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TURKEY


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 237,972 182,848 147,700 21
         
GNI per capita
 US $ 2,790 2,500 2,530 92
Ranking is given out of 208 nations - (data from the World Bank)

Books on Turkey

REPUBLICAN REFERENCE

Area (sq.km) 
780,580

Population 
68,893,918

Capital 
Ankara 

Currency 
Lira 

President 
Ahmet Necdet Sezer 



Update No: 097 - (26/05/05)

New Pope; no new dispensation
The Turks are the most forward-looking of the Islamic peoples. They followed Ataturk, their leader in 1923-38 into a secular state. And his spirit lives on. The Islamicist party in charge, the Justice and Development Party, is in the main moderate.
No one in Turkey can be too happy at the accession of Benedict XVI to the papacy. As Cardinal Joseph Ratzinger, he was implacably opposed to the idea of Turkey's entry into the EU. He said of it that it would be a derogation of Europe's Christian heritage.
Actually it would be an enhancement of its new-found secularist heritage and an affirmation to the entire Muslim world that the West is not anti-Islamicist. One can but hope that wiser counsels eventually prevail than those of the former head of the Congregation of Doctrinal Purity of the Catholic Faith, in other words of the former Grand Inquisitor himself!

The EU beckons, nevertheless
In fact things are looking up in this regard for Turkey. According to World Bank Turkey Director Andrew Vorkink, foreign investors are aware of the economic and political stability in the country. Turkey's receiving a date for the beginning of accession talks with the EU has also contributed to the stability, added Vorkink. He remarked that the Second Investment Advisory Council Meeting in Istanbul on April 29th was positively affected by the EU's decision to begin accession talks later this year. ''Foreign investors look at Turkey as a European country,'' said Vorkink, even if the new pope does not. 
Vorkink indicated that Turkish Premier Recep Tayyip Erdogan took notes on the criticism and advice of foreign high level managers and assured all parties that his government would act based on these comments. The CEOs of foreign companies wish for tax reforms, transparency in local companies, reforms in administrations, reforms in bankruptcy law and further privatisations, including the privatisations of Tupras, Erdemir and Turk Telekom. 
Vorkink said that Turkey is ranked number Five in the world in terms of quickness in establishing new business. ''Apparently, direct capital investment in Turkey is slow at the moment. Yet Poland, who just joined the EU, and candidate countries Romania and Bulgaria also face similar problems in attracting direct foreign capital investment.''

The new Turkish frontier for FDI
Vorkink has remarked recently that foreign investors have more confidence in the Turkish economy than local ones. ''This is rather a very interesting development,'' said Vorkink. 
Vorkink stated that the Istanbul meeting will help in reaching positive goals. ''We will witness a tremendous increase in the amount of foreign investments in Turkey later this year,'' commented Vorkink. He stressed that many multi-national firms in Turkey follow Turkish economy and politics closely. ''These multi-national firms also follow international developments closely.'' 

Election of Kemal Dervis to the UNDP chairmanship
Meanwhile, Vorkink remarked that the election of the former economics maestro of Turkey in the previous government, Kemal Dervis, Turkish Republican People's Party (CHP) deputy from Istanbul, to the Chairmanship of the United Nations Development Programme (UNDP) is an excellent decision. 
''Dervis's election is a sign that Turkey is one of the leading countries globally,'' he stressed.

Israel-Turkey hotline set up
Israel and Turkey are to set up a hot line for instant communications, Israeli Prime Minister Ariel Sharon said during a visit by Turkish Prime Minister Recep Tayyip Erdogan. Erdogan is to visit the Al Aqsa Mosque in the Old City of Jerusalem, Islam's third-holiest site, built on the ruins of the biblical Jewish Temples. The site, claimed by both Israel and the Palestinians, is one of the most potentially explosive issues in the region.
In a gesture ahead of Erdogan's trip, Turkey gave the Palestinian Authority the title deeds of lands and property in the West Bank and Gaza it had acquired during the nearly 400-year rule of the Ottoman Empire, the Turkish daily Milliyet reported.
Turkey hopes the 140,000 pages of deeds, covering the years 1500 to 1914, will help Palestinians defend their rights in local and international courts, the paper said.
Milliyet also reported that Turkey has sent 25,000 police uniforms to the Palestinian security forces.
Israel and Turkey, an overwhelmingly Muslim state, have long had strong military ties and important trade links. But relations grew strained last year when Erdogan, whose party has its roots in Turkey's Islamic movement, strongly criticised Israel's treatment of the Palestinians.
The hot line between the prime ministers' offices is to boost joint anti-terror efforts and other co-ordination.
"We learned from experience that even when you have close intelligence contacts there is great significance to contacts between leaders and between countries at the highest level," Sharon said, noting that Israel already has such hot lines with the US, Britain, the European Union and Russia.
Turkey is one of Israel's few friends in the Muslim world and the two have close economic and military ties. Bilateral trade between the countries was estimated at US$1.2bn (£630m) in 2002, and Turkey has bought three billion dollars (£1.6bn) worth of Israeli weapons since 1996. Turkey is also a top foreign vacation destination, visited by some 300,000 Israelis a year.

