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Doing Business in Turkey
Market Features and Opportunities
Turkey enjoys a very special location at the crossroads between East and West, overlapping Europe and Asia geographically and culturally
Turkey offers both domestic and export -oriented market opportunities:
A huge and growing domestic market (approx. 67 million),
High-income European markets (approx. 600 million),
Emerging Russia, Caucasia and Central Asia markets (approx. 250 million),
Diverse and expanding Middle East and North Africa markets (approx. 160 million).
Turkey has a customs union with the EU and is in the accession process to be a full member.
Turkey has Free Trade Agreements with EFTA and 14 countries, and 9 more are on the way.
Turkey is a member of Black Sea Economic Cooperation, Economic Cooperation Organization (ECO), Organisation for Islamic Conference and Islamic Development Bank.
Unique Geographic Location
Turkey is at the center of an economic and political area known as “Eurasia”, where three regions of the world, Europe, the former Soviet Union and the Middle East intersect. The proximity to the Balkans and the rest of Europe as well as to the growing emerging markets in Central Asia, the Middle East and North Africa creates unique business opportunities. The experience of more than 7000 foreign capital establishments, including over 100 of the Fortune Top 500 companies, confirms Turkey as a predominant investment location and export platform. US companies like Coca-Cola, Procter & Gamble and Phillip Morris, as well as international investment institutions like the World Bank Group’s International Finance Corporation already have selected Turkey as a regional base.
Turkey is the leading investor in Caucasian and Central Asian Turkic Republics. Due to her strong cultural and historic ties, Turkey provides privileged access and a perfect base to develop business with these countries.
The international image of Turkey in terms of a destination for investment is generally shaped by the diverse market opportunities, both domestic and export-oriented, that Turkey offers. The potential of these markets covers over 1 billion consumers, including:
- A huge and growing domestic market (approx. 67 million), see below
- High-income European markets (approx. 600 million),
- Emerging Russia, Caucasia and Central Asia markets (approx. 250 million),
- Diverse and expanding Middle East and North Africa markets (approx. 160 million).
Huge and Growing Domestic Market
Turkey's population is approximately 67 million. Turkey is projected to continue to constitute one of the largest populations in the Middle East and Eastern Europe. The domestic market is predominantly urban, with at least 17 major cities having a population in excess of 1 million, led by Istanbul, Ankara and Izmir. The population is much younger than European countries, with over 60% of the population below the age of 35. The improving consumption patterns and purchasing power, with a growing middle class, are important features of the domestic market. The average annual GDP growth rate of 4.6 % over the 1995-2000 period, well above many other countries, implies a continuing robust growth potential. With Turkey’s population growth rate having fallen from over 2% to roughly 1.5%, it is on the verge of entering a ‘golden demographic period’ similar to what East Asia experienced in the 1980s, where the productive working population is largest relative to children and retirees, providing the potential for even more rapid income growth.
Only a few emerging markets in the world have the potential of attracting investment both for export as well as for their domestic market. Turkey is in such a privileged position to create a ‘virtuous investment cycle’, with a more competitive domestic business environment further strengthening Turkey as a platform for exports, and exports in turn stimulating firms to upgrade and better serve the domestic market.
EU Customs Union and Accession Partnership
In 1996, a Customs Union between the European Union and Turkey came into effect, thereby creating the closest economic and political relationship between the EU and any non-member country. Essentially the Customs Union gives Turkey improved access to the group of countries previously known as the Common Market. It guarantees the free circulation of industrial goods and processed agricultural products. Customs duties and charges have been abolished and non-tariff barriers are prohibited. The Customs Union involves harmonization of Turkey's commercial and competition policies including intellectual property laws with those of the European Union and it extends most of the EU's trade and competition rules to the Turkish economy. The chief characteristic of the Customs Union is that goods move freely between the EU and Turkey without being subject to customs duties or quantitative restrictions; it covers all aspects of trade and commercial policy to ensure there is a "level playing field" for Turkish and European firms.
The Helsinki European Council in 1999 launched Turkey’s formal EU accession process based on the same criteria as applied to all other candidate States. This has allowed Turkey to benefit from a pre-accession strategy to stimulate and support its increasing economic and political harmonization to EU standards. EU financial support for the continuing reforms contained in Turkey’s National Program for the Adoption of the Acquis has been formalized in a 2001 Accession Partnership.
