moving forward: an investment climate assessment for turkey
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Moving Forward: An Investment Climate Assessment for Turkey. Emre Deliveli Ankara, 13 August 2005. Agenda. Recent Economic Developments Changing Binding Constraints for Private Sector Investment Climate Assessment Objectives, Methodology and Examples Starting a Policy Dialogue - PowerPoint PPT PresentationTRANSCRIPT
Moving Forward:An Investment Climate Assessment for Turkey
Emre DeliveliAnkara, 13 August 2005
e c o n o m i c p o l i c y r e s e a r c h i n s t i t u t ee k o n o m i p o l i t i k a l a r ı a r a ş t ı r m a e n s t i t ü s ü
Investment Climate Assessment for Turkey Slide 2
Agenda Recent Economic Developments Changing Binding Constraints for
Private Sector Investment Climate Assessment
Objectives, Methodology and Examples Starting a Policy Dialogue
Government-Stakeholders World Bank Country Assistance
Strategy
Investment Climate Assessment for Turkey Slide 3
Changing Binding Constraints… The binding constraints of the 90s:
Macroeconomic (inflation, debt, RER, unemployment)
Political (unstable coalition governments, domestic tensions, terror)
Institutional (red tape, corruption)
2000-2001 crisis
Investment Climate Assessment for Turkey Slide 4
Macroeconomic Environment Declining Inflation, but… Declining Real Interest Rates, but… Productivity Growth, but…
Political Environment Stable one-party government, but… Improved policy certainty, but…
Institutional Environment Time to start up a business significantly shorter,
but… Equal treatment for domestic and foreign
investment, but…
Turkey’s Recovery since 2001 (1)
Investment Climate Assessment for Turkey Slide 5
Turkey’s Recovery since 2001 (2) Stabilisation and
Healthy Growth Structural
Transformation at the corporate sector
Rising Productivity and Competitiveness
0,00
20,00
40,00
60,00
80,00
100,00
120,00
140,00
Oca
-99
Nis
-99
Tem
-99
Eki
-99
Oca
-00
Nis
-00
Tem
-00
Eki
-00
Oca
-01
Nis
-01
Tem
-01
Eki
-01
Oca
-02
Nis
-02
Tem
-02
Eki
-02
Oca
-03
Nis
-03
Tem
-03
Eki
-03
Oca
-04
Nis
-04
Tem
-04
Eki
-04
Oca
-05
Industrial Production
Interest rate
Inflation
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
EmploymentProductionLabour productivity
economic program
Productivity Increases
Non-inflationary growth
Customs Union80
120
Source: Central Bank of Turkey
Investment Climate Assessment for Turkey Slide 6
GNP (billion $)
Growth (%)
Inflation (CPI%)
Public debt (% of GNP)
Budget Deficit (% of GNP)
Exports (billion $)
Foreign Reserves (billion $)
2001
150
-9,4
70
95%
17
31
19
2004
300
9,9
10
65%
10
60
35
Turkey’s Recovery since 2002 (3) Transformation Relative Stability Superior
Economic Growth
Investment Climate Assessment for Turkey Slide 7
Not everything is rosy… (1) Productivity increase not sustainable? Current Account
Imports of intermediate and capital goods are increasing… more than exports
Rising Trade Intergration has not led to an adequate Financial Structure
…yet patterns & trends seem promising FDI inflows Unemployment
Investment Climate Assessment for Turkey Slide 8
Investment Climate Problems: Tax System and Administration Labor Regulations Informal Economy and Anti-competitive practices Access to and Cost of Finance Access to Land Local Administrative Barriers (i.e. Licenses and
permits) Corporate Governance and Restructuring Low Technological Base Lack of Innovative Capabilities Lack of Skills
Not everything is rosy… (2)
Investment Climate Assessment for Turkey Slide 9
An Example: Institutional Environment Matters…
FDI Inflows to Turkey (million US$)
0
500
1000
1500
2000
2500
3000
3500
4000
4500Authorized
Realized
Source: Foreign Investment Directorate, Treasury
Investment Climate Assessment for TurkeySlide 10
Which one is binding now? For whom?
Sectors Sizes Regions Domestic vs. Foreign
Why matters? Low Investment Lack of competitiveness of local
industries How can we find out?
Investment Climate Assessment for TurkeySlide 11
Role of Investment Climate Assessment What are ICAs?
