World Economic Forum In Turkey 2006

Connecting Regions Creating New Opportunities Istanbul, 23-24 November 2006

INSIGHTS

WORLD ECONOMIC FORUM

World Economic Forum in Turkey

This publication is also available in electronic form on the World Economic Forum’s website at the following address: World Economic Forum in Turkey Web report: www.weforum.org/summitreports/turkey2006 (HTML) The electronic version of this report allows access to a richer level of content from the meeting, including photographs and session summaries. The report is also available as a PDF: www.weforum.org/pdf/summitreports/turkey2006.pdf Other specific information on the World Economic Forum in Turkey, Istanbul, 23-24 November 2006, can be found at the following links: www.weforum.org/turkey www.weforum.org/turkey/programme www.weforum.org/turkey/summaries2006 www.weforum.org/turkey/indepth www.weforum.org/turkey/partners www.pbase.com/forumweb/turkey

The views expressed in this publication do not necessarily reflect those of the World Economic Forum.

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REF: 151206

Contents

Preface

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Summary: Connecting Regions – Creating New Opportunities

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EU Accession

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Geopolitical Role

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Competitiveness & Business Opportunities

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Bridging Civilizations

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The Creative Imperative in Turkey

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Acknowledgements

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Preface The timing of the World Economic Forum in Turkey could not have been better; just a few days after the publication of the European Commission’s Enlargement Strategy and Progress Report, over 400 participants from more than 45 countries gathered at the Bosphorus. The discussions included the current EU negotiations, yet they touched upon much more than that. Under the overarching topic of “Connecting Regions – Creating New Opportunities”, the Forum prompted a positive, constructive and realistic assessment of Turkey’s connecting role, both in relation to the EU and other neighbouring regions. The meeting had a major positive impact and a number of identifiable outcomes are worthy of attention. Our meeting helped define Turkey’s strategic importance. With a difficult moment in Turkey’ s EU accession negotiations as a backdrop, the meeting brought into focus the long-term strategic considerations that link the futures of Turkey and Europe and the manner in which Turkey would affect Europe in the global arena. The meeting broke taboos by addressing certain issues that traditionally remain unexplored in gatherings of this kind. The topics discussed included the EU’s evolving demands of Turkey and the situation regarding human rights and minorities in the country. The meeting also provided a platform where top policy-makers and business leaders jointly identified Turkey’s long-term comparative advantages and considered what ought to be done to further increase Turkey’s potential in order to translate this potential into reality. Yet the most important outcomes of this gathering could be measured at the individual level. Each participant, whether from business, academia, the media, politics or civil society, had a unique opportunity to exchange views with his/her peers, gain new insights regarding Turkey and the neighbouring region, and expand personal networks with leaders from all walks of life. We are confident that this gathering facilitated many contacts which will grow even stronger over the years to come. Finally, we are proud of having achieved the aim identified in one of the meeting’s 20 session titles: Branding Turkey – Changing Perceptions. When the two-day meeting ended, we all left the beautiful Ciragan Palace with a feeling of buoyancy and optimism about the country and its future in the region. The World Economic Forum would like to take this opportunity to once again thank the CoChairs of the meeting, who provided valuable insights and support for the programme. Likewise, we would like to express our special thanks to our Strategic Partners, Regional Partners and Supporters, as well as to the Turkish government, who supported this endeavour from the very beginning. We are now looking forward to building on this partnership with Turkey and the region. We hope that with your support, the World Economic Forum will again soon fulfil its role as a multistakeholder platform and catalyst for change in Turkey.

Felix Howald Director, Head of Europe and Central Asia

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Summary: Connecting Regions – Creating New Opportunities "We have fulfilled whatever promises we made. We know there are difficulties to come. But we are continuing to move forward with great patience. The responsibility falls more on the EU than on Turkey. We are looking for political common sense."

"If Turkey were not to join the EU, it would weaken the union. We would all lose out." Mabel van Oranje Director, EU Affairs, Open Society Institute, United Kingdom; Young Global Leader

Recep Tayyip Erdogan Prime Minister of Turkey

The World Economic Forum in Turkey was especially well timed, coming a year after Turkey began negotiations for membership in the European Union and on the eve of Pope Benedict XVI’s landmark visit to Turkey and the crucial EU Summit in Brussels at which leaders were to assess the status of the accession talks. The setting too was most appropriate – Istanbul’s Ciragan Palace recalling Turkey’s grand history and culture and the sight of the Asian shore across the Bosphorus a picturesque reminder of the country’s role as a crucial bridge across civilizations. Over two days, more than 400 business, government and civil society leaders from more than 45 countries discussed how Turkey is “Connecting Regions – Creating New Opportunities”, the theme of the meeting, and how this strategically important nation is playing a critical role as a model of stability at the doorstep of a region that is increasingly unstable. Despite recent strains in Turkey’s relations with the EU, Turkish and European government and business leaders at the meeting urged restraint and common sense, calling on both sides to keep their eyes on the prize. Turkish Prime Minister Recep Tayyip Erdogan, who addressed participants at both the opening and closing plenaries, underscored that Turkey’s joining the EU would be an “alliance of civilizations”, a repudiation of those seeking to divide people of different faiths and cultures who nonetheless share common goals and values.