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ECONOMY

Exports and national wealth bloom as inflation withers

Several years of fiscal discipline, backed by a US$19bn International Monetary Fund standby agreement, which ended in February 2005, have paid off. Turkey's economy, plunged into a deep recession in the aftermath of the February 2001 financial crisis, has now recorded 3 years of strong growth. In 2004, gross domestic product rose by a spectacular 9.9%.
"The Turkish economy grew fastest among the Organisation for Economic Cooperation and Development countries and fastest in the world according to preliminary data for 2004," Abdullatif Sener, the deputy prime minister, announced at the end of March.
The good news is compounded by a steady decline in inflation, which has plagued Turkey for decades. Annual consumer inflation was 7.94% at the end of March, down from 65.1% 3 years earlier and 11.83% in 2004.
In light of improving indicators, Ali Babacan, the economy minister, recently said Turkey would probably meet the Maastricht criteria for Euro membership in the next few years. For the time being, the government is maintaining its 5% year-end growth target, but there are already signs that gross national product increase this year will overshoot this goal.
The sharp increase is fuelled by a steady rise of exports, which reached US$62.7bn in 2004. In view of a 26% increase recorded between January 1st and March 15th, Kursad Tuzmen, the state minister in charge of foreign trade, says he expects export revenues could reach US$75bn at the end of this year, up from a US$71bn target. The automotive sector alone accounts for 19% of total exports.
Exports and tourism revenues are much needed to narrow the widening current account deficit, which reached US$15.1bn last year, or about 5% of GNP. More than 17m tourists visited Turkey last year, bringing net revenues of US$13.36bn, a 20.5% increase from the previous year. For 2005, the government has set an ambitious target of 20m visitors and US$20bn in revenues.
Many analysts see the current account deficit as the main cloud hanging over Turkey's economy, and the World Bank has issued warnings. "There is some risk as long as there is a perception that the current account deficit is too big," explains Asaf Savas Akat, economics professor at Istanbul's Bilgi University. He said, however, that the deficit can easily be financed in the current environment.
Translating growth into new jobs is one of the major challenges the Turkish government faces. So far, growth has not had a significant impact on the unemployment rate, which remains above 10% and particularly affects young people.
Sener, the deputy prime minister, recently announced that the private sector created 896,000 jobs last year, but 252,000 were lost in the public sector and many more are needed.
Foreign direct investments, which are currently modest but on the rise, could help boost employment.
Reining in the informal economy and broadening the tax base are also tasks the government will have to address. To compensate for low tax revenues, the government is currently relying on excise taxes that are hindering the development of some sectors of the economy.
Privatisation, which has suffered many setbacks over the years, appears to be gaining momentum. During the first quarter of 2005, US$585m entered the government's coffers through privatisations.
The bidding process for a 55% stake in Turk Telekom, which is attracting the attention of foreign players, will end on May 31st, and a public offering has been launched for the petrochemical company Petkim. A tender for a 51% block sale of the oil refiner Tupras is expected to be opened this year.
The IMF is still perceived as a factor of confidence and a guarantee of strong fiscal discipline, which Turkey needs to decrease its heavy debt burden.
After much delay, the Turkish government has signalled it is ready to finalise a new US$10bn agreement, which was announced in December 2004.

