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Economy

 

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  Economy of Turkey

Overview

Non-agricultural economic activity is concentrated in four regions, centered respectively around the Sea of Marmara, Edirne on the west coast, the Adana-Mersin-İskenderun triangle along the Mediterranean Sea, and Ankara. In 2005 a large share of Turkey’s major enterprises remained in state hands. These included all of the transportation, utilities, and communications infrastructure, many basic industries, and about 30 percent of the banking sector. After failing to fulfill earlier privatization plans, in 2004 Turkey announced plans to privatize a wide range of industries, including tobacco and sugar processing, communications, and energy. No target dates were set, however. The economy has been plagued by high inflation and high fiscal deficits. Those conditions improved somewhat in 2004, when private investment increased significantly and the inflation rate declined. Beginning in 1999, the International Monetary Fund (IMF) has exerted strong pressure to reform the economic system. The IMF responded to Turkey’s serious economic crisis of 2001 with stand-by assistance programs contingent on reduced state spending and debt, banking reform, accelerated privatization, and reduced inflation.

Gross Domestic Product (GDP) of Turkey

In 2004 Turkey’s GDP of US$307.5 billion showed a real increase of 8.8 percent over the previous year, when the total was US$239 billion. In the first half of 2005, the GDP grew at a rate of 4.5 percent. The growth between 2002 and 2003 was 5.8 percent. Between 1999 and 2002, the average annual GDP increase was 2.9 percent, but the economy recorded decreases in 1999 and 2001. In 2004 the per capita GDP was US$4,414. The sectoral contribution to GDP was as follows: services 59.6 percent, industry and construction 29 percent, and agriculture 11.4 percent. In the early 2000s, the share of agriculture has decreased, the share of industry and construction has remained approximately constant, and the share of services has increased. For detailed statistics and comparisons click Comparisons.

Turkish Government Budget

In 2004 Turkey’s state revenues totaled US$86.4 billion, and its expenditures totaled US$108.1 billion, creating a deficit of US$21.7 billion. In 2003 revenues were US$66.8 billion and expenditures were US$93.3 billion, resulting in a deficit of US$26.5 billion. In 2002 the deficit was US$21.1 billion. An important component of the budget deficit has been the 40 percent of state expenditures devoted to interest payments on debt.

Inflation in Turkey

Inflation has been a chronic problem in Turkey’s economy. The rate for 2004, estimated at between 8.6 and 9.3 percent, was the lowest since 1982. For the first three quarters of 2005, the rate was about 8 percent. Between 1988 and 1999, the annual inflation rate varied between 60 percent and 90 percent.

Turkish Agriculture

Turkey is self-sufficient in most foods, although some agricultural commodities are imported. The principal agricultural exports are cotton, fruits, hazelnuts, tobacco, and wheat. Other important agricultural products are barley, corn, oilseeds, olives, potatoes, sugar beets, and tea. The most important livestock are cattle, chickens, goats, and sheep, but livestock raising has declined significantly since the 1980s. The efficiency of the agricultural sector is limited by the predominance of small, non-mechanized farms on which a disproportionately large segment of the population depends for its livelihood. Output varies substantially according to weather conditions. The Southeastern Anatolia Project is an extensive series of dams and canals in the Firat (Euphrates) Valley, scheduled for completion in 2010. The project will provide irrigation to improve agricultural productivity in the southeast. State support, an important component of agricultural enterprises, often has been poorly distributed and without proportionate returns. In the early 2000s, the government reduced agricultural support and began restructuring marketing systems.

Turkish Forestry

In 2000 the extent of Turkey’s forests was estimated at 10.2 million hectares. However, the forests of eastern Anatolia are not suitable for harvesting. The only usable timber comes from the Black Sea coastal region, and timber does not make a significant contribution to the economy. Because poor management and infrequent cutting have left many forests over-mature, only about 20 percent of the total forested area is classified as commercially exploitable. In 2003 Turkey’s timber industry produced a total of 16 million cubic meters of wood products, about 32 percent of which was fuelwood. Forest protection by the state is handicapped by the dependence of local populations on trees for fuel. In 2004 forestry contributed 0.4 percent of GDP.

