banks and imposing a tough regulatory framework that included holding bank owners personally liable for bank failures caused by their mistakes. Public debt stands at 43 percent of GDP—one of the lowest among the OECD nations, and compared with 118 percent in Italy and 130 percent in Greece. In the 20 years prior to 2002, Şimşek noted, Turkey attracted $15 billion in foreign direct investment. In the last 8 years, it has received more than $97 billion.
Turkey still has challenges. Chief among them are a high current-account deficit, largely due to its dependence on imported oil, coal, and natural gas to fuel a burgeoning economy. Unemployment has fallen sharply but still hovers around 10 percent. Although Turkey is a major manufacturer of electrical goods, automobiles, and apparel, its companies lack global brand names and earn thin margins.
The government is investing heavily to push Turkey to the next level. It is building new rail lines, seaports, airports, and thousands of kilometers of highways. Over the next 20 years, it is expected to invest $100 billion in Turkey’s energy infrastructure, including natural-gas pipelines and renewable energy such as wind, hydro, nuclear, and solar power. Moreover, it is promoting innovation, and spending on R&D is targeted to reach 3 percent of GDP by 2020. Patent applications have already risen from near nothing to 6,000 per year. The goal for 2020 is 50,000 per year.
But the big focus is education, which has surpassed defense as the government’s number one budget expense. Şimşek spoke up for the transformative power of education, revealing that, as the child of poor, illiterate subsistence farmers, his schooling was critical. At a time when few in his region attended high school, he managed to earn a college degree in Ankara before pursuing postgraduate studies in the U.K.
Today it is possible for almost every Turkish child to attend college. Turkey may not have oil, like its Middle Eastern neighbors. “But we believe that if we can educate our own people, we can make a difference,” Şimşek said. The dream, he explained, is for Turkey to serve as a “symbol of how the West and the Middle East can thrive together.” These are powerful reasons why it is time for CEOs to take a hard look at Turkey.

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President of Turkish Student Council at Harvard Business School and Principal at Boston Consulting Group
http://rifatishakoglu.blogspot.com/