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Participants also focused on Turkey’s future as it strives, like all other countries, to confront the pressures of globalization and improve its global competitiveness and business climate. Turkey’s economic, political and social reforms started before EU negotiations began, but are currently inseparable from, if not entirely driven by, the prospect of membership. The process is now irreversible, many participants argued. Finally, the meeting examined Turkey’s global geopolitical position, particularly its potential as an energy corridor. This is inextricably linked to the traditional and still expanding part it plays as an important connection spanning the cultures of East and West. This is a summary of the insights and recommendations for action that emerged from the meeting. They are organized under the four pillars supporting the central theme.

World Economic Forum in Turkey

“We would have more democracy in Europe and the world. Europe will lose power without Turkey."

“Turkey has to go from rentseeking to profit-seeking structures to increase its competitiveness.”

Mehmet Gürcan Daimagüler Honorary Chairman, Liberal Turkish-German Association, Germany; Young Global Leader

Güler Sabanci Chairperson and Managing Director, Sabanci Holding, Turkey; Co-Chair of the World Economic Forum in Turkey

EU Accession

Geopolitical Role

In 2005, Turkey embarked on complex negotiations to join the European Union. The prospect of Turkey’s accession to the EU has divided the governments and people of Europe, those with worries fearing a surge in migration leading to job losses. Others are concerned about the implications of admitting a predominantly Muslim country into the European club. • While Turkey and Europe are suspicious of each other, they should collaborate and compromise, focusing on the big picture. They must not let an issue such as Cyprus deter them from realizing the mutual and multiplicative benefits of Turkey’s joining the EU. • Turkey should take steps to allay European fears about the size of its population and culture by stressing that accession can help Europe address its demographic deficits, provide deeper links to a large market and low-cost labour pool, and offer a bridge between civilizations. • The Turkish people should understand that EU accession will take time and require further economic, political and social reforms. Turkey’s leaders should work to change its people’s mindsets to appreciate the positive aspects of accession rather than stir up nationalism. • Europeans, for their part, should change their perceptions of Turkey to focus not on the risks but on the opportunities that Turkey clearly offers in helping Europe mitigate risks. The EU should resist imposing double standards or new requirements on Turkish membership.

Turkey plays a unique geopolitical role as a stable, secular, Muslim democracy literally at the strategic crossroads between East and West. A member of NATO, it aspires to join the European Union. With its links to the Middle East and Central Asia, it is also emerging as a key energy corridor between those energy-producing regions and Europe. • A model of stability at the gateway to a region of increasing instability, Turkey can play a moderating role in regional conflicts and in mitigating global risks such as the menace of terrorism and the threats to energy security. • Turkey should build on its relations with Europe and the United States, forged during the Cold War and tempered through the war in Iraq and most recently the conflict in Lebanon, to bolster its role as a robust defender of peace and security in its region and elsewhere. • By aligning its energy policies more with Europe’s, Turkey can emerge as a trusted conduit of energy from the Middle East and Central Asia to its European partners, deriving enormous geopolitical and economic benefits as a result. • Europe and the US should recognize Turkey’s considerable geopolitical value and provide it with the appropriate financial, strategic and moral support the country needs to continue necessary political and economic reforms and realize its ambitions including EU membership.

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"The alliance of civilizations is the antidote to the clash of civilizations. Turkey is not a supplicant. It is a major player in the world in which we live. We are not dealing with easy issues. Neither Europe nor Turkey will see this as a dialogue of constant remonstration but it should be a dialogue of constant reconciliation." Peter D. Sutherland Chairman, Goldman Sachs International, United Kingdom; Member of the Foundation Board of the World Economic Forum; Co-Chair of the World Economic Forum in Turkey

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Competitiveness & Business Opportunities

Bridging Civilizations

Turkey has done well in recent years to improve its competitiveness and business climate, climbing from 71st in the World Economic Forum’s Global Competitiveness Index in 2005 to 59th this year. Future macroeconomic and political stability depend on Turkey’s ability to stay the course of reform, particularly as it pursues EU membership. • Despite its successes, Turkey faces many more challenges. Chief among these is to improve education, which is necessary if Turkey is to narrow income disparities and the gender gap and promote innovation. • Anomalies and dysfunctions in the economy should be addressed, including red tape, corruption and the grey market. Rent seeking should be replaced by profit seeking. • After its success attracting foreign direct investment to its banking and telecommunications sectors, Turkey should aim to stir investor interest in other sectors. Key priorities include making it easier to exit investments and increasing the flexibility of the labour market. • The resilience of the Turkish economy could be tested by currency volatility and fluctuating investor sentiment over the course of the EU accession talks. Turkey should keep its focus on implementing the structural reforms necessary to address its competitive shortcomings.