Fishing in Turkey

Despite Turkey’s long coastline, fishing is not an important contributor to the economy. The fishing industry is concentrated on the coasts of the Black Sea and the Sea of Marmara, where output has been cut by pollution and over-fishing. In 2002 Turkey’s fish catch totaled 567,000 tons, a substantial decrease from the annual totals of the 1990s. Anchovies accounted for more than 60 percent of the catch. A small aquaculture industry also exists. In 2004 fishing contributed 0.4 percent of GDP.

Mining and Minerals (Natural Resources) in Turkey

Turkey’s major mining operations, formerly controlled by state-owned companies, have been increasingly privatized in the early 2000s. During that period, aluminum, chrome, copper, and silver mines have moved into the private sector. By far the most important mineral product is lignite coal, of which Turkish mines yielded nearly 50 million tons in 2002 and of which reserves are estimated at 8.4 billion tons. Turkey’s low-quality lignite, burned mainly in power stations, is highly polluting. The output of hard coal has declined in the early 2000s, reaching 3.3 million tons in 2002. Hard coal reserves are estimated at 1.1 billion tons. The most important non-fuel mineral is boron, of which Turkey has an estimated 60 percent of world reserves, and production of which remains in state hands. Gold, of which Turkey is estimated to have 450 tons of reserves, is receiving increased investment. Marble is the most important mineral export.

Industry and Manufacturing in Turkey

Turkey’s diverse manufacturing sector satisfies domestic demand for a wide variety of products; the main manufactured exports are consumer goods. Most manufacturing enterprises are privately owned, but the size of such enterprises varies greatly, and the state has influenced the relative growth of industries by providing disproportionate investment and incentives. Multinational companies are present in many light and heavy industries. Foreign auto companies—Fiat, Honda, Hyundai, Renault, and Toyota—have plants in Turkey. Other industries such as appliances are mainly Turkish-owned. A large proportion of the appliances, consumer electronics, and vehicles manufactured in Turkey are exported. The largest privately owned industrial company is the Arcelik firm, which manufactures a wide variety of consumer products. Textiles and clothing are by far the largest products of light industry, accounting for about one-third of exports. However, much of this production is unreported because it is in the "informal" sector. The most important textile product is cotton cloth. Besides textiles, the most important consumer items produced are televisions, automobiles, refrigerators, washing machines, and vacuum cleaners. The most important heavy industrial products are processed fuels, steel, cement, tractors, and fertilizers.

Traditionally, the construction industry has made an important contribution to the economy. However, the share of construction’s contribution has declined since the late 1990s because of a reduction in demand for domestic and foreign building projects and because of Turkey’s 2001 economic crisis. Expansion resumed at a moderate rate in 2004. In 2003 the construction industry earned US$900 million in foreign contracts. In the early 2000s, the industry’s foreign operations expanded, particularly in Russia, Turkmenistan, Kazakhstan, Saudi Arabia, and Afghanistan.

Energy Resources in Turkey

Coal is the only fossil fuel that Turkey possesses in abundance, meaning that large amounts of oil and natural gas are imported. In the early 2000s, the domestic distribution of fuels and electricity has been reformed to meet European Union standards. Distribution of natural gas, nearly all of which is imported, is to be privatized by 2009. Since the 1990s, Turkey has attempted to substitute cleaner natural gas for highly polluting domestic coal. In the early 2000s, about two-thirds of the 1.1 billion cubic feet of natural gas that Turkey imported was used by the electric power industry. In 2005 authorities reduced their predictions of rapidly increasing natural gas consumption for the rest of the decade. Russia is the main supplier of natural gas; its share of total imports is expected to rise from the 2003 figure of 25 percent to 58 percent in 2010. Other major suppliers are Iran and Azerbaijan. In 2004 Turkey’s domestic oil output was 43,000 barrels per day, about half the level of 1990. Turkey imports about 90 percent of its oil, mainly from Iran, Iraq, Russia, Saudi Arabia, and Syria. The demand for oil is expected to grow steadily during the next decade. Turkey’s location along several international oil and gas pipelines eases transport. Ceyhan, on the Black Sea coast, is the terminus of the newly completed Baku-Tbilisi-Ceyhan oil pipeline, which may gain Turkey substantial transit fees. However, recent downward revisions of the Caspian’s estimated potential oil deposits may reduce the value of that line.

