Gov’t announces structural reforms to transform Turkish economy
by Daily Sabah
ISTANBULDec 18, 2014 - 12:00 am GMT+3
by Daily Sabah
Dec 18, 2014 12:00 am
Government focuses on structural reforms for sustainable growth, promises to rise savings, increasing efficiency, restraining unrecorded economy and aiming to realize the project of Istanbul finance center
Prime Minister Ahmet Davutoğlu has announced the details of the second Package of Preferential Transformation Program, part of the 10th Development Plan for 2014-2018. The second package consists of eight macro area-specific focuses: Increasing production efficiency, domestic savings, Istanbul finance center, public expenditures, public revenues, quality, business and investment development, statistical information and the reduction of unrecorded economy. Davutoğlu provided information on seven of the programs while the details of the reduction of unrecorded economy programs will be shared with the public in the coming weeks.
Increasing production efficiency
According to Davutoğlu, increasing production efficiency is crucial to increasing production capacity, improving competitive power and expediting economic growth. Only 0.3 percent of the growth rate, which was around 4.3 percent between 1981-2014, was due to the increase in total factor productivity. Therefore, during the term of the 10th Development Plan, achieving an increase in competition power and high and stable growth is aimed at also increasing efficiency. In this respect, the perception of efficiency will be improved, production processes will undergo reforms and added value will be increased in order to achieve this target. Additionally, while energy efficiency is an important aspect of production efficiency, it will not be addressed in this program; however, it will be included in another program.
Policies regarding infrastructure investments, education, direct foreign investments and research and development will also be applied along with the related micro-scale policies in order to support this target.
There are various reasons behind the low production efficiency. Mainly, the motivation of small-scale companies for growth is limited; therefore, the economy cannot benefit from scale economics. Furthermore, the lack of interaction between businesses has caused the lack of strong value chains. The labor productivity of large-scale companies – those with 250 or more employees – in Turkey is 5.1 times the labor productivity rate observed at small-scale companies – those with one to 19 employees.
Another reason behind the increase in efficiency rates is the inadequate development, transfer and implementation of technologies as well as lower-than-average labor qualifications in the technology sector. Therefore, while working toward increasing institutionalization and developing a concept of production efficiency, production processes will be improved and steps will be taken to decrease the scale-related problems. As they lie at the center of the efficiency problem and account for more than 90 percent of all businesses in Turkey, this program will mainly focus on SMEs.
The private sector is also targeted within this program and another program has been established to address efficiency in the public sector. The dependency on imports will decrease and domestic savings will increase as a result, and other programs created for training, professional qualification, technology, research and development, business and investment environment and an program against unrecorded economy will support this program. Moreover, reforms focusing on increasing and further developing the skills of the labor force will also contribute to this program.
These reforms are included within the scope of two preferential transformation programs: The Basic Professional Skills Development Program and Increasing Efficiency of the Labor Market Program.
While eliminating problems within sectoral competition will also help to increase production efficiency, this matter has not been included in this program.
Increasing Domestic Savings and Preventing Waste
Domestic savings defined as the unconsumed part of gross national disposable income are crucial for financing of investments. Even under open economic conditions, international data point out to that there is positive correlation between domestic savings and investment in developing countries.
In order to meet the government's medium-long term development targets, stable and high growth rates should be achieved.
Moreover, investments should also be stable in order to facilitate healthy, stable growth. Turkey's domestic savings rate, which is currently around 15 percent, is lower than other countries at the same economic level and within the same income group, as well as other rapidly growing countries. While the economy does not face any problems in accessing foreign financing, it is crucial to take precautions to increase savings in order to establish stability in investments and growth.
Wastage, which refers to inefficient use of current resources, decreases savings and puts pressure on natural resources. This program aims to increase domestic savings, which are the most reliable and permanent financing resources, directly increasing domestic savings to highly efficient investments and prevent waste while ensuring high and stable growth. The target is to increase domestic savings to 19 percent at the end of the term of the program.
