In the World Bank’s 2019 Doing Business Survey, Turkey was among the top 10 reformers. It has not been able to hold on to this position in the 2020 report that was just released. Yet the country’s ranking regarding ease of doing business has improved, moving from 33rd to 43rd. In the metrics of doing business, Turkey looks better than before.
Turkey was 69th in the index just a few years back. Yet the pace of reforms for improving the country’s place in the Doing Business Index (DBI) since then took us to 33 among 190 countries ranked. Keep in mind that this is a national competition for the interest of global investors, and in those terms, some may be surprised to find out that Turkey is performing well. I think there are three points to consider on this issue.
First, the mere fact that Turkey places importance to its place in this perception-based ranking is something positive. It shows us that contrary to what we may hear in the news cycle, Turkey does care about having healthy links to the outside world. It wants to be more integrated with global markets and attract more investment.
Second, we have to look at why Turkey isn’t doing better. Turkey ranks 120 among 190 countries in resolving insolvency, which does not look good for a country that ranked 33 on average. We obviously have a structural problem in the judiciary. The Turkish court system is plagued by operational problems. It’s not only about resolving insolvency – Turkey’s rank in the category of enforcing contracts also regressed from 19 to 24 since last year.
In a country where the objective is to ensure a swift bank balance sheet clean up, ranking 120 in resolving insolvency could raise eyebrows. Note that according to the DBI, it took an average of five years to resolve insolvency in Turkey, while this could be done in 1.7 years in high-income Europe. There are also considerable costs to resolve an insolvency in Turkey. All that is why the talk in Ankara about an imminent justice reform package is very timely, if you ask me.
Third issue in my mind is more general. Performance metrics are a good way to make you assess whether your strategy is working or not.
Yet there is always the danger of focusing too much on the metrics and losing sight of the reality that the metrics were set to represent.
In Turkey’s case, if the strategy is to achieve a 12-percent jump in the private sector investments to have 5 percent growth in GDP in 2020, then the country does need to create a more conducive business environment for the private sector. That is why the country aims to improve its place in the DBI.
David Malpaas, the president of the World Bank, cautions right at the outset in his foreword to the World Bank report. “Potential investors consider many other factors, such as the overall quality of an economy’s business environment and its national competitiveness, macroeconomic stability, development of the financial system, market size, rule of law, and the quality of the labor force.” If Turkey adopted this attitude, the 12-percent jump in domestic private sector investments would be eminently doable. Focusing only on indicators only will make us blind to the reality of the economy.
This commentary was published in Hürriyet Daily News on 09.11.2019
