tepavEconomic Policy Research Foundation of Turkey

Güven Sak

12 February 2010, Yerevan

Turkey’s regional integration: Is it economic transformation or shift of axis?

Overview

What is TEPAV?  How Turkey is changing?

1980s, 1996, 2001.

Is there a shift of axis? Turkey being aware of her neighbours  An era of rapprochement everywhere?

What TEPAV has been doing for regional integration and cross‐border cooperation ? Israel‐Palestine; Afghanistan‐Pakistan; Border Management; Capacity 

building in Central Asian Republics.  Strengthening connections between Turkey and South Caucasus?

• Georgia, Armenia

Conclusions  

Slide 2

Economic Policy Research Foundation of Turkey (TEPAV)

Established in 2004, with the support of the Union of Chambers and Commodity Exchanges of Turkey (TOBB) as an independent, non partisan think tank in Ankara 

Assistance to decision‐makers by contributing to evolving political, economic and academic debates shaping Turkey’s future orientation

Establishment of regional platforms and dialogue mechanisms

www.tepav.org.tr

Slide 3

TEPAV’s interdisciplinary approach Three major disciplines:

Economic policy Governance Foreign policy 

Cross‐cutting themes: Competitiveness Regional integration EU accession process

Modus operandi: Policy oriented research, issue 

based advocacy  Project design implementation, 

capacity building   Needs analysis 

GovernanceStudies

Economic Studies

Foreign Policy Studies

Slide 4

What makes TEPAV unique in Turkey and surrounding region? Knowledge production

A strong in‐house research capacity (35+15) An extensive network with academics and experts (based in the campus 

of TOBB Economics and Technology University) Strong ties with the international organizations (The EU Comission, 

World Bank Group, OECD, GMFUS, Brookings, CSIS) Knowledge distribution / dissemination 

Close contact with TOBB’s grassroots organizations (364 chambers all around Turkey)

Network with the public administration Strong impact on the media (daily columns, press releases and briefings)

Diversified financial resources to sustain activities

Slide 5

How Turkey is changing?: Transformation of Turkish economy 

after 1980Liberalization and increasing role of the private sector transforms Turkey 

into a regional economic power

Slide 6

An overview of the recent progress of Turkish economy

1980 2008Number of companies 90,000 640,000

GDP (billion $) 70 700Per capita GDP (USD) 1,500 9,000

Exports (USD billion) 3 132Exports per worker (USD) 65 1,800Industry share in exports %10 % 92 (60% to EU and US)Number of exporters 1,000 47,000

Tourism revenue (billion $) 0,3 21

Ranking in the world 25th 17th(in terms of GDP)

Slide 7

Post 1980s transformation as a result of economic reforms

Before 1980s: Import‐substitution industrialization Major industrial centers: İstanbul, İzmir, Adana, Bursa• Peripheries: Kocaeli, Manisa, Mersin, Eskişehir

After 1980s:  Export‐oriented industrialization New emerging industrial cities (Anatolian tigers): Denizli, Gaziantep, Kayseri, Konya, Ankara

Slide 8

Mass urbanizationMigration from rural to urban areasReversal of 75 to 25 percent distribution

Proliferation of industry in AnatoliaGaziantep, Denizli, Konya, Kayseri, Kahramanmaraş

Organised industrial zones experienceGebze as the manufacturing base of Istanbul

Transformation in retail sectorShopping malls and new urban life

An Unintended consequence: Political transformation “Look who is in power now!”

It is a process of total transformation:

Slide 9

Emergence of a new(?) middle class

1999 2003 2006 2008

Automobile Sales (in thousands) - 359 622 494

White Good Sales (in millions) 4 3 5.5 5.2

Airline Passengers (in millions) 30 34 59 75

Mobile Phone Network Subscribers (in millions) - 26.6 51.4 64

# of People Getting House Loans (thousands) 14 43 268 237

Consumer Credit + Credit Cards (billion TL) - 12.8 67.7 114

Slide 10

It is a process of total transformation: “Still under construction” Transformation process in Turkey is yet to be

completedIt should be seen as a process where Turkey has

started to come to terms with her past history and her geography.

There is a long list of domestic items that are under intense discussion.

EU process is important within this context important for a smoother transformation.

It is not shift of axis but being aware of your geography due to growing business interests.

Caucasian Future Slide 11

Turkey’s growth performance

Average annual GDP growth rate for selected periods, 1970-2009, %

43.6

3.2

6.8

4.5

0

1

2

3

4

5

6

7

8

1970-2001 1980-2001 1990-2001 2002-2007 2002-2009

Slide 12

Integration into the global economy: EU Customs Union met political and economic stabilityTurkey’s import and export volumes, 2001-2009, billion USD

Source: Turkish Statistical Institute

31 36 47 63 73 86107

13210241

5269

98117

140

170

202

141

0

50

100

150

200

250

300

350

400

2001 2002 2003 2004 2005 2006 2007 2008 2009

Import

Export

Slide 13

Rapid growth in manufacturing after mid-90’s

Export indicators of the countries in the region (1996)

Slide 14

Country’s share in total manufacturing exports of the region (%)

Share of manufacturing in Country’s total exports (%)

Algeria Azerbaijan

BulgariaEgypt

Greece

Israel

Romania

Russia

Saudi Arabia

Turkey

0%

5%

10%

15%

20%

25%

30%

35%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Today Turkey is the largest manufacturer in the region

Export indicators of the countries in the region (2008)

ArmeniaAzerbaycan

BulgariaEgypt

Georgia

Greece

Israel

Jordan

Kazakhstan

MaltaQatar

Moldovaa

Romania

Russia

Sırbistan

Tunusia

Turkey

UAE

0%

5%

10%

15%

20%

25%

30%

35%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Slide 15

Country’s share in total manufacturing exports of the region (%)

Share of manufacturing in Country’s total exports (%)

Rediscovery of neighbours:  economic impact of political rapprochement?

