The World Bank released its Doing Business 2019 report just about ten days ago. And guess what? Turkey is among the top ten reformers this year. That is good, but not enough if Turkey wants to fulfill its potential. Let me expand on that a bit.
There has been some controversy about the Doing Business index recently, so it’s important to think about what the index represents. In an interview to the Wall Street Journal, the bank’s top economist Paul Romer raised doubts about the integrity of the bank’s Doing Business Indicators. He apologized to Chile for its rapid decline in the rankings, which he said was due to a change in methodology. In early 2018, the World Bank said that its Doing Business rankings were based on hard data, rather than perceptions. "Over the 15 years of its existence, the Doing Business Index has been an invaluable tool for countries looking to improve their business climate, tracking thousands of reforms,” said the World Bank press brief. Romer resigned from his position at the Bank, but went on to become the co-recipient of the Nobel Prize in Economics, so it was probably still a good year for him.
Here’s my two cents: the indicator is about changes in legislation, the time it takes to start a company, etc. All hard data, and all of it is collected and processed for all countries in the same way. As far as I can tell, no country or group of countries are ever targeted. As being a reviewer of the Doing Business report process in the past, I can attest to that at least.
Everybody is focusing on the lack of a structural reforms agenda, yet the country has gone through an ambitious reform project just last year. This year, Turkey climbed 17 steps from 60 to 43 out of 1090 countries in the ease of doing business index. This puts Turkey among the top ten countries with the most notable improvement in Doing Business 2019. The others are Afghanistan, Djibouti, China, Azerbaijan, India, Togo, Kenya, Côte d’Ivoire, and Rwanda. That’s not bad company, if you ask me. Not bad at all.
What does this tell us? Well, in 2017, when the currency crisis hit, Turkey’s Parliament worked hard to change legislation to make the business environment more conducive to private companies. This is a good thing by itself. One year after the failed coup attempt Turkey focused on something totally normal.
The government did this to improve Turkey’s rankings in the Doing Business rankings. The better Turkey performs in that very prestigious index, the more foreign direct investment it gets. It’s that simple. So Turkey improved in the neutral and dry work of bureaucratic efficiency, and it climbed up the index. There were no political biases involved here. No dark conspiracy trying to trip up Turkey’s rise. We did our homework, and were given the credit we deserve. The system worked.
Perhaps this lesson can be carried over to another indicator: the Rule of Law Index, published by The World Justice Project, another Washington-based institution.
Why is this index important? Brazil and Argentina are receiving more FDI when net FDI inflows to GDP figures are compared. For Brazil, it is 4 percent, Turkey and Argentina are both below 1 percent. This is despite the fact that Turkey has a far better raking in Doing Business than both Brazil and Argentina. Turkey is ranked 43, while they rank 109 and 119 respectively. So why do they get more FDI? One reason is that when it comes to the rule of law, the roles are reversed. Brazil and Argentina rank 52 and 46 respectively in that index, while Turkey ranks 101st out of 113.
This means that investors in Turkey know that they can do things like setting up a business without much hassle, but they are afraid that they might not be able to defend themselves in a court of law if they have to. They’ll have to find powerful friends and keep in touch with them all the time, and a lot of people don’t want to do that sort of thing. They want to park their money someplace where the rules are clear, and everyone has to follow them.
Can Turkey do this? Yes. It would also take Turkey out of the European Council Parliamentary Assembly’s waiting list. It would unlock the modernization of the customs union with the EU, which the country sorely needs.
This commentary was published in Hürriyet Daily News on 10.11.2018
