Upload
ratana
View
47
Download
0
Tags:
Embed Size (px)
DESCRIPTION
Economic Policy Research Institute. Structural Transformation of the Turkish Economy: The new agenda for adjustment, risk management, and competitiveness. TOBB – Economics and Technology University. Güven Sak Ankara, 26 April 2006. Agenda. - PowerPoint PPT Presentation
Citation preview
Structural Transformation of the Turkish Economy: The new agenda for adjustment, risk management, and competitivenessGüven Sak
Ankara, 26 April 2006
Economic Policy Research Institute
TOBB – Economics and Technology University
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 2
Agenda The on-going structural changes in the Turkish
economy Emerging risks and sustainability of the growth process
current account deficit unemployment creative destruction
Towards a brand new agenda and the role of the EU process adjustment management risk management raising competitiveness
Building capacity TOBB-ETÜ – Economics and Technology University TEPAV – Economic Policy Research Institute
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 3
New climate & contrasts What’s new? What has changed?
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 4
Where do we come from?The Turkish economy in the 1990s Despite huge potential, Turkish economy
significantly underperformed in the 1990s: boom and bust cycles in growth high and chronic inflation high public sector deficit fiscal indiscipline high levels of uncertainty (political and macroeconomic) very high interest rates
three economic crises, internal conflict, 1999 earthquake…
the 2001 economic crisis = GDP shrank by 10%
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 5
“Every crisis brings both opportunities and risks”A new process after 2001? Growth without inflation Interests rates are
falling Productivity is rising No net job creation
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
inflation
nominal interest
real interest rate
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Oca.99 Oca.00 Oca.01 Oca.02 Oca.03 Oca.04 Oca.05
Industrial Production
Interest Rate
Inflation
Non-inflationary growth (1999-2005)
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
1996 1997 1998 1999 2000 2001 2002 2003 2004
EmploymentProductionLabor Productivity
economic program
Productivity and Employment TrendsInflation and Interest Rates
Source: State Statistics Institutee
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 6
Features of the economic program after the 2001 crisis Monetary Discipline (coupled with Central Bank independence
and floating exchange rate regime) Fiscal Discipline Public Administration Reform Banking Sector Reform-Corporate Restructuring
Results and Outcomes: Impressive growth without inflation Rising Productivity as the driver of growth Unemployment does not decrease Move from implicit to formal inflation targeting Currency appreciates Current account continues to deteriorate
Of course, presence of some external factors help speed up the process (growing competition from East Asia, global liquidity etc.)
Reforms lead to a new incentive structure
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 7
And the new incentive structure changes the rules of the game at the corporate sector
Competitiveness need for cheap labor cost and price based very limited research
and development limited marketing
Competitiveness: need for qualified labor-
force quality-based focus on research and
development marketing innovations Investment Climate:
High Inflation Generous incentives,
subsidies Pegged Currency (95-01)
Old environment
Investment Climate: Low inflation Limited incentives, prudent
banking sector Floating Currency (post 2001)
New enviornment
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 8
Reflections on the economy The story on competitiveness
Integration into the EU economy New trends, new risks
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 9
The new game: Integration into the global economy Growth rate of trade volume
1989-2001: %8.5 2002-2005: %29
Increase in import of intermediate inputs 1989-2001: %8 2002-2005: %33
0
20.000
40.000
60.000
80.000
100.000
1989 1991 1993 1995 1997 1999 2001 2003 2005
Billi
on $
Export Import
Import and Export of Intermediate Inputs, 1989-2005, billion $