Because the demand for electric power doubled in the 1990s, Turkey became a net importer of electricity as domestic generating capacity was unable to keep up with demand. Although in 2004 Turkey’s generating capacity of 32,000 megawatts exceeded demand, another 13,000 megawatts of capacity was being added in anticipation of increased demand in the following 10 years, and some power is imported from Turkmenistan. In the early 2000s, domestic power supply was inefficient because new plants came online slowly and industry privatization stalled. Turkey abandoned plans for its first and only nuclear power plant in 2000. Since 2002 an independent Energy Market Regulatory Authority has overseen privatization and distribution. This agency is considered an important improvement in Turkey’s energy management.

The State of Services Sector in Turkey

Banking, the most important of Turkey’s financial services, has undergone significant changes in the early 2000s. The current system is based on the banking law of 1999, which calls for transparency and accountability. The financial crisis of 2001, for which the banks were partly responsible, had a severe impact on the sector. The resulting rationalization of the banking system reduced the number of banks by about one-third to 36, leaving the five largest banks with more than 50 percent of total assets. Those five private banks are part of large conglomerates with interests in many other sectors. Three state banks control about 30 percent of the industry’s assets. In 2004 government securities constituted about 40 percent of the assets of Turkish banks. Bad loans accounted for 14 percent of assets, a very high figure. Long-term loans such as mortgages are rare, and both credits and deposits are mostly very short-term. Since the 1990s, the Istanbul Stock Exchange has been quite active, although political developments have caused substantial volatility. In 2004 the exchange listed 309 companies, including most of the largest in Turkey. Most of Turkey’s large insurance companies are connected with banks or international insurance firms. Per capita insurance expenditures are the lowest in the industrialized world. In 2004 total premiums reached US$4 billion after a 20 percent increase in 2003. In 2005 a new agency was expected to replace the National Treasury in regulating the insurance industry.

Small enterprises have dominated retail trade. However, in the early 2000s large Turkish chains such as Migros, Gima, and Tansas and foreign companies such as Metro of Germany, Carrefour of France, and Tesco of Britain occupied an expanding share of the retail sector. Turkey has taken advantage of its wide variety of scenic and historic locations, particularly along its southern and western coasts, to build a substantial tourism industry based on local ownership of hotels and restaurants. Some 17.5 million tourists visited Turkey in 2004, an increase of 25 percent over 2003. This activity generated revenues estimated at US$15.9 billion and provided an important source of foreign currency.

Turkish Labour Force

In 2004 Turkey’s labour force was estimated at 24.3 million. However, a large part of this labour force works in the "informal sector," making measurement of its activities difficult. In 2003 about 34 percent of the official workforce was occupied in agriculture, 43 percent in services, and 23 percent in construction and industry. Industrial labour is heavily unionized, and unions exert strong political influence. In the first half of 2005, unemployment was estimated at 10.5 percent overall, the same rate as in the previous three years, but unemployment among the youngest workers was estimated at 20 percent. Another 6 percent of the workforce was considered underemployed. Despite substantial wage increases in the 1990s and the early 2000s, the real value of wages has been depressed by inflation. However, in the early 2000s a series of sharp increases brought the 2005 minimum wage to US$360 per month. Wage disparities are great between eastern and western Turkey. Women account for only about one-quarter of the overall workforce but for 60 percent of the agricultural workforce. Remittances from Turks working abroad, chiefly in Germany and Saudi Arabia, have been an important source of national income. However, after reaching a peak of US$5 billion in 1998, remittances in the early 2000s have been substantially lower. In 2004 an estimated 3 million workers remitted slightly less than US$1 billion.

