2016 ECONOMIC REFORM AGENDA January 2016 Introduction On December - - PowerPoint PPT Presentation

2016 ECONOMIC REFORM AGENDA

January 2016

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Introduction

On December 10, 2015, Prime Minister Ahmet DAVUTOĞLU announced the structural reform agenda to be completed in a year within the framework of Turkey’s strong, sustainable and inclusive growth objectives. Main objectives of the structural reform agenda are as follows:  Reaching a high income level with strong and sustainable growth  ‘Inclusive Growth’ which will enable all parts of the society to benefit from the strong and sustainable growth

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I – Reaching a high income level with strong and sustainable growth

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2,000 4,000 6,000 8,000 10,000 12,000 14,000 GDP Per Capita (USD, The Atlas Method)*

Lower Middle Income Threshold ($1,045) Upper Middle Income Threshold ($4,125) High Income Threshold ($12,735)

Source: World Bank

GDP Per Capita – Current Situation

Current Situation: Turkey aims to exceed the high income per capita threshold level of $12,735 and reach high income level.

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 Development and utilization of the labor potential

 Improving the quality of education  Increasing skills and quality employment in labor market  Decreasing youth unemployment rate  Increasing female labor force participation rate  Increasing labor market flexibility

 Enhancing the investment environment and financing

 Promoting the use of domestic savings in investment financing  Improving the investment environment  Promoting value-added production structure  Encouraging entrepreneurship

Increasing the Total Factor Productivity for Strong and Sustainable Growth

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‘‘Education is a prerequisite to enhance labor productivity. Besides education, enhancing the skills and promoting entrepreneurship are also

• crucial. To this end, education and labor productivity are given particular

importance in the 2016 Economic Reform Agenda.

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Education – Current Situation

Current Situation: There has been a significant increase in the education level during the last 12 years. In order to improve the labor productivity, further dissemination of education and improvement of the education quality are important.

91.0 91.0 50.6 14.7 99.6 94.5 76.7 39.9 10 30 50 70 90 110 Primary School Junior High School Secondary Education Higher Education 2002/2003 2013/2014

Net Schooling Ratios (%)

Source: TURKSTAT

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Quality of Education – Current Situation

76 74 45 38 46 21 10 20 30 40 50 60 70 80 Science Math Reading 2006 2012

Source: OECD

Turkey – OECD Comparison (PISA Score, difference)

Current Situation: Turkey has made significant progress in education quality according to OECD’s PISA research. Approximately 30 points of improvement has been achieved in all three categories relative to the OECD average. It is important to accelerate this positive tendency in the upcoming periods.

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Less than High-School High-School Equivalent Higher Education

25-29 30-34 35+

Unemployment Rates by Education Level – Current Situation

(%, 2014)

Source: TURKSTAT, Treasury Calculations

25-29 30-34 35+ 25-29 30-34 35+

Current Situation: As the level of education increases, unemployment ratios decrease more rapidly in the older-age group and remain low. While the level and quality of education are important, increasing the skills of the labor force is also necessary. In this framework, improving youth skills and adding this potential to the economy are particularly important.

11.2 12.3 15.6 9.5 9.4 6.9 7.3 7.6 4.8 4 8 12 16 20 lisealtı lise ve dengi yükseköğrenim

10 20 30 40 50 60 Spain Greece Crotia Italy Portugal Slovakia France Romania Ireland Poland Bulgaria Belgium Sweden Luxemburg Finland Hungary Slovenia Latvia Lithuania Turkey UK Czech Rep. Estonia Netherlands Denmark Malta Austria Iceland Norway Germany Youth Unemployment Rate Unemployment Rate

(%, 2014)

10

EU-28 (Youth Unemployment Rate, average, %)

Youth Unemployment – Current Situation

Source: Eurostat

Current situation: Youth unemployment rate is a common phenomena across all countries and considerably higher than the headline. While youth unemployment rate in Turkey is still lower than the EU-28 average, it is 8 percentage points higher than the headline unemployment rate.

20 30 40 50 60 70 80 90

Iceland Sweden Switzerland Norway Denmark Canada New Zealand Netherlands Finland Germany UK Latvia Estonia Austria Australia Portugal Spain Israel Russia France Slovenia USA Japan Czech Rep. Luxemburg Belgium Colombia Slovakia Ireland Poland Hungary Greece

• S. Korea

Chile Italky

• S. Africa

Mexico Turkey 2014 Turkey 2002 11

(%, 2014)

Female Labor Force Participation Rate – Current Situation

Source: OECD

OECD (average)

Current situation: Although female labor force participation has significantly increased in recent years, it is still lower than the OECD average. The added value that women produce by participating in labor force will help us unleash the potential of Turkish economy.

