In this column, I focus on how Turkey is ranked according to this particular factor of economic freedom and how its ranking has changed recently.
The “Doing Business” report, co-sponsored by the World Bank and International Finance Corporation, has as its purpose to investigate and compare government regulations that either facilitate or hinder business activities around the globe. It ranks countries on their “ease of doing business,” based on 10 quantitative indicators listed in the table below.
“Doing Business 2007: How to Reform” (http://www.doingbusiness.org) updates the quantitative indicators of business regulations of the earlier three reports and increases its coverage to 175 countries, 20 more than in the previous report. In 2006, governments in 112 countries undertook 203 reforms to make it easier to do business. The most popular reform category was “Starting a Business.” Among the countries covered, Georgia was the top reformer, with Romania as the runner-up, and Mexico in third. Among the various regions, Eastern Europe improved the most, driven by the prospect of EU membership.
Turkey is listed just once among the reforming countries, several of them mentioned many times for multiple reforms. Turkey’s only reform was making it easier to pay taxes. The top 10 ranked countries in 2006 were Singapore, New Zealand, the US, Canada, Hong Kong, the United Kingdom, Denmark, Australia, Norway and Ireland, which were also among the top 10 ranked in 2005.
According to the table below, Turkey dropped in the rankings on the ease of doing business from 84th among 155 countries in 2005 to 91st among 175 countries in 2006. Its overall lower ranking was caused by lower rankings across all but one of the 10 indicators. What is striking is the very low ranking in both years in terms of the “Dealing with Licenses,” “Employing Workers” and “Closing a Business” categories. These are the areas in which reform is needed most urgently.
Even before the “Doing Business” report started to appear three years ago, the Foreign Investment Advisory Service (FIAS) of the World Bank Group had identified in 2001 the difficulty of doing business in Turkey in “Turkey: Administrative Barriers to Investment.” It documented and analyzed Turkey’s bureaucratic obstacles to foreign direct investment. Based on this and other FIAS reports, the Justice and Development Party (AK Party) government has been trying to enhance Turkey’s climate for foreign investment with its “Program to Improve the Investment Environment.” This program is being implemented through the Coordination Council for the Improvement of the Investment Environment, consisting of government and private sector representatives, and the Investment Advisory Council (IAC), consisting of the executive officers of various foreign multinationals. IAC has been holding periodic meetings in Turkey with high-level public officials, including Prime Minister Recep Erdogan, to persuade the government to cut red tape and reduce the costs of doing business.
These AK Party government efforts, although commendable, have shown few concrete results, often remaining at the level of a public relations campaign. Moreover, the government has mistakenly focused its efforts on improving the investment climate for foreign companies only, instead of trying to ease the burden on all businesses, especially domestic SMEs, some of which have sought a more friendly business environment outside Turkey. (See my column “The Rise of Turkish Multinationals.”)
Burdensome business regulations, which the “Doing Business” report shows to be plentiful in Turkey, are among the major reasons for the existence of the unregistered economy. In a future column, I will focus on Turkey’s unregistered economy, the subject of a newly issued report by the Turkish Industrialists and Businessmen’s Association.
