Spanning more than 600 years, the Ottoman Empire was one of the most powerful in world history and the centre of economic interactions between the East and the West.
This year the empire’s heartland of Anatolia and East Thrace, known today as Turkey, has again become the crucial meeting place for the globe’s greatest economies. Turkey assumed the presidency of the Group of 20 (G20) for 2015 and is guiding international policy discussions this year.
The G20, a forum of the world’s largest economies, was founded in 1999, largely to promote international financial stability. Collectively, the group represents more than 85% of the global economic output and more than 80% of world trade.
This month, its labour and finance ministers and central bank governors met in Turkey’s administrative capital of Ankara, once a key city because of its location on the ancient Silk Road, to take policy discussions forward.
Its themes for the year include inclusiveness, implementation and investment, with the ultimate aim of stoking global economic growth, which, International Monetary Fund (IMF) data shows, has been unable to meet expectations.
Turkey’s turn at the presidency comes at a time of great uncertainty. A recovery in the United States means its Federal Reserve could soon raise interest rates, with unknown consequences for other parts of the world, many of which are already feeling the fallout from slower growth in China.
Addressing a plenary session of the Business 20 (B20), part of the G20 summit, in Ankara last week, Turkish President Tayyip Erdogan said the G20 was a way for nations to turn a crisis into an opportunity. Turkey, with a population of 76-million and a gross domestic product of $800-billion, has experienced an average economic growth of 5.5% for the past four years and, unlike its European neighbours, has weathered the effects of the global recession well.
By increasing trade, it grew its economy fourfold.
The founding father of the Republic of Turkey, Mustafa Kemal Atatürk, who remains widely idolised by its citizens, said “Peace at home, peace in the world”, a well-worn phrase at this year’s G20 meetings.
But, viewed from Turkey, there is neither. Political and economic turmoil in neighbouring countries has created a migrant crisis – Turkey now houses more refugees than any other country – and has brought the threat of terrorism to its doorstep.
Speaking to a sea of suits at the B20, a day after the body of a three-year-old Syrian boy was washed ashore on a Turkish beach, Erdogan said: “The Mediterranean has become a graveyard for migrants … But it is humanity itself that is drowning in the Mediterranean.”
He bemoaned the lack of help from other nations, and warned that the effect would be felt in other parts of the globe.
“Where there is a spark, it turns into a flame, and that burns the rest of the world,” he said.
Turkey will hold new elections on November 1 after its failure to form a coalition government. In the June elections, for the first time ever the Kurdish People’s Democratic Party (HDP), which is linked to the outlawed Kurdistan Workers’ Party (PKK), passed the threshold of 10% to gain representation in Parliament.
According to Erdogan, the biggest threat to Turkey’s economy is terrorism.
But, although the PKK has had some major victories in the fight against the Islamic State, the Turkish army – the sixth largest in the world – is at war with both the Islamic State and the PKK. Tensions have increased in Turkey following two attacks by the PKK this week which left 16 Turkish soldiers and 12 police officers dead.
Inclusiveness
Speaking to the press at the G20 meeting, Ayse Sinirlioglu, Turkey’s deputy undersecretary for economic affairs and G20 sherpa, said inclusiveness involved two dimensions – among nations and within nations.
“People might think we are only concerned with G20 wellbeing. That is not true … There is a will now, political leaders, finance ministers agree that it [global inequality] will come back at a higher price if not addressed now,” she said.
John Evans, the co-chairperson of Labour 20 (L20), a subgroup of the G20, said that part of the agenda was significant, as it would not have been possible for the G20 to take on inequality 16 years ago when it was founded.
Data from the Organisation of Economic Co-operation and Development (OECD) shows that global inequality is at its highest level in 30 years and unemployment has become worse.
Unemployment, and youth unemployment in particular, has been put at the top of the G20 agenda this year. As the International Monetary Fund director, Christine Lagarde, said when she addressed the press in Ankara, all the economic indicators are low. The only thing too high is youth unemployment.
Turkish Prime Minister Ahmet Davutoglu said youth unemployment was the biggest source of tension, and described it as an ideal base for terrorism.
His views were echoed by the B20 chairperson, Rifat Hisarciklioglu, who said increasing unemployment had “everything to do” with security deficiencies.
The L20 raised concern over the measures taken by governments to combat the recession, which had, in fact, resulted in worsening unemployment. If solutions were not found for youth unemployment, a “lost generation” would be created, with severe effects for economic prosperity.
The G20 nations are aiming to reduce youth unemployment by 20% by 2025. South Africa’s youth unemployment rate, according to the World Economic Forum’s 2014 data, is the third-highest in the world, after that of Greece and Spain.
Following the meeting of labour ministers in Ankara, it was resolved that the G20 would move ahead with a policy that supported collective bargaining, a form of wage negotiation South African industries have been involved in for decades, which is not without its own challenges.
In fleshing out its aims for inclusiveness, the G20 have, for the first time, placed small and medium-sized enterprises (SMEs) on the agenda and have already established a World SME Forum in Istanbul, a support structure for smaller businesses.
According to the OECD, 60% of private sector jobs globally are created by SMEs (this number holds true for South Africa too) and the G20 has identified this as a key area for sustainable growth. SMEs, research has shown, also attract more female participation.
Under Atatürk’s leadership, Turkey was one of the first countries to recognise the equal rights of men and women.
But the decision to shape policy to integrate more women in the G20 economies was taken in Brisbane last year when the presidency was held by Australia.
But only this year, a subgroup, Women20, was established to hold nations accountable to deliver on the commitments made in Brisbane, namely, to reduce the gap between female and male participation in their countries by 25% by 2025. In South Africa, too, female participation in the economy is lower than male, with the gap amounting to 14%, according to the OECD.