Female Labor Force Participation Rate (%) Turkey

Source: TURKSTAT 20 22 24 26 28 30 32 2007 2008 2009 2010 2011 2012 2013

1 2 3 4 5 6 Turkey Luxemburg France Chile Estonia Norway Spain Belgium Greece Korea Mexico Italy Portugal Slovenia Poland Slovakia Finland Czech Republic Denmark Austria Hungary Germany Switzerland New Zealand Netherlands Australia Japan Sweden Iceland

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OECD (Average))

Restrictiveness on Part -Time Workers, 2013 (Index scale between 0-6 from least restrictive to most)

Source: OECD

Labor Market Rigidity – Current Situation

Current Situation: Among OECD countries, Turkey has the highest level of labor market rigidity.

5 10 15 20 25 Turkey Israel Malaysia Mexico China Greece Spain Saudi Arabia Czech Republic Germany India Ireland Portugal Brazil Australia Russia Poland Uzbekistan Hungary Slovakia Slovenia South Africa Canada France Estonia Luxembourg Ukraine United Kingdom Austria Belgium Denmark Finland Source: World Bank

Severance Pay (Average number of weeks of salary for workers with 1 year, 5 years and 10 years of tenure)

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 A Teachers’ Academy will be established (An:129, D: 1 year). Teacher candidates,

teachers and school directors will be trained in the light of the latest developments.

 Education faculties will be restructured (An: 43, D: 6 months).  The curriculum at all levels of education will be updated so as to include basic skills,

and an effective counselling and guidance system will be established. (An: 130, D: 1 year).

 Necessary measures will be taken for foreign language education to provide students

with better written and verbal communication skills (An: 132, D: 1 year).

 A new ‘Higher Education Law’ which focuses on quality and autonomy will be prepared

(An: 41, D: 6 months).

 ‘Higher Education Quality Council’ will be established (An: 42, D: 6 months).  National Education Quality Framework will be introduced at all levels of education and

Education Quality Index will be prepared in this context (An: 131, D: 1 year).

An: Action Number, D: Duration

Increasing the Quality of Education – 2016 Economic Reform Agenda

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 The skills of the labor force will be improved.

 A monitoring and evaluation system will be established for the Active Labor Market Programs

(An: 54, D: 6 months).

 The infrastructure for apprenticeship training will be strengthened (An: 136, D: 6 months).  The incompatibility between the programs in vocational college diplomas of graduates and their

job specification will be abolished (An: 40, D: 6 months). The connection between education and employment will be reinforced. (An: 137, D: 1 year). The administration model of vocational and technical education schools will be upgraded (An: 134, D: 1year). The vocational schools will be restructured (An: 135, D: 1 year). Hence, the connection between education and employment will be strengthened through improving vocational and technical educational schools.

 Educational support will be provided to vocational and technical private secondary schools

established out of the Organized Industrial Zones (An: 45, D: 6 months). An: Action Number, D: Duration

Improving the Skills of the Labor Force and Increasing Qualified Employment I – 2016 Economic Reform Agenda

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Improving the Skills of the Labor Force and Increasing Qualified Employment II – 2016 Economic Reform Agenda

 The qualified employment in labor market will be increased

 Skilled nonresident labor force will be encouraged to work in Turkey (An: 89, D: 6 months).  Employment of foreign experts for research projects will be facilitated (An: 90, S: 6 months).  Work on the special “Turquoise Card System” will be finalized (An: 88, D: 6 months). Hence, the

work permit process for skilled labor force will be accelerated. An: Action Number, D: Duration

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 To facilitate participation of youth in the labor force and improve their skills, youth

employment and entrepreneurship will be supported.



Wages of each youth being employed for the first time will be borne by the government for a period of one year (An: 204, D: 3 months).



The impediments to part time employment of university students will be eliminated (An: 14, D: 3 months). Thus, integrating university students to the work life at a faster pace will be facilitated without cutting their scholarship and loans.



A young entrepreneur who starts a new business will be exempt from income tax for 3 years (An: 209, D: 3 months).



Young entrepreneurs will be provided with a grant of up to TRY 50,000 on a project basis (An: 202, D: 3 months).



Loan support amounting TRY 100,000 will be provided to young people, and 85% of guarantee will be provided for these loans via the Credit Guarantee Fund (An: 203, D: 3 months).



Grant up to TRY 30,000 will be provided to young farmers on a project basis (An: 213, D: 3 months).



Youth Supports Program (GENÇDES), which provides grant to youth for their projects like short movie, first movie, book and magazine as well as sportive activities, will be implemented (An: 210, D: 3 months). An: Action Number, D: Duration

Supporting Youth Employment – 2016 Economic Reform Agenda

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 Birth-related rights and maternity leaves of women will be improved.

 In order to strengthen birth-related rights and maternity leaves, the Code of State Personnel

and the Code of Labor will be amended (An: 187, D: 3 months).

