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How Turkey can turn around its economy

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MICHEL EULER/AP

(Read caption) Turkey’s prime minister spoke to the World Economic Forum in Davos, Switzerland, in January.

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In 2013, the Turkish government set forth a bold plan known as Vision 2023, which seeks to propel Turkey toward becoming one of the world’s top 10 economies, increase Turkish gross domestic product to $2 trillion, and achieve annual exports of $500 billion. But if Turkey has any hope of jumping from eighteenth into the top 10 by 2023 – the 100th anniversary of Turkey’s founding – the country’s leaders will need to endeavor to create a more supportive environment for trade, investment, and innovation.

Ali Babacan, Turkey’s Deputy Prime Minister for Economic and Financial Affairs, has acknowledged as much: “There is still a lot to be done during the next 10 years. It will be important for us to see structural changes in the economy, changes in which we improve in research and development, innovation, and higher technology production.”

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As economic development research and experience have consistently demonstrated, key enablers of R&D and higher technology production include robust systems for market access, foreign direct investment (FDI), and intellectual property protection. As long as both domestic and foreign companies know their hard work will be respected, they are more likely to invest. Foreign investment in particular is critical for Turkey, which can benefit significantly from the new knowledge, innovative goods and services, and global linkages that multinational companies can provide. Unfortunately, a number of issues continue to afflict the Turkish trade and investment environment. If these are not addressed, it will be extremely difficult for Turkey to achieve its 2023 vision.

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One sector in Turkey in which innovation potential is under-maximized is biopharmaceuticals. Modern medicines in Turkey require a reasonable reimbursement system in order to support reinvestment into the development of new drugs. Unfortunately, a combination of policies produces discounts that result in lower pharmaceutical prices than in most low-income and developing countries around the world. Furthermore, it takes an average of more than 1,100 days for the Turkish government to complete the regulatory approval process for medical products, which is five times longer than the length of time actually permitted by Turkish law.

Not surprisingly, investment levels suffer. Turkey’s overall share of global pharmaceutical FDI was 0.5 percent from 2003 to 2013. By comparison, Ireland receives approximately 8 percent. Moreover, many medicines available to patients in most other markets are simply not available in Turkey. From 2005 to 2011, the US Food and Drug Administration approved 142 new drugs and the European Medicines Agency approved 119 new drugs, while the Turkish government approved only 48.

Other sectors have experienced similar challenges. Weak intellectual property protection hurts the development of digital goods and services in Turkey. The Business Software Alliance reported in 2013 that software piracy in the country exceeds 60 percent, 20 percent higher than the global average. Serial-code crackers and key generators used to gain unlawful access to software are commonly available, and in some cases, computers sold at retail stores are preloaded with illegal software. Indeed, the continuing heavy use of unlicensed software by some agencies shows that even the Turkish government has yet to fully legalize its own software base. Elsewhere, the Entertainment Software Association reports that, in 2013, Turkey ranked 11th in the world in terms of the number of peering connections engaging in illegal file-sharing of entertainment software programs on public peer-to-peer networks. Legislation to enhance copyright law has also made slow progress – since 2012, the Turkish government has released no further drafts of the law – frustrating attempts to update the copyright enforcement process in Turkey.

If the Turkish government truly wishes to create an economic environment that supports and attracts innovative research and development and foreign direct investment, then it must address these types of market access and intellectual-property issues. Becoming one of the world’s top 10 economies in 10 years, as well as completing free-trade deals with the United States and joining the European Union, are admirable goals. But achieving these through unfair and discriminatory policies targeting certain high-technology sectors is a shortcut that may end up harming Turkey more than helping it. The Turkish government should reconsider these types of policies, and work to support foreign businesses rather than penalizing them.

Michelle Wein is a Trade Policy Analyst with the  Information Technology and Innovation Foundation.


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