Survey
Policy Dialogue World Bank’s Country Assistance
Strategy
Background Papers Report
Investment Climate Assessment for TurkeySlide 12
Survey Sample 1300 manufacturing
+ 200 hotels 8 subsectors 5 regions, 19 cities 15% foreign and
exporting firms 80% representation
Value addedEmployment # of firms
473
140 123 11070 58 56 43 38 36 32 30 22 21 21 17 9
050
100150200250300350400450500
İsta
nb
ul
İzm
ir
An
kara
Bu
rsa
Ko
nya
An
tep
Ad
an
a
Den
izli
Man
isa
Sam
su
n
Ko
caeli
Kayseri
Eskiş
eh
ir
Mala
tya
Tra
bzo
n
Mara
ş
Erz
uru
m
65 73 77123 138
189
274
359
050
100150200250300350400
Investment Climate Assessment for TurkeySlide 13
What does an ICA provide? (1) Identifying the appropriate binding
constraints to doing business Variations across sectors / regions / firm sizes
Assessing the relationship between firm performance and investment climate components
Benchmarking against China New and potential EU members Other comparable countries (Argentina, Russia)
Policy recommendations and best-practices
Investment Climate Assessment for TurkeySlide 14
What does an ICA provide? (2)
611 Firms - % perceiving severe and very severe
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
TelekomAccess to LandTransportation
ElectrcityCustoms
Civil Unrest/ crimeLicenses and Permits
SkillsLegal System
Regulatory UncertaintyAccess to FinanceLabor Regulations
Cost of FinanceCorruption
Non-competitive environmentTax admin
Macro UncertaintyTax rates
Investment Climate Assessment for TurkeySlide 15
What does an ICA provide? (3)
20
30
40
50
60
70
80
90
Large
Medium
Small
Investment Climate Assessment for TurkeySlide 16
What does an ICA provide? (4)
0
10
20
30
40
50
60
Civil U
nres
t
Custo
ms
Acces
s to
Fina
nce
Skills
Electr
city
Trans
porta
tion
Acces
s to
Lan
d
Teleco
m
Large
Medium
Small
Investment Climate Assessment for TurkeySlide 17
Binding Constraints and Action Plans Binding Constraint in Pakistan: Low labor
productivity, higher wages Committee on Reforms in Regulatory Legal and Policy
Environment introduced labor market reforms Binding Constraint in Moldova: Over-
regulation, excess inspections, large agency fees and compliance costs New Inter-Ministerial Commission for
Deregulation Action Plan prioritizes curtailing inspections and agency fees, simplifying licensing and reporting requirements
Binding Constraint in Bangladesh: erratic and poor quality of electricity supply WB financed Power Sector Development
Technical Assistance Project ($15.5 million)
Investment Climate Assessment for TurkeySlide 18
Potential Ideas for Turkey’s ICA Implications for Industrial Policy Setting the priorities (not limited to):
Would regional Incentives / Subsidies work? What would be the performance gains be if the
energy costs were the same as in China? What are the root causes of lack of access to
finance? Is access to finance a problem for SMEs only or is it a problem for large companies as well?
Are exporters more productive than non-exporters? if yes why?
Does innovative capabilities depend directly on R&D activities? Or are they embedded in other characteristics of firms (exporting, licensing, education of managers etc)?
Investment Climate Assessment for TurkeySlide 19
Limitations of the Survey Data provides only a snapshot of the
economy: Dynamic Analysis in background papers
• Informality• FDI• Innovation• Red Tape
Conducting biannual ICA surveys (Indonesia) Dynamic Analysis will be captured with
accompanying projects:• Computable General Equilibrium Model
Investment Climate Assessment for TurkeySlide 20
Dynamic Analysis matters… Dynamic Transformation of the Turkish
Economy Sectoral transition
• Which sectors will become the engines of growth?• From traditional towards modern doing business (i.e.)retail
From informal to formal• Effect of informality on competition, public finance, and
productivity?
Sectoral and Corporate Restructuring • End of the dynastic family businesses?• Increasing importance of economies of scale and scope
Creative destruction & Transformation• Competition easier entry & exit
Investment Climate Assessment for TurkeySlide 21
Challenges Intensifying Global Competition
Annual Change in Manufacturing Value Added (%)
-2
0
2
4
6
8
10
12
14
16
Turkey Czech Hungary Poland Malaysia China Korea Thailand India Indonesia
1992-19971997-2002
Young EU Asia
Sustainability of transformation? Adopting EU standards (costly in the short term).
Solution: Infrastructure and public sector reforms (decreasing costs) Corporate Governance (institutionalization)
Source: UNIDO
Investment Climate Assessment for TurkeySlide 22
Long term Goals Innovative Policy Responses
e.g. textile sector in TR: EREZ in Palestine; mom&pop shops in retail
Technically correct Administratively implementablePolitically feasible
Policy Dialogue A dialogue instrument between business
community and government• Public-private partnership is crucial for policy success
Capacity building for policy formulation at TOBB Continuation of the YOIKK initiative Cooperation with and between different
government agencies
Investment Climate Assessment for TurkeySlide 23
Questions and Answers
Further questions and comments? Please send them to
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