Efforts to improve the business environment should be intensified in 2016

Efforts to improve the business environment should be intensified in 2016

The preparatory phase for the revision of the Customs Union will constitute a high priority on the agenda of 2016. 

While each carrying out their internal preparatory work to ready themselves for negotiations foreseen to start at the end of the year, both Turkey and the European Union will be evaluating the possible impacts of a revision of the Customs Union’s framework and an extension of its scope. It is expected that the modernization of the Customs Union would constitute an important catalyzer to boost trade and investments relations between Turkey and the EU. However, in order to grasp the full benefits of the new framework, it is vital for Turkey to improve its business environment to better attract European investors. 

Although Turkey ranks 55th on business environment out of 189 countries on the recently released World Bank Group’s “Doing Business 2016 Report,” much criticism regarding Turkey’s business environment has been voiced in the last progress report prepared by the European Commission, especially concerning the starting and closing procedures of companies in Turkey.  

It has been highlighted in the report that for a company starting a business in Turkey, it has become more cumbersome and expensive. The report also underscored that the procedures undergone by companies to exit the market are costly and take a long time.  Moreover, insolvency proceedings are also considered to be costly and inefficient in Turkey. Another criticism pointed out is that obtaining a construction permit is considered not only burdensome but also lengthy.  

All these put aside, as a candidate country under accession negotiations with the EU, it is expected that Turkey fulfills the economic criteria of having a functioning market economy and being able to cope with the competitive pressure and market forces within the union. Although Turkish economy is considered to be a functioning market economy, in this respect, the European Commission recommends Turkey to take the necessary steps to improve its business environment in order to become a more attractive destination for European investors.

These challenges highlighted by the European Commission in the Progress Report were also reflected in the Doing Business 2016 released by the World Bank Group. In the report indicators, Turkey performs very poorly in “Resolving Insolvency” (124th rank) and “Dealing with Construction Permits” (98th) and performs mediocre in “Starting a Business” (94th). However, over the last year, Turkey has shown improvement only in the area of obtaining the construction permit by facilitating the acquirement of a fire clearance. But despite this improvement, Turkey still has a long way to improve the procedures and conditions to obtain construction permits.

As a candidate country, Turkey is expected to be able to cope with competitive pressures within the union. It is also important to compare Turkey’s performance in business with that of member states as well as other candidate and potential candidate countries. When comparing Turkey’s performance with that of EU member states, Turkey falls behind most of EU countries with the exception of Greece (60th rank), Luxembourg (61th) and Malta (80th). Compared to candidate and potential candidate countries, Turkey is ahead of Serbia (59th), Kosovo (66th), Bosna-Herzegovina (79th) and Albania (97th).  These comparisons show clearly that Turkey has to improve the conditions for companies to start business, ease the process of doing business and facilitate the closure of companies. Turkey should essentially reduce the costs of notary and company registration fees as well as those of the cost required to obtain an electricity connection. Another area where Turkey urgently needs to take action is to improve the recovery rate for creditors following an insolvency procedure. The presence of a well-functioning insolvency system is also an important factor taken into account by entrepreneurs before starting a business.

The modernization of the Customs Union presents a great opportunity and should be considered an important stimulus for Turkey to carry on the necessary reforms that will improve the business environment. These internal reforms should be conducted and in parallel to preparatory work for the negotiation for the Customs Union in the course of the year 2016. In the long run to reduce its high current account deficit, this represents an opportunity for Turkey. 

*Selen Akses is Economic Development Foundation (IKV) senior researcher