Foreign Economic Relations of Turkey

Beginning in the late 1970s, Turkey has liberalized what was a policy of import substitution and protection of domestic industries by import restrictions. In the 1990s, export subsidies were abolished. Beginning in the early 1990s, trade with the European Union (EU) has increased slowly and steadily. Turkey was admitted to the World Trade Organization (WTO) in 1995. In 1996 a customs union was established between Turkey and the EU, abolishing tariffs on industrial products for both sides. An agreement on agricultural products retains tariffs on some agricultural imports from EU countries. In 1999 Turkey revised its customs legislation in accordance with EU standards. Between 1990 and 2004, the EU share of Turkey’s exports remained steady between 51 and 55 percent, and the EU share of Turkey’s imports also remained steady between 44 and 47 percent. Throughout that period, Germany remained Turkey’s primary trade partner, although that country’s percentage of total trade (13.9 percent of exports and 13.6 percent of imports in 2004) diminished steadily in the early 2000s. The level of trade with the United States generally has increased since the late 1990s. In 2003 exports to the United States increased by 11.5 percent over 2002, and imports increased by 10.4 percent. In 2004 the export share of the United States decreased slightly, and its import share remained the same as in 2003. In 2004 the United States accounted for 7.7 percent of Turkey’s exports and 5 percent of its imports. In the early 2000s, a larger share of Turkey’s imports came from the Commonwealth of Independent States (CIS), mainly because of reliance on natural gas from Russia, than had been imported during the 1990s. In 2003 and 2004, Russia accounted for 7.9 percent of Turkey’s imports, and the CIS as a whole accounted for 6.3 percent of exports.

In the early 2000s, agricultural products dropped below 10 percent of Turkey’s exports. Minerals and mineral products accounted for about 5 percent. In 2004 finished textiles accounted for about 28 percent. Other important exported manufactured products were steel, construction materials, appliances, televisions, and motor vehicles. The main customers for Turkey’s exports were the EU countries, the United States, countries of the Middle East, CIS countries, and Turkey’s neighboring countries in southeastern Europe.

Substantial unofficial trade occurs with neighboring countries of the Middle East and the CIS. The value of such trade in 2004 was estimated at US$4 billion. Fuels are the leading "official" imported commodity. Others are chemical products and machinery and transport equipment. Russia and Saudi Arabia are the chief suppliers of fuels. Other major suppliers of imports are the EU countries, Switzerland, Japan, and China. Between 2002 and 2004, imports from China increased by 170 percent.

Trade Balance of Turkey

In 2004 Turkey’s imports had a total value of US$94.5 billion, and its exports were valued at US$69.5 billion. Thus, the trade deficit for 2004 was US$25 billion, continuing a persistent trend. Between 2000 and 2003, the trade deficits were, respectively, US$26.7 billion, US$10.1 billion, US$15.5 billion, and US$21.8 billion.

Balance of Payments of Turkey

In the early 2000s, Turkey’s balance of payments has varied widely, although it was negative every year from 2000 through 2004. The financial crisis of 2001 increased the balance-of-payments deficit to US$12.9 billion, but in 2002 the deficit was only US$214 million. In 2004 the current account showed a deficit of US$15.3 billion, and the capital and financial account showed a surplus of US$12.9 billion, creating a negative overall balance of US$2.4 billion.

External Debt of Turkey

In 2004 Turkey’s medium- and long-term foreign debt totaled US$129.8 billion, compared with US$124 billion in 2003 and US$116 billion in 2002. In the same year, short-term foreign debt increased from US$23 billion to US$31.9 billion.

Foreign Investment in Turkey

Foreign direct investment has been relatively low, exceeding US$2 billion in only one year since 1999. The total for 2004 was about US$2 billion. Portfolio investment, however, increased substantially in 2004 over previous years. A reform of foreign direct investment laws in 2003 streamlined procedures and improved the investment climate. A US$1.5 billion power plant near İskenderun, completed in 2004 by the STEAG utilities company of Germany, is the largest direct investment ever by a German company in Turkey. Automotive companies in France, Italy, Japan, South Korea, and the United States have plants in Turkey. In 2005 a Japanese consortium will begin building a railroad tunnel under the Bosporus. The United States-based General Dynamics Corporation has invested substantially in fighter plane manufacture in Turkey.

Currency and Exchange Rate of Turkey

In January 2005, a currency reform established the new Turkish lira, which was worth 1 million of the previous unit, the Turkish lira. In January 2006, the exchange rate was 1.34 new Turkish liras to the U.S. dollar. Thus, in 2005 the new lira was stronger against the dollar than the old lira had been in 2002 and 2003, when the average rate was slightly more than 1.5 million to the dollar.

Turkish Fiscal Year

Turkey’s fiscal year is the calendar year

 For further in-depth analysis of Turkish Economy:

 

 
 
 
 
 
 
 
 
 
 
 
 
 

 

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