The Report: Turkey 2013
At an average of 5.1% between 2003 and 2012, Turkey has experienced one of the world’s highest growth rates over the past decade. This was accompanied by drops in joblessness and poverty, as well as gains in school enrolment, home ownership and life expectancy. Currently coming in at number 17 in nominal terms according to 2012 IMF figures (and 16 by purchasing power parity), Turkey has set an ambitious goal of becoming one of the world’s 10 largest economies by 2023, the centennial of the founding of the republic. A fiscally conservative and pro-business government has a firm grip on power and is taking a long-term approach to economic reforms and development. While the EU accession process remains on hold, significant progress has been made of late in addressing the long-running conflict with the outlawed Kurdistan Workers’ Party (PKK), with a ceasefire in place and PKK fighters withdrawing from the country as of early May 2013. Turkey has become increasingly prominent in regional and global affairs as well, and to some extent has served as a role model for Arab Spring nations like Egypt and Tunisia that are undergoing political transformation. Nevertheless, given the rising number of journalists in jail, as well as restrictive legislation on publishing, more progress is still needed at home.
Country Profile
The Turkish government is working to advance a resolution process that could remake domestic politics and enhance its foreign policy clout. A 28-year conflict with the autonomy-seeking Kurdistan Worker’s Party (PKK) has cost over 40,000 lives, has held back economic growth and hampered Turkey’s bid for EU membership. Recent peace talks with the leader of the PKK, Abdullah Öcalan, led to a ceasefire agreement and militants have since begun to pull back from Turkey. Given its ability to bridge the divide between Europe and the Middle East, Turkey has become something of a role model for political transformation in countries such as Tunisia and Egypt. Still, issues including Cyprus and the Kurdish question remain key stumbling blocks for its EU bid, which is also hampered by continuing opposition from some European states. Prime Minister Recep Tayyip Erdoğan is poised to continue the EU bid, but considers it to be non-vital and “not the end of the world” if it is not accepted. Irrespective of the accession process, Turkey is making its own way ahead, enjoying sustained economic growth and increasing clout within the region and internationally. This chapter contains interviews with Zafer Çağlayan, Minister of Economy; M Rifat Hisarcılıoğlu, President, Union of Chambers and Commodity Exchanges of Turkey (TOBB); and Hüseyın Diriöz, Ambassador and Assistant Secretary-General for Defence and Policy and Planning, NATO.
Explore chapterEconomy
Turkey has had an impressive decade of expansion that saw GDP rise from $196bn in 2001 to $787bn in 2012, or about $10,400 per capita. Since 2001, real growth has averaged more than 5% per year, an extraordinary rate for a middle-income country that imports most of its raw materials. A young and mobile population provides a natural tailwind to growth, while a high level of diversification in terms of products and markets has helped the Turkish economy bounce back strongly from recent global and regional crises. Despite a decline in growth in 2012, Turkey’s performance was regarded as impressive, given that much of emerging Europe fell into recession. However, it needs to be wary of falling into the “middle-income trap”, although there is no good evidence that countries in its income bracket are especially prone to severe slowdowns. Turkey’s open economic model might miss some short-term gains by eschewing such tactics as export subsidies and import restrictions, but that restraint has also made it into one of the more competitive emerging markets, demonstrated by its high average growth rates and relatively high incomes. This chapter contains interviews with Nicole Bricq, French Minister for Foreign Trade; Ahmet Aksu, President, Turkish Privatisation Administration; Ali Sabancı, Chairman, Pegasus Airlines; and Mark Lewis, Senior Resident Representative in Turkey, IMF.
Explore chapterBanking
The Turkish banking sector has suffered from a pattern of booms and lulls in the past, and, as a result, a number of policy reforms have been instituted to improve regulation. The sector looked to be starting a process of maturation in 2013 as it continued to record solid growth without overheating, with lending growing at an annualised rate of 16% in the first two months of 2013. The efforts being made by bankers and regulators to take the long-term view, when markets are putting little pressure on them to do so, bode well. Lower inflation, higher domestic savings, focus on SME lending and longer-term foreign financing will make Turkish banks more resilient and able to fund larger projects. But, as the country enters a middle-income stage of development when economic growth usually becomes harder, banks will need to pay close attention to loan quality. This chapter contains an interview with Erdem Başçı, Governor, Central Bank of the Republic of Turkey, as well as a banking dialogue with Hakan Ateş, CEO, Denizbank and Süleyman Asla, CEO of Halkbank.
Explore chapterCapital Markets
Following the 2012 enactment of the new capital markets law, the Istanbul Stock exchange was merged with the Istanbul Gold Exchange and renamed Borsa Istanbul. Following a dismal performance in 2011, equity markets staged a dramatic recovery in 2012, with the dollar-based version of the Borsa Istanbul’s broadest index, the BIST 100, coming within 4% of its record high in January 2013. The government’s commitment to promoting capital markets and its generally practical approach bode well for the sector’s development. Although its ambition to develop Istanbul into one of the world’s top financial centres is lofty, the project is proving to be a positive catalyst for down-to-earth reforms that will be useful in the near term to strengthen markets. This chapter contains interviews with Vahdettin Ertaş, Chairman, Capital Markets Board (CMB); Ibrahim Turhan, Chairman and CEO, Borsa Istanbul; and Özgür Günerı, CEO, Finansinvest.
