Therefore, those who are not capable of adjusting to the radical change in the landscape of the Turkish economy from isolated, low value-added sectors toward productivity-oriented, high value-added industries with competitive strength are complaining. This is quite natural. However, it is impossible to convince Turkish society, characterized by a very young and dynamic population, to wait around while local companies continue in their old ways. Also, borders start to disappear in a fully integrated world economy. Therefore, either local companies learn to compete with such a dramatic challenge via several varieties of joint ventures with foreign partners, or they may face even greater difficulties. However, rather than changing, some big companies prefer resisting by continuing to cooperate with certain anti-democratic powerhouses. This is a resistance to Turkey opening up and to the radical reformation leading toward a full-fledged democracy and a market-based competitive economy due to the fear of losing privileges. For this reason, this marginal but still quite effective class continuously propagates through the media they control the idea that the economy is not well managed by the government and therefore almost everything is going to become even worse. Unfortunately, it seems that these negative propagations have been effective in society, and therefore the outlook of local businessmen has worsened.
The reality is of course quite different, and we can capture this explicit difference by looking at the attitude of foreign investors to the Turkish economy. As the interest of foreigners in Turkey persists, I have had a chance to meet several experts from time to time who seek to forecast Turkey's future transformation. One of the teams that I met last week came from Dresdner Bank, a Germany-based investment bank which operates an office in Istanbul. Head of the Istanbul branch Mehmet Bostan has achieved remarkable success in project-oriented banking. The risk managers of the bank are trying to predict the future transformation of Turkish society, the economy and population.
I noticed that the focus of the bank shifted recently from the economy to certain political issues as the economy is jeopardized by political instability rather than short-term economic issues. One of the important topics put on the agenda is the uncompetitive, oligopolistic nature of most industries that prevent foreign entry, thereby also preventing competition and efficiency. Unlike the government, which has carried out market-conforming reforms and privatization measures, most of the industries controlled by the private sector are quite isolated. Therefore some drastic measures should be taken so that the latter environment can be replaced by one of fair and transparent competition. The second set of necessary measures is related to the lack of technical capacity of the available labor force. Therefore, improving education and training -- particularly in foreign language skills and technical education based on public-private cooperation and geared to private sector needs -- is crucial.
I also attended the meeting of the Investment Advisory Council for Turkey (IAC), which convened in Istanbul last Wednesday. CEOs and high-level representatives of 18 multinational companies, bringing in combined annual revenues of nearly $700 billion and having 1.5 million employees as of the end of 2007, participated in the meeting. The IAC noted in a statement that the council appreciates how much the Turkish government has done to transform Turkey's investment climate since their first meeting in 2004. In 2004, Turkey was capable of attracting only $1 billion of foreign direct investment (FDI), which surged to $22 billion in 2007. The Turkish economy has become the 16th largest economy in the world, and per capita gross domestic product (GDP) has almost tripled since 2001.
Despite some economic problems such as slowing growth, rising inflation and an ever-rising current account deficit, foreigners do not focus primarily on these issues as they are common problems almost everywhere currently and these problems are also seen as temporary issues.
Despite the fact the IAC members declared their continued interest in the Turkish economy due to existing investment potential, they also pointed to a set of measures that would enhance Turkey's investment attractiveness even further: (1) Enhance dialogue between industry and universities to promote entrepreneurship, leadership and management skills; (2) Accelerate energy sector reforms, including automatic cost recovery pricing, diversification, deregulation and privatization; (3) Move forward with labor market reforms that further enhance flexibility while protecting workers; (4) Improve infrastructure, particularly transportation and information/communication technology as well as the appropriate contractual and legal framework to facilitate public-private partnership and the build-operate-transfer model; (4) Further strengthen the implementation of legislation on intellectual property rights in accordance with international standards; (5) Reduce barriers to further penetration of broadband Internet and PC adoption; (6) Improve customs procedures; (7) Improve public administration practices by enhancing transparency, predictability and efficiency; (8) Strengthen measures to reduce informality, including combating tax evasion; (9) Encourage the growth of small and medium-size enterprises (SMEs) to drive employment and expand their role in the formal economy; and (10) Enact and implement the new commercial code to improve corporate governance and accounting standards.
