Its gross domestic product (GDP) per capita nearly tripled, the increase in foreign direct investment is remarkable, the foreign reserves of the central bank increased to $80.1 billion and inflation is under control.
Remarkably, the economic team of the current government managed to simultaneously improve social safety nets while boosting economic growth. This means that the improvements in social welfare are accompanied by economic growth.
However, the expected long-term economic growth has a number of the challenges to overcome. Currently, the main challenges include the current account deficit, balance of payments, the highly regulated financial market and the continued economic and financial crises in Europe.
The economic reform agenda of the government is aware of and is taking measures to address these challenges. The government is implementing tax reform and actions to reduce imports and is also seeking to transform İstanbul into an international financial center by deregulating the financial market. It is also following a policy of fiscal discipline to minimize the impact of the European financial crises on the Turkish financial market.
Today I would like to elaborate on one of the components of the Turkish government’s economic reform agenda, namely, the international financial center-İstanbul (IFC-İstanbul) project -- one of the initiatives of Deputy Prime Minister Ali Babacan, who heads the government’s Economy Coordination Board (EKK). In October 2009, the finalized Strategy and Action Plan for IFC-İstanbul included 23 priorities and 71 actions for the project to become fully functional and compete with other similar cities such as London, Singapore, Dubai, Doha, Bahrain and other global and regional financial centers.
Within the framework of Mr. Babacan’s IFC-İstanbul initiative, I believe that emphasis should also be given to develop İstanbul as a hub for international project financing. The initial focus would be on internationally financed infrastructure and energy projects in the Middle East and North Africa (MENA), Central Asia and Black Sea Economic Cooperation (BSEC) countries. It should involve: (i) attracting special purpose companies that manage such projects to reside in İstanbul; (ii) attracting world-class, state-of-the art financial engineering and legal expertise to İstanbul; and (iii) creating support facilities for international project financing (political risk management, international arbitration, syndicating investment and export credit insurance).
The proposal could bring the following benefits to İstanbul and Turkey at large:
-- Making İstanbul an administrative center for regional infrastructure and energy development;
-- Enhancing the competitiveness of Turkish construction and industrial companies, banks and insurance companies as well as financial, legal and engineering services in their bidding for international infrastructure and energy projects;
-- Facilitating concrete investment activities in a shorter term than results of the broader İstanbul-IFC agenda can be expected;
-- Stimulating implementation of the İstanbul-IFC reform agenda (improvements of the legal and financial infrastructures) by generating reform pressures from concrete projects.
Turkey has many competitive advantages that will enable it to position itself as a global hub of project design, finance and implementation services. Located at the crossroads of Europe, Asia and the Middle East, and with excellent air and sea connections to the centers of these regions and proximity of all stakeholders to infrastructure/energy projects in these regions, Turkey has a prime location. The country also enjoys strong political and cultural ties to various political and economic leadership groups in the region.
Turkey is already considered a strong player in engineering and related services and can play a key role in political risk management crucial to international energy and infrastructure projects. It also has a long-standing and rich project-financing experience, including the Anatolian railway, which was among the leading build-operate-transfer (BOT) models for public-private partnership in the region. Finally, Turkey is ideally suited to promote reconciliation of Western banking techniques and Islamic banking principles underlying project financing concepts.
The key Turkish and international players and stakeholders in the IFC-İstanbul project include Turkish construction and industrial holdings; Turkish banks with project financing experience; legal and accounting firms resident in Turkey; relevant Turkish public institutions; and international development banks including the World Bank, Islamic Development Bank (IDB), European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) as well as the top private international banks.
Mr. Babacan’s initiative for positioning Turkey as a competitive financial hub should be commended as a visionary approach to building Turkey’s competitiveness and expanding industry clusters that will create good jobs. Similarly, Turkey’s economic policy leaders should consider positioning Turkey as a hub for project finance, design and implementation, which will also create jobs for a new generation of young Turkish professionals while enhancing the competitiveness of many of Turkey’s professional service firms. The IFC-İstanbul initiative will also contribute to generating foreign exchange and will increase Turkey’s economic influence in the region, contributing to the peaceful and constructive role it is destined to play in the coming years.
*Arthur Bayhan is an international development economist and an expert on economic growth policies and national competitiveness initiatives with over 20 years of experience in transition economies of Europe, the republics of the former Soviet Union, the Middle East, South and Southeast Asia and Latin America. He has designed and implemented more than 15 national economic growth strategies including competitiveness and innovation initiatives in working with and advising more than 20 governments around the globe. He is a German national and can be reached at email@example.com.