In late December 2004 the EU offered to begin membership talks with Turkey starting on October 3, 2005. EU leaders said the aim of the talks - which could take up to 15 years - would be full membership. As part of the agreement, Turkey agreed to extend an existing trade accord to the newest 10 E.U. members, which include Cyprus
Black Sea Economic Co-operation
Turkey is a leading party to the Black Sea Economic Co-operation (BSEC) Agreement, together with other regional countries. The BSEC Agreement highlights the need for adoption of a regional strategy for sustainable development – its objective is a free trade zone between the member states.
Established in 1992, the BSEC is composed of 11 countries: Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine. Austria, Egypt, Israel, Italy, Poland, the Slovak Republic and Tunisia have been granted observer status. In 2001, BSEC countries had more than 5 percent of total world trade. More than 5 percent of the world’s population lives in BSEC countries and the total BSEC area is around 20 million square kilometers. These figures indicate the importance of BSEC in the global economic order. It is expected that the significance of the BSEC region in economic and political terms will grow considerably over the coming years due to its geostrategic location, size and command over natural resources – particularly natural gas, oil and coal.
Openness to Global Trade and Investment
In addition to trade agreements with the EU and Black Sea countries, Turkey maintains an extremely liberal trade and investment regime with all countries, in conformity with its membership of international institutions such as the WTO, MIGA and OECD. Turkey has signed additional Free Trade Agreements with EFTA, Hungary, Israel, Romania, Lithuania, Estonia, Czech Republic, Latvia, Slovakia, Slovenia, Bulgaria, Poland, Macedonia, Croatia and Bosnia-Herzegovina. Additional FTAs are being prepared with Albania, Morocco, Tunisia, Egypt, Palestine, Pakistan, South Africa, Mexico and Lebanon. Turkey has signed Bilateral Agreements on the Promotion and Protection of Investments with 67 countries, and is in negotiations with 9 additional countries. These agreements do not bring any new burdens to the concerned countries while providing additional economic and legal assurances to investors.
Energy Production and Transit Opportunities
Turkey has launched fundamental reform in its domestic electricity and natural gas sectors in 2001, leading to a liberal and transparent market model. Privatization and increased private sector participation is on the agenda for generation and distribution assets in electricity, and for distribution, trading (import and sales) and storage activities in the natural gas sector. Turkey’s hydro generating capacity includes the huge integrated hydroelectric and irrigation South-East Anatolia Project (GAP), which among other objectives seeks to reduce Turkey’s regional disparity in economic prosperity, employment and infrastructure. The new market model brings Turkey in line with the EU energy sector, with large eligible consumers free to select their own electricity and gas suppliers in 2003.
Turkey looks set to become a major energy transit country as well. With construction on the Baku-Tbilisi-Ceyhan crude oil pipeline begun in September 2002, Turkey seeks to bring new oil supplies to Western markets from the Caspian region, especially from Azerbaijan and Kazakhstan. Turkey also is diversifying its sources of natural gas through the construction of new gas pipelines from Azerbaijan, Turkmenistan and Iran, and a new route from Russia under the Black Sea (Blue Stream) has been completed. Turkey thereby prospectively offers an alternate path for gas from the Middle East and Central Asia into the major West European markets. In this context, feasibility studies to construct gas pipelines between Turkey and Greece to transmit gas via Greece and Italy within the context of the Southern Europe Gas Ring Project were finished in 2002. An Intergovernmental Agreement was signed between Turkey and Greece in February 2003 to implement the project and this was followed by a Natural Gas Sales and Purchase Agreement between Turkey and Greece in December 2003. Furthermore, BOTAS (Turkish Petroleum Pipeline Company) and an Italian natural gas company have launched studies to construct an offshore extension connecting Turkey, Greece and Italy. Studies also are underway for further large-scale electricity interconnectors to the UCTE network over Greece and the Balkans, to connect Turkey to the Western Europe Electricity System – in addition to the available power transmission links between Turkey and Bulgaria.
For more information:
www.foreigntrade.gov.tr (Undersecretariat for Foreign Trade)
www.igeme.org.tr (Export Promotion Center)
www.abgs.gov.tr (Secretariat General for the EU Affairs)
www.bsec-organization.org (Organization of the Black Sea Economic Cooperation)
www.botas.gov.tr (Petroleum and Natural Gas Pipeline Corporation)
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