As a moderate Muslim democracy steeped in secularism that maintains close links with Europe, the United States, Central Asia and the Middle East, Turkey is in a unique position to act as a bridge across civilizations. At a time when many worry about the potential of a clash of civilizations, Turkey can be an important link between East and West. • Turkey needs to take the lead in driving intercultural dialogue. It can share with Europe its knowledge and experience in reconciling differences between cultures and faiths, as well as its unique blend of Islam and secular values. • As a prospective member of the EU, Turkey can enhance its role as an ambassador for Europe as it promotes the concept of the “alliance of civilizations” in direct challenge to those who seek to divide people and threaten global peace and security. • Turkey’s leadership in bridging civilizations through its participation in cross-cultural initiatives and support of peacekeeping operations is crucial for regional stability. Its moral authority and influence in the region will be enhanced as it pursues crucial domestic reforms including important measures to promote freedom of expression and the advancement of women. In doing so, it will also serve to address apprehensions in Europe stemming from perceived discrepancies between European and Turkish cultures.

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EU Accession

“There are mutual benefits to being together. We share global challenges. There are many global risks around us. The EU needs Turkey as much as Turkey needs the EU.” Ferit F. Sahenk Chairman, Dogus Group, Turkey

Turkey’s application to join the European Union (EU) has become the concern of the day, hovering above all others on the nation’s agenda. It is linked to practically every challenge confronting Turkey today including its global competitiveness, the rule of law, freedom of expression, the labour market and even religion. Yet EU membership is not the over-arching question. What is really at issue is the globalization of Turkey and how it addresses the many pressures and risks it faces at home, in the neighbourhoods to which it belongs and in the world. “In terms of globalization, the EU is the major part of the economic programme and development of Turkey, but the rest of the world is also very important,” said meeting Co-Chair Peter D. Sutherland, Chairman, Goldman Sachs International, United Kingdom; Member of the Foundation Board of the World Economic Forum. The significant geopolitical and strategic roles Turkey plays in the world, as well as its position as a bridge between civilizations, cannot be minimized. Nor should its growing potential as a major energy corridor, a big consumer market, a large source of skilled labour and a financial services hub be dismissed. “There are mutual benefits to being together,” said Ferit F. Sahenk, Chairman, Dogus Group, Turkey. “We share global challenges. There are many global risks around us. The EU needs Turkey as much as Turkey needs the EU.”

"Some reforms have not advanced as quickly as we hoped. If the questions linked to Cyprus are not solved, this will affect the overall negotiations." Joaquín Almunia Commissioner, Economic and Monetary Affairs, European Commission, Brussels

Yet the overwhelming logic of a partnership is typically lost amid the debate over differences or potential sources of friction. Turkey’s accession has divided governments and public opinion in Europe, with those against membership worried that it will lead to a surge in migration and then to job losses in their countries. Others dwell on Turkey’s roots in the East and the fact that it is a predominantly Muslim country. Can such a place fit into the European club? Still others focus on Turkey’s turbulent past and the remains of those days – the role of the military, the controls on the press and freedom of expression, doubts about the rule of law, and corruption. Cyprus, of course, is still a highly emotional issue that raises nationalist sentiment in Turkey, even more so now that the Greek-controlled part of the divided island was admitted to the EU in 2004 after the Turkish side approved a UN-brokered solution which the Greek side rejected. “Some reforms have not advanced as quickly as we hoped,” said Joaquín Almunia, Commissioner, Economic and Monetary Affairs, European Commission, Brussels. He added: “If the questions linked to Cyprus are not solved, this will affect the overall negotiations.”

“Our people want to see Turkey as a free and prosperous partner of the free world. This is what Turkey deserves. But sometimes some wrong and unjust views from the EU have had an impact on public opinion. The EU must understand this.” Recep Tayyip Erdogan, Prime Minister of Turkey

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“Turkey is going through an incredible economic, political and social transformation. What is most important is that Turkey has been the owner of this transformation. Ownership has been the key to success." Ali Babacan Minister of the Economy of Turkey; Chief Negotiator for the European Union; Young Global Leader

Participants at the World Economic Forum in Turkey appeared to be mainly pro-accession so discussion focused more on how to convince increasingly sceptical Turks – once wildly enthusiastic about membership – and suspicious Europeans that Turkey’s joining the EU would be in their interest. The mood of both publics is fluctuating. The move by the EU to freeze part of the membership talks over Turkish restrictions on the access of ships and planes from Cyprus to its ports and airports will inevitably deepen Turkish disappointment and encourage opponents of accession. Pope Benedict XVI’s surprise gift of support for membership on his arrival in Ankara in November boosted Turkish spirits. The challenge for Turkey is to keep its eye on the prize and resist walking away from the talks in a nationalist pique. Turkish leaders should resist stoking such sentiment, even though it may be natural to do so in the run-up to elections. The Turkish people should understand that EU accession will take time and require further economic, political and social reforms, though they have already paid a price in accepting the structural changes that have been implemented so far. To be sure, they should appreciate their considerable achievements. “Turkey is going through an incredible economic, political and social transformation,” said Ali Babacan, Minister of the Economy of Turkey, and Chief Negotiator for the European Union. “What is most important is that Turkey has been the owner of this transformation. Ownership has

