Those who insist that the current account deficit would dissolve if Turkey’s energy bill could stop growing should argue that Turkey’s unemployment rate is 35% rather than 10%.

There is a widely accepted bulk of modern time superstitions about the Turkish economy. My recent favorite is that Turkey’s dependency on energy imports is the main driver of the current account deficit. Many people defend this argument seriously. At the first instance, when you add the figures up, you too might get that impression, but the reasoning is incorrect, it is rubbish. If you agree with this statement, you might as well argue that the unemployment rate in Turkey is not the official 10%, but 35%. If you insist that it is energy imports that drive the current account deficit, then Turkey’s unemployment rate is 35%. Let me tell you why.

Let me first point at the relationship between import dependency in energy and current account deficit. Turkey is dependent on imported energy. More than 70% of energy consumption is imported. As of 2011, Turkey’s current account deficit was 10% of its GDP. Do all countries dependent on energy imports inevitably have current account deficits, as suggested by the baleful argument above?  No. South Korea, for instance, imports 82% of its energy consumption. Eighty-seven percent of Ireland’s energy needs are met via imports. Both are more import dependent than Turkey in energy. According to the legitimate argument in Turkey, South Korea and Ireland should have gigantic current account deficits due to high energy bills. But guess what, they don’t. South Korea has a current account surplus and Ireland a balanced current account. Then what? Import dependency in energy does not necessarily cause current account deficit. The common thesis in Turkey is a joke. The analysis framework is garbage. This is the first point.

Why do South Korea and Ireland not have current account deficits despite their dependence on imported energy? Compared to Turkey, they are better at producing and exporting higher value added via the efficient use of imported inputs, including energy. Normally, the energy bill is not an exogenous variable ex post facto involved in the analyses. It is one of the inputs. The problem is not about how much the energy bill is. It is about the end product you come up with using all the inputs including energy. Turkey produces lower value-added products than South Korea and Ireland using a given amount of inputs. The issue is about the structure of the economy, not its dependency. Not surprising, the only career option for a physicist in Turkey is teaching physics at a private training center. This is what country examples tell us.

And here is the third point: those who insist that the current account deficit will dissolve if Turkey’s energy bill could stop growing, using the same impressionist analysis framework, should argue that Turkey’s unemployment rate is 35% rather than 10%. The labor force participation rate is 52% in Turkey. 52 out of every 100 people are either employed or seeking a job (unemployed). The unemployment rate at 10% implies that out of 52 in the labor force, 5 are unemployed and 47 are employed. Spain’s labor force participation rate is 75%. If Turkey’s 52% was raised to this level, the unemployment rate would jump to 35%, with 47 out of 75 in employment. What do you think? The analysis is fine at the first instance, right? At the end of the day, however, it is meaningless. It neglects details. It is bad; as bad as the theory that links dependency on energy imports and the current account deficit.

This commentary was published in Radikal daily on 05.03.2013