Doing Business in Turkey

Overview of the Turkish Economy

Title: Turkish Economy & Investment Environment
Date: December 2009
Author: Kadir Has University (KHU), the Foreign Economic Relations Board (DEIK), and the Vale Columbia Center on Sustainable International Investment (VCC)
Length: 29 pages
Format: Adobe Acrobat (*.pdf)
Content Summary: Survey provides the first ever ranking of Turkish multinationals investing abroad

Kadir Has University (KHU), the Foreign Economic Relations Board (DEIK), and the Vale Columbia Center on Sustainable International Investment (VCC), a joint initiative of the Columbia Law School and The Earth Institute at Columbia University in New York, are releasing today the results of the first ever survey of outward-investing Turkish multinational enterprises (MNEs).1 The survey is part of a long-term study of the rapid global expansion of MNEs from emerging markets and updates existing information on the MNEs through fieldwork-based research. This report will be presented and discussed at the OECD’s “Eighth Global Forum on International Investment”, to be held in Paris, France, on 7 – 8 December 2009.

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Title: Turkish Economy & Investment Environment
Date: October 2008
Author: Goldman Sachs
Length: 28 pages
Format: Adobe Acrobat (*.pdf)
Content Summary: With or without EU: Turkey's long-term growth potential

• Turkey offers strong long-term growth potential, equal to that of many other N-11 and BRIC economies. Our projections suggest that by 2050 Turkey could become a $6trn economy, making it the third-largest in Europe after Russia and the UK.

•Turkey could also rapidly narrow the income gap with the EU. It has the potential to reach the per capita income standards of most new EU member states within the next 15 years. By 2050 it could achieve a per capita GDP level of $60,000, or 75% of the projected EU average.

•We see no economic reason to prevent Turkey from joining the EU in the next few decades, although political and cultural factors may delay full EU membership; and, even if it does not join the EU, Turkey's per capita income convergence is likely to remain fairly robust.

•Turkey currently faces strong cyclical headwinds: the global credit crisis has brought about a deep correction in asset prices and in the currency, which could potentially lead to output losses. It may also prove difficult to avoid a deeper correction, as we move further into the credit crunch.

•However, interesting long-term investment opportunities are emerging and we believe Turkey will stand out as a solid long-term investment case within the EM universe once the global backdrop stabilises.

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Title: Turkish Economy & Investment Environment
Date: July 2008
Author: Garanti Securities
Length: 26 pages
Format: Adobe Acrobat (*.pdf)
Content Summary: Yearsofimprovement...
Turkey has taken strong bold steps in in macro economic policy in recent years, backed by both political stability and macro-economic reforms.

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The 1980s and 1990s were a period of rapid change in Turkey, with remarkable economic development, high rates of growth and industrialisation. Over the past fifteen years the Turkish economy has opened up, with the abolition of barriers to foreign trade and encouragement of foreign investment and multinational companies. In the 1980s, the government initiated growth strategies aimed at achieving increased exports, sustainable growth and a favorable medium-term balance of payments in a drive towards greater economic competition and stabilisation.

The Turkish economy has responded well to these reforms. Turkey's real GNP growth rate averaged 5.5% during the period from 1984 through 1993. After the crisis in 1994, real GNP growth rate averaged approximately 3.7 % during the period to 2000. Over this period, the Turkish economy became more diversified. In particular, the industrial base was broadened, and exports of goods and services grew rapidly. In addition, financial markets expanded and became more sophisticated.

From 1980 to 2000, exports increased at an average annual rate of 13% despite severe economic recession in world markets. The value of Turkey's exports rose from US $ 2.9 billion in 1980 to US $ 35.7 billion in 2002. Similarly, the share of exports to GNP increased from 4.2% to 19.8% in the same period.

The commodity composition of exports has shifted substantially from agricultural products to industrial products. Industrial exports accounted for 92.9% of total exports in 2000. In addition to traditional export goods such as textiles and clothing products, iron and steel, glass and ceramics, products such as color TVs, electrical appliances, motor vehicles and spare parts have been gaining greater importance. During the past two decades, Turkey has increasingly diversified its export products and markets.

Although Turkey experienced a serious macroeconomic crisis in 2001, the country is now on the way to recovery thanks to her dynamic economic structure. Turkey’s economic program, which was implemented with the support of IMF between December 1999
and February 2001 in order to reduce inflation, establish macroeconomic balances and accomplish structural reforms, had failed and resulted in a sharp devaluation in February 2001. Although 2001 crisis was a serious setback, it also showed Turkish economy’s resilience and flexibility. As a result of a comprehensive restructuring program backed by the IMF serious reforms including the clean-up of the banking system, independence of the Central Bank, the closure of extra budgetary funds and tough fiscal policies were accomplished. Within a year growth resumed at 7%, inflation dropped to lowest levels
for the last three decades, the debt to GNP ratio declined and Turkish Lira regained its value. Strong economic growth has been permanent. GNP expanded by a striking 13.5% in 1H2004. Strong economic activity, which has gained momentum in 2003, is evidence of both strong built-up economic activity and improved productivity. Industrial activity keeps its main role in stimulating economic growth. Exports growth, having a key role in the industry’s improved contribution to economic growth, is a result of limited recovery in domestic
demand and post crisis improvement in productivity. Domestic trade appears as another significant component supporting economic growth. A visible speeding up has been evident in private consumption expenditures and consumer loans in 2003 and the pace of growth remained the same in 1Q 2004.

The EU is the main trading partner of Turkey with 51% of total exports and 45% of imports. Among all 15 EU member states Germany takes the biggest share both in exports and imports. Turkey’s other main trading partners are the USA, Middle Eastern countries, Eastern Europe and the CIS nations.

Following the Custom Union with the EU, Turkey’s foreign trade regime has been aligned with that of the EU. This means that Turkey has to adopt the same trade concessions as those granted by the EU to developing countries under the Generalized System of Preferences (GSP). In terms of conforming Turkish legislation to the common competition policy of the EU, considerable progress has been achieved with the entry into force of competition and consumer protection laws in addition to various intellectual property protection laws.

To date, free trade agreements have been signed with EFTA, Israel, Hungary, Romania, Lithuania, Latvia, Estonia, the Czech Republic, Slovakia, Slovenia, Bulgaria, Poland, Macedonia, Bosnia-Herzegovina, and Croatia.

The current IMF program is intended to ensure timely debt repayments, prevent further devaluation, control the rise of inflation and support the solvency of the banking system. The strong structural reforms, prudent fiscal and monetary policies under a floating exchange rate regime and an enhanced social dialogue are the main pillars of the program launched in 2001.

Within the scope of structural reforms, the social security system, which was in deficit for years, has been reorganised and significant steps have been taken to ensure a balance between the system's assets and liabilities. Some improvements in the tax system have also been introduced so as to enlarge the tax base and to register the unregistered economy.

The Banking Regulation and Supervision Board, established as a consequence of the reform of the financial sector, provides a central authority for the regulation, observation and supervision of the banking sector.

Transition to the direct income support system in agriculture has been initiated and positive responses have been received from projects undertaken in pilot regions. Within the framework of fiscal transparency, certain budgetary and non-budgetary funds have been dissolved.

For the growth of the Turkish economy in a competitive environment, privatisation constitutes an important component of the reform program. Recent amendments resulted in the inclusion of privatisation in the Constitution. Problems concerning public procurement in the energy sector have been dealt with through the establishment of an international arbitration mechanism.

For more information:
Undersecretariat of Treasury
State Planning Organization
Undersecretariat for Foreign Trade