been the key to success.” Added Victor Halberstadt, Professor of Public Economics, Leiden University, Netherlands, who was also a meeting Co-Chair: “My impression is that all this is irreversible.” For all its pains, Turkey is sending a strong signal to Europe and others that democracy, secularism, Islam and economic growth can co-exist, Babacan explained. These are positive factors that Turkey brings to the negotiating table. Turkey, after all, can help Europe address its demographic deficits, provide deeper links to a large market and low-cost labour pool that is already in a customs union with the EU, and offer a bridge between civilizations. Said Babacan: “Turkey has a young and growing population. Until recently, this was perceived as a problem, a burden that Turkey would bring to the EU. But it is in fact an asset that can help the population deficit of the EU and the economic growth of Turkey.” For their part, the Europeans should update their perceptions of Turkey and focus not on the risks but on the opportunities that Turkey clearly offers in helping Europe mitigate a range of risks. And as much as Turkey should do so, they too must recognize that accession negotiations usually take years and that Turkey has implemented many reforms that will take time to implement in full. “This is a change of mentality,” Turkish Prime Minister Recep Tayyip Erdogan explained. “Our people want to see Turkey as a free and prosperous partner of the free world. This is what Turkey deserves. But sometimes some wrong and unjust views from the EU have had an impact on public opinion. The EU must understand this.” Newer EU Citizens (or Candidates) More Likely to Support Turkey’s Accession

Source: European Commission

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Participants exchanging insights on Turkey’s current and future privatization process, live during a CNBC debate

The EU should resist imposing double standards or new requirements on Turkish membership. It has not been unfair, EU leaders at the meeting insisted. Valdas Adamkus, President of Lithuania, called allegations of double standards “nothing but false illusions”. No prospective member has waltzed to Brussels without its share of stumbles. “We are not dealing with easy issues,” said Sutherland. “It’s a long road with bumps and difficult turns. It requires patience and an understanding of the difficulties.” Many Europeans feel threatened by Turkey’s knock on the door, he acknowledged. Some who had been among the most open-minded have suddenly become the most intolerant. Obviously, Europe too is changing, Halberstadt remarked. Perhaps then the greatest mutual benefit of Turkey’s EU accession will be the bridging of East and West that would have been impossible to contemplate only a few years ago and, in the shadow of 9/11 and the bombings in Madrid and London, might still seem improbable, even wrong to many. But it is precisely the evil motives of the perpetrators of those tragic attacks that drive the logic of a Turkey-EU embrace. “The alliance of civilizations is the antidote to the clash of civilizations,” Sutherland concluded. “Neither Europe nor Turkey will see this as a dialogue of constant remonstration but it should be a dialogue of constant reconciliation.”

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Who Is Investing in Turkey?

Source: OECD

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Geopolitical Role

“We are here at a moment when the region is more and more characterized by instability but Turkey is characterized more and more by stability.” Klaus Schwab Founder and Executive Chairman, World Economic Forum

Glance at a world map and Turkey’s unique geopolitical position is obvious. Literally at the strategic crossroads where West collides with East, this stable, secular, moderate Muslim democracy straddles Europe and Asia. A staunch member of the North Atlantic Treaty Organization (NATO), the bulwark of Western European security during the Cold War, Turkey is in the midst of applying for membership in the European Union (EU), the most ambitious regional integration project in the world that began with Western Europe and has since absorbed countries in Central and Eastern Europe. Yet with its cultural and linguistic links that stretch to Central Asia and even as far as North Asia, and the Islamic faith which it shares with neighbours in the Middle East and North Africa, Turkey is firmly rooted among the civilizations of the East. Despite its record of three military coups, Turkey has chosen the path of stability and democracy, uneasy as it may be. The decision to aim for EU accession and launch into the tough negotiations required for membership underscored Turkish commitment to modernization and reform. When an Islamist government was elected in 2003, fears that Turkey’s secular foundation might crack proved unfounded. While its neighbourhood “is more and more characterized by instability, Turkey is characterized more and more by stability,” noted Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

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Indeed, Turkey is all the more remarkable because it belongs to two distinct and exclusive groups. It is one of the few moderate Islamic countries in the world – Indonesia and Malaysia are two other examples – that have embraced democratic politics and pursued free market policies to promote growth. And while Turkey is only a mid-sized country with a population (73 million) smaller than Germany’s but larger than France’s, its 8%plus economic growth is brisk enough to inspire some investors to bracket it with that fascinating club of dynamic emerging markets known as the BRICs – Brazil, Russia, India and China. And while economic growth and prosperity and Turkey’s pursuit of reform will further strengthen its political and social stability, it will also enhance its power and influence, whether or not it eventually joins the EU. “Turkey is not a supplicant,” said meeting Co-Chair Peter D. Sutherland, Chairman, Goldman Sachs International, United Kingdom, and Member of the Foundation Board of the World Economic Forum. “It is a major player in the world in which we live.” Consider the recent conflict in Lebanon and the decision by the Turks to join peacekeeping operations there. Turkey’s military, still a powerful institution, is the largest armed force in Europe.

