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Amid a wave of bad press concerning Turkey’s economic challenges, several of its G20 priorities are self-reflective prescriptions aimed at avoiding the so-called “middle-income trap.” Turkey is at the helm of the G20 at a time when its economy is suffering, but its emphasis this year on empowering small and medium-sized enterprises (SMEs) – a priority that simultaneously addresses youth unemployment – is part of an effective strategy for stimulating future economic growth. While the year-to-year G20 meetings feature a mix of senior government officials and industry leaders discussing the greatest burdens impacting the global economy, SMEs are traditionally left voiceless. In Turkey, SMEs are responsible for 90 percent of employment and 54 percent of all investment, yet they receive merely 25 percent of all bank loans. Turkey has wisely taken concrete steps as President of this year’s G20 to spotlight SMEs as part of their global and internal economic agenda.
Between 2003 and 2014, Turkey’s economy grew an average of 4.7 percent each year, though a swift decline in the lira, an unemployment rate hovering around 10 percent, and an account deficit just shy of USD 4 billion is reason for concern in a country reliant on foreign direct investment. In July, the World Bank forecast the country’s growth at 3 percent for 2015 and 3.5 percent for 2016 and 2017 given the economic and political obstacles confronting Turkey. It is clear why Turkey has now, amid a backdrop of constrained capital and economic misfortune, sought to invigorate a discussion on the economic importance of SMEs as drivers of economic growth. The effects of a constrained financial environment, hindering SMEs as they try to remain competitive in the global marketplace, could have an acute impact on the country’s economic well-being.
Fortunately, Turkey has a valuable resource in its young, educated population. Martin Raiser, the World Bank’s former country director for Turkey, listed Turkey’s entrepreneurial population as its biggest asset. Harnessing its potential would require acting on Turkey’s G20 priorities by leveraging the voice of SMEs and ensuring they can access the capital required to create jobs and entrepreneurial opportunities for a talented population.
To Turkish leadership, the connection between SME access to capital, utilization of their young population, and the success of the overall economy seems abundantly clear. In late May of this year, Deputy Prime Minister Ali Babacan unveiled the Istanbul-based World SME Forum as a platform to improve the position of SMEs on the global stage, noting that in 2014, Turkey’s SMEs accounted for 60 percent of the country’s total export revenue, valued at USD 157 billion. While Turkey’s banking system maintains a positive reputation, it remains difficult to access credit from them. The formation of the World SME Forum, however, aims to leverage the voices of SMEs, allowing them to put pressure on government to implement policies designed with the needs of SMEs in mind.
Accessing capital will also require identifying alternatives to large financial institutions. The cooperation of private equity firms with large development-focused organizations like the European Investment Bank or the U.S. government’s Overseas Private Investment Corporation (OPIC) provide solid alternatives and will likely find support among the SME community.
Noteworthy examples of these partnerships include loan guarantee mechanisms such as InnovFin, recently launched by the European Commission and the European Investment Bank (EIB) Group under the framework of Horizon 2020, which aims to improve Europe’s research and development capacities. InnovFin, according to the European Investment Bank website, “Consists of a series of integrated and complementary financing tools and advisory services offered by the EIB Group, covering the entire value chain of research and innovation (R&I) in order to support investments from the smallest to the largest enterprise.” Loan guarantee mechanisms allow SMEs to double their initial credit capacity, therefore enhancing their ability to invest in profitable projects and services.
Loan guarantees will also provide SMEs greater capacity to hire and provide opportunities to Turkey’s greatest untapped asset: its youth population. With youth (age 15-24) unemployment at 20 percent according to TurkStat figures from April 2015, Turkey needs to provide ways to generate such opportunities for young people. Turkey’s youth could become either a boon or a vexing source of economic and political instability.
SMEs in Turkey, as with many developing countries, are essential backbones of the economy, yet they have found it increasingly difficult to access the capital required to evolve, grow, and offer opportunity to Turkey’s particularly educated, savvy, and eager youth population. The health of Turkey’s economy requires that such opportunities are made available to them. Amid the laundry list of economic afflictions confronting Turkey, the country has wisely sought to emphasize inclusiveness as a priority of their G20 presidency by providing the often overlooked SME community a forum to leverage their voices. By promoting them as a vital component of the economy and facilitating access to capital, Turkey could harness their prized youth population, providing employment and entrepreneurial opportunities crucial to the development of Turkey’s economy on a broad scale.
Eli Lovely is Director of Communications and Marketing at the American-Turkish Council. Previously, he was an Associate at Kroll. Lovely is a recipient of a Fulbright Fellowship and the Critical Language Scholarship, both of which brought him to Turkey. He is a graduate of Georgetown University and Wheaton College in Massachusetts.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.
