In the 19th century, the Russian Czar Nicholas I used the expression “the sick man of Europe” to refer to the crisis that crossed the then-Ottoman Turkish Empire, which ruled large parts of Europe, the Middle East and Africa. Therefore, sick, in the decades following the empire was dissolved, giving birth to modern Turkey. The label “sick man of Europe”, however, accompanied the new country along almost the entire 20th century, with periods of irregular growth, rampant inflation and runaway debt. However, the story kept a turnaround. Today the country is going through its best time since the Ottoman glory.
Inflation is under control, the national accounts are balanced and Turkey is experiencing a long period of prosperity, emerging as one of the most flourishing economies in Europe. While much of Africa still lives in fear for the effects of the last global financial crisis, Turkey has a record high of nearly 8% in GDP in 2010, according to International Monetary Fund forecast. At times, and saved the different proportions of size of the economy, the pace is already comparable to the Turkish emerging stars such as China. In the second quarter of last year, GDP growth was equal to the Turkish expansion in the Asian country – 10.3%. On a visit to the region in 2010, the British Prime Minister, David Cameron, called Turkey the “BRIC Europe,” a reference to the group formed by Brazil, Russia, India and China.
Several engines are behind the progress. Poor in natural resources, Turkey has turned to such sectors as industry, construction and services. His remarkable story is a lure for tourists worldwide. Its privileged geographical position, next to the big markets of Europe and Asia, made it possible to convert one of its largest suppliers. Turkey is one of the biggest European producers of vehicles, cement, electronics, furniture and clothing. In total, the country’s exports doubled from 2005 to 2008, to 100 billion dollars – just by way of comparison, Brazil, with a GDP almost three times higher, exported 201 billion last year. The country became one of the most attractive investment hubs in the world. In the last decade, foreign direct investment in Turkey increased from 1 billion to 18 billion dollars. This expansion rate was higher than the same period in developed countries like Britain and France.
The inflow of investment has accelerated in recent years thanks to a series of crucial reforms undertaken by the government. In late 1990, the Turkish currency has come to devalue 50% against the dollar, and inflation rates are orbited by 80%. Turkey was plagued by the “three evils of the economy,” a term used by British economist John Maynard Keynes in a lecture in December 1923 in London to refer to the bad distribution of income, the volatility of investors’ expectations and the high unemployment rate.
The situation was so serious that in 1999 the IMF was called to extinguish the fire of the Turkish economy with a loan of 15 billion dollars. In exchange, the Fund demanded structural reforms, such as submission to international banking regulation and less state intervention in the private sector. Even with lifeguards, IMF package in 2001 plunged the country into another economic crisis. It was then that the government launched a package of actions such as increasing the primary surplus, encouraging privatization and a policy of inflation targeting – all of them taken just before Brazil. To avoid systemic risks and to increase the volume of loans, the banking industry earned a regulatory agency and a consolidated legislation.
One of the winds that blow also for Turkey is a demographic phenomenon similar to what happens in Brazil today. Two thirds of the 78 million Turks are between 15 and 64 years, the most economically productive age group. The average age of its population is 29 years, the same in Brazil, and well below the more than 40 years the European Union. “In 2050, the country will have 100 million people, 30% more than France, which makes it one of the most attractive consumer markets in Europe,” said Christian Keller, an economist at British bank Barclays for the emerging markets of Europe.
The result of this growing number of consumers is that the domestic market is boiling. In all, over the past 25 years were built nearly 300 shopping centers throughout Turkey. Rarity in the Islamic world, the country remains unshaken faith in democracy and capitalism. Packaged by high consumption, retail groups, such as the Swedish H & M and French Carrefour, have increased their presence in the country. The British Aston Martin luxury carmaker opened its first store in 2010 in Istanbul, the city’s most populous and most vibrant commercial center since the days when it was known as Constantinople.
The challenge of maintaining a long-term growth is to address some barriers in the development model. One is the creation of more jobs. Currently, one out of ten Turks is outside the formal labor market. It is the second highest unemployment rate in Europe, just behind Spain. Another task is to invest in education. According to the World Bank, while the EU 23% of the workforce has higher education in Turkey this figure is 13%.
Unlike the BRIC countries, Turkey has improved its human development index – fell from 79 to 83 position in the latest ranking of the UN HDI. The tolerable level of social development still is a critics’ arguments for delaying Turkey’s accession to the European Union officially negotiated since 2005 but increasingly uncertain. Other issues, such as Islam and the invasion of Cyprus in 1974, are also considered. Recently, the Turkish economist Nouriel Roubini summed up the challenge of the country in a speech to local economists: “Turkey is making great strides, but much needs to train its people to sustain this growth.” As you can see, there are many similarities with the moment experienced by Brazil.