 Women will be entitled the right of part-time work with full-time pay for 2 months for the first

child, 4 months for the second child and 6 months for the third child and above. Additionally, until their children start school, women will be able to work on a part-time basis (An: 187,188, D: 3 months).

 Arrangements will be made to ensure that the unpaid maternity leave period is included in the

calculation of length of civil service (An: 186, D: 3 months).

 Arrangements will be made for the seasonal working women and home-based

working women to benefit from social security more easily (An: 189, D: 3 months).

 Mandatory practice for municipalities to open nurseries will be activated (An: 48,

D: 6 months).

An: Action Number, D: Duration

Increasing Female Labor Force Participation – 2016 Economic Reform Agenda

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 In order to resolve problems in the severance payment system,

legislation will be amended when necessary in consultation with the relevant social parties (An: 12, D: 3 months).

 The regulations on broadening the activities of special employment

• ffices including aspect of temporary employment in line with EU norm

and standards will be finalized (An: 11, D: 3 months).

An: Action Number, D: Duration

Making Labor Market More Flexible – 2016 Economic Reform Agenda

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‘‘Scaling up the medium and high technology investments is key to support high value-added production in Turkey. Besides, financing investments through domestic savings is crucial, so that measures to increase domestic savings are listed in 2016 Economic Reform Agenda. Improving the investment climate for domestic and foreign investments is also an important part of the program.’’

20 Source: IMF, Ministry of Development

Investment and Savings Ratio – Current Situation

(*) 2002-2014 average

Current Situation: Turkey’s investment and savings ratios are below the EU average. For a healthy and strong growth model, investments need to be increased, and financed with more domestic savings.

5 10 15 20 25 30 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Savings/GDP (%) Investment/GDP (%) EU Average Savings / GDP (%)* EU Average Investment / GDP (%)*

 Public sector savings will be increased.

 The Code of Public Financial Management and Control will be revised (An: 140, D: 1 year).  Rationalization program of public spending will be implemented (Priority Transformation

Program, D: 1 year).

 The savings of corporate sector will be increased.

 Tax regulations* encouraging companies to use equity were enacted on June 30, 2015.  The code of Patent will be enacted (An:84, D: 6 months). Thus, corporations’ profits will be

channeled to investments by protecting intellectual property rights in favor of corporations.

 Institutional investors in the capital markets will be encouraged (An: 80, D: 6 months).

An: Action Number, D: Duration

(*) The Council of Ministers’ Decree (No. 2015/7910) on encouraging companies to use equity was issued on June 26, 2015 and published in the Official Gazette (No. 29402) on June 30, 2015. 21

Increasing Domestic Savings I – 2016 Economic Reform Agenda

 Households will be encouraged to save more.

 Dowry and housing accounts will be set up so that the expenses (such as marriage and

real estate), which lead to households’ potential use of borrowed funds, will be financed by saving in advance (An: 20, 185, D: 3 months). The government will contribute up to 20% of these accounts which require regular savings for at least 3 years. The maximum government contributions to dowry and housing accounts are TRY 5,000 and TRY 15,000 respectively.

 The pilot study for ‘‘Automatic Enrollment” in Private Pension System has been

• completed. Based on the pilot study results, the use of private pension will be extended

to broader public, the complementary role of this system in the overall Social Security System will be strengthened and savings will be turned into life time retirement salary (An: 79, D: 6 months). In accordance with the Regulation on Annual Income Insurance, enacted on October 1, 2015, this salary will be increased by the CPI each year. Undersecretariat of Treasury will issue CPI-indexed annuities to enable insurance companies to manage their cash flows related to these liabilities.

An: Action Number, D: Duration

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Increasing Domestic Savings II – 2016 Economic Reform Agenda

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In addition to the aforementioned reforms on labor productivity to increase total factor productivity;



A high value added production structure will be promoted.



New patent law will be enacted (An: 84, D: 6 months). Hereby, the protection of intellectual/industrial property rights and the transfer to higher quality and high value added production structure will be ensured.



Development Banking will be restructured (An: 160, D: 1 year). Hereby, long-term financing opportunities for the commercialization of medium and high level technology projects will be enhanced.



Domestic supply models based on public procurement guarantee will be implemented for medium-high and high technology products (An: 159, D: 1 year).



The effectiveness of R&D and innovation incentives will be increased and the coordination among these incentives will be strengthened (An: 85, D: 6 months).



Entrepreneurship will be supported.



A new fund will be established for early stage R&D and design efforts (An: 86, D: 6 months).



A credit guarantee mechanism will be established for commercialization of innovative entrepreneurial projects (An: 87, D: 6 months).



