Turkey stepping up to eliminate regional economic disparities

BÜNYAMIN ESEN
Published

Turkey has had good economic performance for the last 15 years. According to figures from the Organization for Economic Co-operation and Development (OECD), the gross domestic product per capita in the country with current prices and public-private partnerships was $9,208 by 2002, and it had almost tripled to $25,655 by 2016. In the same period, the OECD average of GDP per capita has not even doubled (increased from $26,903 to $42,162). By 2016, the country became a G20 country with an economy size of $2.75 trillion.

Except in the Great Recession of 2009, the country has shown successive annual growth rates. In 2016, Turkey saw 3.18 percent growth in its GDP – the OECD confirms this. Last year, with a growth rate of more than 6 percent, the country became one of the economic growth champions in the world. The OECD and the World Bank estimates that the country will keep on growing around 5 percent each year until 2020.

In summary, in a region where political and economic stability is an exception, Turkey shows that it has a relatively stable and resilient structure.

Yet, this economic performance is not equally distributed nationwide. There are great regional disparities both in terms of economic development and wealth accumulation. This is one of the shackles on the country's feet, preventing it from freeing itself of the middle-income trap.

The main axis of division is between the western and the eastern regions of the country. The eastern provinces of the country are quite underdeveloped and underinvested when compared to the western parts. According to Turkish Statistical Institute (TurkStat) statistics for 2014, the GDP per capita in İzmir was $14,257, while it was $5,853 in Diyarbakır. Additionally, the human development index is extremely low in eastern regions compared to the west.

The second axis of division is between the coasts and inlands. Industrial development is located mostly on the coasts, which also attract the biggest chunk of other major economic activities such as tourism and services. Again, according to TurkStat figures, by 2014, GDP per capita in Antalya – the holiday paradise of the country – was $13,577 and $7,061 in Erzurum.

The third axis of division is between the urban and the rural parts of the country. The main industrial sectors, which are producing relatively high added-value and contributing to exports, are mainly located in the metropolitan cities, especially Istanbul, İzmir, Ankara and Kocaeli. Istanbul, with its population of 15 million, produces more than 30 percent of the added-value items in the national economy. Rural areas, on the other hand, are mostly based on farming and livestock, usually small-scale, unregistered and not quite productive. GDP per capita in Kocaeli by 2014 was $19,900 while it stood at $4,469 in Şanlıurfa.

Attracting investment in underdeveloped regions

How to attract investment to underdeveloped regions is the big question for Turkey. For some time, the country has been using several techniques. Tax incentives, social insurance premium discounts and public support for investments in underdeveloped regions are the most common ones. The country's Ministry of Economy uses a six-region based investment support scheme in which the sixth region consists of the worst regions in terms of development and investment.

Despite these efforts showing some success in closing regional economic disparities and attracting investment to underdeveloped regions, they have not yet triggered a real change in the picture. Structural problems, like terror, under-development, lack of skilled labor and fast urbanization, obstruct these policies from being efficient on the ground. Specifically, the terror threat of the PKK and its Syrian wings in the eastern regions are deterring investors from investing in these regions, despite quite attractive tax and premium incentives. More than 3 million Syrian refugees, who are unevenly distributed in the country, add another layer to the big picture.

Overcoming problems with vital projects

Nevertheless, Turkey recently stepped up with another ambitious project to fight regional economic disparities. The new project is called the "Attraction Centers Project." After a long delay, the Council of Ministers Decision on Supporting Investments under the Program of Attraction Centers will be published in the Official Gazette at the end of January.

Accordingly, the program, which aims to stimulate the investment climate in relatively less developed regions, contains support for investments to increase employment, production and exports. The least developed 23 regions were selected for this program exclusively. Manufacturing industry investments, and call center and data center investment projects, which are chosen as strategic sectors to increase employment rapidly, are to be supported by the public until 2020. These investments will be supported via investment certificates to be granted. The program supports energy expenses and first-investment costs, alongside tax and premium incentives, for prolonged periods and with high-amounts as defined for the sixth region classification of the Ministry of Economy.

The main aim of the Attraction Centers Program is to infuse the water of life in these underdeveloped regions and to help control high unemployment, especially youth unemployment, in these regions. The program is taking its first baby steps, and implementation is the important part. Yet, it must be underlined that it is the right step in the right direction. Time will tell whether this ambitious project, alongside other regional investment programs, will be effective enough to change the picture on the ground.

* Inspector at the Republic of Turkey's Social Security Institution. Master's degree in Social Policy from the London School of Economics; Ph.D. candidate in Political Science at Boğaziçi University

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