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FOREIGN COOPERATION

Turkey, Israel sign industrial research, development cooperation agreement

Turkey and Israel signed a cooperation agreement on industrial research and development during Turkish Premier Recep Tayyip Erdogan's tour of Israel, Anatolia News Agency reported.
Turkish Industry and Trade Minister, Ali Coskun, and Israeli Deputy Premier, Ehud Olmert, signed the agreement on 1st May. 
Coskun told reporters: "This agreement is very important in terms of consolidation of economic cooperation between our two countries. Bilateral relations have been further strengthened with the agreement."
Meanwhile, Olmert said that the agreement is a step for development of relations between Turkey and Israel, adding that it is also important for peace process.
The agreement envisages encouragement of cooperation in industrial research and development between two countries. The cooperation will be on the areas of informatics, laser and optic, mecatronic, food, agricultural products and agricultural genetic, renewable energy, nanotechnology, aerodynamic and space technologies, biotechnology and irrigation technology.
Meanwhile, during his tour of Israel, Premier Erdogan held meetings with Israeli Deputy Prime Ministers Ehud Olmert and Shimon Peres as well as main opposition party Shinuy leader Tommy Yosef Lapid.

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FOREIGN ECONOMIC COOPERATION

Syrian minister wants closer economic cooperation with Turkey

Syrian Minister of Economy and Trade, Amir Husni Lutfi, said that the number of Turkish investors active in Syria increased and there were many opportunities for Turkish businessmen to invest in Syria, Anatolia News Agency reported.
Addressing the Turkish-Arab Economy Forum, Aksu said that Syria wanted to take part in international platforms and speeded up economic reforms to this end.
Referring to the bilateral trade between Turkey and Syria, Lutfi said that the aim was to make Turkey enter the Arab market and to make Arabs enter the Turkish market.
"We wish Turkey to join the EU," said the Syrian Minister and stressed that this would be in the interests of Turks and Arabs. He also underlined the need for cooperation between Turkey and Syria.

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FOREIGN INVESTMENT

Turkey takes steps to lure foreign investors

Since 2002, Turkey has taken several important measures to improve its investment environment. A new law on foreign direct investment, adopted in June 2003, enshrined the principle of equal treatment for domestic and foreign investors.
Yet, given Turkey's huge potential for growth and the size of its internal market, it still attracts disappointingly low inflows of FDI.
On average, Turkey has received only US$1bn a year since 1990, although performance was better in 2004 with US$2.6bn.
The World Bank's country director for Turkey, Andrew Vorkink, recently said foreign direct investment should reach 5% of gross national product in a country like Turkey.
Turkey's newfound political stability and the prospect of European Union accession should change this situation.
"The opening of EU membership negotiations may be the main point in finally bringing Turkey into its own in terms of foreign direct investment," Saban Erdikler, chairman of the YASED foreign investors association, told a press conference on April 8th.
A survey of YASED members conducted in March found that they were positive about the economic environment, but they listed an insufficient legal framework, bureaucratic red tape and high taxes as the most important obstacles to foreign investment.
After its first meeting in March 2004, the council recommended several steps to increase Turkey's attractiveness, including streamlining procedures at the sectoral level, improving dispute-resolution mechanisms, developing a corporate-tax regime, improving the efficiency of import procedures and protecting intellectual rights.
But much remains to be done. High taxes and energy costs are still affecting Turkey's competitiveness, say advisers.
Although the government appears determined to attract foreign players, legal setbacks send an ambivalent message. The Turkish president, Ahmet Necdet Sezer, has recently vetoed legislation allowing foreign investors to buy into the media sector.
The year 2005 could be a turning point for Turkey. Now that the country has achieved the economic and political stability that are the main prerequisites for FDI inflow, foreigners are showing interest in several sectors, such as banking, media, telecommunications and energy.
TeliaSonera, the largest Nordic telephone company, recently announced it wanted to buy 27% of mobile operator Turkcell for US$3.1bn.
Several foreign groups are taking part in the bidding process for Turk Telekom, which ends on May 31st, and the oil refiner Tupras is expected to attract foreign players.
"We believe Turkey could get US$5bn this year, of which US$1.5bn would be real estate," says Mustafa Alper, secretary general of YASED. "Including privatisation and mergers, FDI could go up to US$8bn to US$10bn."