“We need a stable Turkey to help Europe tackle today’s challenges and risks. It is the responsibility of the EU to cooperate with Turkey and to support Turkish reforms. The process needs to be finished with success.” Joaquín Almunia, Commissioner, Economic and Monetary Affairs, European Commission, Brussels

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“Turkey has all the ingredients to become a global force, politically and economically.” Ali Y. Koç President, Koç Information Technology Group, Koç Holding, Turkey

Turkey has clashed with the US over the Turkish parliament’s refusal to let the country be used by American forces as a staging ground for the Iraq war. Ties with Israel have been strained over the Palestinian issue and the Lebanon conflict. Despite these disputes, Turkey has maintained its close strategic relationship with both countries. Clearly, Turkey is more forcefully asserting its interests in its foreign policy and deepening its engagement in the region as a defender of peace and stability. “Turkey has all the ingredients to become a global force, politically and economically,” said Ali Y. Koç, President, Koç Information Technology Group, Koç Holding, Turkey. Yet outsiders particularly in Europe have not appreciated how Turkey and its geopolitics have evolved. “Perceptions in Europe lag ten years behind reality,” said Hugh Pope, former Wall Street Journal reporter and a leading Turkey analyst. “Europe was uninterested in Turkey in the early 1990s and gave no thought to its role in the energy sector. Now energy is the hot issue.” Indeed, Turkey is emerging as an important nexus for oil and gas pipelines from Russia’s Caspian region, Central Asia, the Middle East and North Africa to Europe. The Baku-Tbilisi-Ceyhan (BTC) oil pipeline running from Azerbaijan to Turkey’s south-eastern coast via Georgia, which was launched this year, is the second longest such conduit in the world.

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“Turkey’s significance does not stem from its role as an energy supplier.” Gareth Evans President, International Crisis Group, Belgium

While in its initial stage the pipeline will supply only 1% of global demand, it is an important step in the diversification of the sources of petroleum and will make a critical contribution to global energy security. By aligning its energy policies with Europe’s, Turkey could reap enormous strategic and financial benefits from its energy initiatives. Yet in Europe, Turkey’s potential as an energy artery is still a matter of debate. “There is a tacit belief that energy is not a card Turkey brings to the table,” said Sinan Ülgen, Chairman, Centre for Economic and Foreign Policy Studies (EDAM), Turkey. Of course, it is important not to exaggerate the contribution Turkey could make to Europe’s energy security. “Turkey’s significance does not stem from its role as an energy supplier,” Gareth Evans, President, International Crisis Group, Belgium, pointed out. To be sure, the reality is that Turkey is already an integral part of the global campaign against terrorism and a voice against militant Islamic extremism. It demonstrates every day how Islam and secularism can co-exist in the context of economic growth and increasing prosperity.

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“Perceptions in Europe lag ten years behind reality. Europe was uninterested in Turkey in the early 1990s and gave no thought to its role in the energy sector. Now energy is the hot issue.” Hugh Pope Author and Journalist, Turkey

Turkey’s stability, however, cannot be taken for granted. Guardians of secularism, notably the military, remain fearful of religious agendas. The economy was rocked by a financial crisis only five years ago, leading to a major plunge in the value of the currency. The Turkish lira was hit again earlier this year, dropping 29%. Interest rates rose nearly seven points. Turks head to the polls in 2007. Another smooth election will surely solidify further its democracy. But EU membership is now a more divisive issue since support for accession among Turks has fallen sharply. And anti-Europe, anti-US and anti-Israel sentiments have risen.

For this reason, it is crucial that Europe and the US recognize Turkey’s considerable geopolitical value and provide it with the appropriate financial, strategic and moral support the country needs to continue necessary political and economic reforms and realize its ambitions including EU accession. Concluded Joaquín Almunia, Commissioner, Economic and Monetary Affairs, European Commission, Brussels, in remarks that apply as much to the rest of the world as they do to Europe: “We need a stable Turkey to help Europe tackle today’s challenges and risks. It is the responsibility of the EU to cooperate with Turkey and to support Turkish reforms. The process needs to be finished with success.”

Turkey A Nexus For Pipelines

Source: Global Insight, 2006; PricewaterhouseCoopers analysis

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Competitiveness & Business Opportunities Turkey’s competitiveness is the key to its future success, particularly as it deepens ties with Europe and moves towards EU accession. The country has achieved much in recent years and now ranks 59th on the World Economic Forum’s Global Competitiveness Index, up from 71st place in 2005, the biggest improvement of any country in the survey. “We will do everything to improve the business environment in Turkey,” pledged Ali Babacan, Minister of the Economy of Turkey, and Chief Negotiator for the European Union. “If the right macroeconomic process is implemented, you will see how quickly change can happen.” Summing up participants’ conclusions at the economic and business-related sessions, Güler Sabanci, Chairperson and Managing Director, Sabanci Holding, Turkey, a Co-Chair of the World Economic Forum in Turkey, found it encouraging that several Turkish ministers openly admitted that some things had not been achieved. Turkey’s potential starts and ends with microeconomic and political stability, two areas in which the country needs to continue to work. Some of the concrete actions that will lead to opportunities include: • Reducing red tape and resolving bureaucratic inefficiencies; • Reducing the informal economy; • Continuing to fight corruption; • Directing more funding towards education and infrastructure; • Reforming certain laws, such as the tax laws and the corporate code;