Improvement of political relations with neighbours, 2000‐2010 EU dimension: Greece and Bulgaria Russia : bilateral rapprochement sustained by energy cooperation Syria : better understanding on security related issues Practical effects of the ‘zero problem with neighbours’ 

approach Trade follows the flag? To a certain extend but mostly… Trade facilitation and border crossing improvements

Lifting of the visa : ie. immediate impact on cross‐border tourism with SyriaModernization of border crossings 

Importance of the neighbourhood in period of crisis

Slide 16

Sectoral diversification of exports to bordering countries

Slide 17

0

5

10

15

20

25

30

35

40

Georgia Iran Iraq Syria Russia

3

64

17

24

29

36

26

37

Number of sectors above $10 million exports

2000

2008

Regional employment trends during the crisis

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2009Q1 2009Q2

Change in registered employment in different regions of Turkey, y-o-y, 2009 Q1-Q2

Growth in region‐focused Turkey’s cities: role of the border tradeChange in registered employment and share of cross-border exports in different cities of Turkey, 2009 Q1-Q2

ADIYAMAN

AFYON

AĞRI

AMASYA

ARTVİN

AYDIN

BATMAN

BOLU

BURSA

ÇANKIRI

ÇORUM

DENİZLİ

DİYARBAKIREDİRNE

ELAZIĞ

ERZİNCAN ERZURUM

GAZİANTEPGİRESUN

HAKKARİ

HATAY

IĞDIR

ISPARTA

İSTANBUL

KASTAMONU

KAYSERİ

KİLİS

KIRKLARELİ

MALATYA

MANİSA

MARDİN

MERSİNMUĞLA

NEVŞEHİR

NİĞDEORDU

OSMANİYE

RİZE

SİNOP

TEKİRDAĞ

Ş. URFA

VAN

YALOVA

ZONGULDAK

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Employment Change

Share of MENA Exports

Geographic composition of Turkey’s exports: EU‐Turkey Customs Union brings Turkey closer to her region

54% 56% 56%48% 44%

11% 7% 10%

12%12%

11%9%

14%19%

19%

4%4%

4% 4% 8%7% 12%

4% 4% 3%

12% 12% 12% 13% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996 2000 2007 2008 2009

Other

NorthAmerica

North Africa

Near andMiddle East

Non-EUEurope

EU-27

Slide 20

TEPAV’s support to regional integration and cross‐border cooperation 

Monitoring and supporting the Turkish private sector in reaching out to neighbouring countries

Design private sector driven regional development projects

Establishment of business dialogue mechanisms Confidence‐building devices Capacity building mechanism at the local level  Development of joint initiatives to support regional development and cross‐border cooperation 

Slide 21

Strengthening connections between Turkey and South Caucasus – work in progress

How to improve trade?: Improvement of physical movement of goods between Turkey and the South Caucasus 

Trade facilitation : modernization of border crossings with the Caucasian neighbours

Feasibility study on the rehabilitation of the existing transportation network as a practical business oriented confidence‐building project

Feasibility study on cross‐border economic complementarities to design private sector driven regional development projects

Socio‐economic impact of the opening of Armenian‐Turkish border

Rediscovering through economically relevant projects for the Turkish‐Armenian borderland 

Slide 22

Meaning of border openingWhy good for TR?Increased penetration to the CIS market:

complementarityTransport routes to Russia and Central AsiaRegional development problem tackled.Short term impact: more trade from border provinces;

job creation

Why good for Armenia?Increasing the feasible set of economic operations is

good.Competition brings welfare enhancement

Caucasian Future Slide 23

Still need for confidence building steps? Preparing the Road for the Restoration of the 

Medieval Bridge at Ani Cultural Corridor across Arpaçay/Akhourian River for Rebridging Turkey‐Armenia Divide

Slide 24

The project aims at preparing the ground for the joint restoration of the Ani Silk Road bridge

Raise awareness for the need to protect the cultural heritage, to develop across‐border political willingness for the renovation of Ani Silk Road Bridge,defined as a cultural corridor between the two nations.

An advocacy with the participation of officials, experts, businesscommunities and civil society actors to trigger a momentum supportive ofthe initiative.

Channel resources for collaborative scientific research and investigation ofinternational examples of multiple stakeholder restauration of the Ani Bridge

Support the decision‐making process by setting cross‐border governancestructure and the joint restoration task elaborate recommendations for theestablishment of operational mechanisms for consultation and consensus‐making

Look for potential investors

Slide 25

Cross‐border tourism cluster 

Slide 27

Conclusions

Private sector development in the region should be considered as a key component of the regional transformation process  It is not only about governments but direct communication among

peoples to do business

Linkage between cross‐border economic relations and regional development Regional disparities among provinces could be tackled through development 

of cross border economic clusters: Good for everybody. The more the value chain divided between the two sides of the border, the 

more the complementarity: Solid basis for regional stability.

Turkish‐Armenian border opening and regional integrationA new opportunity and a new challenge for us all.