Rules on property ownership are relaxed for foreigners

Thousands of foreigners, attracted by Turkey's pleasant climate, natural beauty, hospitable population and competitive prices, are buying houses in Turkey.
Between January 2003 and July 2004, foreigners spent some US$1.9bn on real estate, after property laws were revised in 2003 to ease restrictions on non-Turkish owners. In tourist resorts like Kusadasi, Antalya or Bodrum, real-estate agencies have opened up, catering almost exclusively to the needs of foreign buyers.
Citizens of 68 different countries own property in Turkey. Greeks of Turkish origin top the charts with investments concentrated especially in big cities like Istanbul, Bursa and Izmir. Germans follow closely and tend to prefer Antalya, as do the Dutch. Syrians prefer Hatay and Gaziantep province, closer to their border, while Americans favour the Turkish capital, Ankara. Altogether, foreigners spent more than US$1bn on property in 2004.
A recent decision by the Constitutional court to cancel part of the real estate law is currently causing some confusion. "It may have a psychological impact," admits Haluk Sur, president of GYODER, the Association of Real Estate Investment Companies. "It is very important to stress that the decision does not affect private buyers, who tend to buy apartment or villas. The Constitutional court only wants stronger guarantees for people or companies buying over 300 donum," or 30 hectares, about 74 acres. The government is expected to introduce legal amendments to clarify the matter.
Property developers are confident that the real estate boom is only just beginning. Says Mustafa Suzer, owner of Suzer Plaza, which houses the Ritz-Carlton hotel in Istanbul: "We have a big development project in the south, aimed at foreigners as well as locals. We want to build 5,000 to 10,000 houses, with health facilities, education and shops."
Middle and upper middle class Turks, as well as foreigners, are expected to increase their investments in property, thanks to the growing political and economic stability that is making long-term housing loans possible. The Finance Ministry and the Capital Markets Board are working to develop the framework for a mortgage system adapted to Turkey.
"In order for the system to reach the level we expect, the fall in interest rates has to continue and inflation targets must be reached," says Sur.
Long-terms mortgage loans are expected to give a strong boost to the real estate sector. While housing loans reach 53% of gross domestic product in the United States, their level in Turkey is only 1%. Fuelled both by domestic and foreign sales, the real estate sector in Turkey appears to have plenty of potential for growth.

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FOREIGN LOANS

TOBB offers millions in loans to SMEs

Turkish Union of Chambers and Commodities Exchanges (TOBB) Chairman Rifat Hisarciklioglu and Halk Bank general manager Hasan Cebeci signed a protocol outlining a loan programme in Ankara on April 14th, Anadolu news agency reported. According to the protocol, TOBB it will lend 100 million Turkish liras to small- and medium-sized enterprises (SMEs) through Halk Bank. The loans carry a term of one year. According to Hisarciklioglu, this partnership combining TOBB's business expertise and Halk Bank's experience with SMEs would benefit all the parties involved in it. He added, "The credit volume created with returns in one year will reach 170m Turkish liras and the cost to SMEs for this loan will be 12.6% interest." Hisarciklioglu stated that SMEs would now be able to secure loans at rates similar to those of competitor countries. The ceiling amount for each SME is expected to be 50,000 Turkish liras and Hisarciklioglu predicted that 5,000 SMEs will participate.