“We will do everything to improve the business environment in Turkey. If the right macroeconomic process is implemented, you will see how quickly change can happen.” Ali Babacan, Minister of the Economy of Turkey; Chief Negotiator for the European Union

“Turkey’s young and growing population is a challenge, but can be an advantage. If you don’t create the future, the future will create you.” Feyhan Kalpaklioglu Chairperson, Yasar Holding, Turkey

• Providing equal access to education across all regions and income levels, and once the children are enrolled, providing them with the means of staying in school; • Encouraging entrepreneurship, R&D and innovation; • Exploring the possibility of creating a government agency to directly encourage investment in small and medium-sized enterprises; • Moving Turkey’s economy from a rent- to a profitseeking structure; • Easing the ability to exit investments; • Enhancing labour market flexibility, including hiring and firing, and financial and non-financial burdens; • Rebranding the country in order to change outside perceptions and enhance the country’s image. “Education is crucial to Turkey’s future competitiveness,” stressed Sabanci. “Our greatest asset is our young population,” agreed Hüseyin Celik, Minister of National Education of Turkey. “Educating and training them well will serve as a competitive advantage for Turkey.” Educational reform needs to focus on early education, access, quality and training, preparing students for multicultural work and, more particularly, preparing skilled students to work in Europe as its workforce declines in the next 20 years. Foreign direct investment (FDI) in Turkey, largely driven by mergers and acquisitions, is also a source of competitive advantage and, more importantly, business opportunities for the country. FDI has reached US$ 12.8 billion so far this year, with nearly 85% going to the banking and telecommunications sectors. Maintaining these high levels will be a key

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challenge for the country. Turkey’s banking sector is in a competitive position but still faces major obstacles to growth, most notably the under-capitalization of institutions. Given the right mix of investment and regulation, Turkey could become a regional hub for financial services. The relationship between competitiveness and the gender gap is evident in Turkey. While no country has closed the gap, those in the upper echelons of success in that area are also those that rank highest in competitiveness indices. Nordic countries top both listings. The Global Gender Gap Report 2006 of the World Economic Forum ranks Turkey 105th out of 115 countries surveyed, behind most emerging economies. If Turkey improves its gender gap ranking, it would likely increase its competitiveness performance significantly. One factor in the poor gender-gap ranking is the low education rate among girls. But there are other factors that keep women from working, and education is not even the biggest of them, according to Ipek Ilkkaracan Ajas, Executive Board Member, Women for Women’s Human Rights-New Ways Foundation, Turkey. Education may be the highest perceived barrier, but in truth, it is a lack of access to childcare and elderly care that keeps women out of the workforce. But education is important: when girls’ schooling increases, poverty decreases. With some 18 million people living in poverty in Turkey, increasing family welfare by educating girls is a serious opportunity. But current spending on education is not enough – it needs to be double today’s levels for the next 10 years to address the problem. Turkey will have to watch out for pitfalls that could hinder

the country’s competitiveness. Potential ones include a move towards a more conservative governing system and outright rejection of its membership by the EU. The Turkish currency’s volatility could be another. “Expect hiccups,” warned Yvan De Cock, Chief Executive Officer, Fortis Bank, Turkey, recalling how Turkey’s currency was devalued by 20% on the day after he arrived in Istanbul. Most members of the European Union have avoided this kind of price roiling by adopting a single currency. Other weak points that hamper competitiveness include: • low savings rates among the general population; • the high public debt burden; • the underdeveloped state of credit markets; • a labour market that lacks flexibility; • weak compliance with the tax regime. Turkish Prime Minister Recep Tayyip Erdogan maintained that Turkey is successfully implementing a broad reform process that will continue irrespective of the course of EU accession talks. Change doesn’t happen quickly, he noted, but the fundamental will of the Turkish people for such change is strong and the end result will reflect this determination. The end result will also reflect the viability of Turkey’s competitiveness.

Retail Deposits Taking Off

Source: Turkish Banking Association

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Bridging Civilizations

“Female employment in our part of the world has contributed more to the global economy than China.” Neelie Kroes Commissioner, Competition, European Commission, Brussels

As a Muslim nation that has embraced so-called “Western” values – democracy, a free press, being a secular state, rights for women – Turkey is uniquely positioned to act as a bridge between civilizations, particularly through accession to the European Union. Mustafa Kemal Ataturk (1881-1938), founder of the Turkish Republic and its first president, recognized the importance of these values, especially the role of women, and promoted them throughout society. But much has changed in the republic since his death. From the outside, Turkey is perceived as a deeply religious state and, as such, a threat to modern Europe. According to a 27 November 2006 article in Time magazine on Pope Benedict XVI’s November visit to Turkey, “Islam [has] played a particular role – as both a threat and a model – in […] the secularization of Christian Europe.” Since the 1980s, rather than deepening their role in society, Turkish women have been cut off from advancement. On average throughout the country, men earn twice as much as women. While 98% of primary school girls are literate, only 11% graduate from high school. Only 28% of women participate in the labour force: 21% in agriculture, the other 7% spread out between the remaining sectors. Only 4% of parliamentarians are women.

