Facilitating business: While the country is moving up in the rankings, there is still plenty of room for improvement

There was good news for Turkey in 2012 in the pages of the World Bank/International Finance Corporation’s “Doing Business 2012” report. In 2011 the country rose two places in the global rankings, to 71st out of 183 economies. This placed it ahead of the Eastern Europe and Central Asia average of 77th and well ahead of some regional competitors, such as Russia – which took 120th place – and Ukraine on 152nd.

BUSINESS REGULATIONS: The report – the ninth issued so far – takes a look at the regulations in 10 crucial areas affecting businesses, measuring their changes year-to-year and providing a key international benchmark for investors. The report looks at the procedures involved in starting a business, dealing with construction permits, getting electricity, registering property, obtaining credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. In these 10 areas, the 2012 report showed Turkey had improved its ranking in four areas, stayed steady in one and slid in the remaining five.

These results are also a good measure of the government’s effectiveness in fulfilling the objectives of its medium-term programmes (MTPs), with the 2010-12 and 2012-14 versions of this both stressing the need for the economy to enhance its competitiveness.

In particular, the programmes aim to improve the business climate by easing bureaucratic procedures, while boosting access to finance for small and medium-sized enterprises and improving their competitiveness. They also aim to reform the judicial system to reduce uncertainties with investments, improve the Customs and intellectual property rights framework, and enhance monitoring and information collection.

The “Doing Business” report highlighted success in reducing the cost of starting a business. This was due to the elimination of notarisation fees for articles of association and other documents. Turkey went up two places in the rankings for this category, from 63 to 61.

UP THE RANKING: The average number of procedures to start a business fell from 13 in 2004 to just six in 2011, while the average number of days needed to start a business has fallen from 38 to six. The cost of starting a business has also fallen, relative to per capita GDP. In 2004, on average, starting a business cost 36.8% of per capita GDP, while in 2011 it cost 11.2%.

Another major area of improvement – up four places from 83rd to 79th – was in paying taxes. The average number of hours a year spent doing this fell from 254 in 2004 to 223 in 2011, while the total tax rate as a percentage of profit fell from 53% in 2004 to 41.1%. In 2011, Turkey also reduced the social security contribution rate by offering a 5% rebate to companies.

Other pluses included the ease of getting electricity, which went up from 73rd to 72nd, and the ease of resolving insolvency, which went from 122nd to 120th.

With the former, Turkey far outstrips the Eastern Europe and Central Asia average of 129th, due to a quicker connection service and lower percentage costs. With the latter, the average recovery rate has improved, from $0.11 to $0.22 on the dollar between 2004 and 2011.

AREAS TO ADDRESS: There are still many areas in need of improvement, however. The report shows major declines in standing – both of five ranks – for registering property and protecting investors. For the first, this was from a relatively high position, however – falling from 39th to 44th; for the second, the drop was from 60th to 65th. Behind the decline in property registration was an increase in costs as a percentage of property value – from 3% to 3.3%. Other factors stayed largely constant, showing no improvement.

Turkey also continued to score low on construction permits, ranking 155th in 2011, down from 153rd in 2010. The amount of time taken to obtain permits – an average 189 days via 24 separate procedures – is still a major cause for concern for businesses.

Rankings are by their very nature relative, with improvements in other competitor countries also exerting downwards pressure on Turkey’s place. Many hope that the plans laid out under the MTPs to improve the business environment further will be given priority.

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The Report: Turkey 2012

Economy chapter from The Report: Turkey 2012

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