Last Tuesday I began my words stating that Turkey does not have a star sector. The term 'star' referred to sectors exports of which grew with a pace above the average and which had a high share in global market. If the evidence to the presence of the cake is its being eaten, the evidence to the star sector would be its global competitiveness. As the global competitiveness increased, sectors gained importance for the country economy. Then, is a country's not having a star sector the end of the world? It is definitely bad. But is there nothing to do for Turkey? Are the foreigners that praise Turkey to the skies completely wrong? Let us give quick answers to these questions.

To begin with, please take a second look at the figure I also put down on Tuesday. OK, Turkey does not have a sector with high annual export growth rate and high global market share. But there are sectors with high annual export growth but a low share in global market. Then, Turkey has rising sectors. To put it more clearly, Turkey has sectors that can rise and become a star at the global scale. But we also have one problem. The mentioned sectors stood at the same spot in the figure as well in 2004. Not even the ruling party changed since 2004; but a policy framework that will turn these sectors into star sectors was not devised. The issue for Turkey in the realm of economic policy should be sought at this exact point. Turkey has delayed the reforms that will enable a widespread leap in all these sectors. And the costliest and the most significant reforms were postponed. Let me cut it short: I think the fundamental reforms in fields from education to energy, from the judiciary to telecommunication and from highways to ports can be initiated not until 2015. And I believe that without these reforms, rising sectors cannot be turned into star sectors. Until then, Turkey has to complete a series of political reforms which are also of significance.

Figure 1. Competitiveness of Turkey's Sectors, 2009

Source: UN Comtrade Database, TEPAV

What will we do, then? Is there nothing Turkey can do in this new period of transition? Are foreigners praising Turkey to the skies completely wrong? Let me begin with the last one. No, they are not wrong. And Turkey has steps to take. Do you take a look at the sectors that attract foreign investors? Or do you follow the activities of private equity firms in Turkey? Do you know in which fields they invest? Currently in Turkey there are 24 foreign and 9 domestic private equity firms. These firms manage domestic and foreign funds. They do what banks originally have to do but cannot do due to the long-lasting dominance of public securities in Turkey. They do what banks fail to do. They get into partnership with a firm by purchasing stocks. They contribute to the management of the firm or directly manage the firm if necessary. In short, they carry out a knowledge transfer. They contribute to the institutionalization of the firm. They secure the rapid growth of the firm and then sell of the stocks. If necessary, they segment the firm to derive new rapid-growing firms out of it. They in a sense work as a modification tailors. They sew and cut the old dress to create a new one. Bad appearance suddenly turns into good appearance.

The fields these modification tailors invest in vary from a series of sectors from services to industry. The same outlook is also seen for investments of France in Turkey. So, what does this imply? Already established firms in Turkey can be turned into firms that grow more rapidly and that function more efficiently. To do this, you have to know what step to take. It is doubtless that if the reforms could be implemented, the efficiency gain would be impressive. But it is possible to acquire gains if we address the sectors individually. The figure above mainly shows the competitiveness of industrial sectors. As it indicates, among the rising sectors there are firms that can become stars individually if not completely as a sector. The trick is to identify those. This is exactly what foreigners mainly see. Without the mentioned reforms, Turkey is a risky country. But on the other hand it promises high profits. No pain, no gain! It would be quite humanitarian if we could gain without feeling pain. But it is not possible.

Then, what needs to be done? I guess in the short term we should readdress the financial markets and modification tailoring activities. We have to improve the freedom and facilities in this field. We are in a period where the Banking Regulation and Supervision Agency, the Treasury and the Capital Markets Board have to assume critical roles. Let us elaborate on this issue further in the following days.

This commentary was published in Referans daily on 30.09.2010