Explore chapterInsurance
The Turkish insurance sector is dominated by 25 multinational insurance companies, which held some 52% of the market in 2012. Gross insurance premiums grew 15.5% in nominal lira terms, or 8.8% in real terms, in 2012, and subscriber growth reached 18% that year. Protecting non-vehicular property accounted for 22% of the insurance market in 2012, with the largest segments fire (9%) and earthquake (4%) coverage, which are typically marketed together in “housing packages”. While in previous years the sector had largely followed the fortunes of the wider economy, in 2012 it maintained comparatively high growth rates, even as the overall economy slowed. The pensions segment even accelerated its growth, thanks to the strong performance of the capital markets and a new government incentive to match payments. This chapter contains an interview with Mehmet Bostan, Chairman, Pension Monitoring Centre.
Explore chapterEnergy
Now ranked the world’s 17th biggest economy with a GDP of nearly $790bn, Turkey, the prime minister claims, will become the 10th largest in 10 years’ time. To fuel that kind of growth, the country needs energy. Situated between the hydrocarbons-rich Middle East and energy-hungry Europe, but with negligible reserves of its own, Turkey has long been viewed as a transit state. While that continues to be part of its strategy, the nation is also hunting for resources to power its own economy, whether it is domestic supplies like coal or renewable energy, oil and gas extracted in foreign fields or new pipeline agreements to ship in fuel. It is also investing in hydroelectric plants, and plans to have eight nuclear reactors on-line by 2022. This chapter contains interviews with Hasan Köktaş, President, Energy Market Regulatory Authority; Rövnag Abdullayev, President, SOCAR; Gülsüm Azerı, CEO, OMV Turkey; and Alexander Medvedev, Director-General of Gazprom Export.
Explore chapterIndustry & Retail
Accounting for between a quarter and a third of GDP, Turkey’s industrial sector is a global player in areas as diverse as automotive, ready-to-wear, chemicals and retail. A major source of Europe’s industrial imports – as well as a destination for the continent’s exports – Turkey also carried out significant trade in industrial goods with the Middle East, Central Asia and beyond. Despite the global financial crisis that struck in 2008, the contribution of industry’s value added to GDP in the republic managed to surpass that in the euro area in 2010. The next decade will likely see a continuation of the ongoing gradual shift in export markets away from Europe and toward Asia and Africa. At the same time, increased spending on R&D and efforts to meet the goals set for 2023 will be vital if the country is to produce higher-value-added goods, and thus keep ahead of its lower-cost Asian and African rivals. This chapter contains interviews with Mehmet Büyükekşı, Chairman, Turkish Exporters’ Assembly; Ahmet Zorlu, Chairman, Zorlu Holding; Norbert Klein, CEO for Turkey, Middle East, North Africa, Bosch Siemens Home Appliances; and Mehmet Nane, President, Shopping Centres and Retailers Association.
Explore chapterConstruction & Real Estate
The construction sector is riding high on the back of a raft of major infrastructure projects, particularly in road and bridge development, and an ongoing urban regeneration plan that will see one-third of the country’s houses torn down and rebuilt. After shrinking in 2009 as the result of a financial crisis, the sector helped lead the economic recovery by growing by 18.3% and 11.5% in 2010 and 2011. Although the market is still susceptible to a temporary slowdown in light of the recent global economic crisis, which moderated growth for 2012, long-term trends favour continued growth. The coming challenge will be to align public and private incentives and ensure that haphazard planning does not derail a promising decade. This chapter contains interviews with Başar Arıoğlu, Managing Director, Yapı Merkezi, and Ahmet Haluk Karabel, President, Housing Development Administration of Turkey, as well as a viewpoint from Mehmet Ali Neyzi, CEO, STFA.
Explore chapterTransport & Logistics
Despite substantial roadway expansion in the last five years, the country has struggled to keep up with rapid growth of car ownership, often resulting in congestion. Much more investment is necessary, not least because economic progress is creating new infrastructure needs. The most ambitious of several proposed highway expansion plans is the North Marmara Highway, which would link Izmir and Istanbul via a third bridge over the Bosphorus. Planned expansions to rail networks include improvements to domestic lines and connections to Eurasian markets. Air transport has proven to be a significant driver of economic growth. The most ambitious of Turkey’s infrastructure projects calls for the development of a third airport at a cost of more than $9bn – a proposal which is drawing a characteristic mix of excitement, investor interest and criticism in-country. This chapter contains interviews with Sani Şener, President and CEO, TAV Airports, and Ahmet Musul, Chairman, Ekol Logistics.
