At one time, the second president of Ukraine wrote the famous book “Ukraine is not Russia.” Considering today's realities, it is time for us to write a new bestseller: “Why Ukraine is not Türkiye.” Despite the apparent contraversion and perhaps some tension of this comparison, let us remember the old wisdom that any comparison is lame, and in this case, the “lameness” is quite tolerable.
The genotypes of our two peoples are intertwined in much the same way as the phenotypes of national economies, only in Turkey these acquired traits, developed in an aggressive external environment, developed into stable state resistance to global crises, and in our case to a decline in country immunity. It will be all the more informative for us to study the experience of Turkish reforms, some of which could well have been implemented in our specific conditions. The profile of the Turkish economy and the landscape of the local business environment have changed dramatically in recent years, and the stereotypes formed in the minds of our “shuttle traders” from the 90s of the last century have forever remained in the past and have practically no “living” parallels in today.
Just 30 years ago, Türkiye was very similar to Ukraine in its basic parameters. In those distant times, Ukraine was trying to catch up with France, and Turkey had more modest tasks: this country took Germany as a reference point and simply began to move in its fairway, much like a seagull flies after a trawler in the hope of getting its share of fish. In 1983, the population of Turkey was 43 million people and by this indicator the Turks were inferior to Ukraine. Today, this figure is close to 85 million, which approximately corresponds to the parameters of Germany and exceeds the population of Iran, one of the key regional competitors.
It’s sad but true: during the same time, demographic indicators in Ukraine decreased, according to various estimates, by at least 20 million, and only a population census can provide a more accurate picture. In 1991, Turkey's GDP was about $208 billion, that is, slightly more than what we had in 2019. But since then, this country has become one of the world leaders in terms of economic development, with growth rates of more than 5% in recent years. In dollar terms, Turkey's GDP increased to $907 billion in 2022.
If we take the GDP per capita indicator, then at the moment Turkey is firmly among the top twenty countries and the “golden billion” of humanity. And in terms of GDP parameters at purchasing power parity, it ranks among the top ten countries in the world. In terms of GDP per capita, Turkey is already included in the group of countries where this indicator is around $10 thousand.
It is to economic success that the current president of the country owes his popularity and the support that he receives during the nationwide discussion of his constitutional initiatives. If we consider the aggregates of the Turkish economy in comparison with other countries that are included in the club of GDP per capita of more than $10 thousand, we will see that high rates of economic growth occur against the background of high inflation, which is quite unusual for this group of countries. At the same time, in Turkey, lending rates are lower than inflation.
This happens for one simple reason: in Turkey they are not afraid to use surrogate methods of reducing credit interest. For example, through the active use of preferential lending and compensation for part of the interest provided by special credit institutions. In addition, the country’s central bank managed to find its own special model of monetary regulation, which, although officially declared as a type of inflation targeting and the inflation target is, as it were, basic, but at the same time, its parameters were significantly changed and adapted to the needs of the real sector of the economy. In fact, the hidden goal of the Turkish central bank is to expand the monetary base to meet the needs of the real sector of the economy, while inflation is a derivative goal, and the interest rate is a tool to stimulate economic activity.
Diversification of different rates to support liquidity is used by the regulator so that interest rates on loans have greater elasticity towards their reduction. In Ukraine, they continue to fight inflation with approximately the same “medicines” that the good soldier Schweik was treated in the garrison hospital - “wet wraps and enemas,” that is, by increasing the base rate. It is obvious that in our case, inflation is extinguished by slowing down the dynamics of economic growth, and in Turkey - by increasing the supply of goods, for which the government is constantly strengthening economic incentives to warm up entrepreneurial activity.
Thanks to such policies, unemployment in Turkey has dropped to 9% and corresponds to the European average. But the main result is that Turkey has practically stopped the outflow of its labor force to the EU, which acquired catastrophic proportions in the 90s of the last century. For us, this is an excellent example of the fact that only active stimulation of the business environment by the state can make it possible to use moderate inflation for the benefit of economic growth and to stabilize the labor market. In our view, Turkey is a country with a colossal trading tradition, but despite this, the value of the current account, which shows the transactions of the national economy with the rest of the world in terms of trade in goods and services, as well as income and current transfers, is negative.
Thus, the goal of achieving a positive trade balance is not always a companion to active economic development, because if the Turkish model of creating industrial sites for European production is applied, it will be necessary to import many components, new equipment and technologies, that is, to increase imports. In this case, the active inflow into the investment account should act as a “straightener” of the balance of payments.
In relation to Ukraine, this means that the main task for developing countries is not to completely “substitute imports”, but to stimulate the structural restructuring of the economy towards industries with a higher level of added value, attracting foreign direct investment for this. This is what Türkiye did, progressively changing the structure of national production from agricultural products and light industry to mechanical engineering.
Türkiye has a fairly large external corporate debt, but at the same time has practically solved the problem of public debt. Back in 2001, the ratio of external debt to GDP in this country was 76.1%, the permissible limit of 60% was significantly exceeded. According to this indicator, this country was similar to Ukraine in 2018. At the moment, the debt/GDP ratio in Turkey has dropped to just above 30%. Turkey prematurely terminated cooperation with the IMF in 2013. The country's Deputy Prime Minister solemnly pressed the button and completed the final transaction to transfer the debt to the Fund's account.