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Turkey’s Inward-looking G20 Priorities
November 11, 2015
Amid a wave of bad press concerning Turkey’s economic challenges, several of its G20 priorities are self-reflective prescriptions aimed at avoiding the so-called “middle-income trap.” Turkey is at the helm of the G20 at a time when its economy is suffering, but its emphasis this year on empowering small and medium-sized enterprises (SMEs) – a priority that simultaneously addresses youth unemployment – is part of an effective strategy for stimulating future economic growth. While the year-to-year G20 meetings feature a mix of senior government officials and industry leaders discussing the greatest burdens impacting the global economy, SMEs are traditionally left voiceless. In Turkey, SMEs are responsible for 90 percent of employment and 54 percent of all investment, yet they receive merely 25 percent of all bank loans. Turkey has wisely taken concrete steps as President of this year’s G20 to spotlight SMEs as part of their global and internal economic agenda.
Between 2003 and 2014, Turkey’s economy grew an average of 4.7 percent each year, though a swift decline in the lira, an unemployment rate hovering around 10 percent, and an account deficit just shy of USD 4 billion is reason for concern in a country reliant on foreign direct investment. In July, the World Bank forecast the country’s growth at 3 percent for 2015 and 3.5 percent for 2016 and 2017 given the economic and political obstacles confronting Turkey. It is clear why Turkey has now, amid a backdrop of constrained capital and economic misfortune, sought to invigorate a discussion on the economic importance of SMEs as drivers of economic growth. The effects of a constrained financial environment, hindering SMEs as they try to remain competitive in the global marketplace, could have an acute impact on the country’s economic well-being.
Fortunately, Turkey has a valuable resource in its young, educated population. Martin Raiser, the World Bank’s former country director for Turkey, listed Turkey’s entrepreneurial population as its biggest asset. Harnessing its potential would require acting on Turkey’s G20 priorities by leveraging the voice of SMEs and ensuring they can access the capital required to create jobs and entrepreneurial opportunities for a talented population.
To Turkish leadership, the connection between SME access to capital, utilization of their young population, and the success of the overall economy seems abundantly clear. In late May of this year, Deputy Prime Minister Ali Babacan unveiled the Istanbul-based World SME Forum as a platform to improve the position of SMEs on the global stage, noting that in 2014, Turkey’s SMEs accounted for 60 percent of the country’s total export revenue, valued at USD 157 billion. While Turkey’s banking system maintains a positive reputation, it remains difficult to access credit from them. The formation of the World SME Forum, however, aims to leverage the voices of SMEs, allowing them to put pressure on government to implement policies designed with the needs of SMEs in mind.
Accessing capital will also require identifying alternatives to large financial institutions. The cooperation of private equity firms with large development-focused organizations like the European Investment Bank or the U.S. government’s Overseas Private Investment Corporation (OPIC) provide solid alternatives and will likely find support among the SME community.
Noteworthy examples of these partnerships include loan guarantee mechanisms such as InnovFin, recently launched by the European Commission and the European Investment Bank (EIB) Group under the framework of Horizon 2020, which aims to improve Europe’s research and development capacities. InnovFin, according to the European Investment Bank website, “Consists of a series of integrated and complementary financing tools and advisory services offered by the EIB Group, covering the entire value chain of research and innovation (R&I) in order to support investments from the smallest to the largest enterprise.” Loan guarantee mechanisms allow SMEs to double their initial credit capacity, therefore enhancing their ability to invest in profitable projects and services.
Loan guarantees will also provide SMEs greater capacity to hire and provide opportunities to Turkey’s greatest untapped asset: its youth population. With youth (age 15-24) unemployment at 20 percent according to TurkStat figures from April 2015, Turkey needs to provide ways to generate such opportunities for young people. Turkey’s youth could become either a boon or a vexing source of economic and political instability.
SMEs in Turkey, as with many developing countries, are essential backbones of the economy, yet they have found it increasingly difficult to access the capital required to evolve, grow, and offer opportunity to Turkey’s particularly educated, savvy, and eager youth population. The health of Turkey’s economy requires that such opportunities are made available to them. Amid the laundry list of economic afflictions confronting Turkey, the country has wisely sought to emphasize inclusiveness as a priority of their G20 presidency by providing the often overlooked SME community a forum to leverage their voices. By promoting them as a vital component of the economy and facilitating access to capital, Turkey could harness their prized youth population, providing employment and entrepreneurial opportunities crucial to the development of Turkey’s economy on a broad scale.
Eli Lovely is Director of Communications and Marketing at the American-Turkish Council. Previously, he was an Associate at Kroll. Lovely is a recipient of a Fulbright Fellowship and the Critical Language Scholarship, both of which brought him to Turkey. He is a graduate of Georgetown University and Wheaton College in Massachusetts.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.