Explore chapterAgriculture
A favourable climate and proximity to affluent Europe and the dry Middle East make Turkey a global breadbasket and a natural destination for investors. Foreign direct investment is at unprecedented levels, reaching a total of $2.1bn by October 2012. Major government infrastructure projects are also set to boost the agriculture industry in the coming years. The sector is hampered by high levels of protection, inadequate irrigation, fragmented farms and limited access to capital to fund technological improvements. Although consolidation and mechanisation of the farming sector has resulted in fewer farm jobs, unemployment can be offset by the creation of new job in related industries such as food manufacturing. Turkey wants to see agricultural exports more than triple to $40bn over the next decade. Ideal ecological conditions, a well-developed industry, rising global demand and government support for investment make this a realistic target.
Explore chapterTelecoms & IT
After a brief dip following the onset of the global financial crisis, the telecoms sector has made a robust recovery, exceeding pre-crisis subscriber numbers in 2012. The domestic mobile network is now comparable to that of North America and Western Europe, in terms of penetration and services, with fixed-line services already reaching the majority of the population. A heavy tax regime is hampering further growth of the mobile market, but the expansion of mobile broadband services and a huge demand for smartphones have created high growth potential. The young, tech-savvy population is driving demand for new technology, and, as Turkey moves to construct an expansive 4G network across the country by the end of 2016, the mobile market is poised for strong, steady growth. This chapter contains an interview with Hakam Kanafani, CEO Turk Telekom Group, and Faruk Eczacıbaşı, Vice-Chairman, Eczacıbaşı Holding.
Explore chapterTourism
With official figures from 2012 showing foreign arrivals continuing to edge upwards, year-on-year, Turkey has maintained its status as a leading global tourism destination. Collaboration at the public, private and non-governmental levels is seen as key to improving professional standards in the sector, and to meeting the goals outlined in the Tourism Strategy 2023. There are still challenges, however, not least of which is the threat posed by rapid growth to the integrity of environmental, cultural and historical sites. Turkey is seeking to broaden its image as a destination by promoting its diverse landscapes and cultural heritage, with efforts under way to develop infrastructure to support golf and winter sports tourism as well. The Tourism Strategy 2023 is ambitious, with the 50m-visitor target around 20m higher than current figures. The target may be achievable, as numbers have grown at a heady rate in recent years, rising 170.7% between 2001 and 2011, for example.
Explore chapterEducation & Research
Between 2000 and 2011, the number of students enrolled in higher education institutions doubled. According to a recent study, this increase should reduce the probability of a middle-income slowdown. The stakes for reform are high, given the key role the school system must play in facilitating the country’s transition to a more knowledge-oriented economy. With primary school enrolment up from 95.3% in 2000 to 98.4% in 2010, the republic has shown that it is on track to meet the UN Millennium Development Goal of universal enrolment by 2015. While enrolment is up, ensuring equal regional access will be more difficult to achieve. This is not lost on the current administration, which has boosted school investment in underserved areas. This chapter contains interviews with Umran Inan, President of Koç University, and Yücel Altunbaşak, President, Scientific and Technological Research Council of Turkey.
Explore chapterHealth
Although the health system faces an array of challenges, including human resource shortages, disparities between regions and rising costs, significant gains in the quality and accessibility of care have markedly improved the wellness of Turkey’s population. Moreover, as the economy expands, health companies and investors are well positioned to capitalise on growth opportunities in private hospital development, pharmaceuticals production and medical device manufacturing. Now that Turkey has secured its place among the emerging market leaders in public health, the country is seeking to leverage the system as a platform for economic growth.
Explore chapterMedia & Advertising
The rapid growth of the domestic economy has helped to sustain an expanding media landscape, although issues of media freedom remain an ongoing concern. For some, a sense of growing polarisation represents a danger; others regard it as the emergence of a healthier (if more contested) public sphere. Despite the challenge from online outlets, Turkish print journalism still maintains a diverse range of publication and viewpoints. For 2013, there is widespread expectation that increased economic growth, along with the sector’s ability to move on from recent television ratings issues, should result in solid expansion. This chapter contains an interview with Nurı Çolakoğlu, President, Doğan Media International.
Explore chapterTax
Featuring the viewpoint of Emre Burçkin, Chairman of the Board of OBG partner, Consulta, this chapter contains information about Turkey’s tax system, designed to aid those interested in doing business in the republic.
Explore chapterLegal Framework
This chapter features an overview of Turkey’s legal framework. Subjects include structural reforms, corporate governance, inter-governmental agreements, bankruptcy protection, and reforms in finance. OBG partner, Ümıt Hergüner, Senior Partner of Hergüner Bılgen Özeke, also offers a viewpoint on creating an investment environment to meet Turkey’s centennial goals.
Explore chapterThe Guide
This chapter includes helpful information for visitors to Turkey, including information on society and etiquette, language, transport and visas. It also features a list of suggested hotels and contact information for various institutions, including government ministries, foreign consulates and embassies.
Explore chapterTable of Contents
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