Grant up to TRY 50,000 will be channeled for the youth who want to set up their own businesses (An: 202, D: 3 months). An: Action Number, D: Duration

Improving Capital Productivity – 2016 Economic Reform Agenda

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 The transaction costs of both domestic and foreign direct investors will be

reduced.



Establishment and liquidation transactions of the companies will be evaluated and the transactions will be simplified (An: 78, D: 6 months).



A new income tax law will be enacted by combining income and corporate tax laws (An: 56, D: 6 months).



Exemption from Banking and Insurance Treatment Tax will be introduced on financing machinery and equipment investments in manufacturing industry (An: 17, D: 3 months).



A new mechanism will be established to decrease the land costs in the Industrial and Organized Industrial Zones (An: 73, D: 6 months).



Institutional and human capacity of Investment Support Offices will be strengthened (An: 75, D: 6 months).



The effective governance body in Organized Industrial Zones will be established in order to annihilate authority conflict (An: 74, D: 6 months).



The necessary measures to attract foreign direct investments will be taken (An: 71, D: 6 months).



The trade facilitation agreement will be submitted to the approval of the Turkish Grand National Assembly (An: 15, D: 3 months).



A model will be developed for the construction of a turnkey factory facility, in return for a symbolic rental fee, if requested by investors engaged in labor-intensive sectors (An: 200, D: 3 months).



The Law on Public Procurement will be updated (An: 141, D:1 year). An: Action Number, D: Duration

Improving Investment Climate I – 2016 Economic Reform Agenda

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

The bureaucratic procedures for both domestic and foreign direct investors will be simplified.



The structure of central units will be transformed into more dynamic and effective ones so as to ensure that the public services are delivered in a fair, effective, productive, rapid and high quality manner. The authority over- lapping among public entities will be eliminated, the bureaucracy will be tamed and institutional performance of the public entities will be increased (An: 29, D: 6 months).



The processes of opening new business and obtaining work permits will be simplified and these practices will be unified (An: 76, D: 6 months).



Red tape during the investment process will be reduced (An: 72, D: 6 months).



Licensing permit and approval processes in the energy sector will be simplified (An: 77, D: 6 months).



‘The Single Window System’ will be put into effect at Customs (An: 65, D: 6 months).



Road map for the Digital Turkey Project will be prepared and implemented (An: 32, D: 6 months).



The efficiency of judicial system will be improved.



Istanbul Arbitration Center will become functional (An: 16, D: 3 months).



Specialized courts especially on financial and IT sectors will be established (An: 146, D: 1 year).



The structure and operation of labor courts will be revised (An: 26, D: 6 months). Alternative dispute resolution mechanisms for labor disputes will be incorporated in our legal system (An: 122, D: 1 year).



The functioning of market surveillance and control system will be evaluated and an efficient implementation mechanism will be established (An: 156, D: 1 year).

An: Action Number, D: Duration

Improving Investment Climate II – 2016 Economic Reform Agenda

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II – ‘Inclusive Growth’ which will enable all parts

• f the society to benefit from the strong and

sustainable growth

To enable all parts of the society to benefit from strong and sustainable growth, in addition to the aforementioned reforms to reduce youth unemployment, increase female labor participation rate and support entrepreneurship;



A more active role of SMEs in the production chain will be ensured.



In order to facilitate SMEs’ access to finance, SMEs will be enabled to use their movable properties as collateral (An: 147, D: 1 year).



The limit, maturity, and ratio of guarantees for manufacturing SMEs will be increased (An: 197, D: 3 months).



The cost of patents and documents received from Turkish Standards Institute by SMEs will be financed by the government (An: 183, D: 3 months).



Regulation will be made to support farmers who raise fruits, vegetables, ornamental plant, perfumery- medicinal-aromatic plants, where the land scale is less than 5 decare (An: 214, D: 3 months).



Artisans will be supported.



Low interest credit facility to artisans will continue and an interest -free loan facility up to TRY 30,000 will be

• ffered (An: 182, D: 3 months).



Up to TRY 8,000 of income of artisans that is taxed based on the simple procedure will be exempt from taxation (An: 198, D: 3 months). An: Action Number, D: Duration

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Enhancing Inclusiveness of Growth - 2016 Economic Reform Agenda

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

Reforms Coordination and Monitoring Board will be established (An: 1, D: 3 months). On December 12, 2015, Reforms Coordination and Monitoring Board has been established under the chairmanship of the Deputy Prime Minister.



The Board will present the progress on reforms to Prime Ministry quarterly.



Coordination and Guidance Boards designed to effectively realize the Priority Transformation Programs will be established (An: 19, D: 3 months).



Measures will be taken to effectively apply the Regulatory Impact Analysis (RIA) on all legislative proposals (An: 2, D: 3 months). An: Action Number, D: Duration

III – 2016 Economic Reform Agenda Implementation and Accountability