The explosive economic growth of Turkey’s economy, which started in 2001 and peaked between 2002 and 2007 with the establishment of the incumbent Justice and Development Party (AKP) government, was dubbed by many as the ‘Turkish economic miracle’, as the country emerged from decades of IMF bailouts and political instability.
Since 2002, Turkey’s economy has nearly quadrupled, registering an average GDP annual growth rate of 5%, thanks to a series of structural reforms implemented by the new government. The new economic environment has attracted direct foreign investment and led to the proliferation of glitzy construction and infrastructure projects.
Key sectors in the Turkish market include textiles, food production, automotive, electronics, banking and tourism.
Recent challenges
However, 15 years on from the boom, Turkey seems to be entering a challenging period. Once the fastest-growing economy in the G20, it experienced a recent reduction in the growth rate, estimated at 3.1% in the past year, according to Hurriyet Daily News. Like many other emerging markets, Turkey’s economy has depended heavily on foreign capital, leaving the country vulnerable to global economic shocks.
During 2015, Turkey saw its currency hit a record low against the US dollar. According to Hande Karakülah, head of legal for Turkey and MENA at global beauty product seller Avon, the foreign currency fluctuation and strength of the US dollar could pose a big challenge for international companies operating in Turkey.
At the same time, Turkey is grappling with daunting security challenges as the country is currently fighting on two fronts: against the rebel Kurdistan Workers Party (PKK) and the Islamic State. Over the last year Turkey has seen a rise in the number of terrorist attacks by ISIS, which have had serious implications on tourism, one of the country’s most dynamic industries. In addition, tourism has been hit by a dramatic loss of Russian tourists, amid the bilateral crisis between Russia and Turkey and the new sanctions imposed by Russia.
The economy has also been affected by the former sanctions against Iran, which impacted on the country’s exports. Turkey is one of the few countries in the world that has land or sea borders with three countries under sanctions [Russia, Syria and parts of Iraq], all of which have been major Turkish trading partners.
EU accession process and new regulation
Turkey has been a candidate for EU membership since 1999 and has been negotiating for accession since 2005. The talks have recently been unfrozen, after increased cooperation between the EU and Turkey on the management of the refugee crisis. As part of the EU accession process, Turkey has been harmonising its national legislation with EU law. The adaptation of national laws to the European framework has been very challenging for the legal community in Turkey, according to Zeynep Derman Küçükönder, legal director of Coca-Cola’s Turkey, Caucasus and Central Asia business unit, who says that ‘lawyers are usually faced with conflicts between the two regulatory systems’.
For Hakan Bekiroğlu, chief legal officer of automotive company Tofaş, the biggest difficulty for those operating in the Turkish legal system is its unpredictability. ‘Laws are changing so rapidly. There is a problem with application and how the clauses of the legislation are perceived. We cannot foresee what is going to happen in due course. I would say these are the major issues that could cause trouble for a GC.’
Companies doing business in Turkey will be faced with huge volumes of new regulation in 2016, especially in the areas of personal data, competition, labelling and advertising, and e-commerce.
Causes for optimism
The recent lifting of the embargo on Iran as part of the nuclear deal is predicted to benefit the Turkish economy as trade between the countries is gradually being restored. Al-Monitor reported that the Ministry of Economy had declared Iran a major target for trade in 2016 (www.al-monitor.com/pulse/originals/2015/04/turkey-iran-how-will-benefit-from-lifting.html); a positive development, especially for the tourism, energy, banking, petrochemicals and telecommunications sectors.
At the same time, the resumption of EU negotiations is laying the ground for further enhancement of economic relations and creating a platform that will bring EU and Turkish businesses together.
Bekiroğlu highlights Turkey’s geographical position as a key driver of opportunity to play an increasingly important role at a regional level: ‘Geographically, Turkey is in a very good spot. We try to maintain good relationships with all the markets surrounding us. We have this power, this opportunity: but first we need to focus on the stabilisation of the region.’
According to Coca-Cola’s Zeynep Derman Küçükönder, the future looks bright: ‘Turkey’s economic performance has been strong over the last few years, and the country is expected to continue its economic growth. With its growing population of over 70 million, geopolitical situation, and increasing and promising young generation, Turkey stands as one of the most attractive emerging markets. As bridge location between East and West, it offers great opportunities to all sectors to become a new hub in a wide region.’