Source: Central Bank of Turkey 2005
Turkey in global economy increasing trade of goods
and services increasing foreign direct
investment change in the sectoral
composition in exports and in manufacturing value added
Customs union 2001 crisis
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 10
Apparel
Automotiv e
Textiles
Iron&SteelFruit&Vegies
TVs and Telecom
Electrical Machinery
Non mettalic minerals
Metals
transportation equipment
General machinery
Petroleum Products
Güç kaynakları (makinalar)
Plastic Materials
0%
10%
20%
30%
40%
50%
60%
0% 1% 2% 3% 4% 5% 6%
Competitiveness of Turkish Industries: Promising but also challenging…
Size of the bubbles indicate export volume in 2004
Star SectorsEmerging Sectors
Traditional SectorsSnail Sectors
World market share %
2000
-200
4 an
nual
gro
wth
rate
of e
xpor
ts (C
AG
R)
Source: United Nations COMTRADE
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 11
… challenging because China does not only mean cheap labor
Office Equipment
TVs and Telecom
Aparell
Electrial Machinery
TextilesMetal productsi
Industrial Machinery
AutomotiveIron and Steel
Furniture
Scientific Equipment
Metal-dışı ürünlerCoal products
0%
10%
20%
30%
40%
50%
60%
0% 5% 10% 15% 20% 25% 30% 35%
Size of the bubbles indicate export volume in 2004
Star SectorsEmerging Sectors
Traditional SectorsSnail Sectors
World market share %
2000
-200
4 an
nual
gro
wth
rate
of e
xpor
ts (C
AG
R)
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 12
The EU is Turkey’s largest trade partner
14
5
7
6
1111
17
8
7
11
8
5
13
8 311
26
914
USA
AfricaItaly
Other EURussia
Other Europe
France
Asia Germany
ImportsTotal USD 116 billion, 2005, (42% EU
share)
ExportsTotal USD 73 billion, 2005, (52% EU
share
USA
Middle East
Africa
Other
United Kingdom
Other EU
Other EuropeRussia
Germany
Middle East
Spain
Spain
Source: Undersecretariat of Foreign Trade
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 13
Fast integration into the EU: Could it be even faster? The share of the EU’s most dynamic 20 goods in Turkey’s total exports
is rising. (vertical axis) This means trends in Europe increasingly change the production structure in Turkey.
Turkey’s markets share in these markets also rise, but slower than those of Czech Republic and Poland. (horizontal axis)
Czech Republic 2004 (5.0)
Poland 1995 (2.3)
Romania 1995 (0.7)Czech Republic 1995
(1.4)
Turkey 1995 (2.1)
Poland 2004 (7.7)
Romania 2004 (2.2) Turkey 2004 (6.2)
5
10
15
20
25
30
35
0 0,5 1 1,5 2 2,5 3 3,5 4Market share in EU's most dynamic 20 goods (%)
Shar
e of
EU
's m
ost d
ynam
ic 2
0 go
ods
in m
anuf
actu
ring
expo
rts
(%)
Bubble site indicates countries' export value for the EU's 20 most dynamic imports (billion USD)
Market share in EU’s most dynamic 20 exports and the level of integration: 1995 vs. 2004
Source: United Nations COMTRADE
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 14
Emerging Risks & Sustainability of the Growth Process
Current account deficit and its structural components
Employment Trends• Demographic window of opportunity (or threat?)
• Structural transformation across sectors: Decline in agriculture
Rising creative destruction • Structural transformation within sectors: Move from traditional toward
modern in retail industry
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 15
Current Account: at scary levels?
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Cur
rent
Acc
ount
Def
icit
/ GD
P (%
)
-25
-20
-15
-10
-5
-
5
Cur
rent
Acc
ount
Def
icit
(bill
ion
USD
)
Current Account Deficit / GDP
Current Account Deficit (billion USD)
Source: Centrai Bank of Turkey
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 16
Fast growing sectors import more: Coincidence or curse? It’s a fact and a serious risk generating factor The current account deficit seems to have a structural component
and an external trigger (i.e. China), which are closely linked More “modern” sectors tend to be more dependent on intermediate
good imports. They are also the engine of export growth. Currency appreciation plays a role Cheap alternatives from East Asia Lack of strong local clusters in modern sectors (role of industrial policy)
Bottom-line: Production process are getting more global, but accounts remain national; and hence vulnerabilities.