IMF approves new US$10bn economic development loan for Turkey

The Executive Board of International Monetary Fund (IMF) has approved a three-year stand-by arrangement of US$10bn to support Turkey's economic and financial programme through May 2008, Anatolia News Agency reported.
The IMF released US$837.5m immediately, with a remaining balance to be distributed in eleven equal instalments.
The board also approved a one-year extension of Turkey's repurchase expectations totalling about US$3.80bn arising in 2006.
Following the Executive Board's discussion on Turkey, IMF Managing Director Rodrigo de Rato made a statement, "Turkey's economic performance is at its strongest in a generation. Growth was 8 per cent on average over the last three years, while inflation has fallen to single digits, its lowest level in more than 30 years. Strong policy implementation under the previous Fund-supported programme has given rise to this impressive performance. Together with the EU's decision to open accession negotiations, this signals a sea change in Turkey's economic prospects."
Noting that Turkish authorities' new three-year programme was designed to extend these gains in economic performance and reduce Turkey's remaining vulnerabilities, de Rato said, "the government's commitment to maintain the primary surplus target at 6.5 per cent of GNP will steadily reduce the public debt and help contain the current account deficit. Continued independence of the central bank, together with next year's introduction of full inflation targeting, will help consolidate the reduction in inflation. These macroeconomic policies should facilitate further reductions in interest rates and generate sustained growth."
"Implementation of structural fiscal reform will be central to the success of the new programme. The tax administration reform should be implemented in full to improve compliance and reduce the size of the underground economy. Tax reform needs to focus on raising revenues by simplifying the tax system and eliminating exemptions. Selective tax relief erodes the tax base, undermines compliance and should be avoided. Expenditure reform should gradually reduce the social security deficit, while improving the quality of spending," he said.
De Rato stressed, "Turkish authorities' structural reform agenda should also help sustain growth. Passage of the new Banking Law later this year should strengthen banking supervision, while the SDIF is making progress towards resolving the stock of non-performing assets.
"Success in this year's privatisations and implementation of the recommendations of this year's Investment Advisory Council should help improve the business climate. Labour market flexibility will also need to be improved to ensure that Turkey's recent strong growth performance results in new job creation."
Referring to the issue of the non-complying disbursement, de Rato said, "the Executive Board reviewed a non-complying purchase made by Turkey under its previous Stand-By Arrangement. Revised data indicate that expenditure levels reported to assess the 2002 primary balance for the fourth review were slightly higher than reported to the Board at the time. The Executive Board took note of the improvements brought about in the collection and dissemination of the data in question and concluded that the deviation was minor (0.13 per cent of GNP) and did not alter the assessment of the fiscal situation under the programme. 
"Accordingly, the Executive Board granted Turkey's request for a waiver of the noncomplying purchase."
Meanwhile, IMF said about the new stand-by arrangement, "Turkey has concluded the last Fund-supported programme successfully and the impressive outcome has laid solid foundations for the new programme. 
"These reforms have delivered a decisive break with Turkey's history of high and variable inflation, and low and volatile growth. Output has recovered strongly from the 2001 recession, with annual growth rates averaging 8 per cent over the last three years. Inflation is now well below 10 per cent and government debt has declined to 63.5 per cent of GNP."
"The overriding goals of the new programme are to create conditions for sustained growth that will raise living standards and reduce unemployment; facilitate convergence towards the EU economies; and bring about an orderly exit from Fund support. The programme's macroeconomic framework is centred on achieving high and sustained growth of around 5 per cent each year. In 2005, slower domestic demand and continued export growth are expected to lower the current account deficit to 4.4 per cent of GNP. Inflation is targeted at 8 per cent this year, declining to the low single digits by the end of the programme.
"The programme also envisages a 5 percentage point decline in the overall fiscal deficit that should help reduce the government's net debt ratio by a further 10 per cent of GNP," IMF added.

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MINERALS & METALS

Steelmaker Erdemir signs 200m Euro loan deal

Turkish iron and steel maker Erdemir signed an agreement for a 200m Euro syndicated loan underwritten by the Nippon Export and Investment Insurance in Istanbul on April 13th, Anadolu news agency reported. The money will be used to boost and upgrade capacity and convert works at steel concerns Erdemir and Isdemir. The loan is part of the Overseas Untied Loan Insurance (OULI) programme. Anadolu quoted Recai Berber, chairman of Erdemir Group, as saying that both steelmakers will share the funds equally. Berber said the funds would be used to finance upgrades at Erdemir's hot rolling mill and sheet rolling mill and at Isdemir's steel workshops. He said the sheet rolling mill would be the first such facility in Turkey to manufacture steel for the shipbuilding industry. BNP Paribas, Calyon, Bank of Tokyo-Mitsubishi Ltd, HSBC and Standard Chartered Bank arranged this 10-year loan at an interest rate of Libor plus 0.30%. Michael Piquet, BNP Paribas European director for medium-term export loans, believes the deal is a milestone as far as BNP's financial operations in Turkey are concerned. BNP Paribas recently acquired a 50% stake in Turkish Economy Bank (TEB).

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TOURISM

Turkey launches tourism campaign in US

Turkey launched a tourism promotion campaign in the United States, one of the leading tourism markets in the world, the Turkey's Culture and Promotion Attaché's Office in New York said, Anadolu News Agency reported.
The office said Turkey aims to reach 40m Americans with this campaign and noted that history; culture and nature were highlighted in the promotion campaign, which would continue until the end of October. Meltem Onhon, Turkey's deputy attaché in New York said that the campaign was carried out in New York, Los Angeles, Chicago and Washington. Onhon pointed out that the number of US tourists travelling to Turkey increased this year by 35% in January and February when compared with the same months of 2004. Drawing attention to the positive effects of efficient promotion of Turkey in the United States that were seen in tourism statistics, Onhon said the number of US citizens visiting Turkey increased by 31% in 2004 when compared with 2003, and reached 291,102.

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