Davutoglu said including non-G20 countries in policy reform was key in order to tackle the migration crisis, the brunt of which was being felt by Turkey. He said prosperity in one country and poverty in another would automatically lead to migration. “If all roads lead to Rome, then all people will come to Rome.”
For example, access to energy will be on the agenda when energy ministers meet under the auspices of the G20 for the first time in November. In particular, there will be a focus on access to energy in sub-Saharan Africa, despite South Africa being the only permanent G20 member from the continent.
Investment
According to the United Nations Conference on Trade and Develop–ment, global investment needs are $7-trillion a year, but Sinirlioglu said, despite the economic downturn in many parts of the world, money to fund infrastructure was not a problem.
There was ample liquidity in assets such as pension funds, although accessing it was an issue, she said.
“Finding institutional investors is the problem; there is a lack of confidence.”
The G20 singled out a lack of transparency as a prime barrier for investment in public infrastructure, and red tape hampers the number of private investments in many nations. The G20’s investment strategy is to improve regulation to make it easier, and not harder, for investors to put money into these kinds of projects.
Although 98% of the Turkish population are Muslims, under Atatürk the nation was reformed to become a secular country and, with that, the Islamic financial system was abandoned, and the country experienced a period of dynamic economic development.
But now, under Turkey’s G20 presidency, one way to fund infrastructure, Erdogan said, was to reduce the risk associated with these projects by emulating the Islamic financial system, which is backed by assets and, technically, does not charge interest.
“We are still working on it, but there are certain regulatory issues that need to be attended to,” said the Turkish deputy prime minister for economic and financial affairs, Cevdet Yilmaz.
The IMF, he said, had already compiled a comprehensive report on that kind of financing model. But it would take time to implement it and the IMF had been asked to do further work on what needed to be changed in order for that type of financing to be used more widely.
Susan Harris-Rimmer, a member of the Think Tank 20 (T20), an associate professor and an Australian Research Council future fellow at Griffith Law School, said the discussions about Islamic financing were an example of the unique perspective Turkey had brought to the table during its G20 presidency.
Lower-risk and asset-backed investments would mean that pension and sovereign investment funds could invest in them.
But the problems included the fact that Islamic financial systems between countries were not interoperable as yet, and regulatory reforms had introduced requirements (such as liquidity) that should not apply to Islamic financial institutions.
Yilmaz said this kind of financing could be used by all nations, including South Africa.
The G20 are also looking at ways to improve public-private partnerships, which have not always had a good track record, in order to boost investment. The G20 have worked closely together on tax avoidance, particularly on base erosion and profit shifting.
Implementation
At the Brisbane summit last year, more than 1 000 policy commitments were made. But a “deficit in credibility”, as Davutoglu put it, is a major issue the G20 has to tackle.
Sharan Burrow, a member of the L20 and general secretary of the International Trade Union Confederation, put it more bluntly: “The G20 leaders need to understand its policies have failed today. It can’t be more of the same.” To remain relevant, more action on the ground was needed.
Yilmaz said: “There is no disagreement on what has to be done. The question of how is the most critical question.”
In the G20, member nations adopted policy commitments by consensus but implemented them according to their own budgetary and political constraints, Yilmaz said. It was a kind of peer pressure.
In a communiqué by the G20 finance ministers and central bank governors, following their meetings on Friday and Saturday, they said the first accountability report would be presented at the summit in Antalya in November, before Turkey hands over the presidency to China in December.
The report is intended to measure the progress of growth strategy commitments made by member nations. Preliminary analysis shows that one third of the commitments have been implemented.
It’s understood a peer-review mechanism, established to monitor implementation within the G20, proved unpopular among some nations, which opted to report on their own progress.
The importance of global co-ordination to achieve sustainable results was captured by Atatürk, who said: “Lasting peace is sought, it is essential to adopt international measures to improve the lot of the masses.
The welfare of the entire human race must replace hunger and oppression. People of the world must be taught to give up envy, avarice and rancour.”
G20 raises concern over trade protectionism
Trade is a leading indicator of growth and the G20 subgroup, the Business 20 (B20), says trade protectionism is a major concern.
“In the past, trade was the engine of global growth, but the cake is not getting bigger and this encourages protectionism,” said the B20 Turkey chair, Rifat Hisarciklioglu.
A move from trade protectionism was a key request the B20 made of the G20, he said. It’s certainly not the first time this has been raised as an issue. Turkish Prime Minister Ahmet Davutoglu noted that, although commitments to move away from protectionism were made in Brisbane, in the past year no changes have been implemented, “only more and more” protectionist measures.
G20 countries are guilty of putting up the most barriers to trade in the world, according to Hisarciklioglu.
The World Trade Organisation has more than 4 200 files under investigation, an all-time record, and 3 000 involve the G20.
The slowdown in China has only served to exacerbate the problem. In South Africa, cheap Chinese steel imports have seen a number of steel manufacturers issuing retrenchment notices and hundreds of thousands of jobs are on the line, should the industry go under. In response, the government committed to increase import tariffs on Chinese steel to the maximum 10% allowed by the WTO.
Cheap Chinese steel has affected a number of other countries, such as the United States, which have already put measures in place to protect their domestic industries.
International Monetary Fund director Christine Lagarde described the slowdown in China as “necessary bumps” in transforming from a controlled economy with some intervention to a market-determined economy. China reached a 7% growth rate in the second quarter of the year, which suprised many economists given the challenges the country faces. These include corrections in China’s equity markets and has also had its currency devalued three times. But Chinese representatives assured delegates at G20 meetings that a 7% growth rate would continue.
Lisa Steyn was hosted by the G20 presidency and Turkish Airlines.