Average Growth (2002-2005)
Import Dependency
office, accounting and computing machinery 37% 0.268 radio, television and communication equipment 27% 0.234 chemicals and chemicals products 11% 0.228 medical, precision and optical instruments 15% 0.226 Leather 1% 0.151 apparels -1% 0.132 Textiles 0% 0.13 Ttobacco products 0% 0.093 Source: State Statistics Institutee
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 17
Declining market shares in traditional sectors
Market
Share 1995
Market
Share 2002
Average Growth in
Market Share (1995-
2002)Market
Share 2004
Average Growth in Market
Share (2002-2004)
Turkey %4,6 %6,5 %5,1 %6,9 %3,6
China %2,9 %5,3 %9,4 %6,5 %10,9
Textile and Apparel Exports to EU-15 Countries: Turkey and China
The traditonal sectors that tend to grow slower in the recent years also face rising competition from China
The textile industry for instance, which makes up %12 of the manufacturing value added is going through hard times
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 18
Financial integration coupled with trade integration can mitigate risks
FDI inflows increase as a result of global value chain integration trade credits will increase more as a by-product
Portfolio investments increase (ISE) Central bank reserves increase consistently
-1%
0%
1%
2%
3%
4%
5%
6%
2002 2003 2004 2005
AS
A S
HA
RE
OF
GD
P
FDI PORTFOLIO INVESTMENTOTHER INVESTMENT CENTRAL BANK RESERVES
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 19
Recent employment trends: sometimes good is not enough
Sectoral Employment and Demographic Trends, 1999-2005, 1999 indexed to 100
Source: TÜİK and WDI
Agriculture employment
Service EmploymentManufacturing employment
Total Employment
Working Age Population
Industrial Production Index
70
80
90
100
110
120
130
140
1999 2000 2001 2002 2003 2004 2005
Growth in recent years does generate jobs. But it’s not enough, unemployment persists. Declining share of agriculture Rising working age population Plus: strong competitive pressures, high tax wedges, high productivity growth
Both trends will continue =
risk generating factors
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 20
Modernization inevitably leads to decline in agriculture EU accession process will surely
accelerate transformation (plus globalization and trade liberalization)
Turkey’s total population = 70 million Agriculture (33 %) = 23 million Services (43 %) = 30 million Industry (24 %) = 17 million
Agriculture33%
Industry24%
Services43%
Sectoral Distribution of Employment in Turkey, 2004
Economic Structure before and after EU accession in Greece, Portugal and Spain
Before Accession After Accession 1981 1986 1986 2001 2001 2001
Greece Portugal Spain Greece Portugal Spain
Agriculture 31 22 16 16 12 6
Industry 29 34 32 23 35 31
Services 40 44 52 63 53 61
Source: World Development Indicators
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 21
Demographic trends create opportunities as well as risks The share of working age population in the overall population in Turkey
has started to increase significantly. This stands out as a very critical advantage when compared to the demographic trends of Europe.
This ratio is at a decreasing trend for the EU countries, while it’s rising in Turkey. Ratios of both EU and Turkey will be equal in 2010, and then Turkey will overtake Europe.
Key challenges: Achieving above-normal growth rates for job creation Raising labor participation rates for seizing the opportunities
Western Europe
Turkey
45
50
55
60
65
70
75
(%)
Share of Working Age Population in Total Population, World Bank Estimates 2005-2050
Source: World Development Indicators
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 22
Is Creative Destruction in place?Closer look at the companies closing down
Source: State Statistics Institutee
0500
10001500
200025003000
35004000
45005000
# of companies closed down
1995-2005 Number of Companies Closed Down
2001 Crisis
Old trendline
New trendline
Floating exchange rate as a sweeping mechanism? As a mechanism to break the inertia As an igniting mechanism for creative destruction?
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 23
05000
10000150002000025000300003500040000 # of companies
opened
# of companiesclosed
1995-2005 Number of Companies Started and Closed Down
Is Creative Destruction in place (2) ?
