Turkey has shown that it can achieve very high growth rates on a sustainable basis, provided
there is political stability. In this regard, the prospect of becoming a full member of the EU is
the strongest anchor for political, and hence economic, stability.
Currently, Turkey’s young population offers a window of opportunity for building up its socioeconomic
infrastructure. But the low level of labour force participation, particularly among
urban women, is a major constraint. Participation rates in Turkey are highly correlated with the
level of education, in which women have been at a disadvantage.
Compared with most EU countries, Turkey is characterised by a greater degree of inequality and
a higher risk of poverty, yet the existing structures to promote social inclusion are widely
dispersed. Notably, one-third of the population lives in rural areas, while the share of agriculture
in GDP is about a third of that level. The pace and pattern of urbanisation will shape Turkey’s
future economic and geographical landscape. Against this background, the expansion of offfarm
employment and income generation in rural areas would help to reduce migration to the
cities.
Sectoral and microeconomic factors also restrain Turkey’s economic growth. Deregulation and
privatisation efforts are taking place, however, in core sectors such as energy,
telecommunications and transport. Further attention needs to be given to improving the
competitiveness of SMEs, particularly through less burdensome business regulations and
increased opportunities for SMEs to access capital. Payroll taxes and severance payments are
significantly above the average for OECD countries. These costs, together with stiff labour
legislation, account for a very sizable informal sector.
Turkey’s social security system is going through a major overhaul, geared towards institutional
reform, the restoration of actuarial balances and health-care reform to improve access to medical
care. In addition to structural reform, the greatest challenge that Turkey faces is ‘good
governance’. In these and other areas, the EU provides the blueprint.