Turkey needs a process of comprehensive structural reforms in order to maintain competitiveness in European markets.

Demand sets supply. The quality of import demand naturally affects the technical quality of the industrial production capacity. You are what you export. There is the risk that you turkey We should always keep this in mind when diversifying our export destinations. Turkey is in need of a smart industrial strategy particularly in the recent milieu. What does the recent milieu stand for? It stands for the times where shift of axis is observed in Turkey's exports, though temporarily. Let us see what the currently shaping industrial strategy implies in this regard.

We should be cautious
For a while now I have been taking a look at the export figures the structure of which has been changed and the axis of which has naturally shifted due to the profound crisis in the EU market. Turkey's exports have been diversifying in terms of both product groups and export destinations. This diversification takes place gradually towards less developed markets. In developing markets the technological content of the import demand tends to be lower. If you compare Turkey's export basket with that of developed countries you will see that the former not at all converges to but differentiates more and more from the latter. Turkey, along with the Customs Union ceased to be a country that exports low-technology products and made it to the group of countries producing medium-technology product. The current diversification in exports should not be in expense of the said success. However, if left alone, it seems that the automatic shift of export markets will prove to be a challenge for Turkey. Therefore we need to be cautious.

For example, have you ever checked what Turkey exports to Iraq, the biggest trade partner at the present? I personally do. It is evident that the basket of products exported to Iraq is not the same with that exported to Germany for instance. Iraq's demand is shaped in line with its unique conditions. Consumption basket of people in Iraq is not same with that in Germany. Globalization made a certain affect; but it did not reach to that extent. The country needs infrastructural investment on roads so that demand for automobiles will rise across the whole population. People will have electricity twenty four hours a day so that Turkey needs a process of comprehensive structural reforms in order to maintain competitiveness in European markets demand for house appliances will boom. But figures suggest that we are not at that point yet. First the middle class in Iraq has to gain power so that the political stability spreads and consumption patterns become more favorable for Turkey's account. Of course it is a good thing that Turkey enters the Iraqi market in advance to occupy a certain position. However Turkey's exports to Iraq predominantly consists of construction materials, and food products like flour and biscuits. This export basket as you can see is not the same with the lost import demand of the European markets. Indeed, it appears that Turkey competes with Iraq's domestic market considering the main product groups in exports. Please think: Iraq, industry and competition in a single sentence. It is like joke, right? But this seems to be the picture. And add the African market to the picture. The level of development reflected by the consumption basket deteriorates even further. Then, what happens if the share of countries like Iraq in Turkey's export portfolio increases? The diversification in exports might bring about a deterioration in the technological development level of the Turkish industry. 

Diversification is not a bad thing

What should we do, then? To begin with, diversification is not a bad thing either in terms of product groups and export destinations. It is a success that Turkey is able to produce certain products more efficiently than other countries. Second that exports of Turkey diversify towards markets other than the EU market does not imply that Turkey gives up on the European market. But level of development of Turkey's industry can be advanced only in the European and American markets. Turkey has to never lose competitiveness in developed markets. Third, Turkey needs to devise a policy framework that balances targets of competitiveness with those of regional development. Seizing the opportunities offered by Iraq and similar countries is an important way to secure industrialization in provinces of Turkey which are not yet industrialized. Finally, Turkey needs a process of comprehensive structural reforms in order to maintain competitiveness in European markets. Turkey needs an industrial strategy. Let us wait and see what the parliament signed will be.

This commentary was published in Radikal daily on 17.12.2010