Source: State Statistics Institutee
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 24
Structural Transformation of the Services Sector:An example from retailing
A projection for the future: Comparison of Spain and Turkey
If Turkish retail market structure is the same as in Spain by 2010, 86,000 traditional retailers would go out of business.
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 26
Winners and losers in retailing Winners Losers
End-points Organized chains
Groceries, traditional shops
Distribution Suppliers WholesalersTransportation Logistic firms Individual truck-
ownersProduction Brand-names Informal
producers (quality??)
Consumers are also winners because competition among organized chains drives prices down
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 27
Towards a brand new agenda Setting the priorities, implementing strategies
Managing the EU process Building capacity
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 28
Towards a new agenda Picture is not bad at all
recent growth performance
macroeconomic stability a new and healthy
incentive structure global integration with
also growing regional integration
However, risks are serious and require
competent management
Current account deficit Rising unemployment
Creative destruction .. + external factors: (i.e.
foreign affairs)
There is an urgent need for a new agenda Setting the priorities, strategic action plans, effective delivery Managing the EU process as a mechanism to mitigate risks Building the required capacity for the new environment
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 29
Setting the priorities We feel there should be three key areas:
Adjustment management Risk management Raising Competitiveness
Government needs to have the capacity to set the priorities design strategies implement effectively
If managed wisely, EU process will be highly useful
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 30
Solving the adjustment problem and the role of the EU The new incentive structure came in too
fast— if not managed effectively, then adjustment itself becomes a serious risk
The corporate sector needs to adjust to the new environment Modernization (Upgrading technologies,
M&As) Skills conversion Move from informal to formal activities
Urgent needs and the EU Funds + strategy + delivery capacity
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 31
Risk management and the role of the EU Current account deficit
As the EU becomes a stronger policy anchor, FDI flows will increase (as was the case in all new EU member states)
Unemployment and skills training (+skills conversion) EU funds and framework programs can help Inspiration from Korea (IT training for unemployed after the
1997 crisis) (millions of people) Creative destruction
EU will set the framework for the public sector reform as well as the restructuring of the services sector
A more efficient services sector will ease the pain resulting from creative destruction (of course, if coupled with skills training)
Regional disparities EU support programs for the Regional Development Agencies
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 32
Agenda for competitiveness and the role of the EU Strategic integration into the global economy
public-private dialogue mechanisms for right investment decisions
reform of the incentive system foreign direct investment strategy
Removing the barriers to investment, doing business, and productivity entry and exit barriers informal economy and scale problems services sector restructuring and input costs Fostering R&D and innovation improving the quality of the workforce quality standards
Cluster Development Programs
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 33
Building capacity for the new agenda Can the government undertake all of this all
alone? Capacity problems both at the decision making and
service delivery levels The need for public-private dialogue mechanisms Continuous feeding of the contents of the agendas
Removing the binding constraints to effective decision making and service delivery TEPAV – Economic Policy Research Institute TOBB – Economics and Technology University
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 34
TEPAV – Economic Policy Research Institute Developing policy tools for dialogues with the
government Industrial Policy Document (with State Planning Organization) Investment Climate Assessment (with the World Bank and
Treasury) Competition Environment Assessment (with the World Bank,
FIAS and Competition Authority) Higher Education Sector Project (with the World Bank)
Governance of economic development Decentralization studies, regional development framework
(with The Ministry of Internal Affairs and local authorities) Fiscal monitoring and transparency
Regional Integration Industry for Peace Initiative (with TOBB) Black Sea and Central Asia Project (with TOBB)
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 35
Economics and Technology University Demographic transition started long time ago
Skills conversion requirement as severe as skills training Training for the much needed skills
All students working closely with the industry Businessmen who can do business globally
• Multiple languages, interdisciplinary education Engineers who can innovate
• intense university-industry collaboration Civil servants who can analyze & design policy
• Master in public policy program (Harvard and SAIS)• Case study based education for the region• Extensive focus on networking
Sectoral Research Institutes
Transformation of the Turkish Economy: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 36
thank you
www.tepav.org.tr | www.etu.edu.tr