Turkey 2014: Two strategies for unlocking growth

With economic growth rates improving in advanced economies, countries in Europe, the Middle East and North Africa (MENA), and Eurasia share an urgent economic imperative: unlocking new sources of long-term growth. Unlocking underemployed resources at regional and national levels calls for renewed focus on improving competitiveness.

The World Economic Forum defines competitiveness as the set of institutions, policies and factors that determine the level of productivity of an economy. Raising productivity in Europe, MENA and Eurasia will in turn enable higher levels of prosperity for their citizens. Without this kind of economic improvement, the regions risk compounding three crises of common concern: high levels of unemployment, rising pressure on public finances, and populations whose expectations go unmet.

Exploring innovative ways that businesses, governments and civil society can increase competitiveness and thereby lift growth rates is the central objective of the World Economic Forum Special Meeting on Unlocking Resources for Regional Development. The meeting – being held in Istanbul, Turkey, one month after the Turkish presidential election – will convene regional leaders to discuss strategies across four areas: shifting energy dynamics; employing physical, financial and digital infrastructure as drivers for growth; building more inclusive and entrepreneurial economies; and Turkey’s role in the context of the upcoming G20 chairmanship.

Current data show that economic growth is a challenge in all of Europe, MENA and Eurasia. Though growth rates have recently started to improve across Europe, the IMF estimates that the Eurozone’s actual GDP is still 2.2% lower than potential, while the OECD puts the gap at 3.1%. The MENA region saw growth rates slow significantly in 2013, while almost all countries in Eurasia are forecasting lower growth in 2014 than in previous years, hampered by current events and reliance on resource-intensive growth models.

In the short term, significant risks to growth remain: the favourable external conditions that contributed so much to recent growth are waning, demand for exports has slowed, the emerging market outlook is uncertain and there are concerns regarding the progress of global trade agreements. Financing is also becoming more expensive, meaning that investment flows are more difficult to attract. And, importantly for many countries in MENA and Eurasia, global commodity prices have softened, affecting those economies that rely on the export of energy, metals and agriculture products as a key source of income. In addition, these changing external conditions have put pressure on the ability of national governments to stimulate domestic growth and consumption aggravated by already constrained finances, while highlighting a wide range of country-specific factors that are hindering economic development.

Underlying these developments is the question of the regions’ competitiveness, that is, whether or not the foundations for sustainable long-term growth are in place. And although priorities differ – in Europe, disparities in levels of innovation are holding back growth, while in MENA and Eurasia, institutions, infrastructure and education are key elements of concern – commonalities exist. In all three regions, labour markets stand out as a key inhibitor of competitiveness in many countries. Overall, the danger is that unfavourable external conditions, when combined with the need to repair balance sheets, manage demographic shifts and implement long-needed competitiveness-enhancing reforms, will tend to negatively affect productivity, resulting in growth rates that fail to meet the needs of European, Eurasian and Middle Eastern citizens.

The Forum’s Special Meeting aims to show that two sets of strategies can help increase levels of competitiveness across the regions, looking beyond the standard macroeconomic tools to which governments and central banks have access. The first strategy is to support and enhance cross-regional assets – working together to unlock and enhance shared resources so as to improve conditions for growth. Here, energy is one of the most important elements for the region. As seen recently, such flows are exposed to geopolitical risks as well as technological shifts, and require appropriate physical infrastructure as well as political coordination. In this stream of discussions, leaders will also look at issues of regional and global governance, including the prospects for further regional integration and the shifting role of the G20.

The second strategy explores how to better employ capital, ideas and labour through innovative partnerships based on appropriate infrastructure. There is huge potential in all three regions to harness the entrepreneurial spirit of citizens to drive innovation and to build more inclusive economies that allow greater workforce participation by all members of society. Doing so is not easy, however, and requires significant collaboration by the different stakeholders that influence regional economies.

As an example of ongoing work of this kind, the Forum’s Gender Parity Task Force in Turkey is a multistakeholder group whose aim is to close the gender gap in the country by 10%. Another Forum initiative, Fostering Innovation-Driven Entrepreneurship in Europe, looks at how entrepreneurs can be supported in a way that would scale the value they create to increase job offerings and the value of their new ideas. In a recent survey of 1,100 entrepreneurs across Europe, 80% of respondents argued that there was potential to improve collaboration between entrepreneurs, universities, large companies and academic institutions, to help new ideas gain scale and momentum to drive growth.

Both these strategies link to the Forum’s assessment of national and regional competitiveness and will focus attention on tangible activities and practices that can directly impact growth. In addition to addressing crucial issues concerning Europe, MENA and Eurasia, the Special Meeting will also highlight Turkey in terms of its strategic geographic positioning and of how its economic trajectory underscores the benefits and risks of these two strategies.

As countries around the world face the interconnected challenges of persistent unemployment, weak public finances and increasing demands from their citizens, the World Economic Forum will garner the creativity and experience of leaders from Europe, MENA and Eurasia in search of viable proposals to unlock regional resources for regional development.

Author: Nicholas Davis is Director, Head of Europe, at the World Economic Forum.

Image: A vessel sails under the Bosphorus Bridge linking the city’s European and Asian sides in Istanbul. REUTERS