The success of Turkish reforms can be summarized in the following points:
1. Successful tax policy, which consists of a fiscal preponderance for indirect taxes (tobacco products, the fuel and energy sector) and tax incentives for companies that invest in research and development. As a result, Turkey is one of the world's top three countries in terms of growth rates in electronics exports (Vestel occupies a fifth of the TV market in the EU).
2. Thanks to favorable business conditions, Turkey is turning into an assembly site for the automotive industry for Europe, and exports of mechanical engineering products have significantly exceeded the indicators of the light and footwear industries (nearshoring or industrial platform model).
3. The state actively stimulates exports and protects the domestic market, but not through simple bans, but using an active anti-dumping policy. There are lending and insurance programs for export operations; the state compensates up to 50% of business costs for creating trade offices and distribution abroad.
4. The state controls the maximum level of foreign capital in infrastructure sectors, such as transport.
5. Cluster development mechanisms such as industrial sites and special economic zones, which are located in depressed regions, are actively used. Economic entities receive significant benefits there: a special regime for calculating VAT and import duties, abolition of taxes on the import of equipment and components, preferential tariffs for electricity.
6. Application of preferential lending to small businesses. Turkey did not wait, like Ukraine, for inflation to drop “naturally” and create conditions for lowering loan rates. The reduction in interest rates in this country did not occur with the help of “monetary homeopathy”, but as a result of the use of more effective and radical methods of “treatment”.
Microcrediting in Turkey is carried out by the People's Bank or Türkiye Halk Bankası, which through an extensive network of branches issues loans in the amount of up to $35 thousand for a period of up to ten years.
7. Comprehensive development of the tertiary sector of the economy: services and tourism. Today, Türkiye cooperates with the EU in the format of a customs union. Thanks to this, Turkish exports, since 1996, have changed significantly towards such high-tech industries as automotive, electronic and electrical equipment, although previously the country focused on traditional industries: light and food.
The principles of Turkish import policy were formulated as follows: providing the country with imported supplies of raw materials and semi-finished products of high quality and at reasonable prices. In first place in the structure of Turkey's exports are vehicles, equipment, electrical engineering, which in total account for almost a third of export supplies, while light industry accounts for more than 10%, metallurgy - up to 8%, and agricultural products - only up to 3%. The customs union with the EU actively contributed to these transformations, since, unlike the FTA, it provided additional fiscal incentives. A separate issue is the need to create an FTA between Ukraine and Turkey.
Our export structure today is like Turkey in the early nineties of the last century: the same 40-50% of agricultural raw materials in the total mass of goods sold on foreign markets. Unfortunately, the structural changes that have occurred in our economy in recent years have made Ukraine a raw material appendage, and we will have a technological imbalance with any more or less developed country. In the context of Turkey, it is important to understand differently. This country represents a unique example of maximum trade integration into the European market, which in the case of another state would only be possible under the condition of full membership in the EU. At the moment, Türkiye is making the most of not only EU markets, but also its regional leadership.
The Turks buy Russian oil and process it at their petrochemical plants, supplying finished products to the European market. They do the same with our “oil” - sunflower oil. They not only buy Ukrainian “seeds” and make a finished product from it, but also buy our finished oil, transported by special tankers, and then bottle it under their own brands. The same thing happens in metallurgy: the Turks buy semi-finished products from ferrous metals (including from Ukraine - before the war) in the form of slabs, hot-rolled coils, square billets, as well as cast iron, and then produce steel and rolled products at their enterprises of the highest class and sell this product in the markets of Germany, Sweden and other European countries, but at a much higher price. In addition, Turkey is the largest consumer of scrap: it has increased its imports to 21 million tons worth more than $6 billion.
The structure of Ukraine's exports is more than 50% of agricultural raw materials. And the Turks have made impressive structural changes: today up to 30% of their exports are industrial goods and equipment with a high level of added value. In our country, this figure has decreased from 20% to about 5%. In addition, the structure of Turkish food sales is dominated by goods with a high level of processing, while we sell simple raw materials. In the structure of our exports to Turkey, it is necessary to highlight: grains, oilseeds, food industry waste, vegetable oil, wood, ferrous metals, ore raw materials. The structure of Turkish imports to Ukraine includes: fruits, vehicles, textiles, shoes, reactors, boilers.
In this regard, we get the usual “raw materials curse”: we give them raw materials, and they give us goods with a high level of added value. Unfortunately, the structural changes that have occurred in our economy in recent years have made Ukraine a raw materials appendage, and we will have a technological imbalance with any more or less developed economy. Beating the Turks in trade is like trying to make more films than in India. Creating an FTA with such a country means putting not only our mechanical engineering, but also the light industry, footwear industry, on the brink of survival. In addition, our vegetable producers will not be able to withstand competition with the Turks.
We explained the FTA agreement with the EU as the historical inevitability of the vector of European integration. How can we explain the “dissolution” in the Turkish direction? Ukraine has already come to terms with the role of a raw materials appendage to Europe. But to be a raw materials appendage of Turkey... Not comme il faut... Today Turkey is a model of the Ukrainian economy, but which “everything worked out.”
And her experience, including achievements and mistakes, is an excellent synopsis for us and a chance that someday it will work out for us too. After all, just a dozen years ago, experts considered Poland, Turkey and Ukraine as the most promising leaders of the Baltic-Black Sea region, and it was Ukraine that could make the most impressive leap. Now our gap from Poland and Turkey is like the match between Ingulets and Dynamo in the final of the Ukrainian Cup...