Doing business in Turkey

With extensive construction projects under way, a growing economy and strengthening export market, Turkey is living up to its billing as the “China of Europe.”

  • Share

In these austere times, Europe’s top finance ministers could be forgiven for glancing enviously at their Turkish counterpart. While markets across Western Europe continued to suffer, Turkey recorded an 8.5% rise in GDP in 2011 - just short of the 9% increase from the previous year.

Growth is expected to slow somewhat this year as the Turkish authorities attempt to curb inflation and rein in external deficits.

GDP for this country of 73.6 million, is now forecast to grow by 3.2% in 2012. Some economists say that by 2050, the “China of Europe” could become the world’s 10th biggest country in terms of population and GDP - a significant rise from its current 18th place.

Commentators may be extolling its virtues, but potential investors need to assess whether Turkey’s economic growth will be short-lived - or herald opportunity in the long term.

From a trading viewpoint, Turkey is situated in a prime geographic location between the East and West. Last year, nearly half of the country’s exports went to the EU, while the rest went to the Middle East, North Africa and Asia, according to EY’s Rapid- Growth Markets forecast.

The country’s skilled and cost-effective workforce, which is the fourth largest among EU members, is providing a competitive advantage for a number of sectors, including the textile industry.

As one of Turkey’s principal export sectors, the textiles and clothing industry has particularly benefited from being a popular sourcing destination for European fashion brands.

Turkey is in a prime geographic location between the East and West.

Demand is also coming from further afield; bilateral trade with Nigeria is expected to rise from US$1.3b to US$2b by the close of 2013, with clothing accounting for a significant proportion of exports to the African nation.

Those trade links will prove invaluable if the country is to stake its future growth on exports. Speaking to the Financial Times in October 2012, Turkey’s central bank governor Erdem Basci said that the nation’s economic focus would shift from domestic demand-driven expansion to exports, notably to Middle East markets such as Iraq.

He added that foreign trade was already the chief driver of the Turkish economy. During the first eight months of 2012, Turkey made US$100b from exports, 13% higher than the corresponding period in the previous year. Potential investors will no doubt monitor developments between the two countries while also keeping an eye on Turkey’s political agenda: namely, joining the EU.

Given Europe’s appetite for Turkish goods and services, EU accession and the subsequent lowering of remaining trade barriers could increase exports while making internal investment easier.

However, the perceived benefits of EU membership are also relative to the economic health of the union, currently undermined by the Eurozone crisis.

Growth industries

Travel and tourism is also proving particularly successful. Turkey welcomed 31.5 million visitors in 2011, accounting for US$23b of revenue, according to the Turkish tourist board.

The Turkish tourism market still has opportunities for growth, with the promise of further liberalization of the aviation market and untapped potential in its traditional coastal tourism, as well as more niche areas such as winter sports, golf and spa holidays.

In the energy and utilities sector, it is privatization that is creating investment opportunities. Turkey’s bold privatization agenda of recent years has been driven by a need to raise finance as well as a desire to detach the state from the ownership and management of most sectors.

In the energy sector, the Government has split the main energy provider into several regional companies that are open to investors.

The nation’s focus on alternative energy is another area that dealmakers might look to exploit: by 2023, Turkey’s leaders want 20% of the country’s power to come from renewable energy.

Many of the country’s highways and toll bridges are also up for sale, having attracted a number of international bidders. But while privatization gains ground, the state is also funding a number of infrastructure projects.

Construction is a big industry in Turkey and Istanbul alone has 10 mammoth projects under way, including the US$2.5b Zorlu Center, which will include a five-star hotel and 200 luxury boutiques.

Further construction is expected to keep pace with the nation’s economic development, which will create more opportunities for investors.

Building work in its capital is indicative of a country that is experiencing economic growth amid a financial downturn. This, more than anything, could help entice investors to the “China of Europe.”