A city of billionaires?
Turkey is currently one of the leading nations in Europe. It ranks 15th in the world for GDP (using purchase power parity calculations) and the capital – Istanbul – contained 28 billionaires in 2010, the fourth largest amount for any city (behind only New York, Moscow and London). More impressive was their resistance to the financial crisis; when many banks in Europe and America had to be bailed out, not one Turkish bank went under (showing much better management by their banks). This lead to Turkey being one of only a few countries to actually be upgraded by the dreaded rating agencies during the last few years. Growth has also been impressive and during 2010/11, Turkey grew at world high rates of 7-9%. On top of this, the government has down well to not overspend, with their budget deficit under 2% of GDP (well below their neighbours) and their debt to GDP ratio at a modest 40%.
A graph showing GDP growth over the last two decades, found at http://curiousmalthus.com/2012/03/16/productivity-where-is-the-turkish-economy-headed/
So why is Turkey doing so well? One reason is that to an extent they have befitted from not joining the euro. The Lira (Turkish currency) was a strong currency at the start of the crisis and Turkey were able to adjust their monetary policy during the crisis to suit their needs, unlike their neighbours Greece who were stuck with EU policy that favoured centralized countries like Germany and France. If they had joined, Turkey would have had to partake in bailing out its neighbours (a drain on its booming economy) and seen its bond prices dragged down with the rest of Europe. Instead, Turkey was seen as a safe haven for investors and Istanbul is one of the financial capitals of the world. Turkey also gets the benefit of free trade with the EU despite not having full membership, one of the biggest gains from being in the EU but obtained without having to adhere to EU regulation.
Turkey’s desire to join the euro has decreased over the years.
Another reason is their geographical qualities. Firstly they are the main link between Europe and the Middle East/North Africa and vice versa. Exports to these regions have increased rapidly over the last few years as new markets are opening up, this is helping to offset decline in demand from Europe, with trade to Europe down from 56% to 47%. Secondly, Turkey has a large population which remains relatively young; this is a big asset and provides Turkey with a large labour supply for production. This makes the Turkish population highly wanted across Europe, with a lot of workers moving to Germany to take advantage of the renowned production capabilities the country possesses.
This shows UAE and Iraq are big customers for Turkey due to their economies growing, and this will only increase in the future.
Moreover, Turkey has become much more productive over the last decade. Productivity growth has averaged over 10% and has coincided with the privatisation of government owned firms (a tactic that has long produced more efficient firms). Structural changes in banking and telecommunication sectors as well as new technology open to the public have helped modernise the economy and allowed workers to gain new skills that have assisted Turkey in competing in the world market.
Shows Turkey’s productivity growth in the last two decades, rising high before crashing slightly during the recession. This was found at http://curiousmalthus.com/2012/03/16/productivity-where-is-the-turkish-economy-headed/
Finally, Turkey is benefiting from a stable government. A democratic government has given Turkey stability and respectability in the world market as investors aren’t scared off by government intervention that is notorious in communist states. The private market has been allowed to grow freely and as an Islamic state, is used as a role model for countries in the Middle East to follow. The years of military intervention were replaced with democratically elected officials, helping rid the country of the mass corruption that once held it back (though this is far from wiped out).
Turkish prime minister with Barack Obama.
However, all is not well. Human rights violations are persistently a problem within Turkey, as the EU and UN remain critical of “unfair” laws and claims of torture inside the state. These sorts of issues have long been detrimental to Turkey’s future and were the mains snagging point for their entry to the EU. Current controversies include the imprisoning of at least 100 journalists (larger than any other country) for example for charges like treason after covering press conferences of pro-Kurdish parties. Additionally, the now near extinct idea of gaining entry to the EU has slowed down reforms and FDI; as the optimism of gaining entry to the EU helped give momentum to the country and stop military intervention, but as the dream has died out so has the hope for a more liberal state.
Furthermore, Turkey has a poor current account deficit of 10%. This means they are currently importing much more than they are exporting, and their 10% deficit is easily the worst of all the emerging countries in the world. This means for Turkey to continue to grow they must rely on foreign financing, which could be more tricky now with Europe at a standstill and America less inclined to risk money. The Lira also remains tricky to predict, a standard problem for small currencies trying to compete in the world market. As with Iceland, Turkey were able to deprecate their currency when they needed to, but both currencies are now feeling the effect of fluctuations in the market (Oil price increases etc) and could do with the stability of a currency like the euro.
Showing Turkey’s current account deficit.
Turkey also remains vulnerable to the rest of Europe’s failings. As this article explains excellently; http://curiousmalthus.com/2011/12/01/how-is-turkey-immune-to-the-debt-crisis-in-europe-exactly/ Turkey are “Europe’s biggest lenders and their biggest customers”.
Overall, Turkey has been one of the success stories of the last decade, growing into a much stronger economy with a stable government. But a new model is needed if Turkey are to continue to grow, one not reliant on foreign investment but on exporting to the new growing regions of the Middle East/North Africa. Turkey could become key to linking Europe and these regions, but it will have to cut out some questionable policies (human right laws and central bank policies) if they are to be trusted by the leaders of these markets.