The state of the Turkish economy
Santa Claus is a citizen of Turkey – or he would have been if he was living today. In the third century, he was known as Saint Nicholas of Myra, today’s city of Demre in the province of Antalya. So he was one of us. Yet Santa brings no gifts to his fellow citizens this year. Instead, a pattern is now emerging around the Turkish economy for the year to come. This pattern will make us more vulnerable to outside shocks and it is hard to reverse. Maybe we were naughty.
For this year and the next, the growth rate of the Turkish economy is going to be lower than, and the current account deficit is definitely going to be higher than, their respective long-run averages. Take the long-run average as the period between 1990 and 2013. Fourteen years. The average growth rate for that period is 4.5 percent. The expected growth rate for 2014 and 2015 appears to be lower than 3 percent. For the same time period, the average current account deficit is around 4 percent. The expectation for 2014 and 2015 is 5.7-6 percent. In summary, we are expecting to get more of the bad thing and less of the good one.
You don’t have to be an economist to see the problem here – it’s not a sustainable scenario. If you were to graph it, it would be two divergent lines, getting shakier by the hour. That is important, because a low growth rate and a stubbornly high current account deficit is not an easy sell to portfolio managers. And of course, Turkey needs those guys to fund its upcoming year. “Not to worry,” you may say, “if you can’t market the idea of today, you can market hope for the future.” But that is more complicated than it sounds.
Let me give you a quick example. Not a single investor has so far applied to build and operate the new port near İzmir. Why not? I remember a senior figure from Singapore talking about the rule of law.
“Who is going to guarantee me that Turkey is not going to decide to build another deep sea port like this overnight?” he said, “You do not even have a master plan for transportation. And you are notorious for making decisions on a whim. Your country is like a one-man show.” Ouch.
Trust is the basis of business. As Saint Nicholas could have told us, the Latin root of the word “credit” is “credere,” meaning “to believe.” When all else fails, trust between the government and business can still save the day. But trust doesn’t come about on its own. The government needs to think deeply about what investors are looking for and demonstrate to them the belief it can provide. In our modern setting, that means serious planning in development and tough competition from other governments. And here, Turkey has been slipping, and slipping rather badly.
So if we want to stand out among other emerging markets, we need to build up trust. That will not happen overnight, which is all the more reason to get to work as soon as possible.