Tuesday, Oct 17, 2017
Finance | Europe | Turkey

Growth beyond the 20

Three I’s to guide Turkey: Inclusiveness, Implementation and Investment


2 years ago

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Turkey has declared that 2015 will be the year of “inclusive and robust growth through collective action.” To achieve its aims, Turkey has adopted the so-called ‘Three I’s’ as the guiding principles of its presidency: Inclusiveness, Implementation and Investment for growth. We take a closer look at what these principles represent in practice. 

Inclusiveness
‘Inclusiveness’ may appear to be the most abstract of the ‘Three I’s’, but it is also the most important, underpinning the objective of a balanced global economy and running through the fabric of every workstream and activity of the G20 this year.  As Prime Minister Ahmet Davutoğlu explained in the priorities document of Turkey’s G20 Presidency, Inclusiveness has both domestic and global dimensions.

“At the domestic level, we must ensure that the benefits of growth and prosperity are shared by all segments of society. For this purpose, we will emphasize issues pertaining to small- and medium-sized enterprises (SMEs) as a cross-cutting subject, follow up our commitment to strengthening gender equality in employment, and address youth unemployment,” the Prime Minister said.  

“At the international level, challenges facing the Low Income Developing Countries (LIDCs) will be raised more vocally by the G20. This will be one of the defining aspects of the Turkish Presidency,” Mr. Davutoğlu affirmed.  

This focus on Inclusiveness has seen SMEs placed front and centre of G20 activities in 2015, most notably through the establishment of the World SME Forum by B20 (Business 20) in May 2015. Based in Istanbul, the World SME Forum has a mandate to provide advocacy, know-how, and e-knowledge to enable SMEs to better fulfill their potential as an engine of sustainable growth and job creation.

“We believe that in both developing and developed countries, SMEs play a critical role in boosting employment, innovation and competitiveness and, consequently, growth,” said Cavit Dağdas, Undersecretary of Treasury and G20 Finance Deputy.

“In many countries, at least 50% of employment comes from SMEs.  In the context of Turkey, 75% of employment, 50% of investments and 60% of exports are generated by SMEs. Although they are called ‘small and medium sized’, their economic impact is gigantic,” Mr Dağdas said.

Acknowledging that the G20 is not seen as a naturally inclusive entity, Güven Sak, Chairman of T20 (Think Tank 20), said the focus on SMEs was an important move that demonstrates the G20 is not only concerned with the interests of multinational companies.  

“The objective here is to turn SMEs into international companies and the way to do that is to help the multinationals establish stronger and more inclusive global value chains all around the world. We must ensure that leaders are not only acting for the vested intere-sts that dominate the globe now, but also allowing others to enter the game,” Mr Sak said.

Following the commitment made in Australia to reduce the gender employment gap in G20 member states by 25% by 2025, the Turkish Presidency established W20 (Women 20), an official engagement group led by female entrepreneurs, which promotes gender inclusiveness and gender equality.

According to Farah Mohamad, CEO of Girls 20, a group advocating the economic empowerment of women and girls, Turkey “absolutely” has the credibility to lead on issues of gender equality, despite having a relatively low rate of female participation in the workforce compared to other OECD countries.  

“There is not one country in the G20 that is at the level they need to be in terms of female labour force participation. But Turkey has a plan, and they understand the problem and the situation that we are all facing. They know that we have to find ways of doing things differently. So when it comes to accepting responsibility for moving the issue forward, the answer is a big ‘yes’ (Turkey is doing this),” Ms. Mohamad said.  

When it comes to Inclusiveness, the issue of youth unemployment is one of the biggest concerns for John Evans, Co-Chairman of L20 (Labour 20) and General Secretary of the Trade Union Advisory Committee to the OECD.

 “Youth unemployment affects the future because you’re basically destroying hope in young people and their view of society. Even highly-educated young people in a recession are likely to spend 15-20 years earning lower incomes than they would have previously expected, if they can find a job in the first place. The failure to resolve youth unemployment is still the worst side of the general unemployment problem,” Mr Evans said.

Heeding the calls for action, G20 Employment Ministers met in Ankara in September 2015 and agreed on a target to reduce the rate of young people at risk of exclusion from the labour market by 15% by 2025.   

The Turkish Presidency has also led to income inequality being placed in the G20 spotlight for the first time, with a consensus building that growing inequality is hampering economic growth in both developed and developing countries.

“In terms of domestic inclusiveness, the share of wage income has been declining as a percentage of GDP,” pointed out G20 Sherpa Ayşe Sinirlioğlu. “Turkey maintained a positive growth rate after the 2008 financial crisis but this growth is not generating the necessary incomes for the middle and lower strata of society. It is not creating jobs; in fact, there is a new phenomenon called ‘jobless growth.’ “

Argentina President Cristina Kirchner believes that her country’s model exemplifies the mantra of ‘inclusive growth’ espoused by the Turkish Presidency.

