No oil, but a young population: Turkey’s economic growth prospects
ÖMER ARASTurkey has grown strongly over the last 12 years. Excluding 2009, when the global financial crisis was felt most, the growth rate ranged from 1 to 9 percent and averaged 6 percent. Going forward, Turkey needs to change its development model to achieve more sustainable growth. Value added production and export-oriented growth is the only way to go. So how are we going to achieve this?
Examining the nature of Turkey’s existing growth, we see some fundamental characteristics and driving factors: Turkey is an energy-importing country whose annual energy bill amounts to about 7 percent of its GDP. Moreover, its savings rate is low, at just 14 percent, leaving Turkey at the bottom of OECD countries on this marker. As a result of these two characteristics, the current account deficit is high. The country’s policymakers try to follow a “5-5-5 rule,” namely 5 percent GDP growth, 5 percent inflation, and 5 percent current account deficit. But the rapid debt growth and high inflation indicate that this demand-driven model of growth is not working.
As with all emerging markets, Turkey is basically playing catch-up, trying to close the gap with the advanced economies of the world. To do so, it needs infrastructure: Roads, dams, power plants, residential and commercial real estate investments, shopping malls, and so on. Accordingly, Turkey adopted a growth model over the last decade that was based on developing such projects. During this period, private sector debt soared and Turkey grew, riding on the back of domestic consumption and investment expenditures, including construction spending.
However, if we look at the macro-parameters, the relationship between recent credit growth and GDP growth is not as strong. Credit is growing but we do not see strong GDP growth. Are we in some kind of trap? We should know from basic economics: If debt is rising faster than income, the situation is not sustainable.
Per capita income growth becomes more and more difficult as the catch-up process progresses. As per capita income rises, it becomes more difficult to grow by capital investments. In advanced economies, the main driver of growth is productivity and the main driver of productivity is innovation.
Historically, countries that innovated and produced new things grew faster. Thus, the main challenge for Turkey is to transition its growth from a catching up process to value-added, efficient production-oriented growth. In other words, Turkey should promote innovation and thereby productivity. This can only be achieved by effective, high quality education.
Here, the key words are “effective” and “quality.” Increasing the quantity is not enough; we must increase the quality of our education. Turkey has the most valuable natural resource a country can have: A young population. If we furnish our youth with quality education, we will achieve our government’s targets for 2023 and beyond. We must radically change, and ideally revolutionize, the education system.
First, we have to accept that humans are naturally different and diverse. Look at your children: Are they all the same? Second, all humans possess curiosity as a fundamental part of their character. Finally, all humans have some form of creativity. Creativity should not be thought of merely as an artistic characteristic.
Education should teach people how to think, not what to think. The challenge is to find one’s abilities and facilitate the flourishing of his or her contribution to society. We must understand that education involves more than just graduating from college. In today’s fast-changing world, continuing education is equally, if not more, important. We must have systems in place to retrain our workforce in an efficient way. Education is cheaper and more accessible than ever.
Clearly, reform in education is only possible with greater budget allocations from the government. High-quality education promoting innovation and productivity is the only way to transform our economic development to achieve sustainable, export-driven growth. It is also the only way to make Turkey an economically competitive and politically stable country that guarantees the rule of law. If we miss this opportunity, our young population will never be the asset that it has the potential to be.
Dr Ömer Aras is the chairman of Finansbank. This article is an abridged version of the original article published in Turkish Policy Quarterly’s Summer 2014 issue. For more information, visit: www.turkishpolicy.com.