ECONOMY

Surging productivity in Turkey fails to reduce number of unemployed

ANKARA – Turkey’s economy grew at a blistering pace last year, but its rebound from deep crisis is still failing to deliver enough much-needed jobs. Official figures on Thursday showed gross national product (GNP) grew by 9.9 percent in 2004 – the best in nearly 40 years and trumpeted by the government as the fastest in the world. Other data this week showed the official unemployment rate fell to 10.3 percent last year from 10.5 percent in 2003, although uncertainty over the size of Turkey’s unofficial economy makes it hard to gauge the true picture. The government hailed a return to job creation after years of losses. But with the population growing at around 2 percent a year, the same jobs data showed the number of Turks out of work actually rose slightly, to 2.498 million from 2.493 million. «A couple of years ago, inflation was the most important issue for Turkey. Now unemployment has become the most urgent problem,» said Serhan Cevik of Morgan Stanley in London. Economists say the main reason for the «jobless growth» is surging productivity combined with layoffs as both public and private sector employers restructure their operations. The amount produced per worker outside the farming sector has jumped by nearly 10 percent a year over the past three years, against an average of just over 2 percent in the 1990s. With Turkish interest rates falling along with inflation, and capital cheap abroad, firms are investing in more efficient plants rather than more workers. Some economists say the government has exacerbated this trend by a sharp hike in the minimum wage. Cevik said this, combined with comparatively high tax and social security rates, made it expensive for employers to take on more workers. «If they want to create jobs, the right way to do it is to reduce the cost of employment,» he said. The ruling Justice and Development Party (AKP) admits jobs are a major challenge but says policy is on the right track. Backed by a $19 billion rescue package from the International Monetary Fund, the government has won praise for reviving the economy after a 2001 financial crisis slammed it into reverse and put a million people out of work. «Unemployment is falling – we believe in the next two years it will be much better,» said AKP Deputy Chairman Reha Denemec. But the government has run into stiff criticism over plans to broaden a regional investment incentives scheme, extending tax, social security and energy benefits to more provinces. IMF disapproval of the scheme has helped delay signing of a fresh, $10 billion loan deal and forced the government to withdraw the plans for amendment. Critics say the incentive scheme is badly targeted and plays into the hands of local vested interests. «It’s a very old-fashioned approach,» said Ali Tekin, a political economy lecturer at Ankara’s Bilkent University and a former lawmaker in the opposition Motherland Party. «In poorer areas, state money should be spent on social services, schools and health, rather than making politically connected and corrupt men rich.» Tekin said the root of the jobs problem was Turkey’s poor record in attracting foreign direct investment (FDI). Turkey’s net FDI last year was less than 0.5 percent of gross domestic product, analysts say – half the average for emerging markets – with much of that going into holiday homes. An IMF-backed privatization program intended as a magnet for foreign cash has been blighted by endless setbacks, from low bids to legal challenges. «Privatization is a total failure for this government. They’re into their third year and no major privatization has been done,» Tekin said. «The bottom line is Turkey needs foreign capital, and the more long-term capital is not coming.»