Is Turkey Ready to Become the Dubai of Europe? Not Yet.
Istanbul hopes to snatch some of the jobs and wealth that come with hosting a global financial center -- a good dream to have when established centers such as London face reputational damage and regulatory uncertainty. But the city has a mountain to climb.
Turkey’s economic performance has been impressive in recent years, as detailed in an article in this month’s Bloomberg Markets. The country has a sizable domestic market, a population (about 75 million) that’s young, and plenty of catching-up to do in financial services penetration. All of that spells growth.
The government’s hyperactive foreign policies have also created a potential ex-Ottoman hinterland to serve with financial products, from the Balkans to the Middle East. The banking system is stable; labor is relatively cheap; flight connections are good.
But these are not the assets that count most in creating the next Dubai. It’s more important to establish the right tax, regulatory and legal environment to attract finance chiefs and to provide them a skilled, English-speaking workforce. Turkey doesn’t yet have those prerequisites, which is why it falls so low on indexes that try to measure finance centers.
The Z/Yen Group, for example, compiles an annual index of 77 financial centers around the world. The 2012 index ranks Istanbul 61st -- below Prague, Warsaw, and Glasgow, Scotland. Dubai came in 29th. The more broadly based World Economic Forum Financial Development Report this year put Turkey’s financial sector 43rd of 60 ranked.
Turkey is certainly trying. The government’s 2009 action plan to develop Istanbul as a financial center contains 71 points and reads like a to-do list the World Bank might prescribe. Highlights include setting up specialist courts to efficiently resolve disputes, making it easier for foreigners to get work visas, reducing and simplifying taxes, and improving English-language education in schools and universities.
According to the Z/Yen report’s author, Mark Yeandle, the plan will probably move Istanbul up to a mid-50s rank in next year’s index -- not because these goals will have been achieved, but because the effort is raising Istanbul’s profile in the finance sector.
Still, it’s far from clear the government is willing to do everything it would take. Just as an example of the competitive challenges Istanbul faces, Dubai offers a zero percent income tax rate for foreigners, compared with Turkey’s 35 percent upper rate. More important, the government’s poor record on Internet and media freedoms, a series of legally questionable high-profile trials, and a barely concealed nexus of politics and business have left a cloud of suspicion over Turkey as a predictable marketplace with a level playing field.
Still, as with Turkey’s troubled bid to join the European Union, whether it succeeds is less important than that it tries. Every step taken to make Istanbul a more inviting place for global companies will be good for Turkey’s economy as a whole.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.