Istanbul International Finance Center
In order to support economic growth and improve the finance sector, which has high added value, work began on the Istanbul International Finance Center (IFM) in 2009. It is important to continue these efforts in order to collect and distribute resources effectively, integrate with global markets and establish a finance sector that will provide global services.
Thus, in order to transform Istanbul into a finance center that has the power to compete in the international arena, the demands of the real economy should be met. Moreover, a transparent market that can issue many kinds of financial instruments, has a strong physical, human and technological infrastructure and is effectively supervised should be established.
The IFM Strategy and Action plan was published on the Official Bulletin on Oct. 2, 2009 and it was determined that the Prime Ministry's Circular on Administrative Structuring of Istanbul International Finance Center no. 2010/11 will be renewed at the end of three years. An IFM Preferential Transformation Action Plan has also been prepared.
- Make Istanbul one of the 25 global financial centers and one of the 30 most financially developed countries.
- Increase the share of the financial services sector within the GNP to 6 percent.
Enhancing the quality of public revenues
It is vital to collect public revenues from healthy and reliable sources with modern methods in order to foster an effective public financial system. In this process, taking note of economic and social objectives as well as financial concerns has become a necessity of modern public financial management.
Improving the quality of the whole process, including the creation of revenue legislation, collection of revenues and informing the public, is of the utmost importance.
The program aims to collect revenues in an efficient and economical way, ensure fairness in taxation, improve income distribution, help increasing the savings and reduce local management's financial dependency on the central government, in addition to basing the revenues needed by public financial system on healthy and continuous sources.
The program will address many important issues such as increasing social security premium collections and fighting informality, however, the areas to be focused are limited to following topics, which are also included in other Primary Transformation Programs.
- Improve the quality of service delivery in taxation.
- Obtain public revenues from healthy and reliable sources.
- Increase the ratio of municipalities' and special provincial administrations' equity revenues-to-GDP to 1.7 percent, excluding capital gains, at the end of the plan period.
Developing a business and investment environment
The problems with bureaucratic processes, legal processes and investment areas stand out among the main concerns of the business and investment community. It is thought that addressing these problems with more effective government policy and oversight will reduce uncertainties about investment and ease both domestic and foreign direct investments. This program will focus on the primary issues of the business and investment environment, eliminating uncertainties faced by investors and rapidly resolving the problems by improving present mechanisms and increasing investment.
- Increase the ratio of private sector investment-to-GDP to 19.3 percent by the end of 2018
- Enable the amount of cumulative foreign direct investment – excluding real estate – to reach $92.8 billion during the plan's period
- Enter into the list of top 40 countries in the Ease of Business Transaction Index
- Increase the amount of allocation for investment places by means of improving processes
Developing a statistical information infrastructure
Today, it is highly important producing accurate, reliable and timely statistical data so that societies can see their social, economic and cultural situations, make right decisions about the events and make healthy plans for the future. Furthermore, information provided for public is also considered as a strategic source for societies. Providing necessary information for making quick decisions, being open to innovation and development as a required by information age, creating a powerful infrastructure for statistics and information are all crucial for present and future of our country. Therefore, it is vital that all institutions taking part in producing statistical information, including the Turkish Statistical Institute (TurkStat), should be improved regarding statistical information infrastructure, as well as planning, implementing and monitoring statistical processes.
Increasing the number and quality of reliable statistics, which are obtained in a participatory, cooperative and planned statistics production process using scientific methods, will bring about the expansion of the scale of statistics that is need to be produced in line with national and international requirements. When considered from perspective, it is vital to maintain administrative records in an efficient and organized manner, elaborate on the existing statistical data and prioritize the production of statistics and other measurements.
- Establish a statistical portal to meet information and data requirements and needs
- Increase the number of statistics produced at international standards
- Produce statistics that focus on the region
- Establish a sustainable and integrated statistical system
- Produce statistics from registration systems