World Economic Forum in Turkey

“It is the men that build the glass walls around women.” Seyhan Eksioglu President, KADER Association for Promoting Women Candidates, Turkey

As the Turkish Daily News reported in its “Davos in Istanbul” supplement on 23 November 2006, “women are both excluded from vast areas of the economy in many rural areas while leading Europe in their participation in many areas of society, including corporate business, academia, medicine, engineering and law.” Islam can be seen as a driving force for some of these differences, in the sense that in some places, women who cover their heads are not allowed to go to school. This is the case at Turkish universities, as well as in schools in France. It is a prejudice starting with beliefs that makes Islam a barrier to education. Links with Europe are a major driver behind the country’s current development – the domestic market is booming, the country has seen sustained growth rates over the last five years, and reforms are ongoing, despite the election of a moderate Islamist party. But Turkey took on reforms long before EU membership ever came up. Populations throughout Europe and within Turkey itself are increasingly sceptical of Turkey’s candidacy, but the EU and national government are still ploughing ahead. However, rejection by the EU could damage relations between Islam and the West. Muslims would see it as a rejection of their religion, values and way of life.

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“We will get nowhere if we do not invest in education.” Ibrahim Betil Chairman, Community Volunteers Foundation - CVF (Toplum Gönüllüleri Vakfi), Turkey

multicultural teachings. The educational systems in the East and West need to introduce children to other cultures and religions. It is only by doing so that countries such as Turkey or those in the EU can come to an understanding of the differences and similarities that define Muslim-West relations. The real, rather than perceived, problems of dialogue must be solved by compromise and real solutions, rather than theoretical suggestions, said Khalid Abdulla-Janahi, Chairman of the Executive Committee, Shamil Bank of Bahrain, Switzerland, and Vice-Chairman of the Arab Business Council. He stressed that some of the problems of the region stem from the lack of leadership at all levels of society – political and business.

As a driver of intercultural dialogue and a bridge between civilizations, Turkey needs to take the lead, most importantly through a radical departure from decades of discord. The country can easily share the knowledge it has gained over time regarding the differences between East and West, and also the similarities. It can act as a beacon for the complementary nature of secular democracy and Islam. It can promote a culture of dialogue, both religious and political. Under the right conditions, and if the right tone is set, Turkey could enhance the EU’s sphere of influence through the country’s traditional relations with others in the region. Along these lines, Prime Minister Recep Tayyip Erdogan of Turkey stressed the importance of the recently announced “Alliance of Civilizations” with Spain, which aims to be the 21st century initiative for global peace and prosperity.

Abdullah Gül, Deputy Prime Minister and Minister of Foreign Affairs of Turkey, called for real political reform that leads to economic success. Transparency and freedom are necessary for progress in regional stability, Gül said. He singled out the nurturing of civil society as essential. Turkey is neither European nor Arab, a position that Turkey can capitalize upon for intercultural dialogue, as an island of stability and even prosperity in an increasingly unstable region.

Turkish Schools Lag OECD Peers

Hany El Banna, President, Islamic Relief, United Kingdom, called on the world to recognize the humanitarian side of Islam by focusing on people that want to “talk about and do the good, rather than sit and talk about the bad”. Any dialogue should have a beginning and an end, along with the political will to change; there is no point in engaging if change is not wanted. Dialogue can also lessen aggression. David Rosen, President, International Jewish Committee for Interreligious Relations, USA, suggested that “most hostility is a result of alienation.” Without a positive selfimage, one cannot see others positively, he argued. This sort of dialogue could also take place in schools, through

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Source: United Nations

World Economic Forum in Turkey

The Creative Imperative in Turkey

Pursuing “the creative imperative”, the theme of the World Economic Forum Annual Meeting 2006, has been a priority for the Forum at its regional Summits throughout the year. In Istanbul – as in Beijing, Cape Town, New Delhi, São Paulo, Sharm El Sheikh and Tokyo – the aim was to capture the creative insights offered by participants on how to address global challenges and risks. These will feed the discussions and brainstorming sessions at the next Annual Meeting and future Summits.

"It is now for the EU to sell the idea of a strong, globalized Europe not just to the Turkish people but to the people in Paris." Hanzade Dogan Chief Executive Officer, Dogan Newspaper Publishing, Dogan Media Group (DYH), Turkey

These are examples of creative ideas and approaches proposed at the World Economic Forum in Turkey: EU Accession Among the accession myths that need to be dispelled is the notion that Turkish migration will increase sharply. Studies indicate that the rise is likely to be limited, with migrants dissuaded by the growing opportunities at home. Increased foreign direct investment into Turkey will be critical to creating new jobs and moderating the outflow of people. The onus is not just on Turkey to sell the idea of accession to Europeans. On the contrary, Europe itself has to do a better job of selling Europe to the Turks as well as to people in the streets of Paris, Rome or Berlin. Europe must communicate a more appealing vision of a dynamic, inclusive region that will capture the imagination of young people.