“We have a growth model based on social inclusion. And I want to highlight that it is both growth and inclusion, not one or the other, which was the standard practice in the history of Argentina,” Ms Kirchner said.

In line with the principle of inclusiveness, Turkey’s G20 Presidency has also made every effort to include the voices of LIDCs in G20 activities and discussions.

“We want Turkey’s presidency to be the bridge between G20 countries and the rest of the world. The actions and policies we are adopting within the G20 always have repercussions worldwide. That is why we want to show that the countries who are not part of G20 still matter to the member countries,” says Ms. Sinirlioğlu.

Implementation
Taking its cue from the old adage that ‘actions speak louder than words,’ the Turkish Presidency pledged that 2015 will see substantive progress in policy implementation. Prime Minister Davutoğlu declared that Turkey “will spare no effort in fulfilling its critical responsibilities, to steer the platform so that we achieve our ambitious targets.”

The most eye-catching target is the commitment made in Brisbane to grow G20 economies by at least 2.1% by 2018, adding some $2 trillion to the global economy. In order to achieve this goal, member countries committed themselves to an eye-watering 1,000-plus policy measures and reforms.  

“We want each member country to choose five or eight of the most impactful policy measures to start implementation as soon as possible. We are saying this year will be the implantation year of the G20,” said Ms Sinirlioğlu.
 
In its ‘Key messages’ document, Turkey’s G20 Presidency cautions against complacency in implementation. In addition to the goal of 2.1% growth by 2018, the document notes that implementation of the financial regulation framework will be crucial to its success as it will increase the resilience of the global economy. Implementation in 2015 also encompasses a wide range of other deliverables, ranging from Action Plans on Anti-Corruption and Energy Efficiency, to the target of reducing the gender employment gap by 25% by 2025 in all member states.  

On the other hand, experts point out that the ability of businesses to act and implement recommendations is dependent on whether the governments can create the right regulatory or investment environments for them to do so.

Expanding on this aspect of Turkey’s Presidency, Former Deputy Prime Minister Ali Babacan said Turkey will ensure more effective implementation through a new accountability template that will be used to follow up on performance.


Prime Minister Davutoğlu’s G20 Speech in Davos

Investment for growth
Turkey’s G20 Presidency shares the views of its predecessors that investment is critical for increasing global growth and generating jobs. Speaking in April 2015, Mr Babacan said that Turkey was introducing a “new narrative on investment.”

Turkey has proposed that each member state prepare concrete and ambitious national investment strategies to be presented at the Summit in Antalya, with a focus on tackling the “bottlenecks impeding growth.” These strategies should include measures to attract long-term institutional investors, enhance public-private partnerships (PPPs), promote improved access to finance by SMEs, improve the regulatory framework, improve efficiency of public investment, and support alternative sources of infrastructure investment such as asset-based financing.

 “Since the start of the global financial crisis, traditional sources of infrastructure and SME finance have been constrained. The banking sector, which has traditionally been a major source of funding for long-term infrastructure and SME investments, has undergone a significant deleveraging process,” explained Mr Dağdas.

Colombian Vice President Germán Vargas Lleras believes his country offers a prime example of the public and private sector cooperation needed to realize transformational infrastructure projects. He points out that his government is undertaking the most ambitious investment program in Colombia’s history. “I am talking about over $30 billion, the equivalent of four times the expansion of the Panama Canal. This project includes roads, ports, airports, river navigability and railways,” Mr Vargas Lleras said.

Under the AKP Government, Turkey itself has been an avid user of the PPP model for infrastructure ‘mega projects’, which continue to be developed across the country. Indeed, Turkey achieved the second highest score in the World Bank’s Private Participation in Infrastructure Database in June 2015, with Brazil in first place. Notable PPP projects currently under construction include the biggest airport in the world in Istanbul and the third bridge over the Bosporus.  

Large-scale infrastructure projects in Turkey have generally been built using the Build-Operate-Transfer model and financed by consortiums of traditional banks.  But as Tuncay Dinç, CEO of Borsa Istanbul, explained, capital markets will play a greater role in the coming years: “As Turkey gets used to a low interest-rate environment and the private sector looks for alternative financing sources, the corporate debt securities segment will flourish. “
As reflected in the agenda of the G20 Presidency, the Turkish government of recent years has shown a growing interest in the effectiveness of Islamic finance tools, such as sukuk (Islamic bonds) as sources of secure, long-term funding.  

 “In this regard, the Turkish Presidency would like to increase the awareness for Islamic finance among G20 members and encourage the G20 members to increase the role of non-traditional lending models, including Islamic finance,” Mr Dağdas added.

Turkey’s G20 Presidency has also continued to work towards the Global Infrastructure Initiative, which was agreed upon by finance ministers during Australia’s Presidency. In September 2015, finance ministers in Ankara endorsed a business plan for the fledgling Global Infrastructure Hub, which is intended to to help countries improve their general investment climates, reduce barriers to investment, grow their project pipelines, and help match investors with appropriate projects.



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