Business group warns of ‘middle income trap’

ISTANBUL- Hürriyet Daily News

MÜSİAD Chairman Nail Olpak (L) presents the group annual report in Istanbul. Courtesy of MÜSİAD

The “middle income trap” is the new threshold that the Turkish economy faces in its development process, the head of the Independent Industrialists’ and Businessmen’s Association (MÜSİAD) said, as the association revealed its annual economy report on Turkey.

“It becomes clear the Turkish economy has to continue growing at high rates to pass this threshold and lift the current $10,000 per capita national income to meet the target,” said Nail Olpak, the president of MÜSİAD, during a press conference yesterday at the association headquarters where he shared the report.

Mindset transformation
“This is not as easy as increasing the per capita revenue from $3,000 to $10,000. It takes a mindset transformation in Turkey. If you cannot do that and are satisfied with the current situation, you will get stuck at around $10,000,” he said.

Turkey has set a goal of increasing the income per capita to $25,000 and becoming one of the 10 largest economies in the world by 2023, marking the 100th anniversary of the foundation of the republic, he said, adding that new economic architecture should be carved out focusing on efficiency to achieve the targets.

The concept of “middle income trap” is defined as middle-income countries being stuck in this category for years and not managing to advance to the high-income category. These countries grow fast when breaking away from the low-income category, but their economies start to slow afterward. Examples are Thailand, the Philippines, Malaysia and some Latin American countries.

South Korea example
“The magic formula to achieve a high growth rate is comprised of policies that will increase efficiency and competitive power,” he said, adding that South Korea was a good example of a country that transcended the middle-income country category to high-income country status.

The Turkish economy is estimated to grow 4 percent this year, and the yearend inflation rate will be 7.5 percent, according to MÜSİAD’s economy report.

The current account deficit is estimated to reach around $60 billion with a ratio of 7.5 percent to the gross domestic product, the report said.