Civil society and business must play a larger role in fostering better understanding between Europe and Turkey. NGOs and corporations should forge links with their counterparts to help correct misunderstandings and allay fears on both sides. Newly inducted EU members from Central and Eastern Europe should share their experiences with Turkey to improve the Turkish public’s understanding of the difficulties involved in negotiating accession and the eventual benefits of membership. Geopolitical Role Turkey could play a pivotal role as an intermediary between Iran and Europe over the issue of Tehran’s nuclear programme.

“Innovation has to be a top priority on our agenda.” Güler Sabanci Chairperson and Managing Director, Sabanci Holding, Turkey; Co-Chair of the World Economic Forum in Turkey

Turkey’s emergence as an important energy corridor suggests the need for a coordinated European Continental Energy Policy to ensure Europe’s energy security. Turkey’s participation in discussions would help it align its policies with Europe’s. Civil society engagement and closer business links are essential to promoting stability in the volatile Middle East. Turkey should take steps to secure its porous borders to enhance security and address the concerns of its strategic partners.

World Economic Forum in Turkey

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Competitiveness & Business Opportunities

Bridging Civilizations

Education reforms should focus on providing early education particularly to girls and the poor. In addition, schools should prepare students to live and work in a multicultural world.

The Pope’s visit to Turkey, which took place days after the meeting, led to a change in perceptions on both sides, leading to better understanding between the Vatican and Islam. While there were protests, they were peaceful and limited. The success of the trip highlighted the crucial role Turkey can play in averting the clash of civilizations. Such public diplomacy can help mitigate the risk of terrorism and the risk of military conflict in the post-9/11 world. The Pope’s own recognition of the importance Turks attach to EU and his decision to support Turkey’s application, despite previous misgivings, were a model for others in Europe. For its part, Turkey should relish its uniqueness as a bridge between faiths and cultures and step forward more to fill this role.

By improving access to child care and care for the elderly, Turkey can increase the participation of women in the workplace. Turkey needs a vision; Turkey needs a brand. Turkey is many things and plays many roles. It needs to sharpen its image to convey a clear idea to Europeans and the rest of the world what Turkey is today (modern, secular, Muslim, democratic) and what it no longer is (an inward-looking, military dictatorship). Traditional Turkish foods could be the driving force for innovation that will invigorate Turkey’s agribusiness and food sectors.

Klaus Schwab with the meeting Co-Chairs, from left to right: Güler Sabanci, Chairperson and Managing Director, Sabanci Holding, Turkey; Muhtar A. Kent, President, Coca-Cola International, USA; Klaus Schwab, Founder and Executive Chairman, World Economic Forum; Peter D. Sutherland, Chairman, Goldman Sachs International, United Kingdom; Victor Halberstadt, Professor of Public Economics, Leiden University, Netherlands

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World Economic Forum in Turkey

Acknowledgements The World Economic Forum wishes to recognize the support of the following companies as Partners or Supporters of the World Economic Forum in Turkey: Strategic Partners The Coca-Cola Company Goldman Sachs JPMorgan Chase Kudelski Group Merrill Lynch PepsiCo WPP Xenel Group

Regional Partners Dogan Media Group Dogus Group

Roundtable Supporters Intralot Türk Telekom

The World Economic Forum would also like to thank Türk Telekom for providing connectivity.

World Economic Forum in Turkey

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Contributors Peter Torreele is Managing Director of the World Economic Forum. Felix Howald is Director, Head of Europe and Central Asia, at the World Economic Forum. The World Economic Forum in Turkey was under his direct responsibility. Thomas Berglund is Senior Community Relations Manager, Europe and Central Asia. Benita Sirone, Cristian Gheorghe and Constantine Marakhov are Global Leadership Fellows, Europe and Central Asia. Doris Borchardt is Event Manager and was the Meeting Coordinator.

Report Writers Alejandro Reyes Danielle Carpenter Sprungli

Editing and Production Kamal Kimaoui, Associate Principal, Production and Design Fabienne Stassen Fleming, Senior Editor

Photographer Serkan Eldeleklioglu

The World Economic Forum would like to express its appreciation to the summary writers for their work at the World Economic Forum in Turkey. Session summaries are available on our website at: www.weforum.org/turkey/summaries2006

The World Economic Forum would also like to recognize the support of PricewaterhouseCoopers in compiling data and statistics for this report.

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World Economic Forum in Turkey

The World Economic Forum is an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas. Incorporated as a foundation in 1971, and based in Geneva, Switzerland, the World Economic Forum is impartial and not-for-profit; it is tied to no political, partisan or national interests. (www.weforum.org)